Moving portfolio to retirement mode
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Thread: Moving portfolio to retirement mode

  1. #1
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    Moving portfolio to retirement mode

    Hello,
    I am about 2 years away from retirement, and want to start protecting what we've put away. Over the past few years we've started to migrate out of individual stocks into ETFs, following the thinking that there is slightly less risk in an ETF than individual stocks.

    Currently, we have about 10% in GICs, 40% in ETFs (VCN, VCX, VGT, XAR) heavily weighted in US, and 50% in stocks - mostly Canadian Blue Chip dividend stocks like CP, RBC, Bell etc.

    We met with an investment counselor from the bank hubby's company has their retirement program with, He suggested we need a more balanced approach, of course he led with their balanced portfolio mutual funds, with the associated fees. He also strongly suggested adding a bond fund. I don't understand why bonds, when interest rates are so low - we've gone the GIC route - still low return, but guaranteed. What am I missing?

    Thanks!


  2. #2
    Senior Member kcowan's Avatar
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    You are missing that the advisor gets paid to sell bond funds and gets nothing for GICs.

  3. #3
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    Absolutely. After dealing with the bank we decided that we would only deal with a fee for service investment advisor. We found the bank was always pushing us towards large MER products. My guess is that the bank advisors get a larger commission for selling certain products.

    We have actually had good performance from our short term bond program but this is attributable to the specific company and product that we have.

    If taken in isolation, our equity position could be construed as being a little high. But we calculate the declining value of my DB pension in our total investable asset pool and then decide on the appropriate mix. Works for us since equities have done well for us over the past four years.

    I do not like hidden fees or so called free investment advice. I much prefer to understand the actual cost to me of the investment advisory service and then compare it to our net returns. Plus, we deduct our investment fees from income each year.

    We have had much better service, advice, and returns from dealing with a fee for service adviser than we ever did with the bank, including our foray into the banks fee for service program.
    Last edited by ian; 2017-05-14 at 10:53 AM.

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  5. #4
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    It sounds like you already have a plan and are well invested. Certainly worth the free visit to the 'investment counselor' (note n.n. a retirement specialist) but I wouldn't go any further with them.

    Could be that they considered your 10% fixed income low, 40% fixed income is a 'typical' sort of number - but we don't know anything about your other sources of retirement income such as company pension, cpp, etc., so 10% GIC's may be entirely appropriate when those other sources are considered.

    You want to be comfortable that the sum of your income sources, including investments (dividends and/or periodic sales), will provide the retirement income you need without undue exposure to market risk (i.e. needing to sell a large % of those etf's to pay the bills during a year when markets are down). Think in terms of 'needs' (monthly bills) and 'wants' (trips to Europe) and be comfortable that your needs are covered.

    You also want to understand whether it is your intention to spend down your assets during retirement and 'die broke', or whether you intend to gift or leave an estate to children, etc. An estate might also be considered a 'want'.

    If you have a retirement plan that has those bases covered then all I would add is, enjoy retirement!

    Added: For example, we have a larger FI component than 10% (in strip bonds), but we have no company pension and more modest combined CPP. So I suspect our 'sleep at night' portfolio may be more conservative than average.
    Last edited by OnlyMyOpinion; 2017-05-14 at 11:16 AM.

  6. #5
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    Agree with others that advisors, and especially bank advisors want to put you into high MER mutual funds to secure trailer fees for their company. The advisor's fudiciary interest is to his employer and his pocket than to you, the client. That said, there can be merit in finding a 'fee for service' financial planner that could look over your 'plan' for perhaps $2000 and give you that 'sleep at night' factor. Regardless, it appears to me you have sufficient acumen, experience and confidence to continue to manage your plan through retirement.

    As others have said, whether you need (or want) more fixed income in your portfolio depends partly on whather you have a DB pension (or not) to provide you with 'equivalent to fixed income' cash flow. If not, you are likely light on fixed income (50 Cdn / 40 US / 10 fixed) is pretty unbalanced. Some rules of thumb would suggest "110 minus age" for equity component....or perhaps even "120 minus age" for equity component... depending on your risk tolerance disposition.

    I'd suggest bumping up the GIC component to 20% and drop Cdn to 40%.... and have one year of cash flow needs in something like a HISA to absorb the peaks and valleys along the way. The GIC ladder can also include some corporate bonds and debentures too if you are comfortable with developing a 5-7 year FI ladder.... or it can also be a bond ETF such as VSB (similar to a GIC ladder) or VAB.

    Additionally, I would think about an overall plan on how you will withdraw funds throughout your retirement. I am not an advocate of living only off your portfolio income (dividends, interest, etc) and protecting your capital since you will forego the joys of spending that you could have had and leave a huge legacy as a result of capital appreciation...for what? Look up concepts like Variable Percentage Withdrawal for a 'real' plan to fund retirement. Lots has been done on this technique (read all about it in Bogleheads forum or Finiki at FiancialWisdomForum). There is the old standby SWR (Sustainable Withdrawal Rate) but it has its flaws and inability to adjust to major market swings, especially if you are tapping into capital to meet annual cash flow needs.

    Lastly, I normally refrain from commenting on equity ETF choices, but why do you want to target specific sectors like IT and aerospace? Both could underperform the market for vast stretches of time. Broad based indices would normally serve you much better (less volatility) than being sector specific. VXC, for example, could handle your entire ex-Canada equity component.

