Messy Portfolio - How to Clean up?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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timmyX
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Messy Portfolio - How to Clean up?

Post by timmyX »

Hello !

I recently posted this on bogleheads and a very nice admin pointed me to this site so below is my original question. Thanks so much!!

Hi there,

I was hoping to get the Bogleheads community's advice on how I can clean up my portfolio. First thing to mention is that I'm Canadian; I have been investing for about four years (I'm currently 28) and unfortunately when I started I did not know Bogleheads existed and I was young and stupid and thought I could beat the market. This resulted in the purchase of a number of stocks of both Canadian and US companies over the years. While most of these done pretty well since I started I would like to move to a more balanced portfolio of index funds. Holding so many individual stocks makes me extremely nervous.

All of these stocks are currently held between two taxable accounts (one US, one Canadian) and my initial thought was to just sell them all and take the money and split it between VCE and VFV (both Canadian tickers). Other than this option or just holding them and treating them like an index fund and hope they move with the market I am already out of ideas so I was looking for some Boglehead advice!!!

I currently get 6% of my salary split between a Sunlife S&P fund and a Canadian bond fund (at a 85%/15% split) and I try and save an additional 10% of each pay into accounts that I don't use for daily expenses. My TFSA is currently maxed with a smattering of funds and individual stocks. Not sure if that adds anything to a potential solution.

Thanks so much, I love this site and I have learned an incredible amount in the few months I have been lurking!

Tim
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Re: Messy Portfolio - How to Clean up?

Post by InvestorNewb »

Hello,

I'm also a Canadian investor but frequent both forums.

You are better off holding US stocks in an RRSP so there is no withholding tax.

I keep VCE in my TFSA (although VCN is a better choice), VNQ (REITs) in my US RRSP, and split taxable between VTI and VXUS.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Re: Messy Portfolio - How to Clean up?

Post by Spudd »

Where you need to start is to come up with your desired asset allocation, and then figure out what adjustments you need to make to get that allocation.

Since most of your stocks are in a taxable account, you will need to pay capital gains tax if they have gone up in value since you bought them. Keep that in mind. I think if it were me, I'd probably hang on to the ones in the taxable account as long as I was still thinking they were quality stocks. Then any new money contributed can be used to buy indexes.

For the ones in the TFSA there's no tax impact if you sell them, so those could be cleaned up a little more easily.

You can make a spreadsheet to analyze your current allocation (including all your accounts) and then decide which stocks you want to keep and which you want to convert to indexes.
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Re: Messy Portfolio - How to Clean up?

Post by AltaRed »

I agree it is important to get them all in one place, e.g. spreadsheet or a software program like Quicken, to see what you have, and where, the ACB of each one in your taxable accounts, and ultimately the asset allocation of everything. A pie chart showing asset allocation is a great visual. Only then can you start to rationalize where you want to be.

Then decide how you will get there. As Spudd suggested, it is easy within a TFSA because there are no tax consequences. In taxable accounts, not so easy...unless the ACB of some of your selections is not a whole lot less than current values. I think the solution might mostly be through appropriate allocation of new money to bring the asset allocation into line over time, with some sales to clean up your existing holdings.

You should ultimately want to get out of high MER mutual funds and select broad based ETFs or other low cost index mutual funds to keep costs down to a reasonable level.
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Re: Messy Portfolio - How to Clean up?

Post by Peculiar_Investor »

Welcome to FWF. We're Canadian too!

A good place to start is our wiki, particularly Portfolio design and construction - finiki, the Canadian financial wiki. Generally the recommendation is to treat all your investable assets together when determining asset allocation and choices. I mention this because your post indicates non-registered accounts (taxable accounts), a TFSA and what seems like it might be a RRSP ("Sunlife S&P fund and a Canadian bond fund"). You might want to review My Portfolio: Seeking Advice for some guidance on information that we've found helpful to discuss these types of questions.

You might also want to read Tax-efficient investing as your choices of which account types to use going forward should give consideration to the tax implications.
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Re: Messy Portfolio - How to Clean up?

Post by BRIAN5000 »

I was young and stupid and thought I could beat the market. This resulted in the purchase of a number of stocks of both Canadian and US companies over the years
Stop and make a plan as suggested. Once the plan is made it may make sense to keep some of what you already have (tax wise or other reasons) and integrate that with a few Etf's, TD eSeries funds or other low Mer options.

I too went the individual stock route and have seen/realized that just plain broad market indexing with a few Etf's would have been a much better option for me.
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Re: Messy Portfolio - How to Clean up?

Post by IdOp »

timmyX wrote:While most of these done pretty well since I started I would like to move to a more balanced portfolio of index funds. Holding so many individual stocks makes me extremely nervous.

All of these stocks are currently held between two taxable accounts (one US, one Canadian) and my initial thought was to just sell them all and take the money and split it between VCE and VFV (both Canadian tickers).
I would look at the unrealized capital gains and losses that you presently have on each one of the stocks. Then you could attempt to identify a subset of them that could be sold with a total capital gain of 0, or at least small enough to be acceptable. If that attempt succeeds (it may not, depending) you could reduce the number of stocks and become less nervous. The proceeds, and new money, could go into broad ETFs, in line with the planning that others are encouraging you to do.
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Re: Messy Portfolio - How to Clean up?

