# Recommended ETFs in the current situation of a possible overheated US market



## Cliff Clavin (Mar 8, 2021)

Hi,
I'm a newbie to this forum and looking to get some investing advice. I am interested in using ETFs instead of individual stocks. I generally would turn to Vanguard or Blackrock and use VEQT or XEQT but they are 41-45% weighted toward the US market and I am concerned that might be a bit too much exposure based on the current valuations. My thought is to change the allocation and buy the individual ETFs for the other regions with greater allocation to Canada, Emerging Markets, Europe etc. I would appreciate any input from the forum. I am a bit unsure of whether to even invest now as there is a talk of a "bubble", but others are saying there will be tremendous growth. 
Thanks in advance,
Mike


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## MrBlackhill (Jun 10, 2020)

40%-45% weighting in US seems actually already pretty low and that's thanks to VEQT's and XEQT's home bias that overweights in Canada instead of US.

Give a look at VDU (developed ex-US), ZEM (emerging markets) and XIU (Canada's TSX 60).


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## Ponderling (Mar 1, 2013)

IXUS is a usd near equal to VDU in that it excludes holding us stocks , but is denominated in USD. 

I use it and VTI, an all US stock holding mostly of s&p500,which is also based in USD to balance off when either US or international side of my equity positions get under or over out of their desired percentages. 

Most recently I also felt big US stocks are overheated and sold VTI, and put the money into VBR, a small cap value based USD ETF.


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## Juggernaut92 (Aug 9, 2020)

Here are some recommendations:
XIC - ETF for Canadian Market - Trades in CAD
XEF - ETF for developed markets excluding Canada and USA - Trades in CAD
VEA - ETF for developed markets excluding USA - Trades in USD

VWO - ETF for Emerging Markets - Trades in USD - Do not personally own it but may be worth a look


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## m3s (Apr 3, 2010)

Juggernaut92 said:


> VEA - ETF for developed markets excluding USA - Trades in USD
> 
> VWO - ETF for Emerging Markets - Trades in USD - Do not personally own it but may be worth a look


Or VIU and VEE for CAD


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## Covariance (Oct 20, 2020)

I also wondered about regional, US, and Canadian concentration.
Here is the regional breakdown at the end of last year;
Canada ~ 3% of world
US 57%
EAFE 28%
EM 13%

These are percentages of the total investable stock market in each region (IMI) of the total for the world. Thus they provide a benchmark for passive exposure. Adjusting up/down by region you can tilt to different weights with this as neutral benchmark.


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## james4beach (Nov 15, 2012)

Cliff Clavin said:


> I am interested in using ETFs instead of individual stocks


I see only stock discussions above, but if you are concerned about overheated markets, it would be wise to diversify into bonds for more safety.

Do you currently hold any bond ETFs or are you 100% stocks?

You can only diversify so much in stocks. Most stocks in the world move in the same direction, generally speaking. Mixing up different countries and regions helps, but can only go so far. To really diversify your portfolio and reduce risk, you have to also hold bonds.


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## mcu (Dec 6, 2009)

Nice tips....What is a USD option for VBAL or VGRO? I have lots of cash in USD and have not made up my mind if I want to exchange yet, so buying USD ETFs would be an option


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## james4beach (Nov 15, 2012)

mcu said:


> Nice tips....What is a USD option for VBAL or VGRO? I have lots of cash in USD and have not made up my mind if I want to exchange yet, so buying USD ETFs would be an option


An American version of these funds has been around much longer than VBAL and VGRO. There are a few of them from iShares

AOA (Aggressive) is 80% equities, 20% bonds
AOR (Growth) is 60% equities, 40% bonds









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These are very good, low fee funds that have been around a long time. The 10 year performance has been
AOA: 8.9% per year
AOR: 7.6% per year

Keep in mind though, with those high proportions in equities, these are quite risky.


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## Tostig (Nov 18, 2020)

Cliff Clavin said:


> ...I am a bit unsure of whether to even invest now as there is a talk of a "bubble", but others are saying there will be tremendous growth.
> Thanks in advance,
> Mike


There's been a talk of a bubble since 2014. And since then the bubble had burst in January 2016, fall of 2018 and of course Feb to March 2020.

Pick your investments, buy them and ride the wave. If they go down to levels that make you nervous, buy more.


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## mcu (Dec 6, 2009)

james4beach said:


> An American version of these funds has been around much longer than VBAL and VGRO. There are a few of them from iShares
> 
> AOA (Aggressive) is 80% equities, 20% bonds
> AOR (Growth) is 60% equities, 40% bonds
> ...


So what is a safer bet than these two? I'm 44 so I have 15-20 years


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## james4beach (Nov 15, 2012)

mcu said:


> So what is a safer bet than these two? I'm 44 so I have 15-20 years


AOR (in USD) is a 60/40 mix which is nearly the same thing as VBAL. That's the "standard" balanced fund that most people go with.

Risk tolerance is a very personal thing, so unfortunately I can't think of anything to suggest other than to do some research and figure out how much risk you are comfortable with. These 60/40 funds can be somewhat volatile. When covid happened, VBAL (and AOR) fell 23% which is pretty typical.

