My Portfolio - Seeking advice, please help

[Bylo Selhi]

I should be spanked. CIBC's Canadian Bond Index fund manager, too, maybe.

Maybe not. Could it be that some bond index fund managers are scrambling to mitigate the possible "fallout" from this? http://www.indexuniverse.com/index.php?section=6&id=946

Is the situation similar up here wrt Ford and GM paper? What percentage of SCMU does that represent?

[yielder]

One of the key objectives in asset allocation is to reduce risk, specifically in the volatility of the total portfolio return. Normally, you don't look at the price level of particular asset classes when making a decision. To do so gets you into a timing exercise. Notwithstanding, I think that you do look at price levels to assess whether they are at some historical or rational extreme. Interest rates in the late 70s/early 80s were at a rational extreme. Equity markets in the late 90s were at a rational extreme.

It's arguable that long term interest rates are at a rational extreme now. As a result, the fixed income portion of a portfolio should be short not long. As of this morning, TDW was showing the following ask yields on Canadas:

09/01/07: 2.80%
09/01/09: 3.31%
06/01/14: 3.97%
06/01/25: 4.44%
06/01/33: 4.45%

Is is worth the risk to buy a 20 year bond instead of a 5 year bond in order to gain 1.13%? It is only if you believe that inflation will remain at or below current levels for the next 20 years.

You can construct a bond ladder with maturities of 5 years or less. Or you can take a simpler, more diversified approach of buying a low cost bond fund. If you're going to buy a bond fund, look for one that pays a monthly distribution if order to capture the power of monthly compounding.

[Norbert Schlenker]

As the thread has now been hijacked quite thoroughly ...

It's arguable that long term interest rates are at a rational extreme now.

Why? After all, they've been operating on lower interest rates in Japan for nearly a decade now.

[yielder]

Why?

Inflation or lack of. As I said, if one expects inflation to continue at or below current levels for the next twenty years, then buy long bonds.

Consumer Price Index - Japan in General (1970--2003) - Spreadsheet

1993 1.1%
1994 0.6%
1995 -0.4%
1996 0.6%
1997 1.8%
1998 0.6%
1999 -1.1%
2000 -0.4%
2001 -1.2%
2002 -0.3%
2003 -0.4%

[Tanstaafl]

Hi again to all,

Thanks for all your previous advice. I've been reading many of the things suggested. Just got through "the four pillars" thanks Bylo....you are right it will stay on my shelf. I'm definitely convinced that keeping costs down is an intricate part of making money investing.

I want to keep it simple. I'm looking at a 40-60 bond/stock mix.

1st Question:


Need some recommendations for asset allocation. I own a triplex that is paid for, and have 4 years sitting in a pension plan from work, on top of my investments. I'm thinking about something like this:

40% Bonds (Corporate +non)
20% Europe, Asia + emerging markets
20% Canadian
20% US

I'd like to keep fees as low as possible and invest in emerging markets, pacific, US and Canadian indexes if possible. Can anybody recommend some low cost options available to Canadians.

2nd Question:

Can somebody recommend a way to keep tax exposure down?


Any advice (for us Canadian investors) about how I might limit my tax exposure?

3rd Question:

any advice about which bonds to use? I like the idea of a corporate bond fund. Are there any with low MER's available to us? If so would putting half my bond allocation in something like that be unwise? What might I do with the other half?

Sorry if my questions are ignorant. I'm just trying to learn as I go.

Thanks for any help you can give.

Hi JellyFish I'm was in the same boat somewhat that you are now. Feeling confused and a little jealous of how a lot of other people were talking about plan's for investing in this and that. And how they were making 10% or more.

It depends on how much you have? Allocation is a Personal decison, everyones is a little different depending on how they Feel. Some are gold bugs, some are US bugs etc.

Diversify and allocate. Use the least cost approach you can. ETF's are fine but you have to open a brokerage account, buy them, then dividends etc are not automatically invested. I followed Bylo's and Shakespeares advice 5 years ago, bought TD E funds, and purchased a few other active funds for Reits, gold and small cap US and Canada. Then put it on automatic. It's not the absolutely least cost, but I don't have to do anything except not look at the newspapers and every 3 months download my statements.

