My Portfolio - Seeking advice, please help

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Newkid
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beginner needs help - my first portfolio

Post by Newkid »

I'm actually in my late 30s and I just started to look after my money. (oh well, I'm kind of panicing here). I have 30K in GIC and I want to use them to buy some mutual fund. (I have RRSP, there is no room for more contribution.)

My first question might be stupid - what kind of financial corportaions I should choose? Does it matters if I choose CIBC, or TD or RBC or Fidelity, etc?

My second question is - what percentages should I allocate my money to 3 or 4 funds which have different risks and returns in a short term and long term? BTW, I definitely need some high returns in a short term.
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Shakespeare
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Post by Shakespeare »

what kind of financial corportaions I should choose? Does it matters if I choose CIBC, or TD or RBC or Fidelity, etc?
That should be your second question: you must decide on a strategy before finding a vendor. I might suggest you try this thread and then possibly here to obtain a strategic view.

If you want full control, you will eventually want a self-directed RRSP with a discount broker. But you will have to familiarize yourself with a lot of information first.
BTW, I definitely need some high returns in a short term.
You can not get high returns in the short term without high risk - which may entail significant loss of capital.


Your post suggests that you should attempt to further your self-education before setting out without an advisor.
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Post by Newkid »

Thank you. I read The Wealthy Barber and Investing for Canadians for Dummies. But those books just gave me some brief ideas. When it comes to real investment operation, I'm overwhelmed. I don't where I should start with. Do you have any books or resouces to recommend I should learn first? I certainly will read the thread that Shakespeare suggested. Thanks again.
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Post by parvus »

Newkid write:
I'm overwhelmed.
Hard not to be. There's way too much market information out there. On the other hand, I was almost entirely in GICs till my late 30s, at roughly your age now, and with only about half your assets.

Best advice, if you want to switch into funds, is to go to globefund.com or morningstar.ca and use their fund filters. I mostly use globefund, and sift through the asset categories I'm interested in, rank the funds by three-year return, rank them again according to MER, and then play solitaire. Seriously. Take your time. On globefund, when you click the annual menu, you get some interesting calendar-year results. So you can see how bad the returns were during the Great Bear of 2000-2002, including those of index funds. That's why I do a lot of solitaire. :wink:

I'm not an advisor. Read Shakespeare's manual, which is as good as the CSI course that stock brokers have to follow, for 90 days, before they're let loose on clients. And it's free!

At $30,000, it doesn't make sense to go beyond four or five funds. Presuming your GICs are in your RRSP, get a discount brokerage account (@$30,000, you've got enough so that the trustee fee will be waived, but the transfer process can be complicated, turtle-speeded and frustrating!), and then explore the fund filters until you find the (cheap) funds you want to satisfy your Canadian, U.S. and International exposure.

But don't mind my blather; spend a few weeks reading and you'll see. But read before you invest. 8) Best.
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Re: beginner needs help - my first portfolio

Post by DanH »

Newkid wrote:I'm actually in my late 30s and I just started to look after my money. (oh well, I'm kind of panicing here). I have 30K in GIC and I want to use them to buy some mutual fund. (I have RRSP, there is no room for more contribution.)

My first question might be stupid - what kind of financial corportaions I should choose? Does it matters if I choose CIBC, or TD or RBC or Fidelity, etc?

My second question is - what percentages should I allocate my money to 3 or 4 funds which have different risks and returns in a short term and long term? BTW, I definitely need some high returns in a short term.
If a friend came to me with this situation, here's how the conversation would go...

1. Invest your $30k in a good one-decision balanced fund until you figure a few things out (read on).

Which of the following best fits right now...

a) You are prepared to jump into the driver's seat of managing your finances;

or

b) You would rather delegate those duties to an advisor.

Depending on the chosen path, that will determine what steps come next and what kind of time frame to attach to them.
Shakespeare wrote:...you must decide on a strategy before finding a vendor.
Perhaps that the question was posed in this forum is indicative of a DIYer but I would not make that assumption. Hence, that has to be a consideration first. Either way, reading Shakespeare's link will make you more informed - and that's never a bad thing.
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Post by antlese »

Newkid,
Sounds like you and I are both the same age, with about the same level of knowlege, and in rougly the same financial suitation. So your not panicking alone. :wink:

Like you, I am trying to increase my investing knowlede by reading great forums like this, and asking questions.

I've found Bylo's favourite online books and general articles on investingto be excellent. I intend to read The CoffeeHouse Investor which provides some simple info on creating a portfolio using index funds.

