Intro/portfolio help

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
Strengthnhealth
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Intro/portfolio help

Post by Strengthnhealth » 24 Jul 2017 23:31

Hello
I'm a 54 year old novice diy investor. Looking to retire at 60.
RRSP are maxed. Becuase of DBP can only add about $8000/year.
No depts. House worth $600000.
Divorced, girlfreind/comon law.
Tax rate 43%, Alberta.
DBP with work. Unsure of exact amount. At 60(15 years) looks like around 1500-2000/month.
Current portfolio. Canadian:
TD comfort balanced $33569.RRSP
TD monthly income $34319.RRSP
CIBC $45000. RRSP
Cash $25000.
I had money in a money market account & cash that I wanted to invest so started reading up on Contrairian investing earlier this year. Started following Brett Owens advice shortly after but now not sure if its the right way to go. Mostly American advice. Big on dividends.
Investments with online broker: CEF's.
RRSP $49000 USD
LIRA :funds $5800 USD
- Cash: $10000 USD
TFSA: funds; $33000 USD
-Cash: $1200 USD
Margin: $6300 USD
Thinking of switching some of these to Vanguards S&P US INDEX funds since it's is in USD already.
The more I read the more confused Im getting lately.
Any advice appreciated.

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Re: Intro/portfolio help

Post by Quebec » 25 Jul 2017 14:56

Hi,

Welcome to the forum.

What comes 1st, IMO, is the big picture stuff:

---

1. What is your goal with these investments? You mention retirement in 5 years. But will you need to make withdrawals immediately at age 60? To know this (if you don't already), you need a retirement cash flow projection. How much do you need every year to live on, during retirement, in today's dollars?

On the revenue side, consider what could be taken from your your investment accounts but also CPP, OAS, and your workplace pension, which you should get more details on by obtaining an up-to-date statement or projection from your pension fund. Look into whether you should delay CPP, OAS, and your pension to age 65 or even 70, drawing 1st on your investment accounts.

Revenues in your projection need to equal or exceed expenses every year, obviously. This will tell you how much is needed from your investment accounts every year.

2. You can then get a very rough idea of what portfolio size is needed by dividing the desired initial yearly withdrawal by 0.04 (the ''safe withdrawal rate'') or if very conservative, maybe 0.03. Do you think you can get to this portfolio size within 5 or 6 years, by assuming a moderate investment return and your planned contributions? If not, revisit your budget, projected retirement age, savings goal, etc. until the numbers work... (there are alternative ways to look at withdrawal rates such as VPW).

3. Now we get to the asset allocation stage, which is where some reframing is needed so we understand your current situation better. What's your current overall asset allocation between cash, fixed income (bonds, GICs) and stocks? Use one currency only, the most relevant one to you, e.g. convert USD to CAD if needed. If a mutual fund contains more than one asset class, break it into its components (cash, fixed income, stocks). Combine all accounts into one unified allocation. Does that current allocation seem reasonable given your goal? Do you need/want to change it?

---

When you know your desired asset allocation, you can look at what products, currencies and accounts will work best for you. That can be addressed later.

Cheers, -Qc
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Re: Intro/portfolio help

Post by AltaRed » 25 Jul 2017 15:12

I agree with Quebec completely. You need a holistic (big) picture first, determining what your cash flow needs from your portfolio will be and when, using the rules of thumb provided by Quebec to estimate those numbers. Remember to figure in an estimated tax rate in your cash flow numbers, i.e. it is one of your living 'costs'. Especially so from an RRSP and pension income when those streams are taxed at full tax rates.

Product selection and in which type of account each product is best suited comes when you have the slices of the pie figured out.
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Re: Intro/portfolio help

Post by kcowan » 25 Jul 2017 18:37

At the risk of sounding commercial, contact Steves about RRIFmetic. You have 9-14 years to plan how to save, invest and withdraw. You will probably take CPP early and perhaps TFSA and RRSP. But that is just speculation. Get some good tools to help you.
For the fun of it...Keith

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Re: Intro/portfolio help

Post by Strengthnhealth » 25 Jul 2017 20:34

Sorry guys. Working up north so don't have all the info at hand but wanted to get a start on things. I like the Bogelheads idea of simplifying things hence the interest in the index investing.
My pension statement shows $19,761 annually retiring at 60. $24,691 at 65. I've been making very good money the last 8 years which has allowed me to pay off my house & max out RRSP recently. Prob should have worked on the RRSP 1st but tried to both at the same time. Haven't done the cash flow yet but I think $40,000 a year is reasonable. Will try to work on that the next couple of days. Working night shift at the moment.

