Early Start, Early Retirement? Critique my initial portfolio.

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by Quebec »

AltaRed wrote:... a minimum of transactions, perhaps one every few months to keep transaction costs down.
That's not a factor for the OP since he/she is using Questrade where ETF purchases are almost free (sometimes a few cents in ECN fees). In registered accounts, there is no ACB to keep track of, so small frequent transactions have no negative consequences.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by AltaRed »

Ahh... yes indeed. Still, the AA doesn't have to be rigourously adhered too. It shouldn't be a 'make work' project.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by firebraj »

longinvest wrote:What do you know about emerging markets that the rest of the market doesn't know? Why do you think that this segment of the market will outperform?

Yes, one could apply the same argument about Canada vs international, but my view (not universal) is that there's a big difference: investments into the Canadian stock market are not subject to currency fluctuations. That's why I consider domestic separate from international. I don't try to bet on which will outperform.
Good point. Best to just keep it simple. Thank you for the input, I really do appreciate it.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by firebraj »

AltaRed wrote:Me thinks this is being overworked for a 25 yr old. I would use the KISS principle with a minimum of ETFs (VTI in RRSP is a good reason to deviate if/when necessary) and a minimum of transactions, perhaps one every few months to keep transaction costs down. Nothing magical about keeping the AA within a percentage point or two of one's chosen mix. Even if it gets out of whack by 5 percentage points, it is easy to bring it back in a few months of contributions to the underperformer.

My view is that one should be able to manage their AA without even using a calculator, never mind a spreadsheet. Okay, maybe that is a bit extreme, but quite frankly I think about my AA in numbers that I can do in my head.

As to the OP's query about Emerging Markets, I maintain that what one gets in VXC or XAW is plenty good enough. EM is as miniscule as it is because it deserves to be. I've said elsewhere that EM capital markets in any given EM country are often out of whack with their GDP because of various factors, some nefarious, some simply due to sloppy regulation AND that much of an EM country's GDP is siphoned off with capital flight (both legal and illegal) and/or the presence of multi-nationals HQ'd in developed countries. There isn't a lot of 'warm fuzzys' in any of the markets in the list here https://en.wikipedia.org/wiki/Emerging_markets (as described by FTSE, MSCI or S&P). YMMV
Thanks for the input AltaRed, I agree I just wanted to be thorough and have all my nit-picky questions answered. At this point I don't think I should bother with VTI although maybe with a larger portfolio this can make a difference.

If you have any final additions? I'd really appreciate it. I think I will go with the three-fund portfolio with a 25% bond allocation in VAB.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by gsp_ »

25% VAB
25% VCN
50% XAW

Standard portfolio for someone in their 20s.

When you've accumulated 6 figures, consider US listed ETFs for ex Canada equity RRSP inclusion.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by sorbet »

As a 27 yo also aiming for early retirement, I chose a rather different AA when I started accumulation a number of years ago. Consider reading up on the Permanent Portfolio and variants. This AA takes the concept of the discussed "50/50" + emergency fund split a step further, and it is imho particularly interesting in the context of short time horizons and early retirement.

Regardless of the chosen approach, I completely agree with the suggestions to KISS.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by firebraj »

sorbet wrote:As a 27 yo also aiming for early retirement, I chose a rather different AA when I started accumulation a number of years ago. Consider reading up on the Permanent Portfolio and variants. This AA takes the concept of the discussed "50/50" + emergency fund split a step further, and it is imho particularly interesting in the context of short time horizons and early retirement.

Regardless of the chosen approach, I completely agree with the suggestions to KISS.

I've chose to keep it simple with VAB, VCN, & XAW, and just implemented it today! I've heard of this portfolio before but I don't think it's the one for me, as I had a hard enough time choosing the above.. I've read that the portfolio has worked well though. How did you implement it, are there any ETFs that track those assets?
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by sorbet »

firebraj wrote:I've chose to keep it simple with VAB, VCN, & XAW, and just implemented it today! I've heard of this portfolio before but I don't think it's the one for me, as I had a hard enough time choosing the above.. I've read that the portfolio has worked well though. How did you implement it, are there any ETFs that track those assets?
Congratulations on taking that step! :>

