Newbie - RRSP asset allocation and general financial picture

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Newbie - RRSP asset allocation and general financial picture

Post by Rooster »

I know there are a few threads up with similar subjects, but if some can bear revewing my situation and handing out some suggestions, I'd much appreciate it.

General overview:
I'm 34, married and have a 20 month old (may get ourselves a second one of those soon;)).

Wife is a teacher and i'm a lawyer, we both have defined benefit pension plans at work. She'll most probably keep her job til retirement, I may or may not change (depends on opportunities). Together we make about 170k$ a year right now. Mortgage is paid off (house is worth about 380-400k$). Out of RRSP we have just under 100k$ that we keep in high savings accounts or CDs. Not looking to invest out of RRSP money in the market. At least not now (risk tolerance is low as that's "cushion" money).

RRSP:

We each manage our accounts. Wife's capital loss risk tolerance is lower than mine, although I'm slowly getting her to accept concepts such time mitigation of risk and to properly evaluate the effects of inflation adjusted returns on low yield vehicles.

RRSP is solely retirement horizon money. Aiming at retirement around 55 (so a 20 year investment horizon or so).

I've been working for about 9 years. I currently have about 20k$ of unused RRSP space. Because of the equivalency factor on my pension plan, I get very little new RRSP contribution space per year (about a grand). So I'm slowly eating up the leftover space (I'm still climbing in salary, so I'm not too agressive to use it up quickly).

Currently, I have about 85k$ in my RRSP.

The allocation is this:

Canadian stock (all e-series TSX index): about 40%

US stock (all e-series but broken down roughly as below): about 36%
- unhedged s&p: 1/4
- hedged s&p:1/4
- djia: 1/4
- nasdaq: 1/4

Fixed income (all CDs): 15%

Cash (money market) - a bit of market timing i like to think i don't do but still do: 9-10%.

I've sort of arrived at this hapharzardly over the years.

I'm now rethinking it and would appreciate input on a number of things:

1. thinking of openning a td waterhouse discount brokerage account and transferring into etfs. mostly for the lower fees and greater selection. unsure this is worth it and would appreciate some input. this may be a stupid question, but how safe is an etf vs mutual fund? could they run into liquidity problems or other risks that a mf would not. is there anything to consider on that regard (is an etf "riskier" than a mf)?

2. asset allocation.

would like to add international exposure and some reit exposure. would you have anything to suggest?

i was thinking of going with a breakdown that looks like this:

About 80% of the portfolio in equities as follows:

20-25% canadian
20-25% USA
15-20% EAFE
10% Developing
5% REITS

The rest in fixed income.

Makes sense? Any suggestions? I'm still researching etf tickers, so any suggestions would be very welcomed.

Specific question: is it wise to sell all my e-series at once and transfer to TDW and buy efts all at once? I'm crossing over asset classes here. Would a more gradual process make sense?

3. bonds. don't have any. i usually get slightly higer rates on CDs than on gov. bonds and since it's gov. insured i figure it's the same risk. don't have any corporate bonds as i figure i'd rather take corporate exposure in equity. no bond funds for the same reasons and since i'm pretty much all buy and hold, don't like to buy in at the current interest rates (figure mid term interest will go up and funds will lose value).

Am i missing anything? Should I hold bonds?

Finally, I'm very risk tolerant in my RRSPs. Our out of RRSP situation is strong, both have defined benefit pensions (i'm not sure if i'll keep the job til retirement, but for now am earning a retirement annuity for years worked) and a 20 year investment horizon.

I'd appreciate any and all comments/suggestions. I'm "rethinking" my RRSP investments right now and am open to any ideas or suggestions.

Thanks!
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Re: Newbie - RRSP asset allocation and general financial pic

Post by mikester »

The portfolio doesn't seem unreasonable to me.

For specific ETFs, I use the plain janes:

Canada - XIU
US - VTI
Elsewhere - VEA

I don't have emerging markets, but VWO is the one I would use for that.

I don't have REITs anymore, but XRE is good, but expensive. I used to own RioCAN as a proxy.

