My Portfolio - Seeking advice, please help

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
queerasmoi
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Post by queerasmoi »

The trouble with aiming for a "couch potato" style with zero bond/cash exposure is that the couch potato benefits from having a "safe pool".

Suppose equities boom around the world one year. If you have some bonds in your allocation, then at rebalancing time you'll sell equities and buy bonds. The next year, if worldwide equities tank, at least some of the profits were realized by putting them in bonds. If you had no bond exposure, then rebalancing would not have helped you at all. A short-term bond fund aids the couch potato because it's got a different risk profile and a low correlation to equities.

You may want to consider at least some percentage - even if its a small one. An alternative - I would not do this one myself but it was mentioned on one blog - is make a fixed-income allocation out of preferred shares (e.g. CPD from Claymore). They're a bit riskier than bonds, but they still provide the benefit of being not-so-correlated to your other asset classes.

Bonus: CPD dividends are eligible for the credit. Hold them in your taxable portfolio.
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Post by Rickdl »

brucecohen wrote:Out of curiosity, heave you read the thread that discusses the pros and cons of XIC versus XIU? I don't remember the topic name, but am sure that someone more adept than me at using the search function will cite it in a few hours.
I've seen a few on that topic, and it has been brought up in multiple threads. Was there a concensus on that topic? I mean from what I remember there were still some back and forth on which is better and why depending on the current circumstances. But I could be mistaken.
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Post by brucecohen »

Rickdl wrote:
brucecohen wrote:Out of curiosity, heave you read the thread that discusses the pros and cons of XIC versus XIU? I don't remember the topic name, but am sure that someone more adept than me at using the search function will cite it in a few hours.
I've seen a few on that topic, and it has been brought up in multiple threads. Was there a concensus on that topic? I mean from what I remember there were still some back and forth on which is better and why depending on the current circumstances. But I could be mistaken.
My takeaway was that XIU is the better choice because its MER is marke's markedly lower. XIU proponents suggested XIC's 10% cap on any one stock loses its value for any investor who follows the business news; Nortel-like bubbles are rare and take time to build, leaving ample opportunity to exit XIU. But that's all from my aging memory. You might try searching on XIC with Bylo Selhi as the author.
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Post by 72offsuit »

brucecohen wrote:My takeaway was that XIU is the better choice because its MER is marke's markedly lower. XIU proponents suggested XIC's 10% cap on any one stock loses its value for any investor who follows the business news; Nortel-like bubbles are rare and take time to build, leaving ample opportunity to exit XIU. But that's all from my aging memory. You might try searching on XIC with Bylo Selhi as the author.
The MER is 0.17% for XIU and 0.25% for XIC, so 8 bps, or $80 on $100K. I went with XIC since it was a broader index (257 holdings compared to 62 for XIU) and I was going for the "buy the whole market" approach a la Bogle. Small caps are supposed to have a return premium in excess of large caps and XIC should capture that.

I did a comparison of XIC and XIU in a spreadsheet one time and found that XIC is essentially the same as 73% XIU plus 27% other companies, so it's not really a huge difference one way or the other.
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LIRA - Bonds & dividend stocks?

Post by nutN2Lewz »

I will be receiving a $118,000 federal pension transfer in two weeks. I plan to purchase bonds and Canadian dividend stocks in my LIRA and use my existing RRSP of $50,000 to purchase USA/Foreign ETF’s. I am 47 and am investing for 20-25 years.

$20,000 Bonds (12% of total portfolio)
$20,000 Real Return Bonds (12%)
$78,000 Canadian dividend earning stocks (47%)
-----------
$118,000 LIRA

My entire LIRA will be in Canadian assets but my RRSP will hold USA/Foreign ETF’s and will increase by USD$10,000 per year. I earn USD and plan to spend USD in retirement at the poker tables in Vegas.

For my LIRA I am thinking of purchasing the 5 banks, 2 financials, 2 utilities, 2 telecoms, a pipeline, railroad, and metals - about 15 stocks in total @ $5,000 each. The 5 banks will represent 15% of my total portfolio and no single stock will be greater than 3% of my portfolio.

I will try to cost average my stock purchases but could use some suggestions about that. I get $10 trades at TDW. I might wait months before purchasing any particular stock. For instance, if I feel that Canadian banks might drop a bit later this year, I will hold off on making that first stock purchase.

I want to set up a 5-year bond ladder. I also want to purchase a RRB. I find the TDW website to be rather confusing about purchasing bonds. How should I go about purchasing my bonds? Make a call to TDW?

If you were depositing $118,000 would you expect to get some free trades from TDW? How about a free toaster or an iPod?

I would appreciate any comments about my overall strategy.
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Post by like_to_retire »

How should I go about purchasing my bonds?
Go to your TDW on-line account and click Fixed Income. All the bonds are there to sort through and purchase on-line...
If you were depositing $118,000 would you expect to get some free trades from TDW?
Nope.

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Re: LIRA - Bonds & dividend stocks?