Good Luck!
antlese

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Post by Shakespeare »

Perhaps that the question was posed in this forum is indicative of a DIYer but I would not make that assumption.
Nor did I: the link I gave was to the "portfolio construction" section of my site, which includes a balanced fund as one alternative. First-time readers may find the whole site somewhat intimidating, since the MSWord version runs to 111 pages and over 35000 words. :wink:
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Post by dakota »

since the MSWord version runs to 111 pages and over 35000 words.
Sounds like you got a book there buddy. Time to publish? 8)

PS With a name like Shakespeare you can't go wrong
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Post by Shakespeare »

got a book
Half a book. "Novel" length is 70000 words.
Time to publish?
Posts on TWB1 from people who have published books (Jon, Bruce) said the first one was a lot of work for little financial reward. I think I'll leave it on the web for free. 8)
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Post by parvus »

twood wrote:
I'm know that may have too many funds in my portfolio but I think it's well diversified. Can you guys advise if I need more/less weight in certain classes or if I need to get rid of some specific funds.

Canadian Equity (29%):
CI Canadian Investment - 15%
Chou RRSP - 9%
RBC O'Shaughnessy Cdn Equity - 5%

Canadian Balanced (16%):
CIBC Monthly Income - 11%
Saxon Balanced - 5%

Bond (7%):
TD Real Return Bond - 7%

Global Equities (25%):
Cundill Recovery - 10%
Cundill Value - 15%

US Equities (20%):
Chou Associates - 10%
RBC O'Shaughnessy US Value - 10%

Labour (3%):
Vengrowth - 3%

We are a couple 32 years old and have a new baby. We bring in approx $250K annually. I would consider ourselves to have about 20 years before touching the money and our risk profile is moderate aggressive.

Just some thoughts: your portfolio choices are close to what I've looked at. BTW, I'm not an advisor. These are only my observations.

On the Canadian side, O'Shaughnessy and CI Canadian Investment have something like a 90% correlation. So you're not getting diversification. Go with the lower MER (much as I like Kim Shannon). Chou has a U.S. component, so it's not completely Canadian content. Go to Globefund and check for Canadian small-cap funds to round out the allocation. I own Front Street, Mawer (alas, no longer available) and Saxon. I'm most comfortable with a buy-and-hold value tilt, rather than energy-heavy stuff, but it's up to you.

When you go on globefund, check the "annual" tab when ranking funds — it gives several years of calendar-year performance — so you can see how badly they did during the Great Bear. I like to look at that when I'm picking a fund, as well as how long the manager has been with the fund.

I don't think, at age 32, you need consider balanced funds: they're 60/40 stock/equity. They're meant for people older than you who still want equity exposure. So I'd blow that out entirely, and maybe buy a good bank dividend fund, if you want an income component. Yeah, it will overlap your Canadian holdings, but it takes care of itself by reinvesting the dividends. But that's just my opinion.

And, at $250,000 p.a., I question why you'd want a bond fund. Unless you require that income, bond funds only throw off distributions that should be reinvested elsewhere — or mitigate the psychological shock of a 25%-40% drawdown in assets, as many people experienced a couple of years ago. If you want the reassurance that at least something in your portfolio is rising, go with a dividend fund.

My own rule is that, so long as I have a salary, I can dollar-cost average into funds that have taken a significant hit, and wait, providing I still like the fund. If you need protected assets, buy a bond directly, or a GIC. If you have a DB pension fund, particularly a public-sector one, you already have a strip bond or much greater worth than many might realize.

On the global side, I'd take a look at AGF International Stock Class and Mawer International, and perhaps some emerging market exposure. I own both the Cundill funds, have some Brandes and AGF (and will probably buy Mawer this year).

With the U.S., it's hard to get an even break. I like Chou and O'Shaughnessy. To my surprise, the O'Shaughnessy U.S. Growth fund has had a great year, versus its value sister. I find the U.S. market pretty slim pickings.

There's also bank index funds — they actually haven't done that badly, compared to actively managed funds.

Good luck. :wink:
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Another Comment on Portfolio

Post by richb »

I have a very simple portfolio (maybe too simple?) sort of based on the Rip Van Winkle model. Here it is currently:

Saxon Balanced 60%
Saxon Small Cap 10%
Saxon World Growth 30%

I am quite young at 28 years, so risk isn't an issue. In March I might bump up the World component to 35-40% at the expense of the balanced fund. I have always liked Saxon, and I like small streamlined portfolios (nothing complicated). Sometimes I worry I might be missing something. What do you think? I used to follow an ETF model of 25% each of XIU, XSP, XIT, XGV.