At the $85k level, it's a tossup as to whether it's worth switching to ETFs. It likely is, but not by a lot.

Given that you have a DB pension, one could argue that you don't need any bonds. However, if you find the volatility of an all equity portfolio too much to handle, then bonds could help smoothen the ride.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Peculiar_Investor »

First off, welcome to FWF.

I presume that when the you mention CDs that you mean GICs.

I don't see any mention of using TFSAs for the"cushion" money that is held outside RRSP. If that is the case, then I'd open TFSA accounts and move the maximum amount into each, as any income is tax-free.
Rooster wrote:I'm still researching etf tickers, so any suggestions would be very welcomed.
Have you looked at our wiki, in particular Exchange Traded Fund - finiki? Vanguard Canada is a new entrant in the Canadian market, see Vanguard coming to Canada

There is another topic recently started that you might also find useful, see New to forum. Comments on my asset allocation please. as there are parallels to your situation.
Rooster wrote:bonds. don't have any. i usually get slightly higer rates on CDs than on gov. bonds and since it's gov. insured i figure it's the same risk. don't have any corporate bonds as i figure i'd rather take corporate exposure in equity. no bond funds for the same reasons and since i'm pretty much all buy and hold, don't like to buy in at the current interest rates (figure mid term interest will go up and funds will lose value).

Am i missing anything? Should I hold bonds?
You might want to read this topic, Bond Ladders vs Bond ETF's, as it covers a lot of the bond and bond ETF ground. Based on your information and question above, you might want to consider iShares XBB or possibly Vanguard Canada's new VAB as broad-based bond holdings. At this point in your investing lifecycle, holding fixed income is likely an asset allocation decision, so buying a broad based index and holding it will guarantee index returns, whatever they turn out to be.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by adrian2 »

Peculiar_Investor wrote:
Rooster wrote:bonds. don't have any. i usually get slightly higer rates on CDs than on gov. bonds and since it's gov. insured i figure it's the same risk. don't have any corporate bonds as i figure i'd rather take corporate exposure in equity. no bond funds for the same reasons and since i'm pretty much all buy and hold, don't like to buy in at the current interest rates (figure mid term interest will go up and funds will lose value).

Am i missing anything? Should I hold bonds?
You might want to read this topic, Bond Ladders vs Bond ETF's, as it covers a lot of the bond and bond ETF ground. Based on your information and question above, you might want to consider iShares XBB or possibly Vanguard Canada's new VAB as broad-based bond holdings.
I have strongly advised, numerous times, against holding a bond ETF in a non registered account.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by gsp_ »

Rooster wrote:The allocation is this:

Canadian stock (all e-series TSX index): about 40%

US stock (all e-series but broken down roughly as below): about 36%
- unhedged s&p: 1/4
- hedged s&p:1/4
- djia: 1/4
- nasdaq: 1/4
Deworsification at its finest. :D Stick with the unhedged S&P.
1. thinking of openning a td waterhouse discount brokerage account and transferring into etfs. mostly for the lower fees and greater selection. unsure this is worth it and would appreciate some input. this may be a stupid question, but how safe is an etf vs mutual fund? could they run into liquidity problems or other risks that a mf would not. is there anything to consider on that regard (is an etf "riskier" than a mf)?
No issue there. Only counterparty risk is with synthetic ETFs which are not all that popular here and even then risk is limited to 10% due to regulations.
2. asset allocation.

would like to add international exposure and some reit exposure. would you have anything to suggest?

i was thinking of going with a breakdown that looks like this:

About 80% of the portfolio in equities as follows:

20-25% canadian
20-25% USA
15-20% EAFE
10% Developing
5% REITS

...Makes sense? Any suggestions? I'm still researching etf tickers, so any suggestions would be very welcomed.
Sounds good.

25% VCE or XIU or XIC
20% VTI
30% VXUS(this includes EAFE + EM). Alternatively VEA for EAFE and VWO for EM.
5% XRE or ZRE

Have a look at http://canadiancouchpotato.com/canadian-etfs/ as well as his model portfolios.