ETFs do exist that track those assets. From what I've seen, there are various schools of thought on the "best" Canadian version of the concept -- including just investing in a US-based PP. Personally, I keep a simple, roughly even split between XIC, IAU, ZFL and cash, with a smaller dash of international and small cap stock via XAW and a low-cost mutual fund. Returns haven't been anything to write home about in the last couple years for this particular set, but it's done the job and with extremely low volatility.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by gaspr »

firebraj wrote:
sorbet wrote:As a 27 yo also aiming for early retirement, I chose a rather different AA when I started accumulation a number of years ago. Consider reading up on the Permanent Portfolio and variants. This AA takes the concept of the discussed "50/50" + emergency fund split a step further, and it is imho particularly interesting in the context of short time horizons and early retirement.

Regardless of the chosen approach, I completely agree with the suggestions to KISS.

I've chose to keep it simple with VAB, VCN, & XAW, and just implemented it today! I've heard of this portfolio before but I don't think it's the one for me, as I had a hard enough time choosing the above.. I've read that the portfolio has worked well though. How did you implement it, are there any ETFs that track those assets?
I think you have made an excellent choice! The hardest thing for you to do now is ignore all the noise and stay the course. Just commit to seriously saving as much as you can and let the rest take care of itself. The amount you save is by far the most important part of your plan (and the one you actually have control over)...almost any asset allocation or stock portfolio will work fine as long as you stay committed. Good luck!
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by firebraj »

I think you have made an excellent choice! The hardest thing for you to do now is ignore all the noise and stay the course. Just commit to seriously saving as much as you can and let the rest take care of itself. The amount you save is by far the most important part of your plan (and the one you actually have control over)...almost any asset allocation or stock portfolio will work fine as long as you stay committed. Good luck!
Thank you!! That definitely will be the hardest part of this all. I was reading some William J. Bernstein and he states that we are very mal-adapted for long term decisions and essentially investing for long periods of time. We basically are prone to enter fight-or-flight scenarios for things affecting us up to one year out and that's it.

The one thing that lurks in the back of my mind is that the global/Canada's economy will fall apart, severe climate change will exponentially advance or WW3 will come along or some other insanity of the sort. I think in which case I suppose it wouldn't matter much anyways whether I had invested or not!

I currently have a very high savings rate, although I do not earn too much. I look to minimising expenses as an opportunity to find out what is really important to me (travel, hobbies etc.), as that is all part of the journey.

I wish I could automate the process completely on a monthly basis but I don't think it's possible with Questrade.

How far are you on your investing journey? I love to read about peoples situations, as every situation is unique and everyone is at a unique point in their journey.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by gaspr »

Well, one thing to keep in mind about the markets, is that have a remarkable ability to adapt. You now own a piece of practically every meaningful company in the developed world. Many of them will turn out to be dogs, but you also very likely own shares in the next Apple or the next Google. It only takes a few big winners to carry the portfolio.

I am almost at the retirement/deccumulation stage of my investing life. So, some new risks to negotiate...

Keep reading and enjoy the journey!
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by AltaRed »

firebraj wrote:How far are you on your investing journey? I love to read about peoples situations, as every situation is unique and everyone is at a unique point in their journey.
I would suggest certain broad parameters based on my own experience (now retired and in withdrawal mode):

1. Live below your means and invest the rest, but don't handicap your journey so much that you cannot smell the roses and enjoy the ride along the way.

2. Time in the market matters most, not timing the market. Avoid short term noise.

3. Don't chase performance. Stick with your Asset Allocation making adjustments only as age and life circumstances dictate.

4. Keep your investment plan simple enough that you (and your successor) can understand it without a spreadsheet. The KISS principle.

5. Make the most of tax advantaged vehicles such as TFSA and RRSP and if you eventually have children, the RESP.

6. Avoid/minimize the tempation to take on leverage, especially margin accounts and high ratio mortgages. In a financial crisis, debt (and/or job loss) can sink the ship.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by firebraj »

AltaRed wrote:
firebraj wrote:How far are you on your investing journey? I love to read about peoples situations, as every situation is unique and everyone is at a unique point in their journey.
I would suggest certain broad parameters based on my own experience (now retired and in withdrawal mode):

1. Live below your means and invest the rest, but don't handicap your journey so much that you cannot smell the roses and enjoy the ride along the way.

