RRSP and TFSA - moving away from MF

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GoodManners
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RRSP and TFSA - moving away from MF

Post by GoodManners »

Hi everyone.

I am a 47 year old investor and run my own small company in Alberta. I am still pretty ignorant about investing. I thought you just put money in MF and wait for retirement. I'm single and have just started to try and get a hold of my investing portfolio. I'm still fairly set it and forget it (for a year). I would have never thought about MER costs or even really looking at my portfolio (let alone developing a plan for investing).

But after reading the advice on this forum I am swayed by the Warren Buffet and Canadian Couch Potato plan of low cost EFT investing. But I'm still not sure of all the nuances and am looking for advice. I am putting together a retirement plan and will post that at another time, once I have all the information. But for now I'm just trying to get my savings in order. I still have a moderate risk tolerance for investing profile.

Right now I have my savings (roughly 100,000) invested in MF with two separate groups as below:

Tax-Free Savings Account
0% cash
13% RBC Canadian Dividend MER 1.76%
16% RBC Canadian Equity Income MER 2.0%

RRSP
0% cash
24% RBC Select Growth MF MER 2.04%
6% NEI Canadian Bond Fund MER 1.62%
27% NEI Equity Fund MER 2.76
14% NEI Canadian Equity Fund MER 2.53%

My plan was to open an RBC Direct Investor account and bring it all under one account.
And then purchase:

VCN 30% (MER 0.06%) Vanguard FTSE Canada All Cap Index ETF
VFV 30% (MER 0.08%) S&P 500 Index ETF
VEE 10% (MER 0.24%) Vanguard FTSE Emerging Markets All Cap Index ETF
VSB 30% (MER 0.11%) Vanguard Canadian Short-Term Bond Index ETF


I am understanding that the RBCDI account charges 9.95 per purchase so I will pay 40 to set it all up. My plan is to then visit once a year to balance, adjust, and invest more into the portfolio.

Does this plan make sense? I know I have to start somewhere but I would like some oversight, acknowledging that it is free advice given on the internet - lol

Thanks.
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AltaRed
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Re: RRSP and TFSA - moving away from MF

Post by AltaRed »

Your plan looks good. You will obviously need to open 2 accounts... RRSP and TFSA with RBC DI, You can go to cash in your existing accounts before transferring to RBC DI, or fill out the RBC DI transfer forms for an 'in kind' transfer and then do your MF sales in the RBC DI accounts and then buy the ETFs. Transfers are faster if you go to 'all cash' in your existing accounts first vs having the mutual funds transferred over. They can take weeks to transfer....although if they are already in RBC corporate family accounts, that likely makes it faster.

Check with RBC DI to see if there any incentives to give you before you complete your applications and get it in writing, e.g. email or whatever. I'd think they would want your business and give you free trades for a 90 day period, or perhaps bonus cash if you hold your accounts in RBC DI for 6 months for example.
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Re: RRSP and TFSA - moving away from MF

Post by fireseeker »

Cutting your annual costs by roughly 2% is an awesome plan!
One thing to check: Whether your NEI funds have deferred sales charges. If they do, and the DSC schedule is close to expiring (or falling as another holding year ticks by), you may wish to consider waiting.
However, if the DSC bite isn't onerous, biting the bullet to move into the better portfolio structure is probably worth it.
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Re: RRSP and TFSA - moving away from MF

Post by Koogie »

From one small business owner to another, welcome.

I won't offer advice as such as there are many experts here on this forum who hopefully will and they are much better qualified than I.

I would ask when your target retirement age/date is as that can affect your planning. Also, you say you are "moderately" risk tolerant and you are looking at a plan that is 70% equity and 30% fixed income. That is what I would call the high end of "moderate" Have you experienced downturns in the market ? How do you think you might handle losing perhaps 40% or more of that equity ? Just a thought.
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Re: RRSP and TFSA - moving away from MF

Post by Mordko »

You are missing developed world outside North America (Japan, UK, Germany, Australia, etc...). Is that intentional?

You also have an awful lot allocated to Canada. There are good reason to be overweight in the home market but not to this level. Keep in mind that we make up ~3% of the world stockmarket, lack certain industries and are heavily overweight in others. We also depend on trade with the US.