    Added later: My rationale for using something like VPW for a withdrawal plan is based on personal experience of 11 years of retirement. I originally started conservatively mostly living off pension income and the income thrown off investments starting in 2006. By 2012, it became apparent that the capital appreciation I was accumulating in my portfolio was going to be absolutely obscene by 2030 if the trend continued in a simlar fashion. So I ramped up my spending/gifting/charitable to much higher levels and I am still ahead of the game from an unrealized capital gains perspective. It is hard for those not with 10 years of retirement experience to comprehend there is more than one way to develop and execute a plan. Key lesson for me: Be flexible and be willing to adjust based on personal experience.
    Last edited by AltaRed; 2017-05-14 at 01:35 PM.

  7. #6
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    I like AltaRed's advice. It is sound. One thing for sure...the only person that cares about your money is you. Well, perhaps your heirs. Never forget that.

    Prior to retirment we did a complete review of our finances, investments, insurance, banking practices. Everything. The upshot is that we found that our bank was extemely expensive to deal with and most of those expenses were hidden. Things like MER, low interest rates on savings, excessive FX rates. We weaned ourselves away from the bank and have avoided thousands of dollars in fees. This is one of the reasons why we like bank stocks. The only remaining items for us at the bank is a seniors chequeing account, a safe deposit box, and a visa card (which we will not renew because of the Aeroplan annoucement). We did not even buy hard copy cheques from the bank. We ordered them directly from the supplier at less than half the price that the bank wanted to charge us.

    So, if you are looking to streamline your finances, and save money you might want to take a long hard look at your Bank's fees and most particularly the hidden fees, then make a decision as to whether you are getting value for your money.

  8. #7
    Senior Member kcowan's Avatar
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    Quote Originally Posted by AltaRed View Post
    ..My rationale for using something like VPW for a withdrawal plan is based on personal experience of 11 years of retirement. I originally started conservatively mostly living off pension income and the income thrown off investments starting in 2006. By 2012, it became apparent that the capital appreciation I was accumulating in my portfolio was going to be absolutely obscene by 2030 if the trend continued in a simlar fashion. So I ramped up my spending/gifting/charitable to much higher levels and I am still ahead of the game from an unrealized capital gains perspective. It is hard for those not with 10 years of retirement experience to comprehend there is more than one way to develop and execute a plan. Key lesson for me: Be flexible and be willing to adjust based on personal experience.
    As a 14 year retiree, I can reinforce this advice. We started out after the tech meltdown in 2000 and were very cautious. Then we started to realize that we could easily survive another meltdown especially after 2008. So now our focus has shifted into expanded charitable giving, and getting our kids some of their inheritance early. It is a fun transition.
    Quote Originally Posted by ian View Post
    We did not even buy hard copy cheques from the bank. We ordered them directly from the supplier at less than half the price that the bank wanted to charge us.

    So, if you are looking to streamline your finances, and save money you might want to take a long hard look at your Bank's fees and most particularly the hidden fees, then make a decision as to whether you are getting value for your money.
    Two things:
    1. I am considering a D&H debenture. They are not making any money off me or my family. Do you think they have a future? Its YTM is 3.92%. I have an old cheque-book that has lasted me for 10 years.
    2. Of course the banks are making money off you when they recommend an investment. That is why it will perform poorly compared to DIY alternatives. I hold 4 bank stocks because I know that most people are sheep.

  9. #8
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    Thanks for the ideas and feedback

    Thanks all, for the responses and the ideas. I'll follow up on the ideas and reading suggested above.

    I totally get why banks offer "free" investment counsellor. We spent time with him because it comes with the company sponsored benefits package. It was worth what we paid for it (nothing) but no more. We divested ourselves of mutual funds during the meltdown, figuring we could lose our money for free, instead of paying someone else 4% to lose it for us. Today, we have nothing in the hands of others - except the low cost ETFs.

  10. #9
    Senior Member GreatLaker's Avatar
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    Only thing I will add is if you are unsure if you have enough, or how to invest tax effectively, or which accounts to draw from when, minimizing OAS clawback etc consider having a fee-only planner do a plan for you for a one-time fee. Lots of experienced investors here don't need it, but it can be worthwhile if it removes uncertainty from your plan and future.

    As others have said "free" commission based advice is worth what you pay for it (actually it's worth negative because of the associated cost), and even a fee-based adviser that charges a % of assets under management every year adds an awful long-term cost and undermines performance for experienced investors with the temperament to do it themselves.
    Eschew obfuscation. Espouse elucidation

  11. #10
    Senior Member My Own Advisor's Avatar
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    Agree with many comments including AR's advice....

    Depends on your risk tolerance but I think/am planning for a good cash wedge entering semi-retirement, say $50K in cash reserves.

    I intend to "live off dividends" to a large degree.

    Anyhow, it really depends on other assets. What do they look like? What fixed income can you count on? That way, you can take on more equities if you choose.

    For the most part, I think 40% in ETFs (VCN, VCX, VGT, XAR) (or more) is good. Income-oriented ETFs include XIU and XEI and ZDV in Canada. Consider VYM and HDV for U.S.

    You can index with VXC or VXUS for international stuff.

    Personally I'd favour a cash wedge (1 or 2 years) over a bond fund today but that's just me.

    I liked AR's comment: go conservative early..."I originally started conservatively mostly living off pension income and the income thrown off investments starting in 2006. By 2012, it became apparent that the capital appreciation I was accumulating in my portfolio was going to be absolutely obscene by 2030 if the trend continued in a simlar fashion. So I ramped up my spending/gifting/charitable to much higher levels and I am still ahead of the game from an unrealized capital gains perspective."

    Then adjust from there. Seems like a great plan.

    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

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