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Re: Intro/portfolio help

Post by Strengthnhealth » 25 Jul 2017 21:42

Can you recommend a good free retirement cash flow calculator?

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Re: Intro/portfolio help

Post by AltaRed » 25 Jul 2017 21:55

Where does your gf fit into these plans? Presumably she has assets, pensionable income of some sort, etc. and if you stay common law, I assume she will carry part of the freight and agree with your approxmiate $40k/yr lifestyle? You need to sort out with her what your common vision is for retirement, how much that might cost, and who is going to contribute what to that lifestyle.

That is one key input into a retirement financial plan that could, as Keith suggested, be RRIFmetic by Steve Salter. http://www.fimetrics.com/freetrial.shtml

As Quebec suggested, one way to look at this without a software package is to calculate your annuity income, e.g. CPP, OAS, DB, use that as the base for your living expenses and then determine how much more you need annually to have a comfortable retirement, i.e. necessities and for the optional things you really want to do, e.g. hobbies, travel, etc. That latter portion becomes what needs to be funded from your aggregate portfolio.

P.S. Spend a little time on our very own Finiki... the little maple flag icon at the upper left
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Re: Intro/portfolio help

Post by OhGreatGuru » 26 Jul 2017 10:10

I agree with the advice to look at the "big picture" first, by figuring out how much cash flow you want/need in retirement. This will also help you decide when to retire.

Apart from that, some general observations:

- TD Monthly Income is a good fund, but really structured to provide monthly cash flows. May not be the best choice for an RRSP this many years from retirement, when you may want more growth; and can certainly tolerate more volatility. TD Monthly Income can be a good fund for non-registered accounts because of it's mix of interest, dividends, and capital gains.
- Considering that you have a DBP (though not large) you can probably afford more equity allocation in your RRSP's than neutral balanced funds.
- As you are already a TD customer, look into TD e-Index funds as one of the cheapest ways to do the "Couch Potato" strategy.
- CIBC's mutual fund offerings tend to be mediocre at best. Why not consolidate by having your CIBC RRSP transferred to TD? One less account to keep track of.
- I don't follow the logic of having so much invested in USD unless you are planning to spend a lot of your retirement time in the USA. But then I am a bit of a contrarian about that.
- "Cash" in an investment account is not earning anything, and is in fact depreciating due to inflation.
Last edited by OhGreatGuru on 26 Jul 2017 10:34, edited 2 times in total.

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Re: Intro/portfolio help

Post by AltaRed » 26 Jul 2017 10:26

OhGreatGuru wrote:
26 Jul 2017 10:10
- I don't follow the logic of having so much invested in USD unless you are planning to spend a lot of your retirement time in the USA. But then I am a bit of a contrarian about that.
I don't want to derail the thread but IMO, this is misunderstood as the main connection between holding USD and USD spending. Most of our goods and oil consumption is tied directly, or indirectly, to the USD. In a major loonie collapse relative to the USD, our gasoline prices would soar as would all of our imports. Imagine the lucky Venezuelans who still hold USD or USD domiciled assets. A US based component is necessary to the health of one's net worth.

P.S. I agree holding too much cash is an erosion due to inflation but a plan should come before investment products are chosen.
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Re: Intro/portfolio help

Post by kcowan » 26 Jul 2017 11:32

I would like to hear the reason why OP has so much USD?
For the fun of it...Keith

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Re: Intro/portfolio help

Post by AltaRed » 26 Jul 2017 15:14

kcowan wrote:
26 Jul 2017 11:32
I would like to hear the reason why OP has so much USD?
My guess is working for a multi-national with ex-pat assignments. About a third party of my net worth is currently in USD and was higher before I bought Cdn inter-listed stocks on the NYSE.
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Re: Intro/portfolio help

