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Discussion Starter #1 (Edited)
VBAL has become very popular, since it's a low fee balanced fund, but I'm curious why nobody talks about BMO's ZMI.

ZMI is also a self contained balanced fund which has been around much longer, since 2011. It also has geographic diversification, but the notable difference is that it pays a large distribution with 4.3% yield. The total return performance is identical since VBAL was introduced. See attached image to see how closely they track each other.

ZMI is basically like owning VBAL, but also pays large distributions. To me it seems like it could be very useful to a retiree who wants automatic, regular distributions if the intention is to live off capital and get cashflow. In fact one could hold VBAL until ready to start withdrawing, then swap it for ZMI to "turn on the faucet" so to speak.

ZMI has 0.61% MER instead of 0.25% for VBAL, but perhaps the extra 0.36% fee is worth it for cash distribution convenience.

Remember that some people see the value in the diversified VBAL but can't bring themselves to sell shares, which they see as depleting capital.

What do you think? I would think that an income-focused investor is better off in ZMI (which is diversified and similar to VBAL) than trying to do things like picking individual dividend stocks and being too heavy in equities, loading up on bank stocks, or going into exotic fixed income.

In other words, it could let income focused investors get a properly diversified portfolio with zero effort, plus significant cash distributions -- surely there is value in that?

Chart shows ZMI in purple and VBAL in black. The total returns are the same since VBAL's inception.

ZMI-vs-VBAL.png
 

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^^ I think you partly answered your own question with
VBAL has become very popular, since it's a low fee balanced fund, but I'm curious why nobody talks about BMO's ZMI.
and my answer is because the herd likes to follow the popular stuffs.
 

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There are some similarities, generally in terms of having 60% equity exposure, but there are a few notable differences too. ZMI's portfolio relies more on covered call and dividend investing strategies. It seems more concentrated and at the same time more complex than VBAL. ZMI contains 50% Canadian investments.

ZMI is a good ETF for the income oriented investor. But the advantage of VBAL (and similar ETFs) seems to be its low fees, simplicity, and broad diversification.
 

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James, Have you looked at the taxes on ZMI? Seems to me those Canadian all-in-one etfs are convenient, but there are downsides.

For 2018 taxes see here: https://api.kurtosys.io/tools/ksys317/api/download/csv/distributionHistoryTax/1002156871?fileName=ZMI_Distribution_History_Tax.csv&locale=en-CA

There is a fair amount of ROC in the distribution along with foreign income. Only small amount of eligible dividends. I have read that premium bonds held in ETFs can also be a tax drag in a taxable account (can't use capital losses)

In my own case, everything in my taxable accounts pays dividends. And, having held all long term, have high capital gains. So best to hold and only trim when time is right. I did buy one ETF in taxable account after tax-loss sale. It is VDV. Almost all dividends.

In Registered account, what drag would ZMI have because of withholding/MER? WT would be lost. James Bender has a spreadsheet that covers drag on this type of fund, but doesn't include ZMI - Maybe because it has high MER?

I am considering replacing individual stocks in my RRIF with an ETF, but it will likely be a Canadian only one. Maybe a balanced fund. however, an all in one like ZMI (or others) might work, if the drag is not significant. It would supplement the individual bonds/gics and replace about 8 stocks that currently yield 4.9%. My foreign content is in 5 ADRs. I will keep those for now.

This is an interesting article on all-in-one vs individual etfs, https://www.michaeljamesonmoney.com/2019/07/canadian-etfs-vs-us-etfs.html
 

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The last Annual Management Report of Fund Performance https://www.bmo.com/assets/pdfs/gam/etf/a-mrfp/en/A_MRFP_ZMI_E.pdf provides a breakdown of the financial highlights for year ending 2018. A lot of moving parts with very high portfolio turnover.

This ETF, correctly named as an income fund, is likely only appropriate for retirees withdrawing from their portfolio and most likely best placed in registered accounts with its premium bond content and high yield. It competes with all the other income funds out there. Certainly has not received much in the way of asset growth since inception in 2011 and can't imagine this being very important in the BMO stable of ETFs with ~$110M in AUM.
 

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Discussion Starter #7
Thanks, lots of good points raised above. I would agree that between the two, VBAL is the superior "pure balanced fund" with simpler index holdings, lower fee too obviously. No question that ZMI has more complex holdings including more moving parts. It's not what I'd point someone to if they asked me for a good, simple balanced fund.

