# Simple question



## Money4life (May 17, 2012)

I am strictly an index investor who has e-series mutual funds for both my RRSP and my TFSA. My equity funds have leaped in value this year and my bond funds have decreased in value. My current asset allocation for my TFSA account is 82% Canadian Equity Index Fund and 18% Canadian Bond Index Fund. I am still young at 27 years old and don't mind having a more aggressive investing style. Having said that, next month, I am leaning towards making my full TFSA contribution into the Canadian Bond Index Fund because growth has become very stagnant lately. Is this level-headed thinking?


----------



## OnlyMyOpinion (Sep 1, 2013)

Consider putting it towards US/international index fund exposure. Depending on the % of the total that the $5500 TSFA contribution represents, it will give you a % of foreign diversification that you appear to be lacking right now. Adding to Bonds doesn't sound like where you want to go.


----------



## P_I (Dec 2, 2011)

What is the OP's target asset allocation? Shouldn't that dictate the answer to the simple question?


----------



## Guban (Jul 5, 2011)

I also consider the family portfolio as a whole for asset allocation, not just by the percentage in each individual account.


----------



## Siwash (Sep 1, 2013)

Seems like you're lacking diversification… I'd definitely buy some US index… and intl'


----------



## Janus (Oct 23, 2013)

Siwash said:


> Seems like you're lacking diversification… I'd definitely buy some US index… and intl'


Agreed. Canada is not a diverse market the way the US is.


----------



## Money4life (May 17, 2012)

OK, I should have posted my RRSP index funds. They are in 100% equity funds; 52% of assets are in the US Index Fund and 48% in the International Index Fund. 

So if I look at my two registered accounts as a whole, I think the diversification is there.

Now that more information has been provided, is 
my original post a good idea?


----------



## Video_Frank (Aug 2, 2013)

It still comes back to your desired asset allocation as per your IPS.

Having said that, if I was your age I'd use new funds to rebalance back to 75% equity (divided between Canada, US and international as you've stated above) and 25% bonds.


----------



## eulogy (Oct 29, 2011)

As people have said above, it's about your desired asset allocation. If your desired allocation is 80% equity, 20% bonds, it makes your decisions easy. Since equities have been doing well lately, you may be sitting at 83/17. All you have to do is add new contributions to bonds until you're back at your desired 80/20 allocation.


----------



## Money4life (May 17, 2012)

eulogy said:


> As people have said above, it's about your desired asset allocation. If your desired allocation is 80% equity, 20% bonds, it makes your decisions easy. Since equities have been doing well lately, you may be sitting at 83/17. All you have to do is add new contributions to bonds until you're back at your desired 80/20 allocation.


OK, so I should never look at the price of mutual funds when contributing? Does this apply more to ETFs or just individual stocks?


----------



## OnlyMyOpinion (Sep 1, 2013)

_"OK, I should have posted my RRSP index funds. They are in 100% equity funds; 52% of assets are in the US Index Fund and 48% in the International Index Fund."_
Good, you should include your holdings across your similar accounts when considering your diversification.

_"OK, so I should never look at the price of mutual funds when contributing? Does this apply more to ETFs or just individual stocks?"_
As in, 'the value of the bond fund has dropped so maybe its a good time to buy more of it rather than the equity fund which is up this year' ? That approach should be replaced by saying 'my allocation/diversification needs adjustment so I'm going to buy more of x and y. 
This assumes fundamentally - for these particular accounts - that you are a long term 'coach-potato' style investor using mutual funds or etfs for diversification across sectors and markets, and not trying to time the markets.
Keep in mind that if your TSFA funds are for some other purpose than long-term investing (like a car or a house in the next few years) the investments in it should be for that purpose and may be different as a result (e.g. fixed income).

Individual stocks may depend more on the purchase price depending whether you are buying them for the long term (10+ years) of dividend income and growth, or for shorter term capital gains (analysts generally provide a 12 month forecast of the share price). If for the short term, you are much more exposed and need to do your homework before buying.

There will be lots of varied comments on this subject, remember this is only my opinion.


----------



## Guban (Jul 5, 2011)

Money4life said:


> OK, I should have posted my RRSP index funds. They are in 100% equity funds; 52% of assets are in the US Index Fund and 48% in the International Index Fund.
> 
> So if I look at my two registered accounts as a whole, I think the diversification is there.
> 
> ...


We still can't judge your diversification. You've given us the percentages to both accounts, but not percentage of your entire portfolio.