Consider reducing allocation to Canadian shares by 10% and shifting it to something like VIU.
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Re: RRSP and TFSA - moving away from MF

Post by Wallace »

I would question whether now is the time to invest 30% in the S&P500.

The tech stocks that are lifting it right now are at a pretty steep value:

Tech stocks have regained their dotcom-era highs
The horrendous decline in share prices that followed the peak in 2000 was the first financial calamity of this millennium. The dotcom crash had much less impact on the broader economy than the mortgage and banking crisis of 2007-08. Nevertheless, the tech revival has caused some twitchiness among investors. Might history be repeating itself?
. . <snip>. . . . . . .history isn’t repeating itself exactly. There is nothing like the same stockmarket euphoria as there was at the turn of the century. Few people are trying to day-trade their way to riches or setting up a dotcom franchise to sell dog food. And tech stocks are not as much of an outlier as they were (along with media and telecoms firms) in 2000, when many investors abandoned “old economy” companies in retailing and heavy industry.

But there is still plenty that can go wrong. The overall market is on a cyclically adjusted price-earnings ratio of 30—a level surpassed only in 1929 and the late 1990s. If the Federal Reserve tightens policy too aggressively, or the American economy slips into recession (or both), tech investors will get that sinking feeling again.
These tech stocks make up a significant part of the S&P 500 Index. Amazon, Microsoft, Apple and facebook make up 10%. Overall, 25% of the S&P 500 is tech. Amazon is off about 8% from its high this year and the RBI site today lists its P/E at 249.2. Facebook's P/E is listed at 36.8
I don't know about anyone else but I'm getting a definite sense of deja vu again. The TSX 60 dropped significantly when blackberry crashed, as it did when the price of oil dropped, and Nortel before that. Not to mention the dot.com crash (was that really 17 years ago? :shock: )The S&P 500 could be in for a similar rough ride.
Or not!
I'd dip my toe in the S&P 500 at a maximum of 10% right now, if at all.
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Re: RRSP and TFSA - moving away from MF

Post by gaspr »

RBC DI might also agree to reimburse you for any transfer fees...worth asking them.
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Re: RRSP and TFSA - moving away from MF

Post by AltaRed »

Mordko wrote: 07 Aug 2017 12:59 You are missing developed world outside North America (Japan, UK, Germany, Australia, etc...). Is that intentional?
I assumed it was intentional not to have EAFE. I would rather have zero EM and 10-20% EAFE, but that is a personal choice.

I don't think there is a 'right' time to invest in S&P500. This market could go on for years. In the meantime, the loonie is higher than it has been for quite some time. We do need to remember he is already in the USA with his existing mutual funds. If he was swapping an existing allocation in MF with an exact duplicate in ETFs, it would be, in effect, 'no change'. But he is changing it some.

As we can see, he is proposing going more heavily into FI (30%) than he currently is at 6% and he is upping his ex-Canada... just not into Int'l. He is decreasing his Cdn equity from 43% to 30%. I'd suggest his proposed allocation is mostly better than his current MF allocation.
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Re: RRSP and TFSA - moving away from MF

Post by OhGreatGuru »

Alternatively, RBC has Index Mutual Funds for : CDN Bonds; CDN Equity; US Equity; and International Equity. MER's are not the lowest available, but all under 1%. No transaction fees. Might be simpler, depending on how much time you want to spend on your portfolio.
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Re: RRSP and TFSA - moving away from MF

Post by GoodManners »

Thanks for the responses. I had to use Google to figure out some of it. I'm really new to this...

OhGreatGuru - Thanks. Are RBC Index Mutual Funds more stable? Or just simpler? I think I will look at my portfolio yearly but I want it to perform. Most of what I have read says that the ETF will outperform the IMFs.

AltaRed - Good info Thanks. It was "sort of intentional" lol. I don't know that much about EAFE. I wanted to keep my portfolio simple.

gaspr - Thanks. I will look into it.

Wallace - Solid Information Thank you. I will investigate further.

Mordko - I looked at VIU, thanks for the reminder. It's not set in stone yet and I'm still percolating ideas so this is great input.