I always toy with going back to the ETF's but something always stops me.... I always look at the 15 year charts and see how Saxon outperforms the indices (I know, I know, history is history, etc.), but regardless Saxon does seem to beat the indexes consistently.
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Post by arnyk »

Well for the bond portion you'd be looking at XBB or XSB (formerly XGV).

The three-fund port you currently have is a bit awkward, but jamming them into Morningstar shows roughly:

50% Cdn Equity
15% US Equity
15% Int'l Equity
15% Bond

Remaining chunk classified as "Other" and a bit in cash as well.
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Post by Shakespeare »

I always look at the 15 year charts and see how Saxon outperforms the indices
There's historically a significant value premium in Canada that Saxon has captured. That value premium is why even some of the "hard-core" indexers around these parts directly invest in Canadian large-cap value stocks.
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Post by DenisD »

Don't forget that the Saxon founders will probably retire long before you do.
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Post by richb »

DenisD wrote:Don't forget that the Saxon founders will probably retire long before you do.
Yes, this has crossed my mind. Their "new" funds managed by Carmen Veloso haven't seemed to live up to Saxon's older funds, but it is early days.

What would you guys recommend for a long term ETF portfolio? Keep in mind that once a year I would buy/rebalance at the same time to keep transaction fees (Etrade) at a minimum. I am familiar with the "easy chair" portfolio method. Bonds are also a problem, I have posted this here earlier, that smaller portfolios in the accumulation phase are impossible to set up an effective bond ladder (correct me if I am wrong, please).

Is my earlier posted 25,25,25,25 method effective? I also assume XIC is a better choice than XIU? Also which bond ETF is more appropriate?
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Post by Shakespeare »

XIC is a better choice than XIU?
If you want to try to capture the value premium you could try XDV, either by itself or in a split with XIC.
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Post by richb »

Shakespeare wrote:
XIC is a better choice than XIU?
If you want to try to capture the value premium you could try XDV, either by itself or in a split with XIC.
Shakes,

I got this from your primer:
* Canadian Fixed Income (bonds or GICs)
* Canadian Equities (large-cap or large-cap value)
* U.S. Equities (large-cap or total market)
* International (EAFE) Equities

So we are looking at:
25% XBB
25% XIC
25% XSP
25% XIT

Now XDV looks more expensive, and less diversified, I would rather keep it streamlined with only one: XIC,XIU, or XDV.
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Post by Shakespeare »

I would rather keep it streamlined with only one
Theory says XIC. Past performance suggests XDV. Take your choice. :wink:
25% XSP
25% XIT

For XIT, I suspect you mean XIN. Both XSP and XIN are currency-hedged. Most of us think a non-hedged ETF is better. The simplest choices are VTI and EFA.
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Post by DenisD »

Shakespeare wrote:Past performance suggests XDV.
Do we have simulated past performance? I don't remember seeing it.
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Post by Shakespeare »

simulated past performance
The Dow Jones fact sheet gives ~15% since Dec. 31 1998. Less the MER, that should be 14.5%.

Added: PH&N Dividend has a 10-year return Jan 31 1996-Jan. 31 2006 of 17.26%, vs 9.8% for the S&P/TSX60.
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Post by parvus »

richb wrote:
In March I might bump up the World component to 35-40% at the expense of the balanced fund. I have always liked Saxon, and I like small streamlined portfolios (nothing complicated). Sometimes I worry I might be missing something. What do you think? I used to follow an ETF model of 25% each of XIU, XSP, XIT, XGV.
Do you need a bond component, at your age, apart from the psychological security? Generally, I'm averse to balanced funds, since you could crystallize your fixed-income exposure separately, as you require it — e.g., starting five years before retirement — in a bond or GIC ladder. (BTW, I'm not an advisor, so take all of this with a grain of salt, preferably hefty lumps of them. :wink: )

I know there's the notion that bonds smooth out the ride, but if I look at a recent article by Jon Chevreau, or some other stuff from Fidelity, for bonds to have a significant effect on smoothing out the portfolio, they have to be at about 50% or 60% weight, which means you're giving up a lot of return potential. As well, bonds, IMO, are coming off a 20-year secular bull. So there's little upside — unless we have another one of these three-month flight-to-safety episodes, as in the summer of 1997, 1998 and fall 2001; but these are trading opportunities, not definitive buys — instead, for a young investor, bonds throw off income that can be reinvested elsewhere. Dividends do the same.