Taxes - good question, and I don't know how this would work.

However... if we're talking about income focused investors, and there are tons of people like this, then I would think that ZMI would be better than many other alternatives they have. People who demand income solutions currently either invest in high MER mutual funds, or piece together their own dividend portfolios and high yielding fixed income, which is extremely hard to do correctly.

Wouldn't ZMI be better than most other "income investments" people tend to use? And it does have diversification. And matches VBAL performance.

What I can't really understand is why ZMI has such little AUM (only $110 million) whereas there are billions of dollars invested in tons of 'monthly income' mutual funds at much higher MERs. ZMI slashes the costs versus a mutual fund. And as shown in the chart, it is performing exactly on par with VBAL.
 

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Maybe because it is difficult to understand the large suite of ~16 underlying ETF holdings and a number of fancy names and words like 'covered calls', puts, hedged, etc. Clearly, BMO is writing puts and covered calls to generate additional income to offset the fat MER, but still my eyes glaze over......

In the link I provided, BMO has raised the number of Independent Review Committee members from 4 to 6 in the last half of 2018. Why is it necessary to have an IRC of 6?
 

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Wouldn't ZMI be better than most other "income investments" people tend to use?
I think it is. Under those circumstances, there a multitude of ways to mess up the portfolio and do worse. ZMI would be better.

If I were to decide for their investments under those conditions, I would prefer to put them in a well-diversified, low cost balanced mutual fund. I would turn on the re-investment of dividends option. Then I would arrange for scheduled withdrawals in dollar amounts (not number of units) at every interval. Every 2 or 3 years, I would review and adjust for inflation. It would look like an income fund, but with better fundamentals to support that income.

Having a solid portfolio is the very first step in achieving financial success. I would even be willing to do the above gambit using MAW 104, 105, or 130, since those have good portfolios.
 

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Discussion Starter #10
AltaRed - yes, and I'm not thrilled about all the option strategies, but it's a legitimate way to generate income (really a sleight of hand to sell the securities without calling it liquidation)

Topo, I have a relative in mind here. I would like to recommend she buy MAW104 or another solid balanced fund and regularly sell off units. It's what my parents do... they are fine with it. This is a great course of action, but many people can't bring themselves to sell units.
 

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...but many people can't bring themselves to sell units.
Yes, it is difficult to change one's mindset for accumulating to withdrawal. That is why I suggest doing dividend re-investment (to mix the income with the principal) and then to sell dollar amounts (which looks like taking income rather than selling shares). This approach looks like income investing, but with good fundamentals.
 

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Discussion Starter #12 (Edited)
Yes, it is difficult to change one's mindset for accumulating to withdrawal. That is why I suggest doing dividend re-investment (to mix the income with the principal) and then to sell dollar amounts (which looks like taking income rather than selling shares). This approach looks like income investing, but with good fundamentals.
I didn't understand this at first but I think I understand now. This is a nice idea.

Let's see if I have it right. You start with the solid balanced fund (e.g. MAW104) and make sure you reinvest all distributions. I have recommended BMO Monthly Income D series to friends as well, not because of 'monthly income' but because it's a competently run low MER balanced fund with a long history: 6.5% CAGR since 1999 ... about as good as it gets.

Reinvestment has eliminated the red herring of the income/distributions. Next, you enable a routine $ withdrawal. In fact, make it a nice integer multiple of perhaps $500 for elegance.

My aunt would be impressed by the resulting "income cashflow".

Do I have it right? Yes I think this provides the nice (psychological) effect of an income stream, while retaining the well diversified portfolio underneath.

This is also a very straightforward, easy to follow instruction that can be given to an attorney or other party administering a trust account. No room for attorneys doing stupid things: buy this exact, single fund. A couple similar backup fund names if the first ceases to exist. Reinvest distributions. Withdraw $X every month to the beneficiary's account. Very possible to leave instructions like this in a will, right?
 

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I didn't understand this at first but I think I understand now. This is a nice idea.

Let's see if I have it right. You start with the solid balanced fund (e.g. MAW104) and make sure you reinvest all distributions. I have recommended BMO Monthly Income D series to friends as well, not because of 'monthly income' but because it's a competently run low MER balanced fund with a long history: 6.5% CAGR since 1999 ... about as good as it gets.

Reinvestment has eliminated the red herring of the income/distributions. Next, you enable a routine $ withdrawal. In fact, make it a nice integer multiple of perhaps $500 for elegance.