Post by kcowan » 26 Jul 2017 15:59

AltaRed wrote:
26 Jul 2017 15:14
kcowan wrote:
26 Jul 2017 11:32
I would like to hear the reason why OP has so much USD?
My guess is working for a multi-national with ex-pat assignments. About a third party of my net worth is currently in USD and was higher before I bought Cdn inter-listed stocks on the NYSE.
So would be driven by convenience?
For the fun of it...Keith

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Re: Intro/portfolio help

Post by AltaRed » 26 Jul 2017 16:21

kcowan wrote:
26 Jul 2017 15:59
So would be driven by convenience?
I suppose depending on what you mean by convenience. I received both CAD and USD components to my salary as an ex-pat. Exercised options were all in USD as well. I am only speculating wrt the OP's situation.
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Re: Intro/portfolio help

Post by Strengthnhealth » 27 Jul 2017 01:10

[/quote]
AltaRed wrote:
25 Jul 2017 21:55
Where does your gf fit into these plans? Presumably she has assets, pensionable income of some sort, etc. and if you stay common law, I assume she will carry part of the freight and agree with your approxmiate $40k/yr lifestyle? You need to sort out with her what your common vision is for retirement, how much that might cost, and who is going to contribute what to that lifestyle.
She will only be getting CPP & OAS. She is good living without much & still enjoying life. She has traveled the world on a budget. She has a one bedroom condo she remts out.
That is one key input into a retirement financial plan that could, as Keith suggested, be RRIFmetic by Steve Salter. http://www.fimetrics.com/freetrial.shtml

As Quebec suggested, one way to look at this without a software package is to calculate your annuity income, e.g. CPP, OAS, DB, use that as the base for your living expenses and then determine how much more you need annually to have a comfortable retirement, i.e. necessities and for the optional things you really want to do, e.g. hobbies, travel, etc. That latter portion becomes what needs to be funded from your aggregate portfolio.
Working on this now.

P.S. Spend a little time on our very own Finiki... the little maple flag icon at the upper left
Some good info in there

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Re: Intro/portfolio help

Post by Strengthnhealth » 27 Jul 2017 01:28

OhGreatGuru wrote:
26 Jul 2017 10:10
I agree with the advice to look at the "big picture" first, by figuring out how much cash flow you want/need in retirement. This will also help you decide when to retire.

Apart from that, some general observations:

- TD Monthly Income is a good fund, but really structured to provide monthly cash flows. May not be the best choice for an RRSP this many years from retirement, when you may want more growth; and can certainly tolerate more volatility. TD Monthly Income can be a good fund for non-registered accounts because of it's mix of interest, dividends, and capital gains.
- Considering that you have a DBP (though not large) you can probably afford more equity allocation in your RRSP's than neutral balanced funds.
Thinking about getting out of the income fund & into S&P index etf.
-
As you are already a TD customer, look into TD e-Index funds as one of the cheapest ways to do the "Couch Potato" strategy.
TD & Questrade. Which is better?
- CIBC's mutual fund offerings tend to be mediocre at best. Why not consolidate by having your CIBC RRSP transferred to TD? One less account to keep track of.
Considering TD or Questrade.
- I don't follow the logic of having so much invested in USD unless you are planning to spend a lot of your retirement time in the USA. But then I am a bit of a contrarian about that.
Mainly because Contrairian Investors advice. Most of the funds they suggest are only on the NYSE I beleive.
- "Cash" in an investment account is not earning anything, and is in fact depreciating due to inflation.
Cash in margin account is for selling put options through Bretts strategies.
Trying to figure out whers to put the rest.

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Re: Intro/portfolio help

Post by Quebec » 27 Jul 2017 09:37

Strengthnhealth wrote:
25 Jul 2017 20:34
I like the Bogelheads idea of simplifying things hence the interest in the index investing.
Here is the Canadian version: Simple index portfolios. Can be done with ETFs or TD e-funds.

But again, you need to figure out your desired asset allocation 1st. That will depend on your goals, risk tolerance, etc. Your portfolio fits into a bigger picture: all your sources of retirement income. Which should come together to cover the retirement expenses.

There are two components to DIY: (1) financial planning; (2) investment management. Financial planning comes first. You seem to be concentrating on the details of investment management without having done the planning 1st.

[*] How much will you get from OAS? (for different ages of 1st claiming it)

[*] How much will you get from CPP? (for different ages of 1st claiming it)

[*] Your need a detailed, realistic retirement budget. Start with how much you are spending now, and account for budget items that might decrease/disappear or increase/appear during retirement. What lifestyle are you aiming for? How much will that lifestyle cost?