Koogie - I want to retire at 65. We will see. Also I'm definitely ok with the high end of moderate. I'm in it for the long term (10 years). Thanks.

fireseeker - I never looked into this part but will. Thanks. They are going to move but as you suggest there may be a good time to do it.

Again - this is why I'm on the forum. Good advice and help.
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Re: RRSP and TFSA - moving away from MF

Post by AltaRed »

ETFs will outperform the RBC Index Mutual funds essentially by the difference in MER cost. There is no difference in 'stability' or 'volatility' because by definition they (both the ETFs and the Index mutual funds) follow indices. As the indices go, so do the mutual funds and ETFs. Of course, not all indices are exactly the same, e.g. MSCI indices are slightly different than FTSE indices which are slightly different than S&P indices.

I wouldn't get too lost in the semantics of each because the differences are likely at the first or second decimal point level. One can get really 'anal' about these things and lose sight of the forest for the trees. IOW, don't overwork it. Market valuations and stock market performance overall will overwhelm all these 'little' details.

Look up the MSCI index for EAFE (Europe, Austrailasia, and Far East) as an example. https://www.msci.com/documents/10199/47 ... 46245402e6
Basically it is the developed markets of International. It doesn't contain the under-developed Emerging Markets. How much do you trust the markets of some of the countries that are hard to find on the map. How much do you trust BRIC countries, i.e. Brazil, Russia, India and China? Would you rather have EAFE or EM? Your choice to make.
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Re: RRSP and TFSA - moving away from MF

Post by Quebec »

this discussion on which proportion of US versus EAFE versus EM stocks, whether now is a good time to invest in this or that country, etc. suggests the following:

1- Decide on the stock versus bond split
2- For the stocks, decide on the domestic (Canada) versus foreign split
3- Invest the foreign stock portion into a single World ex-Canada ETF, and let markets sort of what country makes up which proportion, within this World ex-Canada ETF

This is the essence of the [url=http://www.finiki.org/wiki/Simple_index ... portfolios]3 fund portfolio[/url

Happy investing to the OP
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Re: RRSP and TFSA - moving away from MF

Post by frankrom »

Each to their own... as others have mentioned I think you are missing EAFE...

On the Canadian Exchange consider XEF.TO and on the US side consider VEA.

I think an international position in EAFE is better than that of Emerging markets.

Good luck
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Re: RRSP and TFSA - moving away from MF

Post by longinvest »

Quebec wrote: 08 Aug 2017 10:37 1- Decide on the stock versus bond split
2- For the stocks, decide on the domestic (Canada) versus foreign split
3- Invest the foreign stock portion into a single World ex-Canada ETF, and let markets sort of what country makes up which proportion, within this World ex-Canada ETF
:thumbsup:

For easily investing into the World ex-Canada, there are two competing ETFs:
  1. XAW -- iShares Core MSCI All Country World ex Canada Index ETF (MER 0.22%).
    Inception Date February 10, 2015.
    Internally invests into IVV, XEF, IEMG, IJH, IJR, and ITOT.
  2. VXC -- Vanguard FTSE Global All Cap ex Canada Index ETF (MER 0.27%).
    Inception Date June 30, 2014.
    Internally invests into VV, VB, VGK, VPL, and VWO.
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Re: RRSP and TFSA - moving away from MF

Post by newin96 »

I apologise for going off-topic, but I always wondered if the MER % for XAW and VXC include the MER for the underlying funds.
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Re: RRSP and TFSA - moving away from MF

Post by AltaRed »

newin96 wrote: 08 Aug 2017 16:53 I apologise for going off-topic, but I always wondered if the MER % for XAW and VXC include the MER for the underlying funds.
My understanding is there is no double counting....so yes. Smart investors would not buy the products if there was a double dip.
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Re: RRSP and TFSA - moving away from MF