Some people have no problem with those kinds of drops, other people do find that's more volatile than they are comfortable with.

One notch safer than AOR would be AOM. So if you want to go a bit safer, AOM could be attractive. During the covid crash, AOM fell 18% but as you can see, that's only slighter less volatile.


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## nathan79 (Feb 21, 2011)

Bubbles can continue growing for years, perhaps even decades. I wish I'd learned that sooner, because I lost a lot of potential gains by staying in cash or other lower risk assets.


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## Jimmy (May 19, 2017)

Don't buy bonds now. Warren Buffet made it clear to all in his annual stockholders letter. They are losing $ now in real terms and will lose more as interest rates rise from record lows. Maybe wait a few years til they yield 3% or something worthwhile .

There are many markets on sale right now actually after the markets pulled back a little. The RSI for ZEM BMO Emerging Markets is 34 so it is slightly oversold , ZQQ Nasdaq ETF is 35, ZSP S&P 500 is 48 about fair value. XIU is about fair valued at 58


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## Covariance (Oct 20, 2020)

mcu said:


> Nice tips....What is a USD option for VBAL or VGRO? I have lots of cash in USD and have not made up my mind if I want to exchange yet, so buying USD ETFs would be an option


If you are Canadian and you are interested in US ETFs - ie US products that are issued and trade in the US - just be aware of the 15% withholding tax on dividends that the US will take off each dividend. If held in a non-registered account you can recover as a tax credit in most cases when you file your taxes after the end of the year, assuming you pay cash taxes. If held in a TFSA you lose the tax and have no way to recover. If held in an RRSP the US doesn't withhold the tax.


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## james4beach (Nov 15, 2012)

Jimmy said:


> Don't buy bonds now. Warren Buffet made it clear to all in his annual stockholders letter


That's not what he said, and he also wrote that when yields were significantly lower than today.

You will notice that VBAL (and AOR) still hold a lot of bonds, despite what Buffett wrote.


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## Jimmy (May 19, 2017)

james4beach said:


> That's not what he said, and he also wrote that when yields were significantly lower than today.
> 
> You will notice that VBAL (and AOR) still hold a lot of bonds, despite what Buffett wrote.


He said "And bonds are not the place to be these days"

He wouldn't care if yields were .8% higher either. They are still poor. VBAL is designed to hold bonds. Doesn't mean they are a good investment now.


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## Ponderling (Mar 1, 2013)

I have had a very frothy year in equities. I know I have lost 1% in bonds. But 2021 RRSP contribution on 2 Mar went all to add to an existing bond position. I might be less than 3 years from early retire, and have a healthy nest egg. I am happy with 30% sitting in bonds.


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## P_I (Dec 2, 2011)

Cliff Clavin said:


> I am a bit unsure of whether to even invest now as there is a talk of a "bubble", but others are saying there will be tremendous growth.


No one rings a bell to tell everyone a bubble starts or when it will end. Ignore the noise. The talking heads need some theme each and every day to talk about. Ignore the noise. Bubbles happen, bear markets happen, bull markets happen. No one can accurately predict any of them, so don't get caught up trying to figure out the Mr. Market. 

The best approach is to spend time to understand *your* risk tolerance, your investing objectives and then develop a sound plan within those parameters. Then write it down as your Investment Policy Statement (IPS). Don't overcomplicate it. Keep it simple. Then follow it. 

For my adult children, we've used Diehard Sunny Sarkar's beautiful IPS as a great example of a simple but effective IPS. It doesn't need to be pages and pages or cover every detail. Simple is better, and easier to implement.


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## james4beach (Nov 15, 2012)

P_I said:


> The best approach is to spend time to understand *your* risk tolerance, your investing objectives and then develop a sound plan within those parameters. Then write it down as your Investment Policy Statement (IPS). Don't overcomplicate it. Keep it simple. Then follow it.


And stick with it  Possibly the hardest step.

Notice what was mentioned above with Buffett. So imagine that someone creates their portfolio, and thinks they're done... but then they read that Buffett said this or that about bonds. Uh oh! Time to change my investment plan? And other times, some media personality will be saying it's the end of the world and you have to get out of equities. They will have very strong reasons for this argument too... the US market is in a clear bubble, CAPE is super high, whatever.

It can be hard to stick with an investment plan. Many of my friends have trouble with this. Every few years (or few months) it will *feel* like the world has changed in a dramatic way, everything is thrown out the window.

I've seen so many friends give up on their investment plans... kind of sad actually. All the performance they have sacrificed, just because some bobble head in the media said this or that.


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## Cliff Clavin (Mar 8, 2021)

james4beach said:


> I see only stock discussions above, but if you are concerned about overheated markets, it would be wise to diversify into bonds for more safety.
> 
> Do you currently hold any bond ETFs or are you 100% stocks?
> 
> You can only diversify so much in stocks. Most stocks in the world move in the same direction, generally speaking. Mixing up different countries and regions helps, but can only go so far. To really diversify your portfolio and reduce risk, you have to also hold bonds.


Thanks everyone for their input. I have some bonds but I am sitting on some cash I was too afraid to implement last March. I plan to put it into the market gradually over the coming year.


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