[*] Why is the budget so important? Roughly speaking, an additional five thousand dollars of net (post-tax) yearly income requires another $208k of initial capital in a registered portfolio, assuming a 4% withdrawal rate and a 40% marginal tax rate: $208 333 * 0.04 * (1-0.4) = $5000. That math hurts, doesn't it?

Cheers, -Qc
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Re: Intro/portfolio help

Post by Strengthnhealth » 27 Jul 2017 19:03

Quebec wrote:
27 Jul 2017 09:37
Strengthnhealth wrote:
25 Jul 2017 20:34
I like the Bogelheads idea of simplifying things hence the interest in the index investing.
Here is the Canadian version: Simple index portfolios. Can be done with ETFs or TD e-funds.

But again, you need to figure out your desired asset allocation 1st. That will depend on your goals, risk tolerance, etc. Your portfolio fits into a bigger picture: all your sources of retirement income. Which should come together to cover the retirement expenses.

There are two components to DIY: (1) financial planning; (2) investment management. Financial planning comes first. You seem to be concentrating on the details of investment management without having done the planning 1st.

[*] How much will you get from OAS? (for different ages of 1st claiming it)

[*] How much will you get from CPP? (for different ages of 1st claiming it)

[*] Your need a detailed, realistic retirement budget. Start with how much you are spending now, and account for budget items that might decrease/disappear or increase/appear during retirement. What lifestyle are you aiming for? How much will that lifestyle cost?

[*] Why is the budget so important? Roughly speaking, an additional five thousand dollars of net (post-tax) yearly income requires another $208k of initial capital in a registered portfolio, assuming a 4% withdrawal rate and a 40% marginal tax rate: $208 333 * 0.04 * (1-0.4) = $5000. That math hurts, doesn't it?

Cheers, -Qc
Thanks Qc
I'm working on this now. Was trying to find a free calculator for doing this last night. Looked as some of the ones in the Finiki but none seem to do it all. May have to use one for retirement income & another for budget.
Working 13 hr shifts right now so not a lot of time to spare right now.

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Re: Intro/portfolio help

Post by Strengthnhealth » 09 Aug 2017 17:05

https://1drv.ms/x/s!AuFPIMQ-jCMrdMNo-hisxvLQWB8
Here's a link to a few cash flows I've completed. The 1st is retiring at 60, no CCP/OAS. 2nd is retiring at 60 with CCP/OAS at 65. 3rd is retiring at 65. RRSP/NRSP & taxes have not been added in yet.
I've tried loading Steve's demo but haven't been able to get it to work with my computers yet (older Mac). Still trying with the girlfriends window 10.
Steve did send me a sample report which has most of my info which I can attach as well.

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Re: Intro/portfolio help

Post by fireseeker » 09 Aug 2017 17:26

Strengthnhealth wrote:
25 Jul 2017 21:42
Can you recommend a good free retirement cash flow calculator?
Hi SnH,
There are several interesting free calculators at the Retirement Advisor website.
https://www.retirementadvisor.ca/retadv ... enu=preRet
I'm not spreadsheet-savvy enough to know how accurate they are, or if they incorporate all the inputs that RRIFmetic does, but it does provide impressive tables and graphs of retirement cash flow. Well worth playing around on.
Cheers,
-fireseeker

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Re: Intro/portfolio help

Post by Strengthnhealth » 10 Aug 2017 21:38

fireseeker wrote:
09 Aug 2017 17:26
Strengthnhealth wrote:
25 Jul 2017 21:42
Can you recommend a good free retirement cash flow calculator?
Hi SnH,
There are several interesting free calculators at the Retirement Advisor website.
https://www.retirementadvisor.ca/retadv ... enu=preRet
I'm not spreadsheet-savvy enough to know how accurate they are, or if they incorporate all the inputs that RRIFmetic does, but it does provide impressive tables and graphs of retirement cash flow. Well worth playing around on.
Cheers,
-fireseeker
Thanks for the link fireseeker. Looks interesting.

