Click here to download Canadian ETF database

Note that we include Canadian ETFs from iShares, Claymore and BMO. We don’t include ETFs from Horizons Alpha Pro and Horizons Beta Pro. Why? We don’t include Horizons Alpha Pro yet because of liquidity reason. Most of their ETFs are currently traded with volume of less than 10K daily. We might consider including them in the future though. We don’t include Horizons Beta Pro because we don’t like the idea of leveraged ETFs.

Stay tune for more updates from us.

Links

• 1stmilliondollar.net Investment Project
• ETF Dividend Yield
• Beating the Market with Relative Strength Investing

With the current market pullback recently, some people have got a “margin call”. They have to, either add more money or liquidate their investment (meaning sell in low price).

For those who don’t know, “margin” basically means borrow money from your broker to invest. On the one hand, using a margin can accelerate our return. On the other hand, there is a greater risk when we have market pullback, just what we had recently.

Let’s take an example: suppose that we invest $10,000. Using a 2:1 margin ratio, we can invest up to $20,000. Let’s assume that we invest the whole $20,000.

Scenario 1: Our investment goes up by 50%. Our balance is now $30,000. It means we have a profit of $10,000; so our return of investment is 100%. Remember that our original principal is $10,000.

Scenario 2: Our investment goes down by 50%. Our balance is now $10,000. Since we still “owe” our broker $10,000. we lost all of our principal money. In other words, our return is –100%.

Usually, you won’t be able to lost all of your principal when investing using a margin. Your broker usually will do “margin call” if your margin ratio dropped below a certain level. For example, if your broker allows up to 3:1 margin ratio, once your principal is less than 33% of your total investment; they will call you.

Getting a margin call is always not a good experience. Sometimes, we have to sell our investment in a very low price.

(Picture is from stock.xchng.)

Our first project is a simple ETF screener. We gathered a list of all ETFs traded in the US stock exchange. Thanks to MasterDATA who has provided a free CSV file containing the complete list. Then we use data from Yahoo Finance! to generate various customized screeners. One of them is generating ETF dividend yield.

  Click here to download table of ETF dividend yield (in CSV format)

Here is the 15 ETFs that pay highest dividend as of today.

Links

• Highest Paying Dividend ETFs in Canada
• Highest Paying Dividend ETFs in NYSE

Finally, we are able to setup our Covestor account. Our URL at Covestor is:

http://www.covestor.com/mbr/1stmilliondollar

For those who don’t know, Covestor is a portfolio sharing service where tens of thousands of self directed investors share their real trades. You can also follow them live for free. If you find a successful investor, you can even replicate their trade activities on your account.

As you can see in the picture above, our return month-to-date is 13%. Our return since inception is 15.46%. The inception is actually February 2010 when we opened our account and imported our transactions from our broker. Unfortunately, there was a technical difficulty with our account; so it wasn’t ready until last week.

Are you familiar with leveraged ETF? For those who don’t know, here is the description from Investopedia.com:

An exchange-traded fund (ETF) that utilizes financial derivatives and debt to amplify the returns of an underlying index.

These ETFs are usually double (2x) or triple (3x) the underlying index. For example:

• SSO is a double (2x) leverage ETF of S&P 500 from ProShares. It means, when S&P 500 goes up 1% on a single day; this ETF goes up 2% in price. On the other hand, when S&P drops 2%, this ETF drops 4%.
• EDC is triple (3x) leverage ETF of MSCI Emerging Markets Index from Direxion. It means when the index goes up 1%, this ETF goes up 3% in price. The same is true for the downside.

Is this an easy to way to get rich quickly? When these ETFs were pretty new in the market a couple of years ago, we think it is. We were dreaming that we could easily beat the index by investing in these ETFs. We didn’t do more research at that time. We invested *a lot* of money in a couple of leveraged ETFs. What happened then? We were totally doomed, especially during the recession.

