keep MAW100 or self direct VAB in LIF and RRIF accounts ?
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Thread: keep MAW100 or self direct VAB in LIF and RRIF accounts ?

  1. #1
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    keep MAW100 or self direct VAB in LIF and RRIF accounts ?

    greetings, I am about to change my LIRA into a LIF and my RRSP into a RRIF. This money comprises 25% of our total holdings. Both LIRA and RRSP consist primarily of MAW100, Canadian Bond Fund (distribution yield 1.94% Yield to Maturity 1.7% MER 0.74). The Mawer advisor says that i should maintain my current investment allocations for my risk profile and stay with bonds. How low will bonds go?

    I notice however that Vanguards VAB (distribution yield 4.07% dividend yield 2.77% MER 0.13) essentially tracks MAW100 for past several years.

    Am thinking to switch LIRA/RRSP from Mawer to my TD WebBroker trading platform so I can self direct the RRIF/LIF using VAB and perhaps similar low risk ETFs…thoughts?

    I have a “cash bucket” with 3 years living expenses already so could perhaps purchase somewhat higher risk ETFs for RRIF. But not sure if i need to take undue risk.

    Last edited by Ben Tunite; 2016-12-10 at 01:10 PM. Reason: i had wrongly listed MAW100 dividend yield as 1.7% but the 1.7% is actually the Yield to Maturity

  2. #2
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    Hmm, no comments yet.
    It seems like at CMF we're better/quicker at responding with generalizations than feedback to specific situations.
    I suspect that is because it is impossible to know your full financial and life situation and they are important to the decisions you make.
    There seem to be 2 concerns: 1. performance of MAW100 vs VAB and, 2. moving to DIY at TDDI rather than staying with Mawer.
    When I plot VAB and MAW100 on tmxmoney.com, I see pretty similar results from the two. Below are 5yr and 1yr w/ reinvestment, they are similar without reinvestment as well. You may have other metrics but I don't see enough of a difference to make a switch:
    Vab-Maw100 5yr w dividends.JPG
    Va-Maw100 1yr w dividends.JPG

    As to moving from Mawer to DIY, it sounds like maybe you already have a component of DIY in your overall assets, and some subset with Mawer? That I think you only recently added?
    I think it can be prudent to have the diversity of a few ways of managing your assets. Kind of similar to having geographical diversity, you've got more 'cylinder's to run on'. Only up to a point of course - get too diversified or spread around and it can begin to work against efficiency and performance.
    So if the Mawer piece is recent and a subset of your assets, I'd be reluctant to second guess and pull the plug. Too much of that at the wrong time and/or wrong changes can be detrimental to your results.

    Personally I have done something similar, I dumped substantial cash into Maw104 a few years ago (not directly but thru TDDI). My own portfolio as performed better to date, but I'm going to stay the course and let them manage that piece because I know that I'm lucky not smart.
    Last edited by OnlyMyOpinion; 2016-12-10 at 01:16 PM.

  3. #3
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    OnlyMyOpinion,
    Good wisdom and you correct. I have been a DIYer at TDDI for years with variable success and recently went to Mawer with my pension and savings package when i was laid-off/early-retired in order to obtain investing diversity.

    I was struck how MAW100 and VAB perform so similarly yet have different optics (yields, MERs). At first naļve blush i thought the VAB would be better with lower MER, higher "yield".

    Apologies for providing a specific situation without all details but I've learned alot from this site. I was hoping some might comment on the wisdom of holding a large % of bonds over the next several years given the rise of interest rates. Also, since it is much easier as a DIYer to move money from one fund to another, or to various funds (Mawer only has 2 bond funds), i wondered what readers thought, and recommendations on other suitable safe investments. I like your wisdom and am leaning to remaining with Mawer for a while to protect myself from myself.

    many thanks

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  5. #4
    Senior Member GreatLaker's Avatar
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    Not sure if you said how old you are. I am 59 and retiring next year. I am very much an index investor. Portfolio is 20% GIC ladders, 20% VAB, and the rest split equally among Can, US and global equity ETFs, all at TDDI. The GICs give me 5 years of guaranteed income, and VAB another 5, so I can go a long time without touching equities if we ever go through another 1970s type stagflation or a 2000ish dotcom crash. I do have a good chunk of "mad money" in MAW105, also at TDDI. I keep minimal cash in my investment account, but do keep emergency funds in whichever of Tangerine, EQ Bank and Oaken give me the best HISA rate, and also plan to keep my spending money for a year there too.

    I think Mawer is a great company. Nothing wrong with holding some % of your money there. I'd put any plans for moving away from Mawer on pause and think about it for a month or more and see how you feel. Does not seem to be any rush.

    As far as fixed income goes, bonds let you sleep well, equities let you eat well. Even if they don't perform really well they will add stability to your portfolio which is important to avoid sequence of return risk during withdrawal phase. Hope I am not boring you with stuff you already know.