2. Time in the market matters most, not timing the market. Avoid short term noise.

3. Don't chase performance. Stick with your Asset Allocation making adjustments only as age and life circumstances dictate.

4. Keep your investment plan simple enough that you (and your successor) can understand it without a spreadsheet. The KISS principle.

5. Make the most of tax advantaged vehicles such as TFSA and RRSP and if you eventually have children, the RESP.

6. Avoid/minimize the tempation to take on leverage, especially margin accounts and high ratio mortgages. In a financial crisis, debt (and/or job loss) can sink the ship.
These are basically the golden principles! I think I'll have the hardest time with 2, 3 & the last part of 1.

It is all work in progress after all, at least I'll be able to refer to this lovely thread whenever I'm having second thoughts. Thanks AltaRed.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by firebraj »

longinvest wrote:
BRIAN5000 wrote:The fact that you are young and have a high saving rate will get you to your goal with a lower stock allocation. MAYBE not as fast as a 90/10 but will give you more options/choices along the way. If the average market correction lasts 18 months (?) might need a pretty big emergency fund to make it that long. I agree 10 % is not enough fixed income to make a large impact or to have funds available for large correction purchases.
This post makes a lot of sense.

Mathematically, when starting at $0 and contributing a regular amount, asset allocation has a negligible impact on total wealth accumulation during the first 10 years. Contributions simply dwarf asset returns.

I can't recommend a specific asset allocation to someone else; volatility tolerance, taste for risk in the hope of higher wealth accumulation, and too many other considerations get into it. It's all pretty personal. But, I do recommend to remain prudent and never put all of one's eggs into the single Stocks basket. I think that putting at least 25% into bonds (something like VAB*) is the prudent thing to do.

* Not into VSB (short-term bonds) which is usually done for timing the bond market while waiting for higher rates.

As I said, in the first 10 years, it won't make a significant difference on accumulation. But, holding bonds will help one learn about this awesome asset class. There's more to bonds than we are lead to believe by the financial press. Bonds are a pretty complex asset class.
Hey longinvest! What's your reasoning for holding an equal amount of nominal and inflation indexed bonds? Is this prudent for most peoples bond holdings?
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by longinvest »

firebraj wrote: Hey longinvest! What's your reasoning for holding an equal amount of nominal and inflation indexed bonds? Is this prudent for most peoples bond holdings?
Firebraj,

The most important implementation aspect of selecting a fixed ratio of stocks/bonds and rebalancing once a year is "staying the course". Staying the course means sticking to the strategy regardless of how markets behave, in good times and in bad times; specially in really bad times.

Real return bonds (RRBs) are an awesome sub-class of bonds; their par value and coupons are fully indexed to inflation. As such, they are a type of bonds with no inflation risk whatsoever.

But, unlike nominal bonds, there are very few RRBs on the market. Worse, there are very few maturity dates for real-return bonds; maturity dates are spread 5 years apart. As a result, the total RRB market has a verly long duration (16 years) which is associated with a relatively high volatility. As an example, within the last 6 or 7 weeks, the RRB market has lost approximately 7% of its value (due to a sweet 0.50% increase in real yields).

Many investors consider "bonds" as an anchor, in their portfolio, to dampen stock volatility. A 16-year duration bond ETF won't be efficient at dampening stock volatility, because it is itself volatile.

It is much more important for an investor to be able to hold on his asset allocation, than it is to include a specific type of bonds in the portfolio. For this reason, I hesitate to recommend that somebody who expects bonds to be an oasis of peace to invest into a total-market RRB ETF.

One could invest into the shortest available RRB (which will have 5-years or less left until maturity), and get a relatively low-volatility RRB investment. But, individual securities are a hassle. (Can't conveniently buy small quantities, reinvest coupons, etc.)

Does that answer your question?
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Re: Early Start, Early Retirement? Critique my initial portfolio.

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The most important implementation aspect of selecting a fixed ratio of stocks/bonds and rebalancing once a year is "staying the course". Staying the course means sticking to the strategy regardless of how markets behave, in good times and in bad times; specially in really bad times.
I absolutely agree with this and can see why it's such an important aspect of DIY investing and is basically one of the tenets of couch potato strategy.

