BTSX Delivers The Luxury Of Time

At the young age of 43, my wife and I were able to leave the full-time workforce. We were fortunate to have achieved this by establishing a financial plan in our early 20s and then selecting investment strategies that could get us to our goals as quickly as possible. My first article for CMS, in the March/April 2009 issue titled “Retirement In Your 40s,” highlighted the importance of having a plan to achieve your financial goals. In this article, I will share a key investment strategy that significantly contributed to our success.

In a recent CMS article, David Stanley published his annual summary of the BTSX (Beating the TSX) portfolio. The article reviewed the results over the last year and supplied a new list of stock choices for the upcoming year. As well, the article shared the spectacular result of 12.47% average yearly total return, over the last twenty eight years. That is an incredible return by itself, but when you consider that it was obtained with a very simple methodology, the result is even more impressive. Furthermore, the BTSX is meeting its goal by outperforming the index’s return of 9.89 % during the same period.

If you were getting this type of annual return on your investments, it is certainly possible that you might move your financial independence day to a much earlier point in your life. That would be a fabulous outcome for anyone. With the help of BTSX, my wife and I were able to meet our early retirement goal. During the last seven years, since we left the work force, the BTSX strategy has continued to fund an enjoyable retirement.

Here is a very brief explanation of this strategy. BTSX involves ranking the stocks in the TSX 60 from highest to lowest dividend yields and then investing equally in the top ten. There are some former income trust stocks that are excluded, so make sure you are familiar with all the details of the process. The ranking process is completed annually to generate an updated list and changes to the stock holdings are then made. For a deeper understanding of the BTSX, I encourage you to review CMS back issues or look up “BTSX David Stanley” on Google.

I first read about this strategy eighteen years ago. In a recent discussion with David, we came to the conclusion that I may have read some of his first published articles on the topic. So, what did I do with this newfound knowl- edge of an easy to apply investment strategy? Nothing!

Yes, that’s right. I just thought, “That looks interesting, but how could something so simple provide good results?” I was not yet convinced. I just continued investing as I had, picking a stock here and a stock there. I didn’t know when to buy or when to sell, and then what to replace the sold stock with. As well, I really didn’t know what my overall return was. I was just bumbling along. I repeated that pattern for five more years. Although my portfolio was growing, I knew additional growth could get us to our goal faster. Finally, after seeing David’s results in many more articles, I decided to actually take some action.

I initially invested $2,500 into each of the ten stocks on the BTSX list. As time went on, I added more money to the strategy as I grew more comfortable with the process and the results. I follow almost the same process as David, but I have a couple of minor variations. I track my stocks from January to December, which creates a slightly different list, since I am sorting the stocks at a different time of the year. I also exclude Husky Energy (HSE) since it isn’t a steady dividend-paying company. Although there are these slight variations, David and I  have similar results. My result is 12.2% average yearly total return, over the last thirteen years. It is very difficult to find professionally managed mutual funds with long term averages that match these returns.

Having gained confidence with these results, I now have 52% of my portfolio in these ten BTSX stocks. In total, I now have 80% of my portfolio in beating the index strategies such as BTSX and Dogs of the Dow, or specific Index ETFs (Index Exchange Trade Funds) such as XIU, DIA and SPY.

Not only does this provide a great return, but here are other benefits that I picked up as part of the package deal:

1. The MER (Management Expense Ratio) paid on the BTSX portfolio is close to zero. An average MER of a Canadian actively managed mutual fund is in the range of 2 to 2.5%. By managing the portfolio yourself, you avoid this cost and get to keep more in your pocket.
2. The dividend income that is generated is what we use to live on. There is no need to sell capital to provide income. Retirement income management is very simple.
3. The dividends have preferential tax treatment, so we pay very low taxes.
4. Many of the companies are continually raisingtheir dividends. So far, the yearly increases Ihave seen are, on average for the portfolio,equal to or greater than inflation. Thus, yourretirement income has the potential to keepup with inflation, or perhaps even grow faster.
5. Deciding which stocks to sell and what to replace them with is made easy with the annualreview process. 
6. The amount of time I spend annually to manage the BTSX stocks is about eight hours. Yes,that is only eight hours per year, making it very manageable in a busy lifestyle.

With the success of using this strategy, my wife and I have been able to enjoy the one thing we really wanted, the luxury of time. We have escaped from the constraints of the 9 to 5+ career to do whatever we like each day.

So, what do we do with all that time? To start with, we get a lot of joy out of each regular day with: more exercise, more sleep and eating better meals. We travel more at preferred times when the crowds are thinner and the prices are lower. We go to local attractions and do shopping when others are at work.

Over the last year, for my daughters and others that are interested, I documented the investment processes we follow to achieve early financial independence in a book. I would never have had the time to take on such an endeavour if I was busy going to work each day. Each of you will have a different vision of what you would do with additional leisure time and it is this vision that will drive you towards your financial goals.

I hope I have inspired you to take a closer look at the BTSX strategy and determine if it is a good fit for even part of your investment portfolio. Perhaps BTSX can help you achieve your financial goals like it did for us.

Ross Grant is the e-book author of "Destination: Early Financial Independence", available on Amazon and Kobo. You can reach him at RossGrantEFI@gmail.com.