Search found 173 matches

by Rooster
26 Feb 2013 16:48
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

I'm actually the biggest of wusses.

Not only do I need to hide behind a db plan and understanding of duration and present value of my future savings to be all equities in long term portions of my portfolio, I further need reasonable assurance that purchasing power loss is very unlikely long term. :). Without the db, I'd hold at least 25% bonds. If bonds where yielding 5%+, i'd probably them with the bulk of long term savings.
by Rooster
26 Feb 2013 16:23
Forum: Financial Planning and Building Portfolios
Topic: Young Investor Seeking Advice
Replies: 65
Views: 2633

Re: Young Investor Seeking Advice

Realistically, though, how young to you expect to retire? I have different targets for different retirement styles. First target would be in around 10 years. I would have enough assets to passively support my basic living expenses, but not much more. I could, at this point, retire from my current 9-5 job and change career path (more edgy ventures, lesser-paying work or just different work, part-time work, etc.) Second target would be middle-class style retirement, probably in around 20 years as you stated, 30 years max. Life might well dictate which one I end up taking (or none of the above). However, my goal right now is to reach my first target, which should be attainable even with a complete failure of the "risky" portfolio (t...
by Rooster
26 Feb 2013 16:08
Forum: Financial Planning and Building Portfolios
Topic: Young Investor Seeking Advice
Replies: 65
Views: 2633

Re: Young Investor Seeking Advice

I could be out to lunch, but I fail to see why a 24 year old should hold 25% gold, 25% cash and 25% long bonds.

I would not call that safe at all, especially at current gold and bond prices. Further, that high cash allocation creates a drag, which I think is wholly unecessary especially considering your savings rate (which is additional cash). Sounds like the sort of portfolio that looks great only if you take into account recent performances (which are very unlikely to continue going forward).
by Rooster
26 Feb 2013 15:55
Forum: Financial Planning and Building Portfolios
Topic: Young Investor Seeking Advice
Replies: 65
Views: 2633

Re: Young Investor Seeking Advice

Realistically, though, how young to you expect to retire?

You're 24. You should at the very least have 20 years to go.

I'd reconsider not holding any equities with that timeframe. But I guess only you know your risk tolerance.

Btw, you are right. The choice between rrsp and tfsa comes down to whether you expect your marginal tax rate to be higher or lower at time of withdrawl from rrsp than at time of contribution. If higher, go tfsa. If lower, rrsp. You're likely better off maxing both prior to holding in taxable accounts.
by Rooster
26 Feb 2013 13:34
Forum: Financial Planning and Building Portfolios
Topic: International diversification and rebalancing
Replies: 43
Views: 3501

Re: International diversification and rebalancing

So, if one believes in mean reversion in currencies, one should buy unhedged when the cad/usd rate is higher than the mean and hedged below? Ditto for setting allocations to different country's stocks. Should set it on the mean relative weight based on historicals? No because you're missing some variables. One is the simply the chance that you're right. Usually you say you're right at the 95% confidence level which is what the vanilla algos test for. The other is the time it takes for mean reversion to happen. With currencies there is a cost to be hedged so that may not prove profitable if it takes too long. newguy add: there's probably not enough reliable data to judge if many of these things actually are mean reverting. Look how long CAD...
by Rooster
26 Feb 2013 13:28
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

Both common sense and financial theory say that expected returns come from assuming risk. There are endless debates about what constitutes risk, but price volatility isn't a bad proxy for most people. No matter how much wants to or is told to pay no attention to current market value, it's very hard to look away. You might believe you're exempt, but when every newspaper and TV report leads off with financial doom, you'll be hard pressed not to pay attention. Can you withstand volatility? This is a personal decision and it depends mightily on personal circumstances. It's unreasonable to expect the 35 year old with a stable and remunerative career and a $50k portfolio to have the same ability to ignore portfolio fluctuations as the 75 year ol...
by Rooster
26 Feb 2013 13:15
Forum: Financial Planning and Building Portfolios
Topic: International diversification and rebalancing
Replies: 43
Views: 3501