I have currently implemented a simple VAB, VCN, XAW portolio with allocations of 20%, 30%, 50% respectively. I think this is something that I can stick with during the accumulation phase, although the true test will be during a market downturn where I hope to continue to aggressively invest taking opportunity to lower my average prices. Putting this in practice is a evolving process for me and only time can tell.
Real return bonds (RRBs) are an awesome sub-class of bonds; their par value and coupons are fully indexed to inflation. As such, they are a type of bonds with no inflation risk whatsoever.

But, unlike nominal bonds, there are very few RRBs on the market. Worse, there are very few maturity dates for real-return bonds; maturity dates are spread 5 years apart. As a result, the total RRB market has a verly long duration (16 years) which is associated with a relatively high volatility. As an example, within the last 6 or 7 weeks, the RRB market has lost approximately 7% of its value (due to a sweet 0.50% increase in real yields).

Many investors consider "bonds" as an anchor, in their portfolio, to dampen stock volatility. A 16-year duration bond ETF won't be efficient at dampening stock volatility, because it is itself volatile.

It is much more important for an investor to be able to hold on his asset allocation, than it is to include a specific type of bonds in the portfolio. For this reason, I hesitate to recommend that somebody who expects bonds to be an oasis of peace to invest into a total-market RRB ETF.

One could invest into the shortest available RRB (which will have 5-years or less left until maturity), and get a relatively low-volatility RRB investment. But, individual securities are a hassle. (Can't conveniently buy small quantities, reinvest coupons, etc.)

Does that answer your question?
I see that bonds are there to dampen volatility in portfolios. I guess I was wondering is there a 'diversification' strategy with bonds that can help optimise even further. But I suppose even trying to split the bond portion of a portfolio into long term bonds, short term bonds, RRB etc. The additional work and takes away from the simplicity which is key for long term implementation of a portfolio.

I've considered splitting the bond portion of my portfolio to include some VSB but I suppose in the long run it doesn't make much of a difference. Better for me to just stick with VAB.

Seeing that you include RRBs sparked my interest, and I was just wondering on any specific reasoning. In the end I see that it's what helps you continue to implement the strategy.

May I ask how long you have been on this path, so to speak? You seem knowledgeable on these matters! I am in my mid-20s at this point, and hope to aggressively save/invest and I always appreciate more experienced persons words on these subjects as I am trying to absorb as much as I can.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by longinvest »

firebraj wrote:May I ask how long you have been on this path, so to speak? You seem knowledgeable on these matters! I am in my mid-20s at this point, and hope to aggressively save/invest and I always appreciate more experienced persons words on these subjects as I am trying to absorb as much as I can.
I've been indexing since early 2008. I don't remember exactly how discovered indexing; it was by accident while searching the web. At that point all I had done was investing in individual stocks (without success) since the late 1990s. I started with a 100% stocks portfolio, as this was the only thing I knew. Having been burned by individual stocks which seemed simpler to me, I had no intention to invest blindly into something I didn't understand (bonds). I kept investing and rebalancing during the 2008-2009 crisis without losing any sleep. The volatility of my index portfolio seemed like nothing relative to the single stock volatility that I had been experiencing for a number of years.

I eventually discovered the Bogleheads and FWF. I learned about bonds and finally added them to my portfolio in late 2013 / early 2014. As for RRBs, they're a new addition to my portfolio. If you want to learn more about the intellectual journey that lead me to add RRBs, here are two threads about it:
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by Flaccidsteele »

firebraj wrote:I really appreciate any input, thank you.
You may find Germack's thread useful. Start early, save a lot, invest mostly in equities, wait for compounding.

Couch potato investing for the last 9 years

Personally, I would have simplified it further by putting 90% of it into the a low-cost S&P500 index.

I wouldn't bother with bonds or anything else in my early/mid 20s.

From tinkering with various "retirement calculators" if you're young, spend less than you earn, and put even 100% into equities, all the results are the same; net worth lines that go upwards for as long as you want.