2nd Question

The bast$%^^ always get you. See an expert you know and trust. Better to get someone you can sue later than get someting for free.

3rd Question

Unless you know what to buy and are willing to spend time, buy a cheap bond fund or ETF. I use TD E fund split 50/50 between corp and govt. Cheap and interest automatically invested. Also easy to sell and move money around if you need to.

[jellyfish]

thanks for the advice. I've already got a broker and an individual stock portfolio. But ultimately I want to move all my money into indexes and low cost bond funds like you.

[Tanstaafl]

I do still have a small stock portfolio thru Drip and SPP purchases. I hope one day it will be a larger stock portfolio with dividend income and capital gains. Keep what you feel comfortable with and sell the rest. I tried the Active lifestyle and just made others money. Now I look after me first. I read alot from Shakespeares site, tips and books from Bylo's site and more from Norm Rotherey's site.

Yielder and other's have given me very good idea's and helped me with many of their posting's. Tom Connolly also has a very good site, but is quite cryptic in many of his comment's if a person does not have the background.

[gtkenji]

Hi,

I would like to open up a self-directed RRSP with BMO InvestorLine.
I am 44 years old, fit the " Balanced Growth " profile or at least can accept moderate risk, and my RRSP is worth approx. $ 100 K. After much thought I have come up with the following portfolio:

40 % Fixed Income; 60 % Equities

Fixed Income - all with PH & N. 50% with Total Return; 30 % High Yield and 20 % Short Term B & M

Equities - 50 % Mawer Canadian Equity
15 % RBC O'Shaughnessy US Value
10 % RBC O'S US Growth
25 % Mawer World Investment

Should I hold PH & N Bond Fund as well as Total Return ? Would RBC O'S Canadian & International Equity be OK instead of the (2) Mawer funds ?
Any thoughts would be appreciated. Thanks, Glenn.

[Springbok]

Hi,

I would like to open up a self-directed RRSP with BMO InvestorLine.
I am 44 years old, fit the " Balanced Growth " profile or at least can accept moderate risk, and my RRSP is worth approx. $ 100 K. After much thought I have come up with the following portfolio:

40 % Fixed Income; 60 % Equities

Fixed Income - all with PH & N. 50% with Total Return; 30 % High Yield and 20 % Short Term B & M

Equities - 50 % Mawer Canadian Equity
15 % RBC O'Shaughnessy US Value
10 % RBC O'S US Growth
25 % Mawer World Investment

Should I hold PH & N Bond Fund as well as Total Return ? Would RBC O'S Canadian & International Equity be OK instead of the (2) Mawer funds ?
Any thoughts would be appreciated. Thanks, Glenn.

Glenn,
BMO Investorline is fine, but it can do a lot more for you than buying Mutual Funds.

The funds you have chosen have reasonable MER's - about, 1.6%, I think, but the funds must still overcome this compared with say an index based ETF like XIU with much lower MER and likely higher dividend.

If you deal through BMO Investorline, there will be a sales charge for PH&N funds each time you buy, sell or add to your holdings - not sure about the others you have chosen, but you should check, because this adds up. It would be better to deal directly with PH&N. In fact, you could do worse than buying their equity funds (like PH&N Div Income Fund) along with their bond funds. Their equity fund MER's are about 1.2% or less.

Regarding buying bonds funds or bond ETF's. If interest rates increase as they are expected to do in near future, bond fund unit values will drop. They will eventually recover with the shorter duration funds recovering before the long duration funds. You might consider buying 2-5 yr bonds directly from BMO Investorline or even GIC's so that your capital will be locked in. (BTW, I can't see any reason to buy PH&N Bond fund over the TR fund)

With just $100k, you may want to go the MF route to get diversification, but the MER's will likely be a drag on the performance.

Remember, I am just another investor - Have owned PH&N and deal through BMO - otherwise I know nothing

[Shakespeare]

Dealing directly with PH&N is reasonable. However, FWIW, Scotia Discount allows you to buy and sell PH&N without fees.