These ETFs amplify the underlying index only on a single day. It doesn’t accumulate for longer period of time. Let’s take an example:

• Day 0: S&P 500 is at 1,000. Our triple leveraged ETF for S&P 500 is at $100.
• Day 1: S&P 500 goes down by 10% to 900. Our ETF drops 30% to $70.
• Day 2: S&P 500 goes up by 12% to 1008. Our ETF goes up by 36% to $95.2.

As you can see, after the second day, S&P 500 is higher than day 0; but our ETF is still below day 0.

The chart below the comparison of SSO and S&P 500 from June 2006 to today. As you can see here, the return of S&P 500 in this period is –11.66%. However, the return of SSE is –46.93%.

Be really careful when investing in leveraged ETFs. We don’t invest in any of leveraged ETFs today.

We just read a news from The Globe And Mail about performance of Canadian equity funds. Many actively managed mutual funds in Canada cannot beat the index, i.e. S&P/TSX composite index. Here is the result:

• Year 2009: 39.2% of actively managed funds beat the index
• Over 3 years: 12.5% of actively managed funds beat the index
• Over 5 years: 7.7% of actively managed funds beat the index

That’s why; we recommend to invest in the index. As you can also see from our portfolio, most of our money is currently parked in the index as well. Only small amount of money that is used for speculation, including stock picking and timing the market. That’s why; we still have stock picks and participate in the Canadian blogger’s stock picks contest.

• Aberdeen Asia-Pacific Income Fund, Inc. (NYSE:FAX)
• Annaly Capital Management, Inc. (NYSE:NLY)
• Western Asset Global Partners Income Fund Inc (NYSE:GDF)
• Alpine Total Dynamic Dividend Fund (NYSE:AOD)
• WisdomTree International Dividend Top 100 Fund (NYSE:DOO)
• Enerplus Resources Fund (NYSE:ERF)
• Enterprise Products Partner L.P. (NYSE:EPD)

All of these stocks/funds pay very high dividend, from as low as 6% to as high as 17%. Why high-paying dividend equities? Many analysts believe that we’ll be in a range-bound market for quite a while; some of them are even expecting double-dip recession. In this kind of situation, we can’t expect much from capital gain. That’s why; high-paying dividend equities are preferable.

Note that the recommendations above are from Mark Skousen. They are not from us although we agree that we need high-paying dividend equities in the current market. As always, we recommend you to consult your financial advisors before making any investment decision.

Links

• Stocks with more than 10% Dividend Yield

If you’ve been reading a couple of our last postings; you might be wondering: are we stock picker? We’ve been talking about stock picks, see here, here and here. In fact, we have never talked about ETF or mutual funds.

The answer to this question is: yes and no. We have a diversified portfolio; a large amount of them are invested, surprisingly, in ETFs and index mutual funds. We allocated only about 10% are invested in individual stocks. We’ll discuss more about our assets allocation in future posting.

Why don’t we just invest in index funds and do nothing? Isn’t investing in individual stocks very risky? There are a couple of reasons. One reason is because we want to find ten-bagger. We don’t normally find ten-bagger in index funds, do we? Another reason is because we want to improve our investment skills. We’re still beginner in the investment world; there are a lot of things we need to learn. That’s why; we don’t want to risk too much capital in individual stocks (for now).

(Picture is from stock.xchng.)

Suppose that we have $10,000. We’ll compare two investment cases.

Case 1:

• Invest $10,000 in an investment vehicle with an average return of 5% annually.
• After 10 years, our money will grow to $16,288.

Case 2:

• Divide $10,000 into 4 and invest them in 4 different investment vehicles with the following returns:

• The first $2,500 is invested in a company that went bankrupt, so we lost everything.
• The second and third $2,500 are invested in companies that did “so-so”.
• The last $2,500 hit a “home-run”. The company did very well with the annual return of 20%.
• After 10 years, our money will grow to $22,051.

As we can see, if we’re willing to take more risks, we’ll get higher return. Even if we lost everything in one of our vehicles, as long as we hit home-run in another vehicle, we should be more than fine.

The big question is, of course, how to hit the “home-run”….