Re: International diversification and rebalancing

Is the mean parity or the cdn dollar at 60 cents or somewhere in between or outside of that. Person A can be buying at parity unhedged on the belief that it will likely revert to means. Ditto for a person buying at 60 cents. How can both be true? The mean is the mean and it can be calculated. When the loonie was 66¢ the mean over the previous x years was say about $1.00. So the person would expect it to revert to that number (if of course currencies are mean reverting). newguy So, if one believes in mean reversion in currencies, one should buy unhedged when the cad/usd rate is higher than the mean and hedged below? Ditto for setting allocations to different country's stocks. Should set it on the mean relative weight based on historicals?
by Rooster
26 Feb 2013 13:06
Forum: Financial Planning and Building Portfolios
Topic: International diversification and rebalancing
Replies: 43
Views: 3501

Re: International diversification and rebalancing

[how do you determine the "mean". Look at relative performance. Compare the returns of various assets. Equivalently, if one asset has done better than other assets in your portfolio, then the value of that asset grows as a percentage of your portfolio. Rebalancing then amounts to selling those assets whose relative value has grown and buying those assets whose relative value has dropped. I have bever seen rebalancing based on currencies, but the logic seems to imply the following. Say your portfolio contains assets, 70% of which are denominated in U.S. dollars and 30% in Canadian dollars. After a few years, you look at your portfolio and find that the assets are now 50% in U.S. dollars and 50% in Canadian dollars. This suggests t...
by Rooster
26 Feb 2013 12:01
Forum: Financial Planning and Building Portfolios
Topic: International diversification and rebalancing
Replies: 43
Views: 3501

Re: International diversification and rebalancing

As far as I can see, rebalancing is based on the premise of "reversion to the mean". That is, asset classes which have done better than average will be below average for a period in the future, and asset classes that have done worse than average will do better than average in the future. This applies no matter how you define asset classes -- stocks versus bonds, industrials versus utilities, (controversially) value versus growth, and also various countries. Within the category of stocks there is a body of empirical evidence that individual stocks show momentum in the short run, i.e. winners keep winning and losers keep losing. But they show reversion to the mean in the medium and long term. So if your horizon is in terms of years...
by Rooster
26 Feb 2013 10:39
Forum: Financial Planning and Building Portfolios
Topic: International diversification and rebalancing
Replies: 43
Views: 3501

International diversification and rebalancing

My equity portfolio is all broad based index funds, pretty much by world market cap at time it was set up (some overweight for Canada and Emerging markets). I had initially planned to periodically rebalance back to original allocation for each asset class. I'm questionning that now. Basically thinking that would go against a basic principle of indexing -ie. I don't know which country or stock will do better in the future, so buy all according to market cap and let God sort it out :). Within a multicountry index fund, the geographical makeup fluctuates (take VT or VXUS for example). It's actually country agnostic. Within VT, it just holds global companies as per their relative market cap. I can understand need ro rebalance between differeing...
by Rooster
26 Feb 2013 10:19
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

But there are a number of uber-bears who think that we are entering a very long depression, of a decade or more. If they prove to be right (and I personally think that they are dead wrong), then we could indeed have a long period when economic growth (and so earnings growth) are lower than inflation. And yes, it would be disastrous for the economy. I would think that even in such a dire scenario (decade long depression), it would be unlikely that an investor with a 20-30 year investment horizon, DCAing during such period, would suffer negative real returns overall. To generate negative real returns over 2-3 decades, you would likely need to have such a long or steep depression and the risks that such a thing "kills the system" (i...
by Rooster
25 Feb 2013 22:39
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

Correct me if I'm wrong, but in a stagflation environment you would get earnings loss in real terms. An errosion of earnings. Can this go on for a prolonged period without disastrous effects on the economy and ultimately government's ability to pay its debt? There could be earnings loss in real terms but then I don't quite see zero GDP growth happening on a global basis. On whole continents maybe, but not globally. In such cases, at least some sectors have a chance of 'holding their own'. Similarly, I cannot foresee a situation where a majority of governments run the risk of going bankrupt. There would be a global effort to print money - aka the financial crisis of 2008 as an example. If an investor is internationally diversified as per gl...
by Rooster
25 Feb 2013 22:17
Forum: Financial Planning and Building Portfolios
Topic: Young Investor Seeking Advice
Replies: 65
Views: 2633

Re: Young Investor Seeking Advice

What do you have in mind for your "very safe" bulk of your portfolio? (Sorry if i missed it).