Specific question: is it wise to sell all my e-series at once and transfer to TDW and buy efts all at once? I'm crossing over asset classes here. Would a more gradual process make sense?
Would not worry about this at all, do it all at once.
I'd appreciate any and all comments/suggestions. I'm "rethinking" my RRSP investments right now and am open to any ideas or suggestions.
Not sure if you are investing regularly with each paycheque or at intervals but you seem to have a lot of cash laying around that could be put to better use. Going forward perhaps consider automatic RRSP contributions to e-series until you've built up enough to make a switch to an equivalent ETF viable. This would only be doable with TDW.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by flywaysuzy »

Since your wife has a lower risk tolerance than yourself, why not consider everything as a family portfolio and hold the lower risk investments in her rrsp and tfsa accounts?
suzy
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Thorn »

Given the level of interest in most of the comments, it would be advantageous to determine whether the financial institution offering the discount brokerage has a retail bond desk, and a related financial advisor who could help you to set up a corporate bond ladder, where yields of 5% or more are available. I believe the desk holds many more bonds in inventory than are usually displayed online, so a brokerage contact is needed. At present, this would alleviate the sub-(inflation+tax) returns on government bonds and GICs.

Although slightly more risky than GICs, investment-grade bonds from Canadian corporations provide capital protection, identify returns up front and mature on a specific date, something that no bond fund guarantees.

With a buy and hold approach, there is no need to agonize over prices between purchase and maturity - the par price will be paid out with the last interest payment. As your age increases, in general the allocation for fixed income should increase, but of course it all depends on your specific situation.

It is important to note that a sizable amount of capital, say $100,000, is likely required. Also, this is a liquid market but is not transparent, much like GICs - the commissions are low but are baked in to the price/return.

Great to see this amount of interest and thinking. Best wishes for success this year!
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Rooster »

Thanks for the great info so far guys. I've been a periodic lurker on this forum for a while actually and it's filled with great knowledgeable posters. Thanks for letting me pick your brains. I'm not a newbie DIY investor (have been indexing since 2003), but my knowledge level is mediocre (mainly bits of reasearch from time to time, including on this site and its related sites). Keep it comming, I appreciate all info.

Here's some answers/questions on the replies provided so far.
mikester wrote:The portfolio doesn't seem unreasonable to me.

For specific ETFs, I use the plain janes:

Canada - XIU
US - VTI
Elsewhere - VEA

I don't have emerging markets, but VWO is the one I would use for that.

I don't have REITs anymore, but XRE is good, but expensive. I used to own RioCAN as a proxy.
Thanks. Those were the main ones that I was looking at. A few questions though:

XIU vs XIC? I believe XIC is the broader index that the e-series mirrors. Any particular reasons to go with XIU (which I believe is a narrower index). What's generally preferred here?

I like the idea of VTI, one fund with very broad US exposure but would like to weight a bit more towards largecaps/dividend stock. Any counter indication to splitting US stock say 75% VTI and 25% with a djia index?
Peculiar_Investor wrote:I presume that when the you mention CDs that you mean GICs.

I don't see any mention of using TFSAs for the"cushion" money that is held outside RRSP. If that is the case, then I'd open TFSA accounts and move the maximum amount into each, as any income is tax-free.
Rooster wrote:I'm still researching etf tickers, so any suggestions would be very welcomed.
Have you looked at our wiki, in particular Exchange Traded Fund - finiki? Vanguard Canada is a new entrant in the Canadian market, see Vanguard coming to Canada

There is another topic recently started that you might also find useful, see New to forum. Comments on my asset allocation please. as there are parallels to your situation.
Rooster wrote:bonds. don't have any. i usually get slightly higer rates on CDs than on gov. bonds and since it's gov. insured i figure it's the same risk. don't have any corporate bonds as i figure i'd rather take corporate exposure in equity. no bond funds for the same reasons and since i'm pretty much all buy and hold, don't like to buy in at the current interest rates (figure mid term interest will go up and funds will lose value).

