Married, Kids, Single income... Tryin' hard!

[kork]

What a gem this place is! I spent the entire night last night reading... couldn't put it down!

I'm 33. Married and have two little girls, 5 and 3. My wife is a stay-at-home mom (has been for the past 5 years) and will be going back to work in 2 years and so income will increase.

A little bit about our situation:

Assets - $579,785

->Possessions - $335,000
--->House - $320,000
--->Vehicles - $15,000

->Registered (MINE)
--->RRSP - $80,435
--->TFSA - $21,024

-> Registered (HERS)
--->RRSP - $81,396
--->TFSA - $20,339
---> GIC - $579.25

-> Registered (Family/Kids)
--->RESP - $14,376

->Non Registered
--->Bank Acc. (Savings) - $20,000

Liabilities - –$234,205
->Mortgage - –$234,205 (2.25% variable)

Net Worth - $344,809

Ugly student loans have been fully paid off as well (That was a good day!)

I feel that I've been working hard, but that my money hasn't been working as hard as me. Since the beginning, our RRSP's, TFSA's and RESP's have been in the same funds. Relatively aggressive Royal Bank Mutual(Select Aggressive Growth Fund) with higher MER (2%+) and when the market crashed, I felt fortunate that we didn't lose everything. Felt sort of lucky so have been reluctant to change anything in the hopes that I'd see double digit growth like I saw it drop...

Over the last 8 years, $77,770 of the $80,435 to my RRSP has been contribution... $2665 growth in nearly a decade. I'm not going to scoff at $2665, but I can't help but feel that this has not been very good.

So yesterday I set up my discount brokerage accounts with TD Waterhouse. Looking to work with the e series low MER funds and diversify.

I don't really know much about this. Every time I think I do, I learn that there's so much more I need to know. The only thing that I DO KNOW is that I can work my arse off! lol

I'd love it if I could have enough equity and investments that I could generate an income from that to pay the bills... I mean, I'd much rather have $100 coming in monthly forever than to have $15k sitting in an account waiting to be spent. I'm all about building a machine that can be income generating without increasing my workload!

Anyways, I'm going to be very shortly walking down the road to diversifying my Registered investments and building a non-registered account and investing in elements that can generate an income!

All comments/suggestions welcome. Please be patient with me.

[humble_pie]

what a magnificent profile. You do yourself proud. Congratulations. Definitely it is ourselves who should be coming to you for advice on how to manage financially !

i'm even pleased to see you don't seem to be including possessions or car among assets in the net worth calc. This is a prudent common practice. Some persons don't include their houses or real estate; however i do, because these are giant assets that can be liquidated in organized markets, although this could take time.

it's great you've recently gone discount broker. TDW has a super research website; if you hang out there you'll soak up info like a sponge. The licensed representatives, too, will turn out to be exceptionally helpful whenever you're stumped about learning how a new research feature works.

could i make a little suggestion. One of the moderators of this forum has developed what i think is an excellent passive etf portfolio. It's compact, simple, fast to understand & proven successful over a number of years. He updates the model regularly. Unlike fund managers, he even immediately publishes his new rebalancing decisions. I believe he utilizes more than td e-funds; but you can certainly build core holdings & a good approximation of what he calls the "sleepy portfolio" out of td's e-offerings.

you can find this gem at Canadian Capitalist blog in Moneysense. There's a link at the bottom of this screen.

other parties will probably mention to you the big & first-rate canadian couch potato website. It's the mega-reference website that every indexer has to consult. I only brought up the sleepy portfolio because it is a timesaver & it sometimes gets overlooked.

one small admin detail that won't matter if you stick with td e-funds, but it will matter if you branch out into etfs or any other securities. TDW has a commission threshold at $50k for all household accounts aggregated. IE if your household has a total of less than 50k at tdw, commissions will be $29.95 (ouch); over 50k, commish drops to a more reasonable $9.99 per trade.

wishing you every success & believing you will be glad you made the DIY decision.

[tombiosis]

I've been working hard, but that my money hasn't been working as hard as me. Since the beginning, our RRSP's, TFSA's and RESP's have been in the same funds. Relatively aggressive Royal Bank Mutual(Select Aggressive Growth Fund) with higher MER (2%+) and when the market crashed, I felt fortunate that we didn't lose everything. Felt sort of lucky so have been reluctant to change anything in the hopes that I'd see double digit growth like I saw it drop...