Post by eezee »

Welcome ! All above is good advice. Remember though you are 28 yrs old and have a whole lifetime ahead of you.
There is no need to let your portfolio get the best of you. Take a deep breath, make a plan, and gradually work towards it.
It'll all come out in the wash !
I am going to live forever .... so far so good.
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Re: Messy Portfolio - How to Clean up?

Post by LadyGeek »

Welcome again! :wink: You've just been given quite a bit of good advice.

Take your time and do some reading. Start here: Getting started

When you are ready, create a post in this thread using the My Portfolio: Seeking Advice format. It will force you to think about the "big picture" while giving us the information we need to answer your questions.

If you have any questions, ask them here.

(Disclaimer: I can help with the US side. On the Canadian side, not so much.)
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Re: Messy Portfolio - How to Clean up?

Post by Peculiar_Investor »

timmyX wrote:I have been investing for about four years (I'm currently 28) and unfortunately when I started I did not know Bogleheads existed and I was young and stupid and thought I could beat the market.
Not sure I agree with this self-assessment. Kudos to you for starting your investing career at such a young age. Whether you realize it or not, you've already gained knowledge that puts you ahead of many of your peer group. Learning from our stumbles is actually a good thing IMHO.
This resulted in the purchase of a number of stocks of both Canadian and US companies over the years. While most of these done pretty well since I started I would like to move to a more balanced portfolio of index funds. Holding so many individual stocks makes me extremely nervous.
Hopefully some of the suggestions above will help you come to grips with your risk tolerance, which should help determine an asset allocation going forward that allows you to sleep comfortably at night. Given the investments you have accumulated are in a taxable account, you'll need to spend some time considering the tax implications of making changes.
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Re: Messy Portfolio - How to Clean up?

Post by longinvest »

Tim,

Another Canadian Boglehead here.

I noticed that you are proposing a 100% equity portfolio, all invested in North America.

One of the Boglehead principles is: Never bear too much or too little risk.

What is meant by bearing risk is the allocation between stocks and bonds. How much bonds? That's the real Asset Allocation question. The answer is, of course, personal. It depends on your circumstances.The Bogleheads Wiki contains some rules of thumbs: http://www.bogleheads.org/wiki/Boglehea ... ittle_risk

Here are the links to a terrific series of 4 articles that Mr. Larry Swedroe wrote for CBS about Asset Allocation (AA). It is the best framework that I have come across to decide about one's AA as it looks at three aspects: your ability, willingness, and need to take risk: Once you have chosen your AA between stocks and bonds, then you can start looking at how to allocate each part.

My personal preferences are for Vanguard Canada ETFs: VAB for bonds, and VCN, VUN, VDU, and VEE, covering the entire world in stocks.

Within the next couple of months, Vanguard Canada will offer a new All-World ex Canada ETF. So, if you're willing to wait just a little bit, you could build a highly diversified portfolio of total-market ETFs using only 3 ETFs: VAB, VCN, and the new VXC (All-WorldExCanada).

Waiting for these few weeks could be beneficial, by allowing you to read and learn a little more.

My preferred starting points: FWF's Finiki for Canadian-specific advice, and the Bogleheads Wiki. Topics: The Bogleheads Investment Philosophy, and The Three Fund Portfolio.
Last edited by longinvest on 20 Jun 2014 07:41, edited 3 times in total.
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Re: Messy Portfolio - How to Clean up?

Post by BRIAN5000 »

Here are the links to a terrific series of 4 articles
Looks like your last link is broken, has an "8" in it, once removed it works.
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Re: Messy Portfolio - How to Clean up?

Post by longinvest »

BRIAN5000 wrote:
Here are the links to a terrific series of 4 articles
Looks like your last link is broken, has an "8" in it, once removed it works.
Ooops! I fixed it.

Thanks! :beer:
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Re: Messy Portfolio - How to Clean up?

Post by LadyGeek »

Great find. :thumbsup:

The article series is now in finiki: Asset allocation ("Ability, willingness, and need")
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Re: Messy Portfolio - How to Clean up?

Post by parvus »

timmyX wrote:I currently get 6% of my salary split between a Sunlife S&P fund and a Canadian bond fund (at a 85%/15% split) and I try and save an additional 10% of each pay into accounts that I don't use for daily expenses. My TFSA is currently maxed with a smattering of funds and individual stocks. Not sure if that adds anything to a potential solution.
I'm presuming this is a DC plan. Is there an employer contribution? The 6% sounds a bit low. More likely, it's 12% of your salary that's going to your DC plan (deferred compensation).

It's important to work through this because your DC plan is going to be the main driver of your savings -- and as such, will reduce RRSP room.

So the asset allocation in the DC plan -- cheapest obviously is best -- will determine the cost-effectiveness of other asset allocations.

Which raises the question of your job horizon. Do you intend to stay or go? If you intend to stay, then perhaps the best option is to dump everything into the S&P index. Bonds won't do you much good at age 28. You have another 25 years before you can cash out of the DC plan -- if you're gifted with early retirement.

So start with the DC plan as your base. Your other investments are simply speculative. (Hey, we all do it).

You've got an S&P 500 core holding. What investments are going to move the needle enough to beat the S&P 500? Moreover, what do you need the non-DC investment for? Near-future consumption (a mortgage, a car purchase), or longer-term investment?
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timmyX
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Re: Messy Portfolio - How to Clean up?

Post by timmyX »

My apologies for responding so late but thank you everyone for the advice. I have certainly taken a more forward thinking approach and not let my current portfolio cause too much grief!
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