I happen to like the Saxon funds too. But for the income-generating part of the portfolio — the part that can throw off income to be reinvested or rebalance a portfolio, I've used Saxon High-Yield (as well as a bank dividend fund, and, oh yes, my annual RSP contributions from salary). Like Saxon Small Cap, it has suffered because of its low energy weighting, but I'm comfortable with that. If I want to ride the energy markets, I go to Sprott and Front Street (and expect high volatility, as well as higher fees).

So, if you were to strip out the essential components of Saxon Balanced, I would go with the High-Yield and Stock funds. Or you could ETF the Canadian market component. (I don't own Saxon Stock because I have the O'Shaughnessy fund, which is, essentially, a second guess on indexes/ETFs. Cherry-picking or data-mining, FWIW.)

For U.S. exposure, I agree, it's early days for Veloso. My preference is Chou Associates. The U.S. market is a tough grind, suspended in above-average historical valuations. For my quasi-index exposure I've used O'Shaughnessy, with mixed results (growth has far outperfomed value, unlike during the Great Bear). XSP doesn't do it for me because it's not a total market index.

For international exposure, there are a few folks here who are fans of Mawer. Again, there is the manager succession issue, and Mawer is a GARP rather than a value shop. The last analysis I looked at had Mawer International and Saxon World at a tie, in three-year returns and volatility.
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Post by richb »

parvus wrote: Do you need a bond component, at your age, apart from the psychological security? Generally, I'm averse to balanced funds, since you could crystallize your fixed-income exposure separately, as you require it — e.g., starting five years before retirement — in a bond or GIC ladder. (BTW, I'm not an advisor, so take all of this with a grain of salt, preferably hefty lumps of them. :wink: )

I know there's the notion that bonds smooth out the ride, but if I look at a recent article by Jon Chevreau, or some other stuff from Fidelity, for bonds to have a significant effect on smoothing out the portfolio, they have to be at about 50% or 60% weight, which means you're giving up a lot of return potential. As well, bonds, IMO, are coming off a 20-year secular bull. So there's little upside — unless we have another one of these three-month flight-to-safety episodes, as in the summer of 1997, 1998 and fall 2001; but these are trading opportunities, not definitive buys — instead, for a young investor, bonds throw off income that can be reinvested elsewhere. Dividends do the same.

I happen to like the Saxon funds too. But for the income-generating part of the portfolio — the part that can throw off income to be reinvested or rebalance a portfolio, I've used Saxon High-Yield (as well as a bank dividend fund, and, oh yes, my annual RSP contributions from salary). Like Saxon Small Cap, it has suffered because of its low energy weighting, but I'm comfortable with that. If I want to ride the energy markets, I go to Sprott and Front Street (and expect high volatility, as well as higher fees).

So, if you were to strip out the essential components of Saxon Balanced, I would go with the High-Yield and Stock funds. Or you could ETF the Canadian market component. (I don't own Saxon Stock because I have the O'Shaughnessy fund, which is, essentially, a second guess on indexes/ETFs. Cherry-picking or data-mining, FWIW.)
You are correct about the psychological security in the balanced fund over the stock fund. I would do just as well with the stock fund. I can handle the ups and downs no problem, for some reason I feel I have to own some bonds. But at my age this is somewhat unnecessary.

I think I'm going to stay with my Saxon funds, they have performed well, and its always the same with me, I'll look back next year and see that Saxon beat the index (again) and if I sell them, I will wonder why I did.
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Post by northbeach »

Shakespeare wrote:
For XIT, I suspect you mean XIN. Both XSP and XIN are currency-hedged. Most of us think a non-hedged ETF is better. The simplest choices are VTI and EFA.
Two thoughts here;

We loose out on currency exchange conversion fees when buying and selling US dollar ETFs, so therefore XIN and XSP will save us this cost.

Most people feel that the US dollar will depreciate in value due to its high debt level and high trade deficit numbers.
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Post by Shakespeare »

Most people feel that the US dollar will depreciate in value due to its high debt level and high trade deficit numbers.
Suppose the Canadian dollar depreciates instead due to Quebec separation?

Having some US dollar exposure is probably prudent.
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Post by flywaysuzy »

Is the reason there are so many similar funds because you are posting total rrsp for you and your spouse? I've never had any bonds at all in my rrsp, because my spouse has some in his and because we both have pensions. If you have balanced funds already, why have a separate bond fund?
Also, rrsp portfolio should be considered in conjunction with your non-registered portfolio. I.e. total diversification. With the two of you, that can mean separate non-registered accounts, so you can choose which ones to cash in (so lower income spouse takes the profits etc.)

I also am not a financial advisor or professional investor, but I'd rather buy the dividend stocks myself and keep more profits in my rrsp.

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