Over the last 8 years, $77,770 of the $80,435 to my RRSP has been contribution... $2665 growth in nearly a decade. I'm not going to scoff at $2665, but I can't help but feel that this has not been very good.

I don't really know much about this. Every time I think I do, I learn that there's so much more I need to know. The only thing that I DO KNOW is that I can work my arse off!

Wow...I thought I was reading my own post!...(minus a few details)...very well written.
I found this forum the same way you did...after getting sick and tired of my hard earned $ not working as hard as me...in fact hardly working at all! I suppose it has worked hard enough over the last decade or so for my FA though. I also totally agree about realizing there is always more to know!
There are people on here that can offer much better advice for you than I can, but I will offer this:
Consider yourself fortunate to be doing changes now while you are still young. It is pretty daunting to know you have only 10-15 years until retirement and that you won't have enough moulah!
You have time. and are on a great path. I think you should assess your risk tolerance, then trim it back a touch from where you believe it to be. Also, concentrate a lot on asset allocation to protect you in these very volatile times. Trust no one but yourself, and remember that even the best financial minds rarely, if ever, beat the index.
I look forward to learning from the replies to this thread.

[Sampson]

One strong point I take away from your post is you are disappointed with the returns on your invested assets.

You should be careful when looking for new strategies to earn more on your money. Understand why you only gained $2500 on $77000, and if an alternative strategy would have produced any better returns. The past decade has not produced the largest returns so if you expect to do better by moving out of the RBC fund, check this first.

You obviously have a good handle on saving your money, keep it up.

As H_Pie mentions, the simple passive indexed portfolios are excellent places to start as you learn, but understand the purpose of that strategy is to minimize fees and to aim for the best risk-adjusted return - not the best overall return. It would be a shame if you find a new investment strategy and use it for 10 years only to be disappointed by low nominal returns and then change strategies again.

[kork]

Thanks for the words of encouragement.

@Sampson. When I first started a few years back. I was of the impression that with 30+ years to retire, that if I went aggressive growth and high risk, that as long as I weathered the storm, I'd be further along. I just needed to find that 7 year hump as I got closer to retirement.

So if I was 55 and my money was at a high and I could comfortably retire on it and then reduce my risk, then I would... If at 55 the markets were terrible, I'd just need to wait it out, perhaps for another 5-10 years, but it would inevitably return...

But then I took a look at the Great Depression.... 1929 crash.... Stock prices recovered from 1942-1966. They didn't return to their 1929 high until 1954, or so I understand...

So believe me, I appreciate the idea that switching strategies after 10 years (especially the past 10 years) may not be the best strategy, but I'm looking for something that may be lower risk and will still provide for retirement... Don't we all?!?

I'm just running out the door with the kids. Beautiful here in Ontario today!!! Will be back online later to read more and possibly ask some questions.

Thanks!

[OhGreatGuru]

... I feel that I've been working hard, but that my money hasn't been working as hard as me. Since the beginning, our RRSP's, TFSA's and RESP's have been in the same funds. Relatively aggressive Royal Bank Mutual(Select Aggressive Growth Fund) with higher MER (2%+) and when the market crashed, I felt fortunate that we didn't lose everything. Felt sort of lucky so have been reluctant to change anything in the hopes that I'd see double digit growth like I saw it drop...

... I'd love it if I could have enough equity and investments that I could generate an income from that to pay the bills... I mean, I'd much rather have $100 coming in monthly forever than to have $15k sitting in an account waiting to be spent.
...

The investment horizons & objectives for your RRSPs, TFSAs, & RESPs are not (usually) the same, so there is no reason why they should have the same asset allocation (or be vested in the same mutual fund)

My personal observation is that the Big Banks are not very good at most "Growth" portfolios, and part of the reason is those MER's. Having said that though, considering what markets have been doing for the past decade, you need to look at your returns compared to what the average returns for the same class of funds has been, before deciding how good or bad your return is. But changing to ETFs or eFunds is a smart move in most people's minds.

It's hard to advise on how to generate an income stream in the current interest rate markets. I am a fan of RBC's Monthly Income Fund, but they no longer allow you to buy it in registered accounts. You can emulate it fairly closely with a 50/50 mix of RBC Bond index and RBC Dividend Fund. TD Monthly Income has a slightly higher equity allocation, but is also well-rated.