Am i missing anything? Should I hold bonds?
You might want to read this topic, Bond Ladders vs Bond ETF's, as it covers a lot of the bond and bond ETF ground. Based on your information and question above, you might want to consider iShares XBB or possibly Vanguard Canada's new VAB as broad-based bond holdings. At this point in your investing lifecycle, holding fixed income is likely an asset allocation decision, so buying a broad based index and holding it will guarantee index returns, whatever they turn out to be.
I did mean GICs, sorry. I'm primarily francophone so that sort of thing happens to me. ;)

TFSA space is maxed for both wife and I. All GICs or ING.

I had already seen some of your links and will continue reading.

I grossly need to learn more on bonds. My thinking is basically what I posted in my first post and that's the main reason I don't hold any.

Am I right that buying to hold bond funds now make little sense with current rates? I will read more on individual bond ladders.
gsp_ wrote:Deworsification at its finest. :D Stick with the unhedged S&P.
I do try. ;) It has been the work of many years of hapharzard buying and holding.
gsp_ wrote:No issue there. Only counterparty risk is with synthetic ETFs which are not all that popular here and even then risk is limited to 10% due to regulations.
Thanks. Do ishare or tsx traded vanguard funds have liquidity issues (low volume)? Could there be a bid-ask spread?
gsp_ wrote:Sounds good.

25% VCE or XIU or XIC
20% VTI
30% VXUS(this includes EAFE + EM). Alternatively VEA for EAFE and VWO for EM.
5% XRE or ZRE

Have a look at http://canadiancouchpotato.com/canadian-etfs/ as well as his model portfolios.

I did know that site and had looked over their model portfolios.

Thanks for the tickers. Think this is all I'd need to review in greater detail.

I did have the questions above on the cdn and us components.

As for REITS, would you guys prefer XRE with the fees or to hold RioCan (maybe others) directly?

gsp_ wrote:Would not worry about this at all, do it all at once.
I was worried about not being able to cost average buy-in price for the asset classes I don't already hold (non cdn/us and reits). Would that not be an issue? Or would the higher transaction costs most likely offset any potential benefit?

gsp_ wrote:Not sure if you are investing regularly with each paycheque or at intervals but you seem to have a lot of cash laying around that could be put to better use. Going forward perhaps consider automatic RRSP contributions to e-series until you've built up enough to make a switch to an equivalent ETF viable. This would only be doable with TDW.
Thanks for the suggestion. I usually make RRSP contributions in lump sums. With regards to the cash laying around, were you referring to the out of RRSP money (all in GICs) or the bit I currently have in RRSP money market?
Thorn wrote:Given the level of interest in most of the comments, it would be advantageous to determine whether the financial institution offering the discount brokerage has a retail bond desk, and a related financial advisor who could help you to set up a corporate bond ladder, where yields of 5% or more are available. I believe the desk holds many more bonds in inventory than are usually displayed online, so a brokerage contact is needed. At present, this would alleviate the sub-(inflation+tax) returns on government bonds and GICs.

Although slightly more risky than GICs, investment-grade bonds from Canadian corporations provide capital protection, identify returns up front and mature on a specific date, something that no bond fund guarantees.

With a buy and hold approach, there is no need to agonize over prices between purchase and maturity - the par price will be paid out with the last interest payment. As your age increases, in general the allocation for fixed income should increase, but of course it all depends on your specific situation.

It is important to note that a sizable amount of capital, say $100,000, is likely required. Also, this is a liquid market but is not transparent, much like GICs - the commissions are low but are baked in to the price/return.

Great to see this amount of interest and thinking. Best wishes for success this year!
You mean that it might be worthwhile to deal with a financial advicer directly for the purchase of bonds (for access to more bonds)?

Is the general consensus here that individual bond ladders > bond funds and bond ladders > GIC ladders? That's my belief, just don't know if it's based.

Thank you all for taking the time and for all the input.

ps: is there a way to "multiquote" posts when replying here? I just did a multiple cut and paste "technique" that was rather painful. ;)
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Re: Newbie - RRSP asset allocation and general financial pic

Post by mikester »

Rooster wrote: XIU vs XIC? I believe XIC is the broader index that the e-series mirrors. Any particular reasons to go with XIU (which I believe is a narrower index). What's generally preferred here?
I chose XIU because it was cheaper and the market cap at the time (2007) was a fairly large percentage of the XIC market cap.