Post by mw »

nutN2Lewz wrote:If you were depositing $118,000 would you expect to get some free trades from TDW? How about a free toaster or an iPod?
Free toaster? No. But I did get a nifty folder. Would have preferred an iPod, but settled for good service at a fair price.
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Re: LIRA - Bonds & dividend stocks?

Post by AltaRed »

nutN2Lewz wrote:I would appreciate any comments about my overall strategy.
I don't understand your comments regarding a 5 year bond ladder. If you mean $4000 in each of 1, 2, 3, 4, 5 year bonds, you will pay high prices for bonds of that size. Not sure you can even buy bonds at less than $5k each. I would suggest you buy 2 $10,000 bonds instead.

If you are set on a 5 year bond ladder, you would most likely be better off in a 5 year GIC ladder (5 GICs at $4k each).
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Post by queerasmoi »

Question: If you plan on retiring in US dollars, why are you choosing entirely Canadian-dollar fixed-income investments? There are some very low-cost ETFs you can choose on the US market that represent similar fixed-income instruments across the border - including TIPS, the American analogue to RRBs. You might want to go for some of each.

If you find that bond spreads/fees are too big to construct a reasonable Canadian bond ladder, you might want to consider the Claymore 1-5 Year Laddered Bond ETF. It is similar in duration to the iShares Short Bond ETF, which has a marginally higher MER but also corporate-bond content.
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Post by nutN2Lewz »

Thanks for the comments ...

I will probably go with one of the bond ETF's, rather than a ladder.

My income is in USD and most of my future RRSP contributions will be USD ETF's and (some) bonds. I have never before considered TIPS -thanks for that.
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Post by Shakespeare »

I will probably go with one of the bond ETF's, rather than a ladder.
One of my concerns about Claymore is their small size relative to iShares, although you could always cash out and switch to XSB if Claymore abandoned the market.

(I use XSB for my own short-term bond exposure.)
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Post by queerasmoi »

nutN2Lewz wrote:My income is in USD and most of my future RRSP contributions will be USD ETF's and (some) bonds. I have never before considered TIPS -thanks for that.
If your income is in USD and you're investing in USD, make sure your brokerage is good at handling all these USD transactions without forcing currency exchanges on you :)
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Post by nutN2Lewz »

queerasmoi wrote:If your income is in USD and you're investing in USD, make sure your brokerage is good at handling all these USD transactions without forcing currency exchanges on you :)
I own a couple websites and my advertisers pay in USD to paypal. I transfer USD from paypal to my TD Banknorth USD account and then to my TD Waterhouse USD trading account. No fees and no currency conversions.

I'm still trying to figure out how to avoid a currency conversion for dividends earned once I purchase USD ETF's. I called TDW and they said that they will deposit the USD dividends into a USD Money Market account ... but I would have to call them each day that I earn dividends. Otherwise, the USD dividends are converted to CAD.
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Post by queerasmoi »

nutN2Lewz wrote: I'm still trying to figure out how to avoid a currency conversion for dividends earned once I purchase USD ETF's. I called TDW and they said that they will deposit the USD dividends into a USD Money Market account ... but I would have to call them each day that I earn dividends. Otherwise, the USD dividends are converted to CAD.
Indeed, this remains a silly software limitation that all the banks are trying to fix but evidently haven't succeeded in doing yet. Questrade can do it but they're not well-loved.
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Post by Shakespeare »

Manulife shows Mawer the love with promotion of small firm
Mawer is that rarity in the mutual fund industry, a company that does everything well, whether it be Canadian equity, U.S. and international equity, balanced or bond funds....

Low fees are a given at Mawer, as they are at similar firms that run mutual funds as a sideline to their main business of managing money for rich people and institutions. Quick example: Mawer World Investment has a management expense ratio of 1.43 per cent, compared with at least 2 to 2.5 per cent for most of the big funds in the category. "Frankly," Mr. Senyk said, "low fees are one of the competitive advantages we have at the firm."

Predictably, the MERs for the Manulife versions of Mawer's funds will be considerably higher. Quick example: Manulife Mawer Canadian Bond will have an MER of 1.7 per cent, compared with 0.93 per cent for the straight-up Mawer version.

Some of the extra fees go to Manulife advisers, who are presumably earning them with services provided to clients. If you want the lower-fee funds, you can buy through an online broker and you'll need a minimum $5,000 instead of $500 for Manulife's Mawer lineup. Investors in British Columbia, Alberta, Saskatchewan and Ontario can buy directly through Mawer, but require a minimum account size of $50,000.
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Post by queerasmoi »

Seriously, if you're going to pay 1.7% MER on a bond fund, you might as well be holding cash... total silliness.

For example, Altamira Short-Term Gov't Bond presently has MER=1.75% and was barely able to beat the 5-year Average GIC index from 1994-2008.