[Bylo Selhi]

Dealing directly with PH&N is reasonable. However, FWIW, Scotia Discount allows you to buy and sell PH&N without fees.

Another alternative, if gtkenji is determined to deal with BMO is to transfer cash (at least $25k) to an PH&N RRSP, buy the funds you want, and then transfer them in-kind back to BMO. Or better still, just open an RRSP directly with PH&N. There are no account fees. I imagine Saxon and Mawer are similar. Now that the foreign content rules are gone, there's no longer any need to pool holdings into a single account.

N.B. Make sure all parties understand that these are inter-RRSP transfers. Otherwise they could be interpreted as partial withdrawals, be fully taxable as income and destroy RRSP contribution room.

[jasdmw]

Dealing directly with PH&N is reasonable. However, FWIW, Scotia Discount allows you to buy and sell PH&N without fees.

Another alternative, if gtkenji is determined to deal with BMO is to transfer cash (at least $25k) to an PH&N RRSP, buy the funds you want, and then transfer them in-kind back to BMO. Or better still, just open an RRSP directly with PH&N. There are no account fees. I imagine Saxon and Mawer are similar. Now that the foreign content rules are gone, there's no longer any need to pool holdings into a single account.

N.B. Make sure all parties understand that these are inter-RRSP transfers. Otherwise they could be interpreted as partial withdrawals, be fully taxable as income and destroy RRSP contribution room.

I've been away for a while, but I thought the legislation to eliminate the foreign content rule had not passed. Did I miss something with the last budget shennanigans in Ottawa? Is it now law?

[Shakespeare]

Is it now law?

Yes.
http://www.financialwebring.org/forum/v ... 1552#11552

[gtkenji]

Hi ... many thanks for all the input ... I'll have to look further into Scotia Discount for my RRSP account or perhaps dealing directly with the MF companies ( I do have an investment account w/ PH & N already ) ...
cheers, Glenn.

[George$]

There is an interesting thread at Morningstar Vanguard on "Why I Index"

There are 62 posts so far. Here is the initial post by Rick Ferri:

I index because I grew tired of being disappointed by active funds that delivered wonderful returns right up until the day I invested.

I index because for years I only discovered funds that I should have owned, not that I should own.

I index because I enjoy my free time and have not seen any overall gain from the hours spent analyzing active funds.

I index because it occurred to me that those who argue the strongest for active funds tend to be the same people who benefit the most if I buy active funds.

I index because I trust indexes more than active managers. Indexes do not get board, get overconfident, quit, die, or defect to other firms.

I index because indexes are transparent. I know what my money is invested in and why.

I index to eliminate risk without sacrificing return. The high probability that an active fund will not keep up with its benchmark adds uncompensated risk.

I index because as my assets grow I prefer simplicity to complexity.

I index because as I get older cost matters more to me.

I index because I now realize that all I need is the return of index funds to achieve my financial objectives. And that is what really matters.

Rick Ferri


Why do you index?

[nadreck]

Wow at no point did that person even suggest that there was a possibility of actually doing fundamental analysis and investing directly in individual securities. An investment universe of only Index Funds and Actively managed Funds . . . how limiting!

[adrian2]

Wow at no point did that person even suggest that there was a possibility of actually doing fundamental analysis and investing directly in individual securities. An investment universe of only Index Funds and Actively managed Funds . . . how limiting!

Most of the people have a problem investing as DIY's in a handful of indexed asset classes and need a paid advisor to do any investment at all.

Even less people are inclined to do fundamental analysis and investing directly in individual securities. And even less of them have the brains and guts to be successful.

You are in an extremely small minority, nadreck. Even if we accept your proposition (IIRC) that 95% of people can be taught, that does not mean that they want to be taught.

But this is a thread about indexing. If you want to rehash our discussion about how I don't believe that "most of the people can improve their returns by 3% over the index return", and how Sharpe's arithmetic applies or not, we should take it in a separate thread.

[yielder]

Why do you index?

Add I index because I do not know how to pick stocks consistently well or do not have the time to do so or do not have the inclination to learn.