To be honest, XIU vs XIC is one of those decisions you should flip a coin on if you can't make up your mind. Both are good choices.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Thorn »

Rooster wrote: You mean that it might be worthwhile to deal with a financial advicer directly for the purchase of bonds (for access to more bonds)?
There certainly are Canadian financial institutions that will help you build a corporate bond portfolio. The problem is the ones I've seen so far want to control your entire portfolio and charge an annual wrap fee around 1% of your total portfolio dollars, a daunting propostions given the average returns we expect these days.

I want access to a wide range of corporate bonds, perhaps with expert assistance (and no commission as I noted before), then use a discount brokerage to manage my equities, and some simple means of moving cash from one to the other when re-balancing. Any ideas out there? I have just started interviewing the usual suspects (banks and related brokerages) to see if I can find the right fit at minimal cost.

By the way, adding to my comment that bond funds are equities, not fixed income, these funds behave like fixed income, with fairly stable pricing, modest returns and reasonable liquidity.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by stoneblasters »

You are a good saver based on the assets you have built up at your age.

Most provinces will allow lawyers to form a professional corporation. Income that you retain in the corporation is taxed at low rates.(12% in my province).
You and your wife could both maximize your rrsp's and use the rest of your wife's salary to live on. Draw a minimal salary from your corporation and the money left over can be invested. This creates a tax deferral kind of like an rrsp but you have to pay taxes yearly when you get distributions or realize capital gains. There are legal and accounting fees so the concept only works if you can save money in your corporation.

If your income grows as you expect, a professional corporation to hold your investments would be a good idea.

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Re: Newbie - RRSP asset allocation and general financial pic

Post by Rooster »

stoneblasters wrote:You are a good saver based on the assets you have built up at your age.

Most provinces will allow lawyers to form a professional corporation. Income that you retain in the corporation is taxed at low rates.(12% in my province).
You and your wife could both maximize your rrsp's and use the rest of your wife's salary to live on. Draw a minimal salary from your corporation and the money left over can be invested. This creates a tax deferral kind of like an rrsp but you have to pay taxes yearly when you get distributions or realize capital gains. There are legal and accounting fees so the concept only works if you can save money in your corporation.

If your income grows as you expect, a professional corporation to hold your investments would be a good idea.

Stoneblasters
Thanks for the suggestion.

I'm employed (inhouse counsel) and could not request to be paid services fees through a corporation instead of a salary. In any event, since I would have no other clients and have a subordinate relationship with my superiors, I would still legally be deemed an employee no matter the setup and I believe a single purpose corporation whose sole activities is to provide services to one client would be taxed at a level that would nulify the benefit.

It would certainly work if I was in private practice.

We're decent to good savers, but not as good as our situation at our ages makes it out to be. My wife's parents had given her a condo which she sold (130k$) and put on the house. I lived with my parents and then her rent free for a number of years after starting work and I worked those years at a leading firm with a high starting salary. Two special circumstances that boosts our results. We could save more, we could save less, but we're fine with the current balance.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by gsp_ »

