good afternoon. seeking advice for a rrsp portfolio build

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Lovethesport
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good afternoon. seeking advice for a rrsp portfolio build

Post by Lovethesport » 28 Jul 2017 15:26

hello all, thank you in advance for your help.

I have a 100k to invest in rrsp and have opened a questrade account and looking for a passive etf based portfolio. almost like a couch potato portfolio.

please advise how to invest at each time aswell.


• Emergency funds: six months of expenses
• Debt: mortgage of 198000 ( can pay this down from cash sivings. rates 2.75%)
• Marital Status: ( Divorced,)
• Tax Rate: 20% Federal, 5% Provincial. i think but unsure.
• Provincial Residence:ontario
• Age (40):
• Desired Asset Allocation: 80% stocks / 20% bonds (indicate if you are unsure)
• Desired Stock Allocation outside Canada: unsure
His RRSP / RRIF / LIRA: 100k currently gic

RESP(s) : 18000
Plan Type: (Individual)
Plan sponsor:global resp
Age of child(ren):14

cash assets: 105000 outside of six months expenses. looking to buy a car of 60000 at 1.9%.

would like to contribute 10000 per year in rrsp and tfsa or pay down house.

please advise on a etf portfolio with high growth potential.

thank you

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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Quebec » 29 Jul 2017 13:55

Welcome to the forum.
Lovethesport wrote:
28 Jul 2017 15:26
(...) please advise on a etf portfolio with high growth potential. (...)
Who does not like a high return on their investments? The problem with is that a possibility of high returns comes with more risk. Sometimes much more risk (e.g. leverage or exotic asset classes).

80% stocks / 20% bonds is already quite aggressive for a 40 y.o. investor, IMO (the standard rule of thumb for a 40 y.o. would be 60% stocks, 40% bonds). Therefore I would stick to the broad cap-weighted indices (Canadian stocks, global stocks, Canadian bonds), and not try the ''beat the market'' in any way.

See finiki: Simple index portfolios and CCP Model Portfolios for examples.
(...) please advise how to invest at each time aswell. (...)
Once the portfolio is setup, you add to the asset classes that are under-weighted relative to your target asset allocation to bring them back in line.

This is a form of rebalancing. There is a detailed example at finiki: new contribution with ETFs.
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AltaRed
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by AltaRed » 29 Jul 2017 14:44

I would suggest the OP consider some of his/her 'net' cash (excluding the emergency fund) as part of his/her investment portfolio asset allocation. I say 'net' because I woudn't have both cash and an auto loan that appears to be coming on to the horizon. One has to earn 3% or so on cash after tax to break even with the auto loan [free advice - I've never ever had an auto loan and would/will never have one].

While s/he has a mortgage on the house, I wouldn't have much of anything in fixed income. It is counterproductive to pay more on a mortgage after tax than to get in deposit interest after tax. Buy down that mortgage with some cash before its interest rate starts hitting 4 or 5%. That is coming.

I actually think 80/20 allocation is pretty good for now (next 5-10 years) in the investment accounts, provided the OP has a high volatility/risk tolerance for major ups and downs in the equity side of the portfolio. FWIW, I don't subscribe to the '100-age' formula for equity allocation any more. It is just too high risk from low interest rates of being eaten alive by inflation. If a formula is used, I'd use '110-age' or possibly even '120-age' as a rule of thumb. My 96 yr old mother was still in 15% equities when she died. The key issue with high equity allocations is the pyschological factor when a 30-40% decline happens in equity markets. Know thyself.

I do subscribe to Quebec's thesis to stick to a simple index/couch potato ETF portfolio. It can be accomplished with just a few ETFs, e.g. VCN for Canada equity and XAW for ex-Canada equity. VSB or VAB for the fixed component. I am a believer in short(er) term bond ETFs such as VSB at the moment due to what appears to be upward creep in interest rates.
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Taggart » 29 Jul 2017 18:01

Justin Bender has some model ETF portfolios here.

I don't any investment accounts with Questrade myself, but Justin also has a video tutorial on building an ETF portfolio through Questrade.

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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Quebec » 30 Jul 2017 09:32

AltaRed wrote:
29 Jul 2017 14:44
(...) I actually think 80/20 allocation is pretty good for now (next 5-10 years) (...) I don't subscribe to the '100-age' formula for equity allocation any more. (...)
I did not suggest that the OP should necessarily use '100-age' (here 60% stocks) instead of 80% stocks. As AR points out, if the OP has the stomach for the ups and down, 80% stocks can be OK. I was mostly concerned that the OP wanted 80% stocks and an ''etf portfolio with high growth potential'', which might lead to a non-couch potato type portfolio with sector ETFs, single country ETFs, leverage, etc.
AltaRed wrote:free advice - I've never ever had an auto loan and would/will never have one
+1. And I would never buy a car for 60 grand, but that's just me, cars just need to take me from A to B. If money was no issue, I'd like to own a Porsche 911 turbo just like any other guy, but since I can't afford that, I just buy five year old Corollas.
AltaRed wrote: Buy down that mortgage with some cash before its interest rate starts hitting 4 or 5%
For the sake of illustration, ignoring the car issue, applying all of the $100k of cash to the mortgage would bring the mortgage back to $100k and leave a $100k stock-heavy portfolio. I think having a mortgage equal to, or smaller than, one's portfolio is a relatively comfortable place to be in - much better relative to a mortgage twice the size of the portfolio. An apparently similar result could be achieved by investing the cash instead ($200k mortgage and $200k portfolio). But if rates rise, the second version might not feel as comfortable as the 1st one.