My aunt would be impressed by the resulting "income cashflow".

Do I have it right? Yes I think this provides the nice (psychological) effect of an income stream, while retaining the well diversified portfolio underneath.

This is also a very straightforward, easy to follow instruction that can be given to an attorney or other party administering a trust account. No room for attorneys doing stupid things: buy this exact, single fund. A couple similar backup fund names if the first ceases to exist. Reinvest distributions. Withdraw $X every month to the beneficiary's account. Very possible to leave instructions like this in a will, right?
Yes, this is exactly what I am alluding to.

Admittedly, there is a bit of financial engineering here, but it is better than what some of those "income" ETFs do.
 

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This is also a very straightforward, easy to follow instruction that can be given to an attorney or other party administering a trust account. No room for attorneys doing stupid things: buy this exact, single fund. A couple similar backup fund names if the first ceases to exist. Reinvest distributions. Withdraw $X every month to the beneficiary's account. Very possible to leave instructions like this in a will, right?
I think you primarily mean Guidance for a Power of Attorney? Not necessarily a Will where an Executor crystallizes an estate and distributes the proceeds, albeit it could be guidance for a Trustee operating a testamentary trust for beneficiaries that are minor children.

Your Attorney has an obligation to do what is your best interests (or in the case of a testamentary trust for minors) and as such, you cannot restrict the Attorney from taking the necessary actions to meet appropriate living standards. That "Guidance" should be in the form of an IPS for your attorney/trustee.

FWIW, in my 'Guidance for POA', I include a section on investment management where I suggest a few ways to manage my investments, i.e. an IPS so to speak, to provide me with income for the rest of my living days. Whether they follow it or not is within their authority. I suspect they would hand it over to a % of AUM advisor, or annuitize at least a portion.

Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days. The rest (if anything left) would be in a balanced fund for those 'extra' purchases that might be needed to support 'one off' costs. As his POA, I have an obligation to cover, on at least a 99% basis, his needs regardless of the monte carlo outcomes of the marketplace. The exception would be catastrophic world events where the insurers and even Assuris collapses.
 

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Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days. The rest (if anything left) would be in a balanced fund for those 'extra' purchases that might be needed to support 'one off' costs. As his POA, I have an obligation to cover, on at least a 99% basis, his needs regardless of the monte carlo outcomes of the marketplace. The exception would be catastrophic world events where the insurers and even Assuris collapses.
OK, that's it, you're completely out of my will.

ltr
 

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OK, that's it, you're completely out of my will.

ltr
Hahahahaha!!!!

Added much later: IIRC, you have a pretty sizeable account and have a pretty conservative asset allocation (lots in your 5 year FI ladder). Probably more than enough just in your FI alone for a POA to annuitize for base living expenses. Remember the annuity replaces an equivalent FI component, meaning the rest of your portfolio can carry a much higher equity allocation. Which is what I effectively do by having DB pension payments.
 

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Discussion Starter #17 (Edited)
I think you primarily mean Guidance for a Power of Attorney? Not necessarily a Will where an Executor crystallizes an estate and distributes the proceeds, albeit it could be guidance for a Trustee operating a testamentary trust for beneficiaries that are minor children.
Honestly, I have no idea how these things work and I don't have a will. Perhaps what I was thinking of is more like guidance for a trustee for beneficiaries.

The reason I'm thinking about all of this is that I am likely to be the executor of one or two estates. I believe there is a desire by the owners (still alive thankfully) to provide financial assistance to a couple family members who are quite poor. They currently do this by occasionally giving them cheques. I believe they will want to provide those family members with ongoing income for the rest of their lives. These are older people who don't have the skill set to DIY or anything close to it, absolutely not a couch potato situation.

What those beneficiaries will need is some kind of arrangement to receive income in regular amounts, deposited to their chequing accounts, so they can live off it. We're talking here about providing supplementary cashflow to boost someone who's in borderline poverty (senior who is not well off). Even 1K/month perpetually would make a huge difference in quality of life.

Question related to this -- as I learn about things like annuities, would it be ethical for me to share the ideas with the owners of the estates? I don't want to tell them what to do with their money. But they do want to help these aging family members (their siblings) and they don't currently know the mechanism for doing this.

Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days.
This seems very prudent, teasing or not. I presume you mean an actual annuity with an insurer.
 