Predictably, PH&N Bond (presently 0.58% MER) and Mawer Canadian Bond did much better.
Last edited by queerasmoi on 24 Jul 2008 12:58, edited 2 times in total.
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Post by Shakespeare »

Although the Manulife versions are expensive, the Mawer versions are well worth considering, particularly by unsophisticated investors.
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Post by DanH »

queerasmoi wrote:Seriously, if you're going to pay 1.7% MER on a bond fund, you might as well be holding cash... total silliness.
That's kind of what I said four years ago: Bond fund risks outweigh rewards, says analyst.
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Post by queerasmoi »

DanH wrote: That's kind of what I said four years ago: Bond fund risks outweigh rewards, says analyst.
Which is why I'm feeling much better about the lean 0.25% on my XSB and 0.48% on TD Canadian Bond Index-e :)

{I contribute small amounts to eFunds and then, when I reach a threshold amount, I slide that over to a lower-fee ETF}
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Post by twa2w »

If you use RBC direct investing you won't pay fees on the PH&N and you will get an MER reduction on the OS funds if you have over 10M per fund. Not sure if they allow Mawer funds.

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Post by parvus »

10m=$10,000. And yes, PH&N and Mawer funds are available (at 5m). :wink:
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My portfolio

Post by retireat50 »

I am in the process of trying to restructure my portfolio. I had essentially plowed my money into index or mutual funds in the past until a couple of years ago when I started educating myself about ETF's and individual stocks. I'm in my early thirties and would like to retire in my early 50's. Home is paid off and I save approximately 55% of gross pay. My fixed income portion of my portfolio is only 10-15% at any time because I feel like I can take additional risk given my time frame of 20+ years, the fact that my home is paid for and I am also careful with my spending. As time goes on FI will get a larger % of my portfolio.

I am probably slightly too heavy in financials, although it has paid off for me in the past 4 weeks as they have rallied nicely. The current yield on my portfolio is about 2.7%. Also, I am very heavily focused on Canadian equities as you can see. I need some emerging market, US or global equity ideas. I should have dipped my toe into those when the loonie was on par to the US dollar. Having said that I do get some indirect international exposure from PWF, SLF, MFC and BNS. I'm also looking to add some gold or gold stocks given it's decline recently. My employer's stock holdings are higher than I'd like but they stop matching contributions if you sell anything prior to a mandatory hold period.

Any thoughts? Numbers on the side are % of course.


Fixed income
Bonds and Cash
ishares Corporate bond ETF - XCB 4
Etrade high interest account 7
Riocan REIT 3


Equities
Canadian
XIU 27
Bank of NS 10
Crescent Point Energy 7
Employer stock (traded on TSX) 7
Sprott CDN equity 5
Manulife 3
Sun Life 3
Telus 3
Shoppers Drug Mart 3
Power Financial 2
Yellow Pages 2
Sherritt 2


Foreign
RBC O'Shaugnessy Global Equity fund 4
Templeton Global Equity 3
Claymore BRIC ETF - CBQ 5

Total 100%
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Post by squash500 »

R50 wrote: Any thoughts? Numbers on the side are % of course
R50, right now your portfolio consists of 89% equities and 11% fixed income. IMHO, Riocan should be considered as an equity.

I think that it is great that your home is paid off and that you save so much of your gross pay :) . That being said, if I was in your position I would allocate at least 30% of your portfolio to either fixed income or cash. IMHO, 89% is way too high an allocation to have in Equities :!:

It also depends if you are married or have any kids etc. IMHO, if you are a bachelor with no dependents then you can take more risks with your money.
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Post by Sensei »

Hi R50,

It's commendable that you are thinking about this early. I also mainly like your portfolio with the following comments.

Squash is right in that a lot depends on your risk tolerance. If you don't have any special reason to protect your capital (family) then a lower level of bonds would be fine. If that is the case, I'd be quite comfortable with the bond allocation you have (in fact at 54 that is about my bond allocation!).

OTOH, I have to disagree about REITs being an equity. I think they can be better classed as income producing real estate, so they are not like bonds or equities. In any case, very good to have in your portfolio. After some DD, I'd add one or two more. I'm not sure about Canada, but U.S. REITS have different focuses. For example, two that I own are Realty Income (O aka the monthly income REIT) which focuses on retail property leasing. Diversified Developer's Realty concentrates on developing and managing shopping malls (and therefore has a little different income stream). Currently I'm looking at some healthcare REITs such as HCN. The main point is diversification even within my REIT holdings.

All of my stock portfolio is U.S. or U.K. But, for the same reason, the slide in the Canadian dollar, I'll be building a small Canadian portfolio going forward. From my limited research so far and some recommendations, many of your choices look good. I think the dividend focus also cancels out some of the necessity of holding FI. IMHO, and I'm a fairly new convert to this idea, ultimate income from dividends is the number to focus on and not your net worth. Dividend income is more connected to the fundamentals of the company. Therefore, it often continues to rise in nearly any market, whereas stock prices can fluctuate, sometimes dramatically, as we all know.

Cheers
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Post by DenisD »

I assume you know that you can get lower fee versions of the O'Shaughnessy funds at RBCDI.

Personally, I would have a lot more foreign. But, different strokes ...
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