Time spent compounding is the biggest advantage that you have.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by AltaRed »

Flaccidsteele wrote:Personally, I would have simplified it further by putting 90% of it into the a low-cost S&P500 index.
That philosophy is for Americans as you will know. Canadians will want at least some of their equities in the Cdn market.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by Peculiar_Investor »

AltaRed wrote:
Flaccidsteele wrote:Personally, I would have simplified it further by putting 90% of it into the a low-cost S&P500 index.
That philosophy is for Americans as you will know. Canadians will want at least some of their equities in the Cdn market.
And there is lots of debate of the suitability of Buffett's recommendation to the average investor. One example is here.
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by longinvest »

Flaccidsteele wrote: I wouldn't bother with bonds or anything else in my early/mid 20s.
Flaccid,

Can you explain your recommendation? I hope that you're not basing your opinion on comparing the past performance of stocks and nominal bonds in the 20th century, at a time when the gold standard was dropped around the world causing unanticipated losses in purchase power for nominal bond holders.

On what basis do you claim that stocks will be a better investment in the present and future than a diversified portfolio containing both stocks and real-return bonds (RRBs) for an investor in his 20s?


And, while at it, as you recommend investing into the S&P500, should the investment be currency-hedged or not? Why?

You never answered my questions about it:

http://www.financialwisdomforum.org/for ... 73#p580321
longinvest wrote:
Flaccidsteele wrote:I did. I didn't know which one was passive investing in a low-fee S&P500 index.
Flaccid,

Here's a trick question for you: Currency-hedged or not, and why?

I am assuming that you are a Buffett fan, so you promote 90% S&P500 / 10% of fixed income. Actually, it would be interesting, too, to know if you think that the fixed income should be Short-Term US Treasuries (if so, should they be currency-hedged).
http://www.financialwisdomforum.org/for ... 73#p580373
longinvest wrote:
longinvest wrote:
Flaccidsteele wrote:I did. I didn't know which one was passive investing in a low-fee S&P500 index.
Flaccid,

Here's a trick question for you: Currency-hedged or not, and why?

I am assuming that you are a Buffett fan, so you promote 90% S&P500 / 10% of fixed income. Actually, it would be interesting, too, to know if you think that the fixed income should be Short-Term US Treasuries (if so, should they be currency-hedged).
Bump!

Here's are some of your earlier posts where you said that you didn't have much knowledge about bonds; that you apparently didn't possess the required brainpower:

http://www.financialwisdomforum.org/for ... 11#p556691
Flaccidsteele wrote:
longinvest wrote:Flaccid,

Did you know that there exist bonds that guarantee that your principal will not be eroded by inflation during the upcoming 30 years, and that will give you inflation-adjusted coupon payments every 6 months during the whole period?

Hint: Yes, they do exist! They are call Real Return Bonds (RRB).
I wasn't aware of that. [...]
longinvest wrote: Here is a quote by Warren Buffett:
The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period.
Here is a question for you.

Using Warren Buffett's definition of risk, what is more risky: an S&P 500 index fund or a 30-year RRB, for a Canadian investor?
Speaking for myself, the 30-year RRB is more risky. Due to my lack of knowledge about this asset, it would be a leap for me to assume that RRBs would be 'reasonably certain' to deliver increased purchasing power over their holding period. It's not possible for me to be certain of this at all.

With regards to risk, future purchasing power, and inflation Buffett seems to think that long-duration bonds are terrible:
Warren Buffett wrote: Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.
[...]


[...]

Are RRBs immune to the concerns that Buffett is mentioning? Or perhaps Buffett's concerns are incorrect? I don't have enough knowledge about bonds to comment about this opinion.


http://www.financialwisdomforum.org/for ... 53#p585753
Flaccidsteele wrote:A good reminder of why I don't invest in bonds. I don't have the brainpower! :lol:
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by longinvest »

Firebraj,

At the end of the day, it's your money. You invest it like you want. You will be the one who will have to live with the consequences of your choices.

I have expressed my opinion, in the past, about how I would rationally approach investing my own assets and why:
http://www.financialwisdomforum.org/for ... 95#p581295

Good luck!
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by longinvest »

Firebraj,

You'll be told, by most people, that you have no choice to take risk when investing for retirement. There are very few dissenters.

One of them is Prof. Zvi Bodie of Boston University. He disagrees; he thinks that investors, including young ones, should build their retirement portfolio taking no risk*, or, if they wish to take some investing risk, they must first make sure that they can afford to take it without putting their retirement at risk.

* Or, more exactly, "as little risk as possible", as even real-return bonds have some risks.

Most people will tell you that what Zvi Bodie advocates doesn't make sense; that it's too expensive. Yet, here's an illustration of how an young Canadian investor could build an extremely robust retirement without ever investing anything into the stock market; only investing into real-return bonds (RRBs).