Rooster wrote:I like the idea of VTI, one fund with very broad US exposure but would like to weight a bit more towards largecaps/dividend stock. Any counter indication to splitting US stock say 75% VTI and 25% with a djia index?
Forget the djia index. If you want to slice and dice then studies have shown there are 2 risk premiums that have outperformed over the last century(with decade long periods of underperformance, just warning you). They are value stocks and small caps. Up to you if you want to slice this thinly considering how small your portfolio is, I wouldn't bother. I'll let others suggest good value ETFs, for small caps VB or VBR for US stocks and VSS for EAFE + EM. I don't value tilt because of the tax consequences, I might reconsider if I had the tax sheltered room but wouldn't bother for 85k.
gsp_ wrote:No issue there. Only counterparty risk is with synthetic ETFs which are not all that popular here and even then risk is limited to 10% due to regulations.
Thanks. Do ishare or tsx traded vanguard funds have liquidity issues (low volume)? Could there be a bid-ask spread?
It depends on the ETFs you select, generally not a big concern if you stick to the broad based ones mentioned in this thread. Volume isn't the be all or end all that some make it out to be. Some ETFs have little to no volume but the market maker keeps a tight spread and large bids and asks. I looked at VCE today for you using level II quotes and the spread was only 3 cents. The bids and asks were all at least 10,000 shares so buying up to 250k was not a problem. Other 10,000 share bids were a cent lower, on and on 4 bids down. So 1M is available on these for 1.5 cents on average worse than the best price. My only experience buying a Vanguard CA product was with VAB. Spreads were initially large(over 15 cents) but came down to about 8 cents last week. With a little patience and monitoring I was able to buy below NAV.
I did have the questions above on the cdn and us components.
Pick one of the three in Canada, it won't matter which. US addressed above.
gsp_ wrote:Would not worry about this at all, do it all at once.
I was worried about not being able to cost average buy-in price for the asset classes I don't already hold (non cdn/us and reits). Would that not be an issue? Or would the higher transaction costs most likely offset any potential benefit?
You got lucky in the last year, US did better than EM and EAFE. Reits are expensive but we're talking about under 7k here.
gsp_ wrote:Not sure if you are investing regularly with each paycheque or at intervals but you seem to have a lot of cash laying around that could be put to better use. Going forward perhaps consider automatic RRSP contributions to e-series until you've built up enough to make a switch to an equivalent ETF viable. This would only be doable with TDW.
Thanks for the suggestion. I usually make RRSP contributions in lump sums. With regards to the cash laying around, were you referring to the out of RRSP money (all in GICs) or the bit I currently have in RRSP money market?
The latter. You already have that massive emergency fund cash reserve, don't see why you wouldn't be fully invested at all times in the RRSP. That 9-10% creates a drag that doesn't make a whole lot of sense on funds with a 20+ year horizon.

To be honest all of this stuff is rather trivial and won't make a whole lot of difference in how much you'll have available to retire. I'd spend a lot more time evaluating the necessity of having 100k in cash laying around with a paid off house, solid jobs and DB pensions. If it's necessary for you two to sleep well at night so be it but it comes at considerable opportunity cost so make sure you really do need that much cash. Same goes for your wife's "conservative" RRSP. You already know this stuff but sometimes when focusing on the details we tend to lose focus on the big picture. As I write this post I'm thinking of my own tendency to hoard cash too. :oops:
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Rooster »

gsp_ wrote:Forget the djia index. If you want to slice and dice then studies have shown there are 2 risk premiums that have outperformed over the last century(with decade long periods of underperformance, just warning you). They are value stocks and small caps. Up to you if you want to slice this thinly considering how small your portfolio is, I wouldn't bother. I'll let others suggest good value ETFs, for small caps VB or VBR for US stocks and VSS for EAFE + EM. I don't value tilt because of the tax consequences, I might reconsider if I had the tax sheltered room but wouldn't bother for 85k.
Point taken on slicing too thinly for the amount. I guess I wanted to go in with a long term asset allocation in order to minimize transaction costs.
gsp_ wrote:It depends on the ETFs you select, generally not a big concern if you stick to the broad based ones mentioned in this thread. Volume isn't the be all or end all that some make it out to be. Some ETFs have little to no volume but the market maker keeps a tight spread and large bids and asks. I looked at VCE today for you using level II quotes and the spread was only 3 cents. The bids and asks were all at least 10,000 shares so buying up to 250k was not a problem. Other 10,000 share bids were a cent lower, on and on 4 bids down. So 1M is available on these for 1.5 cents on average worse than the best price. My only experience buying a Vanguard CA product was with VAB. Spreads were initially large(over 15 cents) but came down to about 8 cents last week. With a little patience and monitoring I was able to buy below NAV.
Thanks alot for goign through the trouble. This actually makes me a little uncomfortable vs e-series as issue/redeemption with the latter is always at NAV. Didn't want to add market premiums/discounts on top of the market value of the underlying assets.