    Vanguard published a paper that talks about bond performance during rising rates that's worth a read:
    https://personal.vanguard.com/pdf/s807.pdf

    CCP also published this blog post on bond ETF performance vs. duration:
    http://canadiancouchpotato.com/2011/...-the-duration/

    Also there is this CMF post on bonds with some good debate:
    http://canadianmoneyforum.com/showth...p/104089-Bonds

    You mentioned DIY makes it easier to move money among funds. Have you ever heard the saying that investors should treat their portfolio like a bar of soap? The more they touch it the smaller it gets.
    Invest your time actively and your money passively.

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    The first question is the relatively performance between these two things. Morningstar is a good place to compare that. See MAW100 performance and VAB performance

    5 year performance (the longest data that exists) is VAB 2.97% per year, MAW100 2.71% or only about 0.26% better for VAB. What's under the hood of these two different bond funds?

    VAB
    Avg maturity: 10.7 years
    Credit quality: 45% AAA, 37% AA, 9% A, 8% BBB

    MAW100
    Avg maturity: 10.3 years (my estimate based on morningstar data)
    Credit quality: 41% AAA, 33% AA, 15% A, 10% BBB

    These have remarkably similar composition. Both hold quite high quality bonds. VAB should have a theoretical advantage of 0.6% per year based on lower fees, but that doesn't seem to have played out in reality. I think either of these are OK to hold. On paper VAB is slightly better, but in practice I don't think it's a big enough difference to justify shifting away from Mawer.

    I was hoping some might comment on the wisdom of holding a large % of bonds over the next several years given the rise of interest rates.
    There's no way to tell if interest rates are going higher. People were positive back in 2013 that rates would go higher, and the opposite happened. Nobody can predict this.

    The Vanguard paper explains why you should not abandon bonds out of fear of rising interest rates. Bonds still do fine in a mildly rising rate environment, and more importantly, they are still much safer than stocks -- and diversify a portfolio.

    If the bonds still make you nervous, add some GIC exposure. These days with discount brokerages offering GICs, and online arms of credit unions (I use Outlook Financial), you can get some very competitive rates.
    Last edited by james4beach; 2016-12-11 at 07:18 AM.

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    Quote Originally Posted by GreatLaker View Post
    Even if they don't perform really well they [bonds] will add stability to your portfolio which is important to avoid sequence of return risk during withdrawal phase.
    I want to emphasize this important point. Investment priorities change in retirement when you start drawing money out of your portfolio and living off capital. "Sequence of returns risk" refers to the danger of withdrawing money out of your portfolio during a stretch of down years. Bond exposure makes your portfolio more stable and mitigates sequence of return risk.

    Some of the newest research in this field (Rising Equity Glide Path) advises that you start retirement with an even higher bond exposure, over 50% fixed income actually. Why? High equity exposure and the sharp drops that could happen due to it are extremely destructive to portfolios.

    Bonds cannot drop as severely as stocks can.
    Last edited by james4beach; 2016-12-11 at 08:01 AM.

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    GreatLaker, thanks for the excellent papers.
    I will be 59 in a few months and aiming for 100. My parents lived to mid nineties eating the "Polish Diet" of meat, cheese, potatoes, eggs cooked in butter, etc...

    My financial planner said for tax purposes to immediately begin to withdraw from RRIF/LIF (which are 90% MAW100 Bond Fund). My bonds have dropped 3% since purchase in the summer. I won't sell the bonds but am thinking about postponing cash withdrawal given that the bond interest payments next year will work to offset the losses. I need to run my numbers but don't think a delay in withdrawal will affect OAS clawback.

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    Quote Originally Posted by james4beach View Post
    Some of the newest research in this field (Rising Equity Glide Path) advises that you start retirement with an even higher bond exposure,
    Thanks for posting this excellent resource. I agree, wont be selling my bonds, but do wonder how interest rates will behave in a Trump world...have we seen the end of the 35 year bond run and now will see a small sequence-of-returns issue in long bonds?

  10. #9
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    Clearly, your just turning 71. I'm going on 75 and think you need to decide whether you need to draw down any of those funds, or are you just looking to find somewhere to invest the money. We have all of our investments in high quality dividend growth stocks. No bonds, gic's, mutuals, preferreds or etf's. We chose this route because we wanted a growing income from our investment and we've achieved it. Our rrif dividends exceed the min withdrawal rates, so we don't really draw any of the capital. In fact our div income far exceeds our annual expenses so most gets reinvested, generating more income each year.
    Another benefit of the DG strategy is that our yield on invested dollars keeps rising, even during periods when the market is down.
    Last edited by canew90; 2016-12-12 at 09:43 PM.

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    ^ every dividend is intrinsically the same as drawing down capital. Stocks are not bonds, and dividends are nothing like bond interest.

    By exclusively seeking dividend equities instead of fixed income, you have unwittingly increased your vulnerability to a market decline and sequence of return risk, because all equities (yes even dividend stocks) are much riskier than fixed income.

    In periods where the stock market is down, your dividends are doing the worst damage to your capital -- no different than if you sold shares during a down market.

    The whole strategy may work out fine for you, but you're taking on much more risk than a typical stock + bond allocation.


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