It's a simplified illustration where I assume that RRB yields are (and remain) a paltry 0.5% all life long. All investments are made into tax-sheltered accounts (TFSA and RRSP) so that there are no ongoing taxes within the portfolio. Interest is earned on the average balance during the year.

The investor starts working at age 25 until age 64 inclusively. His starting salary is $35K and increases 2% (above inflation) per year until age 45, and then stays level in inflation-adjusted terms.

The investor saves 25% of his salary and invests it (within RRSP & TFSA) into RRBs. After savings, he is left with $26,250 (at age 25) increasing to $39,006 (at age 45).

At age 65, the investor retires and buys an inflation-indexed annuity with his portfolio balance. As a result, he gets a total of $36,803 in income from CPP, OAS, and his inflation-indexed annuity*. This inflation-indexed income continues as long as he lives.

* I assumed a joint annuity for a couple, taking a conservative mortality table estimate of 30-year survival at age 65.

All amounts are in inflation-adjusted dollars.

Code: Select all

  Savings     Rate      25%     RRB    Yield    0.50%                               
                                                                                    
                                                Total           Available  Portfolio   Balance
      Age   Salary      CPP     OAS  Annuity   Income  Savings     Income      Start       End
       25  $35,000                            $35,000   $8,750    $26,250         $0    $8,772
       26  $35,700                            $35,700   $8,925    $26,775     $8,772   $17,763
       27  $36,414                            $36,414   $9,104    $27,311    $17,763   $26,978
       28  $37,142                            $37,142   $9,286    $27,857    $26,978   $36,422
       29  $37,885                            $37,885   $9,471    $28,414    $36,422   $46,099
       30  $38,643                            $38,643   $9,661    $28,982    $46,099   $56,014
       31  $39,416                            $39,416   $9,854    $29,562    $56,014   $66,173
       32  $40,204                            $40,204  $10,051    $30,153    $66,173   $76,580
       33  $41,008                            $41,008  $10,252    $30,756    $76,580   $87,240
       34  $41,828                            $41,828  $10,457    $31,371    $87,240   $98,160
       35  $42,665                            $42,665  $10,666    $31,999    $98,160  $109,343
       36  $43,518                            $43,518  $10,880    $32,639   $109,343  $120,797
       37  $44,388                            $44,388  $11,097    $33,291   $120,797  $132,526
       38  $45,276                            $45,276  $11,319    $33,957   $132,526  $144,536
       39  $46,182                            $46,182  $11,545    $34,636   $144,536  $156,833
       40  $47,105                            $47,105  $11,776    $35,329   $156,833  $169,423
       41  $48,047                            $48,047  $12,012    $36,036   $169,423  $182,312
       42  $49,008                            $49,008  $12,252    $36,756   $182,312  $195,506
       43  $49,989                            $49,989  $12,497    $37,491   $195,506  $209,012
       44  $50,988                            $50,988  $12,747    $38,241   $209,012  $222,836
       45  $52,008                            $52,008  $13,002    $39,006   $222,836  $236,985
       46  $52,008                            $52,008  $13,002    $39,006   $236,985  $251,204
       47  $52,008                            $52,008  $13,002    $39,006   $251,204  $265,495
       48  $52,008                            $52,008  $13,002    $39,006   $265,495  $279,857
       49  $52,008                            $52,008  $13,002    $39,006   $279,857  $294,291
       50  $52,008                            $52,008  $13,002    $39,006   $294,291  $308,797
       51  $52,008                            $52,008  $13,002    $39,006   $308,797  $323,375
       52  $52,008                            $52,008  $13,002    $39,006   $323,375  $338,026
       53  $52,008                            $52,008  $13,002    $39,006   $338,026  $352,751
       54  $52,008                            $52,008  $13,002    $39,006   $352,751  $367,549
       55  $52,008                            $52,008  $13,002    $39,006   $367,549  $382,422
       56  $52,008                            $52,008  $13,002    $39,006   $382,422  $397,368
       57  $52,008                            $52,008  $13,002    $39,006   $397,368  $412,390
       58  $52,008                            $52,008  $13,002    $39,006   $412,390  $427,486
       59  $52,008                            $52,008  $13,002    $39,006   $427,486  $442,658
       60  $52,008                            $52,008  $13,002    $39,006   $442,658  $457,906
       61  $52,008                            $52,008  $13,002    $39,006   $457,906  $473,230
       62  $52,008                            $52,008  $13,002    $39,006   $473,230  $488,631
       63  $52,008                            $52,008  $13,002    $39,006   $488,631  $504,109
       64  $52,008                            $52,008  $13,002    $39,006   $504,109  $519,664
      65+           $11,320  $6,879  $18,604  $36,803             $36,803           
Now, some people will tell you that this investor could have made millions by investing into the stock market and became very rich. What they won't tell you is about all the investors who were wiped out at some point or another because of mistakes and emotions (or bad luck; just ask a Japanese stock investor). Many people lost big money in the early 2000's and in 2008-2009.