Note that the I is not me.

[nadreck]

Adrian2 with all due respect, this thread is about index investing and someone posted a list saying why index investing was preferable to active fund investing. If my post commenting that the writer of those points lived in a very small universe is not relevant, then I submit to you that neither was the list in the first place.

If I write on a thread on modern ballet why it is superior to celtic folk dancing and insist that is supportive of modern ballet, then I think it is a reasonable prosecution of the discussion to point out that there are other forms of dance (Latin, European Ballroom, C&W just to name a few) that might also be compared with modern ballet.

Also it was 90% not 95% but pointing that out would just make me picky. (oops I guess I am picky )

Anytime you think you have more to contribute to that long standing debate of ours let me know. I don't disagree that most people don't want to learn, sadly it is literally their loss. For those that do I will do my best to help them if they ask.

[nadreck]

Add I index because I do not know how to pick stocks consistently well or do not have the time to do so or do not have the inclination to learn.

Note that the I is not me.

I didn't see that in Rick Ferri's list Yielder, And I just went back and checked again.

[George$]

Wow at no point did that person even suggest that there was a possibility of actually doing fundamental analysis and investing directly in individual securities. . . . how limiting!

Rick Ferri is a very astute and informed investment advisor. I suggest you look at some of his books and his web site before you dismiss him as naive or "limiting".

Shooting from the hip usually reflects more on the poster rather than on the target.

Just my opinion.

[nadreck]

Rick Ferri is a very astute and informed investment advisor. I suggest you look at some of his books and his web site before you dismiss him as naive or "limiting".

I said the point of view quoted was very limiting and I stand by it and cite my previous example of Ballet and Celtic folk dance. If the only alternatives were one or the other of the two he wrote about then fine, but there are a heck of a lot of other possibilities than just index or active funds, not just one or two. Now I never said that I dismissed Rick Ferri or his opinions, though since I only heard about him today, and in such a terribly negative light as that post that was quoted to me, I probably would dismiss him. But that is not Rick's fault, but mine and the fault of the person who selected that bit of Rick's writing which obviously does not show the intellect you admire so much in a very good light.

Shooting from the hip usually reflects more on the poster rather than on the target.

Just my opinion.

back atcha G-man

[Brix]

Ballet and Celtic folk dance

If meaningful diversification, low cost, and the interests of the average small investor are the essential points, a much better analogy would be a discussion of fossil fuels vs. electricity for powering public transit. True, this would overlook draught animals, which can work effectively for those who have sufficient time and are prepared to get to know them well...

[nadreck]

Ballet and Celtic folk dance

If meaningful diversification, low cost, and the interests of the average small investor are the essential points, a much better analogy would be a discussion of fossil fuels vs. electricity for powering public transit. True, this would overlook draught animals, which can work effectively for those who have sufficient time and are prepared to get to know them well...

So you don't see choices like bonds, small businesses, real estate, debentures, student loans to invest in ones future income, or simply taking extra courses, or a supplemental job, or a myriad of other wealth building techiques as being any more relevant to the discussion than your draught animals?

Then I would accuse you of being as closed minded about this as that one piece was.

If you are going to tell me that you like index investing because it is better than these other things fine and to list them, again fine, but to tell me that the only possible reasonable alternative to index funds is actively managed funds I think you are dismissing a lot more than you are considering. Which was my point in my original retort which I thought was as relevant to the discussion of index funds as was the list of why they were better than actively managed funds which if they were described as that I would not have commetted at all, but instead they were given a catholic level of being the only reasons to choose index funds. catholic in the sense of univeral

[Brix]

So you don't see choices like bonds, small businesses, real estate, debentures, student loans to invest in ones future income, or simply taking extra courses, or a supplemental job, or a myriad of other wealth building techiques as being any more relevant to the discussion than your draught animals?

You're perhaps leaping to conclusions, and, further, some of the things you now list are not 'individual securities' (not to mention that we all know which types of individual securities tend to receive the most intensive 'fundamental analysis' ).

In any event, I was merely trying to suggest a somewhat better analogy in what at the time seemed to be the given context.