Post by longinvest »

newin96 wrote: 08 Aug 2017 16:53 I apologise for going off-topic, but I always wondered if the MER % for XAW and VXC include the MER for the underlying funds.
Here's what VXC's Fact Sheet says:
* The management fee is equal to the fee paid by the Vanguard ETF to Vanguard Investments Canada Inc., and does not include applicable taxes or other fees and expenses of the Vanguard ETF. This Vanguard ETF invests in underlying Vanguard fund(s) and there shall be no duplication of management fees chargeable in connection with the Vanguard ETF and its investment in the Vanguard fund(s).
I'm sure XAW has a similar policy. Anyway, I'm pretty sure it has to be this way by law.
Last edited by longinvest on 08 Aug 2017 18:49, edited 1 time in total.
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Re: RRSP and TFSA - moving away from MF

Post by kcowan »

longinvest wrote: 08 Aug 2017 17:35Anyway, I'm pretty sure it has to be this way by law.
That made me chuckle. I am sure you are right. But who is going to uphold the law? :lol:
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Re: RRSP and TFSA - moving away from MF

Post by longinvest »

kcowan wrote: 08 Aug 2017 17:41
longinvest wrote: 08 Aug 2017 17:35Anyway, I'm pretty sure it has to be this way by law.
That made me chuckle. I am sure you are right. But who is going to uphold the law? :lol:
Maybe some lawyer would start a class action, if the rules were breached?

As for me, I wouldn't even know where to start to find the text of law about it. I just look at the Management Report of Fund Performance (MRFP) and monitor the long-term tracking error between an ETF and its index.

Unfortunately, for the two ex Canada ETFs, we don't have a long history. Worse, their short-term tracking error history is blurred by so-called fair-value pricing rules. So, for now, I just have to trust that they're doing what they claim.
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Re: RRSP and TFSA - moving away from MF

Post by AltaRed »

I've seen it written somewhere, either regulatory or IIROC, regarding non-permissibility of double dipping so I am comfortable that is the case. Just cannot say it unequivocably.
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Re: RRSP and TFSA - moving away from MF

Post by pmj »

And I've seen similar language for MFs that invest in other MFs. Maybe there was a time when some funds of funds double-dipped, but I'd be pretty confident that no reputable fund would do so today.
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Re: RRSP and TFSA - moving away from MF

Post by brucecohen »

pmj wrote: 08 Aug 2017 22:20 And I've seen similar language for MFs that invest in other MFs. Maybe there was a time when some funds of funds double-dipped, but I'd be pretty confident that no reputable fund would do so today.
There was indeed a time when some funds double-dipped. As a result, securities regulators banned it and they now enforce that ban.
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Re: RRSP and TFSA - moving away from MF

Post by GoodManners »

OK -

I have opened an RBCDI account and transferred the money into it.

My plan has changed a bit and I am thinking of purchasing:

VAB - 30% Canadian Aggregate Bond Index ETF
VCN - 20% FTSE Canada All Cap Index ETF
VXC - 20% FTSE Global All Cap ex Canada Index ETF
VUN - 20% U.S. Total Market Index ETF
VFV - 10% S&P 500 Index ETF

Can anyone see any glaring errors in this plan?

I'm not sure in the differences between VAB and VSB.

I'm also not sure what to buy with the RRSP and what to buy in the TFSA. There's roughly 70K in RRSP and 30K in TFSA.
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Re: RRSP and TFSA - moving away from MF

Post by longinvest »

GoodManners wrote: 21 Aug 2017 15:10 I'm not sure in the differences between VAB and VSB.
VAB includes bonds of all maturities: short, intermediate, and long.
VSB only includes short bonds.

Some people don't like the volatility of VAB, so they prefer VSB. But, personally, I think that it doesn't make much difference in a portfolio with a significant allocation to stocks. Here's a historical growth chart of three ETFs:
  • Blue: XSB which is similar to VSB
  • Red: XBB which is similar to VAB
  • Orange: XIC which is similar to VCN
xsb-xbb-xic.png
(Source: Portfolio Visualizer)

Look carefully to see how XBB (red) went down a little in 2008-2009, while XSB (blue) remained steady. That's the difference between a total-market bond ETF and a short-term bond ETF. Meanwhile, stocks (orange) had a real ride. :wink:
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Re: RRSP and TFSA - moving away from MF

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GoodManners wrote: 21 Aug 2017 15:10 I'm also not sure what to buy with the RRSP and what to buy in the TFSA. There's roughly 70K in RRSP and 30K in TFSA.
Put the US listed ETF's in the RRSP.
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