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In this specific case as an Executor, you will have to do what the Wills say. If there are no provisions in the Will for a testamentary trust for the 'poor' family members, you cannot make one. If there are provisions in the Wills for such a trust, it will include some direction on what the trust is supposed to do and for how long.

Those directions may be as specific as a minimum term annuity, or may be vague enough to permit use of conservative investments like bonds (which can also be a bond ETF) or a balanced fund of sorts for a defined period of time (probably cannot be the rest of those peoples' lives because of potentially insufficient funds. That trust can be run by a trustee including a trust company either directly as stated in the Wills, or as Agent of the Executor if the Executor is defined as the trustee, but wants to farm out that possibility.

I think the only thing you can do is wait until you are specifically asked if you would be willing to be the Executor of either/both of the Wills. Only then would I, in the same conversation before agreeing, ask if there will be any provisions in the Wills for trusts for certain beneficiaries and whether they will have their lawyer include some guidance for trust provisions, i.e. intentions. I don't think you can take it any further than that, nor do you want provisions to be too prescriptive. No one knows how the world will unfold between now and when the time comes. The poor members could die in the meantime, could win the lottery, etc, etc.

As to your last sentence, yes, an annuity from an insurer. Obviously what an Attorney would actually do depends on how the portfolio is structured and risked, how large the portfolio is relative to living needs, age of the person, etc. Annuitizing some portion of the portfolio would likely be prudent.

Added: If the person has an IPS, its contents would also be a factor. It comes down to good judgement on behalf of the person the Attorney is responsible for.
 

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Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days. The rest (if anything left) would be in a balanced fund for those 'extra' purchases that might be needed to support 'one off' costs. As his POA, I have an obligation to cover, on at least a 99% basis, his needs regardless of the monte carlo outcomes of the marketplace. The exception would be catastrophic world events where the insurers and even Assuris collapses.


what an irresponsible idea. An attorney also has an obligation to respect the wishes of the person who is under his care. Said person presumablly planned his final years wisely, has a last will & testament, has heirs.

the heirs are important here, at least they were & are important to the person who is now living under a POA. IMHO the wishes of the living patriarch & the existence of the heirs impose a burden upon any attorney, such that far from radically & impulsively destroying a well-thought-out existing portfolio, the attorney must instead proceed carefully "in the place and stead" of the living person.

a small portf would perhaps have to be annuitized. But not a larger portf. Not LTR's portf.

often, one of the heirs, an offspring usully, is also the attorney. Often, also, an attorney is an executor of the future estate. In such cases there is a natural check & balance upon the odd chance that an isolated attorney with an annuity obsession will run amok.

.
 

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Discussion Starter #20 (Edited)
I find myself in an interesting situation as the "family banker" which is another reason I'm thinking about all of this. Here's the situation:

We have a close knit family and a range of people at different levels of wealth. I'm good with record keeping and money. A couple family members (who aren't so great at all this) have some sums of money "on deposit" with me, which I record as liabilities on my personal balance sheet. The "deposits" they've given me of course get rolled into my overall money management, asset allocation, etc.

I am increasingly finding myself in the position of turning lump sums of money into regular payouts. This is all informally done, which I don't particularly like. Good example: my aunt comes to me and says "I've got this 100K in USD but I don't know how to convert currencies. Can you convert it and pay it out to my sister in multiple payments?"

So then I go and do the gambits, which you've undoubtedly seen the traces of on this board, and help pay it out later.

No problem and I like helping, except I am worried about things like having a common law partner / spouse (who could say the family money is hers?). My other big fear is personal liability, such as I am sued, and the family's money gets paid out as it's seen as part of my net worth.

I am searching for ways to clean up these kinds of informal arrangements. These family members, especially the aunts, are all very casual. They don't do well with paperwork and they don't manage money well. They do have some money, and if it's redirected to the right places (their sisters) in annuitized form -- NOT lump sum form -- it can do a lot of good. Their current approach of giving me 100K and letting me deal with the conversions is extremely easy for them.

They are not able to do the lump sum --> regular payment conversion themselves. They know the money should be invested but all of this is just too complex. I think something automatic is required here. Which is why I kind of like ZMI.

The question is, how can I clean up that situation and remove myself from the position as banker/insurer? What kind of structure or arrangement can make that happen? I would like to help set up the structures they need, and I'm happy to do the work of transactions, but don't want to mix their money into my own net worth.
 
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