I don't advocate Zvi Bodie's approach, but I have to admit that it is an extremely conservative and low risk approach that actually works.

Personally, I have the capacity to take more risk (I have an employer pension), and I am definitely willing to take more risk allowing for the possibility of higher returns with a diversified portfolio. But, I am also fully aware that there's a chance that I could end up doing worse than with Bodie's approach (if I am unlucky). Zvi Bodie's approach does not involve as much luck as my approach; it is a safer approach, even though I hope to do much better with my approach.

I won't let people convince me with impressive charts of past returns (never to happen exactly the same in the future) that stocks are less risky than RRBs, without first defining what "risk" is, and without providing a mathematical proof of what they are claiming.

NOTES
  • Taxes will have to be paid on "Available Income".
  • I am aware that taxes will have to be paid on TFSA contributions, and no taxes taken on withdrawals, but this would have been harder to simulate while ending up with a similar after-tax result (both before and after retirement) as paying taxes on "Available Income".
  • I know that actual annual returns will be volatile, and that annuity prices fluctuate, but (i) the long-term returns of a bond fund are mostly determined by initial yield of its bonds when they are bought, and (ii) the portfolio value and the annuity price are both sensible to the same real interest rate given their similar duration, so when the annuity price increases (due to lower yields) the portfolio goes up, and when the portfolio drops (due to higher yields), the price of the annuity drops too.
Last edited by longinvest on 20 Dec 2016 16:50, edited 3 times in total.
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
8Toretirement
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by 8Toretirement »

[/quote]

Your 1 mile from the grocery store and you need a gallon of milk, which do you take your Ferrari or the Honda.

The Ferrari is nice, great cocktail fodder but comes with all the hassles and cost of owning that type of car.

The Honda will get you there safely, on time without as many hassles as the Ferrari.

Seems to me about the same as comparing 90/10 or a 50/50 approach to asset allocation.

The fact that you are young and have a high saving rate will get you to your goal with a lower stock allocation. MAYBE not as fast as a 90/10 but will give you more options/choices along the way. If the average market correction lasts 18 months (?) might need a pretty big emergency fund to make it that long. I agree 10 % is not enough fixed income to make a large impact or to have funds available for large correction purchases.[/quote]

Agree,

Balanced approach is best. The math would support high savings rate as the prime contributor to creating a large portfolio from zero.
It's easy to suggest you can handle the big drop until it occurs, the higher the portfolio value moving forward the more a large drop in equity pricing will likely create a panic sell reaction. FI = safety.
Flaccidsteele
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Re: Early Start, Early Retirement? Critique my initial portfolio.

Post by Flaccidsteele »

8Toretirement wrote:Your 1 mile from the grocery store and you need a gallon of milk, which do you take your Ferrari or the Honda.
This analogy doesn't make sense.

90/10 stocks isn't a Ferrari nor is 50/50 a Honda.

We're not talking about speed. Every 20-something gets to age 65 at the same rate. It's 40-odd years for everyone. Nobody can go faster or slower than anyone else. 40-odd years of accumulating money, for every 20-something.

90/10 is stocks is using a truck. 50/50 is using a bucket.

If an individual spends less than they earn, they either arrive with a full truck or a full bucket.

All retirement calculators will show the same. If an individual spends less than they earn, the line goes upwards and the end point is just a different number.

No Ferraris or Hondas required.
Last edited by Flaccidsteele on 20 Dec 2016 15:31, edited 1 time in total.
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