Some food for thought...
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AltaRed
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by AltaRed » 30 Jul 2017 11:06

My comments were influenced by having the $200k mortgage and then a $60k auto loan was going to surface soon. I don't see the point of holding all that debt regardless of 'low' current rates. That kind of thinking is why Canadians overall have higher household debt per capita than almost anywhere else globally. None of that will end well if something 'derails' to cause interest rates to rise and/or capital markets to swoon. A 30% haircut in one's investment portfolio whilst having a $200k mortgage and a $60k auto loan does not feel like 'sleep-at-night' material to me.

So, either temper one's asset allocation to something more reasonable from the 80/20 or avoid much of that debt and go with a higher equity allocation. Don't do both.
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Quebec » 31 Jul 2017 17:36

AltaRed wrote:
30 Jul 2017 11:06
So, either temper one's asset allocation to something more reasonable from the 80/20 or avoid much of that debt and go with a higher equity allocation. Don't do both.
Exactly.
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Lovethesport
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Lovethesport » 01 Aug 2017 08:25

thank you for all your replies so far.

narrowed down decisions , what do you guys/gals think and recommend in terms of elf's.

Is it better paying higher fees for active elf's vs passive elf's ?

for the bonds zag from bmo seems the best choice as it has the lowest mer.

1: rrsp $100k. thinking 60-40 split now after multiple recommendations. i don't need these funds for 10 -20 years and don't plan on retiring.

how should one enter the market? obviously markets cannot be times but would prefer to buy on dips here and there. is it better to start with 25% at a time or different percentage.

2: would like some exposure to gold as a safe haven incase of some global misfortune. is there an etf for that or do the market efts like van provide exposure to gold.

this has been a very positive learning experience, thank you for everyone's feedback/guidance.

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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Quebec » 01 Aug 2017 09:49

Lovethesport wrote:
01 Aug 2017 08:25
Is it better paying higher fees for active elf's vs passive elf's ?
All my portfolio is passive. Even if some active strategies eventually outperform before fees, they are unlikely to outperform after fees, over ten years. Even if some active strategies were to outperform after fees over 10 years, how do you know which ones to pick in advance? (Past performance goes not guarantee future results.) I accept market returns (minus the smallest possible tracking errors) and sleep well at night, i.e. a passive strategy is the safest IMO.
for the bonds zag from bmo seems the best choice as it has the lowest mer.
The Vanguard bond fund is very competitive: VAB. Vanguard being present is Canada is the reason why MERs on ETFs are now so low. So I choose Vanguard whenever they have a competitive offering in the asset class I'm interested in. One or two basis points in MER more or less will not make a difference.
how should one enter the market?
You have 3 choices: Dollar cost averaging, Dollar value averaging, or lump sum (all at once). Quoting from the finiki article on DCA, ''Academic research indicates that lump sum investing provides better long-term returns, but if investor is primarily concerned with minimizing downside risk and potential feelings of regret then DCA may be preferred''.
would like some exposure to gold as a safe haven incase of some global misfortune. is there an etf for that
Yes there are gold ETFs. But please have a look at the entire gold article on finiki as it discusses the pros and cons of gold in a portfolio. It's not a clear cut case at all.
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Lovethesport
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Lovethesport » 01 Aug 2017 19:52

Hello and thank you again .

What would be a recommended percentage of each etf ?

Ie;: how kuch in canadian , us , world markets etc ?

longinvest
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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by longinvest » 01 Aug 2017 20:24

That's up to you to decide.

Here's a link to a previous post where I provide some general guidelines for selecting an asset allocation:

viewtopic.php?f=29&t=118963&p=569261#p569261
Bogleheads investment philosophy | Simple index portfolios | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by Lovethesport » 03 Aug 2017 21:12

How does one cover themselves for downside Risk ? Eg: trump getting fired or something catastrophic

Is there an etf that shorts the market ? What should be a percentage of such etf in the portfolio

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Re: good afternoon. seeking advice for a rrsp portfolio build

Post by ghariton » 03 Aug 2017 22:14

There are inverse ETFs that go up when the market goes down and vice versa. Indeed, some go up twice as fast when the market goes down. As far as I know, these focus on U.S. markets rather than Canadian markets.

That said, these products are not intended for long holding periods, only for very short tactical positions. If you are looking for a longer term hedge for downside movements, I would look to put options, rolling them over as required. But options are expensive for small investors such as retail investors. Furthermore, they have many quirks and are hard for non-specialists to value. We are at the mercy of the brokers, more or less.**

The best option for retail investors, in my opinion, if you are worried about downside equity risk is to reduce your allocation to equities until you feel more comfortable. That's easy to understand and implement, and there are no explicit costs. Indeed, the only cost that I can see is the foregone opportunity for profits if the markets keep rising.

George

** I should note that a couple of the posters here have indeed mastered the use of options. But I get the impression that they are not using these options as hedging strategies, but rather as investments in themselves. They seem to enjoy the trading.
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