I'm really not inclined to think that a "safe" bulk of portfolio mixed with a "high risk" balance is the best asset mix in terms of expected returns. You'd likely come out ahead long term with a more balanced approach. I'd see little reason for you to not be heavily invested into equities at your age (particularly given the pension) and I'd recommend broad based index funds (with a little stock picking play money if you like).

Congratulations, by the way, on your savings and financial goal orientation at your age. That is invaluable and by far your greatest asset. Kudos.
by Rooster
25 Feb 2013 20:36
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

Bonds outperformed equities due to the long bull bond market since circa 1980. Given the current status of yields across the yield curve in the bond market, that is not likely to repeat in our lifetimes without another 70s style runaway inflation cycle. The past counts simply because it is fact, but the future will hold no comparison with the past. I think staflation is a very real possibility as described by Scomac. My view is that there may not be any long term decline in profitability in overall global markets, but there could be so little GDP growth that there is NO earnings growth. It may well mean selective bond and equity picking around the globe to take advantage of aberrations in individual regions or countries. Good luck with tha...
by Rooster
25 Feb 2013 20:22
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

You need look no further than Japan to get your answer. Returns attributed to stock ownership over the past 23+ years has been negative whereas Japanese gov't bonds have had positive, albeit modest returns, over the same time period. It all comes down to valuation, an important aspect that the academics miss when talking in general terms. It turns out that was the period following a huge bubble in japanese equity prices. I certainly agree that there is real risk of loss on lump sum purchases. I don't think I've ever seen what japanes returns would have been with a significant period (decades) of DCAing into the market either prior to the high or following it (or with the high at the middle). This would much more acurately mirror the invest...
by Rooster
25 Feb 2013 16:25
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

Can we envision a scenario where the average worldwide earnings growth of corporations is below inflation? How long can that go on until worldwide business is bankrupt? Why should I have more faith in fixed income in that apocalyptic scenario? We sometimes discuss stock market "survivorship bias", but what happened to the bond markets in those countries where markets where wiped out? I could only think of end of capitalism type events or wars or natural disasters that wipe out a country's markets. Don't think I'd have more faith in that country's bonds, though, in those situations. I can envision such a scenario. It's called stagflation where you have price increases of essential items that are of finite supply, yet no real growt...
by Rooster
25 Feb 2013 14:41
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

...Thoughts? I think you're echoing a lot of my thoughts right now. Respect to SQRT, I have already done a lot of reading on this and "get" that bonds (diversification across asset classes) are meant to reduce standard deviation of the portfolio as a whole. (reducing both maximum losses and returns) Ref.: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk I'm still at a loss as to whether I should worry about this at all, over the long term, and assuming I'm not sensitive to paper losses. Agreed, which is why I posted here (been meaning to ask, has been bugging me for a while -sorta "am i missing something here"). I understand that you can get hosed by lump sum purchases at market highs...
by Rooster
25 Feb 2013 14:13
Forum: Financial Planning and Building Portfolios
Topic: stock/bond allocation for highest returns?
Replies: 52
Views: 1333

Re: stock/bond allocation for highest returns?

The stock/bond allocation for "highest returns" is the allocation that keeps you more or less prudent at times when you have no f****g idea what's going on, nor any f****g idea how long that condition will prevail. Doing some math, as I say, is the easy part........ and largely useless. IMVHO. Don't want to redirect the thread, but I think this ties into the discussion, in fact is a key underlying issue. Not sure of this, but think (tentatively) that long term (20+ years) risk of broad based, internationally diversified common stock is low if not inexistent if we define risk as chance of loss of purchasing power. Can we envision a scenario where the average worldwide earnings growth of corporations is below inflation? How long ca...
by Rooster
22 Feb 2013 08:38
Forum: Financial Planning and Building Portfolios
Topic: td comfort portfolio
Replies: 81
Views: 8464