Guess its a "price" to pay for the lower MERs and (usually) lower tracking errors.
gsp_ wrote:The latter. You already have that massive emergency fund cash reserve, don't see why you wouldn't be fully invested at all times in the RRSP. That 9-10% creates a drag that doesn't make a whole lot of sense on funds with a 20+ year horizon.
I mostly pulled out early 2008 and haven't bought back in fully. That's the 9-10%. I have no intention of keeping it non invested. Once I've set my new asset allocation, I will reinvest fully. -and keep away from attempting to "market time" again.
gsp_ wrote:To be honest all of this stuff is rather trivial and won't make a whole lot of difference in how much you'll have available to retire. I'd spend a lot more time evaluating the necessity of having 100k in cash laying around with a paid off house, solid jobs and DB pensions. If it's necessary for you two to sleep well at night so be it but it comes at considerable opportunity cost so make sure you really do need that much cash. Same goes for your wife's "conservative" RRSP. You already know this stuff but sometimes when focusing on the details we tend to lose focus on the big picture. As I write this post I'm thinking of my own tendency to hoard cash too. :oops:
Thanks. That's why I've been so open here. Outside opinions can often point to the big picture we don't quite see as we focus on details. The out of RRSP cash is not just E/F though. It's also money set aside for the right business opportunity. Since we're not sure of timing (most probably under 10 years), we keep it out of the market. We're exploring a few opportunities right now and have others in the past (rental real estate -don't like current prices, wife may start an institutional daycare, etc.). So it's combination E/F - "other investment opportunity" money.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Butler »

adrian2 wrote: I have strongly advised, numerous times, against holding a bond ETF in a non registered account.
Might I ask why? I mean, as opposed to an equity ETF?
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Shakespeare »

Under current conditions bond ETFs hold premium bonds which put taxable investors at a tax disadvantage. See http://www.finiki.org/wiki/Conventional ... ount_Bonds .
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Re: Newbie - RRSP asset allocation and general financial pic

Post by optionable68 »

Rooster wrote:Wife is a teacher and i'm a lawyer
Just thought I would ask, given you are getting free financial advice by several members of this forum, will you reciprocate with free legal advice :?:
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Butler »

Shakespeare wrote:Under current conditions bond ETFs hold premium bonds which put taxable investors at a tax disadvantage. See http://www.finiki.org/wiki/Conventional ... ount_Bonds .
Hmm, understood. By sheer coincidence, the majority of my bond ETFs/funds are in my RRSP. But I will have to look to see if I can trade something out because i have about $20k in bond ETFs not in there. The thing is I also have REITs in there. What would the priority be for investments to be in a registered instead of unregistered account? That is, would you trade out REITs to replace them with the bond ETFs or vice versa?
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Shakespeare »

Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Rooster »

optionable68 wrote:
Rooster wrote:Wife is a teacher and i'm a lawyer
Just thought I would ask, given you are getting free financial advice by several members of this forum, will you reciprocate with free legal advice :?:
I don't mind at all if you don't mind being given legal information (can't give you "advice") by "Rooster" from the internet.

;)
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Re: Newbie - RRSP asset allocation and general financial pic

Post by adrian2 »

Butler wrote:
adrian2 wrote: I have strongly advised, numerous times, against holding a bond ETF in a non registered account.
Might I ask why? I mean, as opposed to an equity ETF?
See this for a strong argument against using XSB /XCB in a taxable account.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Rooster »

Sorry to bother again. I have a few questions regarding Vanguard Canada vs US ETFs. I've read the "Vanguard coming to Canada" thread, but would appreciate some confirmations.

- US exchange traded Vanguard funds can be bought through regular discount brokerage account (I'm to open a TDW account, but haven't yet)?

- Downside to US ETFs is that they are subject to US estate tax (which applies to estates over $5M)? Correct? Anything else to consider?

- How is the volume on Vanguard Canada ETFs? Danger of significant bid/ask spread?

I'd prefer unhedge holdings and don't have $5M to invest, so would be inclided to buy the US exchange traded funds...but am I missing something? Anything else to consider?