[kork]

About 10 years ago I read the Wealthy Barber and the whole "historically averaged 12%" and dollar cost averaging. That's why I started in that direction. Then Smart Couples Finish Rich and the rest of the David Bach series.

Then "The Wealthy Barber Returns" comes back and has a different story (albeit similar) to the first publication which takes the new economy into account.

And I've recently read the Money Sense "Guide to the perfect Portfolio" which has some very good arguments about some of the elements mentioned above.

My RRSP and TFSA. Both of these accounts I don't expect to use until retirement or semi-retirement. This is a long way out. At 33 years old, that's my current plan - so let's say 55 year old is the goal. 22 years to go.

From my understanding it consists of 4 different funds (correct terminology?)

TD Canadian Bond Index - e (TDB909) - 40%
TD Canadian Index - e (TDB900) - 20%
TD International Index - e (TDB911) - 20%
TD US Index - e (TDB902) - 20%

At this point, I don't even know how to really find out more information of these different funds except for morningstar. All I know is that in a couple weeks I'm going to have all of my funds sitting in my new TDW account as cash to be re-allocated....

It's daunting, but I've been reading and hearing that a self-directed account is the way to go and that TDW is a good way to go about it. I don't want fear to be the reason I don't change... But I also want to make a change that's good.

Don't even get me started about my girls RESP's... With 13 years before it starts to be potentially used, I don't want to mess up their future with bad decisions today!

[Sampson]

The index funds are good because fees are low, and there is empirical data showing that active money managers (like those controlling your RBC fund) can not consistently beat the market (mirrored by the index funds).

So, if you are interested in passive index investing, you need to know which index the fund follows (TSX60 in the case of the TD Canadian index), and you have to be comfortable in that market.

The one dramatic difference among your current allocations and the TD e-series portfolio you list is the among of exposure to bonds, an asset class historically showing little correlation to the stock markets. So when you saw a 20-40% drop in your portfolio value during 2008/09, had you held 40% of your portfolio in Canadian bonds, the drop would only have been half of what you experience.

Diversification among multiple uncorrelated asset classes (real estate, precious metals, commodities, stocks, bonds, cash) should give you the outcome you are after - reduced portfolio volatility, however, remember that it comes at a cost - reduced portfolio returns. Going forward, many (myself included) believe the rates of return will not be as high as in the past, so 12% per annum might not be possible.

A second consideration when constructing your portfolio and understanding the returns you might get from it is the sequence of returns risk. You might average a 10% return with a certain portfolio, but that doesn't mean a consistent 10% every year. More likely, you will get a return of 20% one year, 0% the next, -5%, then +10%. This will have a huge impact on your portfolios' growth and day-to-day value and makes it critical to stick with a plan. Find an asset allocation where you are comfortable handling the amount of ups and downs, then maintain that strategy. If not, you might be inadvertently timing the markets, and most people do poorly when they try.

[MoneyGal]

A second consideration when constructing your portfolio and understanding the returns you might get from it is the sequence of returns risk. You might average a 10% return with a certain portfolio, but that doesn't mean a consistent 10% every year. More likely, you will get a return of 20% one year, 0% the next, -5%, then +10%. This will have a huge impact on your portfolios' growth and day-to-day value and makes it critical to stick with a plan. Find an asset allocation where you are comfortable handling the amount of ups and downs, then maintain that strategy. If not, you might be inadvertently timing the markets, and most people do poorly when they try.

Technically this is just the sequence of returns...there's no actual risk in the scenario you described. The risk is that you will hit a market downturn when you want to convert the portfolio to a stream of income. If you time your conversion point with a downturn (no one does this deliberately), you will have less to withdraw over time even with the same average annual returns.

There's no risk in the absence of withdrawals -- there's just a sequence of returns. Make sense?

[Sampson]

Oh, I understand MG.

The OP states earlier that he is worried about sequence of returns risk (SRR). I sort of mixed to ideas into one in the last post, but thanks for pushing a clearer breakdown.

My concern over SRR for the OP is that if the impetus for him to change investment strategies is poor returns over X period of time, if he moves to a passive indexing strategy and then abandons it because of a series of poor return years, then don't bother switching strategies.