Re: td comfort portfolio

adrian2 wrote:
BRIAN5000 wrote:In our local paper there were some general rules of thumb for RRSP & TFSA. Income below $30,000 use a TFSA, income above $70,000 usea RRSP, income somewhere in the middle use a combination of the two. I will try to find a link and post it.
Very dangerous recommendation, without double checking the real marginal tax rates. In the $20k to $40k annual income, effective MTR can easily exceed the MTR of someone earning $140k+.
Could you (or somebody else) further explain this when possible? Not sure i follow.
by Rooster
20 Feb 2013 15:31
Forum: Retirement, Pensions and Peace of Mind
Topic: Public vs Private Pension - Envy and Debate
Replies: 906
Views: 66766

Re: Public vs Private Pension - Envy and Debate

ghariton wrote:That's why some bonds have covenants against further borrowing in certain circumstances. (Maybe we should have similar covenants in pension plans?) Going down this route would make companies totally unmanageable
Insolvency courts could disreguard such covenants.

The Indalex case was particulaly troubling as it involved a court sanctionned DIP financing granting a "super priority" to the lenders. Having pension shortfalls rank senior to the DIP lenders would have endangered DIP financings generally as creditors would no longer have a court sanctionned super priority.
by Rooster
20 Feb 2013 14:21
Forum: Now Hear This!
Topic: Introduce Yourself
Replies: 558
Views: 80858

Re: Introduce Yourself

I've been lurking for a few years and post occasionally (mostly take in info). Thought I'd introduce myself as I've posted a bit more lately. I sincerelly appreciate the great information avaialble here and hope to contribute as I can. I'm in my mid 30s, married and have a young daughter. Wife is a teacher and I'm a lawyer. Been practising for a little over 10 years now, half of which with a large national firm and the other half with a private equity fund. I've recently accepted a gov position still in the general financial field. I have a post grad business law degree from Oxford, but no formal financial education. We're decent savers and are in good financial position for our ages. Finished paying the mortgage last year and have decent s...
by Rooster
19 Feb 2013 21:55
Forum: Financial Planning and Building Portfolios
Topic: TFSA: What Asset Allocation?
Replies: 59
Views: 4841

Re: TFSA: What Asset Allocation?

CJOttawa wrote:I'm at 100% equity in my TFSA, split between Canada, US, and EAFE indices.

I've been reading a bit on Bogleheads about folks who keep equity out of their Roth IRAs. I'm wondering if that's not a bad idea to protect against losses permanently reducing contribution room. It doesn't keep me up at night, mind you.
Why would losses be permanent?
by Rooster
19 Feb 2013 16:08
Forum: Financial News, Policy and Economics
Topic: Reaching saturation on finance books
Replies: 58
Views: 5314

Re: Reaching saturation on finance books

Has anybody read Zweig's "your money and your brain"? Worthwhile intro into behavioral finance? Yes. It's pretty good, but slightly heavy reading. I wish he had stuck to the behavioural stuff and skipped all the brain anatomy/neurotransmitter discussion. The neurobiology doesn't add much to what he is saying. On the other hand, the behavioural experiments he cites are excellent and of good value. Perhaps it is my healthcare background, but I found the superficial, tangential use of neuroscience in an investing book tedious and irritating. What does it matter if the amygdala lights up on MRI when someone gets excited about money? Does that really tell us anything about the people and what decisions they are going to make with thei...
by Rooster
19 Feb 2013 14:36
Forum: Financial News, Policy and Economics
Topic: Reaching saturation on finance books
Replies: 58
Views: 5314

Re: Reaching saturation on finance books

fixed income produces cash flows that are ... well ... fixed. You know how much you will get each month, barring any default. This is a suitable form of cash flow for meeting the fixed expenditures in life. Just match the two up. (Some would worry about inflation. If so, arrange your fuxed income cash flow to gradually increase over time at the rate you think inflation will increase your expenditures. By contrast, equities produce cash flows that are volatile. These are suitable for "nice-to-have" items, less so for necessities. Invest in equiities to the extent your cash flow from fixed income is sufficient for necessities and you have money left over. That sounds like a two paragraph summation of Zvi Bodie's book: Worry-Free In...
by Rooster
19 Feb 2013 14:34
Forum: Financial News, Policy and Economics
Topic: Reaching saturation on finance books
Replies: 58
Views: 5314

Re: Reaching saturation on finance books

Has anybody read Zweig's "your money and your brain"?

Worthwhile intro into behavioral finance?