Thanks!
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Re: Newbie - RRSP asset allocation and general financial pic

Post by IdOp »

Rooster wrote:- US exchange traded Vanguard funds can be bought through regular discount brokerage account (I'm to open a TDW account, but haven't yet)?
Correct. You don't have to use TD-W, but if you do, you'd buy them in the US sub-account which has a B at the end, for example 644789B (this is for a non-registered cash account).
- Downside to US ETFs is that they are subject to US estate tax (which applies to estates over $5M)? Correct? Anything else to consider?
If you don't have U$ available, you have to convert, but this is a one-time cost and is cheap using DLR/DLR.U or (hopefully) Norbert's gambit. Record keeping will involve the exchange rate for U$. Vanguard USA has a longer track record.
- How is the volume on Vanguard Canada ETFs? Danger of significant bid/ask spread?
It depends on the ETF. From what I've seen, for example, the spread on VCE is quite small, but for VSB it's larger. I consider the trading volume is not a big deal, what matters is if you can buy how much you want from the liquidity provider's Ask at a reasonable spread. I recommend getting some quotes and watching the ETFs of interest for a while and see if things look acceptable to you.
I'd prefer unhedge holdings and don't have $5M to invest, so would be inclided to buy the US exchange traded funds...but am I missing something? Anything else to consider?
I'm stating the obvious but if you want Canadian stock or bond ETF, then Vanguard USA doesn't have it.

I'm sure there's more to consider and hope others will weigh in with what I've missed.
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Re: Newbie - RRSP asset allocation and general financial pic

Post by Rooster »

Thank you.

Quick follow up question.

On Vanguards US website there is the following quip:

"Special Notice to Non-U.S. Investors

Each of the investment products and services referred to on this website is intended to be made available to U.S. residents. This website shall not be considered a solicitation or offering for any investment product or service to any person in any jurisdiction where such solicitation or offer would be unlawful. Persons residing outside the United States are invited to visit Vanguard's website for Non-U.S. Investors for more information about products and services available to them."


I take this to mean they are not soliciting outside of where they filed their prospectus (presumably just in the US). Nothing prevents a non-resident investors from purchasing on secondary market, correct?

Side question (just curious here): why would they not just file a prospectus to offer certain US funds in Canada instead of creating new Canadian domiciled funds?

Thanks again!
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Re: Newbie - RRSP asset allocation and general financial pic

Post by pmj »

Rooster wrote:2. Norbert's gambit and wash trades

Read up a bit (had no idea what it was). Am I correct that with a TDW account, I would not need to use the Gambit if I enable the automatic wash feature? ie. I would incur one time conversion fees when I initially buy USD and then any trading will automatically "wash" with the US money market account/other US stocks? Am I missing something?

Thanks again!
Note that at TDW, "Auto-Wash" is only available in registered accounts. I realize that this thread is titled " .. RRSP .. " - but sometimes that distinction is missed.

You've mixed-up the two steps - "Wash" or "Auto-Wash" is the second step of the N-Gambit process:
1: Buy a dual-listed stock in Canada, and sell it on the US market.
2: Call TDW and ask that the sell proceeds be used to buy (typically) TD US Money Market. (There's a Manulife account that's similar to a MM fund that pays a little more interest.) This is the "Wash".

Auto-Wash replaces step 2 of the process. You can only use TD US MM.
Step 2 maintains the proceeds in US$ - 'cos otherwise a sell of a US$ stock would be converted into C$.

The combination of step 1 & step 2 eliminates the conversion fees because you don't convert money from C$ to US$. Conversion fees are imposed when you use C$ cash to buy on the US market, or when you sell on the US market and (in the absence of a wash) the proceeds are converted to C$. By using the N-Gambit you don't buy on the US market.

And with auto-wash, any future US-market stock purchase would automatically be paid for from the US MM without you having to enter a sell order (easier than buying a CDN stock!) and without you having to call (I've never done this stage - so this is my understanding rather than my experience).

There's a similar process in the reverse direction:
1: Sell a US-only listed stock, auto-wash would use the proceeds to buy TD US MM.
2: Buy a dual-listed stock on the US market, auto-wash would use the TD US MM to pay for it.
3: Sell that stock in Toronto.
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