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Re: Intro/portfolio help

Post by Strengthnhealth » 11 Aug 2017 13:15

AltaRed wrote:
25 Jul 2017 15:12
I agree with Quebec completely. You need a holistic (big) picture first, determining what your cash flow needs from your portfolio will be and when, using the rules of thumb provided by Quebec to estimate those numbers. Remember to figure in an estimated tax rate in your cash flow numbers, i.e. it is one of your living 'costs'. Especially so from an RRSP and pension income when those streams are taxed at full tax rates.

Product selection and in which type of account each product is best suited comes when you have the slices of the pie figured out.
Hey guys
Here is a few cash flows I've been working on
Let me know if you can open these links. Not great at this computer stuff.
https://1drv.ms/x/s!AuFPIMQ-jCMrdMNo-hisxvLQWB8

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Re: Intro/portfolio help

Post by AltaRed » 11 Aug 2017 15:01

Just an initial comment that yes, I can see the 3 cash flow streams you have linked. Without making any comment yet on the constituents of the spreadsheets, I suggest you do some reality checks as you build those spreadsheets:

1) How do your proposed expenses compare against your current living expenses? Higher or lower and why?

2) What do you want to do in retirement that you are not doing today, and what kind of budget do you think you will need? For example, sports and liesure activities can be expensive depending on your choices. Travel aspirations?

3) What about the unkowns, e.g. increasing health care expenses not covered by provincial plans?

4) What about discretionary spend beyond basics?

I know you are not complete in your assessment, but I would suggest that with a lot more time on your hands once you retire, you will find many things you want to do and many of them cost. So far you are ahead of the game in terms of revenue vs expense but ultimately it will be the 'gap' in revenue needs that will need to be provided by your investment portfoilo.
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Re: Intro/portfolio help

Post by Strengthnhealth » 11 Aug 2017 17:41

AltaRed wrote:
11 Aug 2017 15:01
Just an initial comment that yes, I can see the 3 cash flow streams you have linked. Without making any comment yet on the constituents of the spreadsheets, I suggest you do some reality checks as you build those spreadsheets:

1) How do your proposed expenses compare against your current living expenses? Higher or lower and why?

2) What do you want to do in retirement that you are not doing today, and what kind of budget do you think you will need? For example, sports and liesure activities can be expensive depending on your choices. Travel aspirations?

3) What about the unkowns, e.g. increasing health care expenses not covered by provincial plans?

4) What about discretionary spend beyond basics?

I know you are not complete in your assessment, but I would suggest that with a lot more time on your hands once you retire, you will find many things you want to do and many of them cost. So far you are ahead of the game in terms of revenue vs expense but ultimately it will be the 'gap' in revenue needs that will need to be provided by your investment portfoilo.
1) Expensives right out of my bills book or a little higher. These #'s are for me only, the girlfriend will be contributing as well. She will prob be working 10 years after I retire.

2) We're pretty active but our activities are fairly low cost, mountain biking, hiking, kite surfing & camping. We travel a couple times a year now but will be reduced to once. Definitely want to travel across Canada once.

3) I also have an additional $2,500/year for medical from work. I know it's not a lot but better than nothing. We can also purchase a plan though them when I retire, not sure of the cost though.

4) I haven't included RRSP, TFSA or Non reg savings yet.

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Re: Intro/portfolio help

Post by gobsmack » 12 Aug 2017 06:21

AltaRed wrote: So far you are ahead of the game in terms of revenue vs expense but ultimately it will be the 'gap' in revenue needs that will need to be provided by your investment portfoilo.
Very much true. OP has a nice ace in the hole though (i.e., the mortgage free house worth $600K). Once the OP is done figuring out the basics and investing available funds, if there is still a shortfall, he could downsize and free up equity from his home. If it were me, I think I would be considering this option.

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Re: Intro/portfolio help

Post by Strengthnhealth » 13 Aug 2017 15:18

gobsmack wrote:
12 Aug 2017 06:21
AltaRed wrote: So far you are ahead of the game in terms of revenue vs expense but ultimately it will be the 'gap' in revenue needs that will need to be provided by your investment portfoilo.
Very much true. OP has a nice ace in the hole though (i.e., the mortgage free house worth $600K). Once the OP is done figuring out the basics and investing available funds, if there is still a shortfall, he could downsize and free up equity from his home. If it were me, I think I would be considering this option.
I have considered this & it is a possibility in the future.
Thanks

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