This being said, as it has been indicated, you should have an overall plan for asset allocation based on not only age, but risk tolerance. Some people would be comfortable (can sleep at night) with a 100% equity portfolio, independent of age. They may have a nice defined benefit pension plan, or simply a gambler's frame of mind. Establish your asset allocation, and then buy the products to match it. Don't worry about individual prices of stocks/funds or ETF's, they don't matter for a passive investor. Just the overall asset allocation.


----------



## Oldroe (Sep 18, 2009)

Mindless dollar cost avg. works when you start your investments. And most should continue on this path.

To get ahead of the market you need to buy hard and fast when the market corrects. And in amounts that effect your avg. cost per unit.


----------



## eulogy (Oct 29, 2011)

Money4life said:


> OK, so I should never look at the price of mutual funds when contributing? Does this apply more to ETFs or just individual stocks?


I'm not sure what kind of index investor you are, but if you're passive than the price doesn't matter. If the goal is to meet your asset allocation, you have to buy it to get to that allocation. Price doesn't really enter into the equation. 

Typically with rebalancing and having to add new dollars heavy into under performing areas puts you in a position of buying low/cheaper prices. 

But normally prices don't enter into the equations unless you're trying to time the market. Doesn't matter if we're talking about mutual funds or ETFs. You could try to time a down day to buy or something like that. You may win a few and lose a few. And over decades of buying I think it's probably going to be a wash with just buying whenever you have the money to do so.

My take as a passive index investor.


----------



## Siwash (Sep 1, 2013)

Oldroe said:


> Mindless dollar cost avg. works when you start your investments. And most should continue on this path.
> 
> To get ahead of the market you need to buy hard and fast when the market corrects. And in amounts that effect your avg. cost per unit.



Can't one still be "passive" if they are buying when stocks are down? This is the Hallan approach… regular (dollar cost avg) contributions but buy more if the index goes down..


----------



## Canadian (Sep 19, 2013)

Topping up the bond fund is a good idea, but just enough to keep your target asset allocation. Bonds have lost value because of taper talk. They will continue to fall as taper talks and interest rates increase. Don't let this tempt you into trying to time the market though, if you are a true indexer. It is just a forewarning that it can continue to decline.

I agree with the other posters about increasing some US / international exposure.

How large is your portfolio though? (I'm not asking you to tell us). If it's starting to accumulate to a decent size, it may be wise to convert to index ETFs.


----------



## Mike Ashley (Dec 6, 2013)

*Investing - Simple Question*



Money4life said:


> I am strictly an index investor who has e-series mutual funds for both my RRSP and my TFSA. My equity funds have leaped in value this year and my bond funds have decreased in value. My current asset allocation for my TFSA account is 82% Canadian Equity Index Fund and 18% Canadian Bond Index Fund. I am still young at 27 years old and don't mind having a more aggressive investing style. Having said that, next month, I am leaning towards making my full TFSA contribution into the Canadian Bond Index Fund because growth has become very stagnant lately. Is this level-headed thinking?


Hi Money4life, 

I think below are some of my thoughts and also that of other contributing members:-

a. it is advisable to diversify your portfolio in terms of assets classes. E.g. This may be equity stocks, bonds, alternative investments (gold etc), property.

b. within each asset class eg. in equity stocks, you can further sub-divide your selection by deciding which funds or stocks to invest in

c. your risk profile determines your investment. E.g. if you decide to be an aggressive investor then you can allocate a larger percentage of your liquid financial resources in equity stocks i.e. growth stocks. 

If you are a more prudent investor, the same can be applied in bonds. First decide the amount of resources for each asset class, then sub-divide into which bond funds. 


I think your investment style is also trying to ask : - *Should i put money into more bonds DESPITE being an aggressive investor? *

There are 2 common ways to deal with this scenario or belief. 

1. Firstly, I will advocate Dollar Cost Averaging, which is also recommended by members. Why? This technique works. It buys more units when prices are down and also stay invested when prices are up. 

2. If your belief and view is strong, you can consider switching your equity stocks to investment in bonds. This will mean a revision in the asset class structure. But, we do need to review our asset class structure at least bi-annually. 

In investment, the most prize items are your view and ability to execute. If your view is that stocks will falter and you should invest in your bonds then execute it. The reverse is true. For me, being Level Headed Thinking will mean reviewing above a, b, c, 1, and 2. 

I hope my thoughts help. Cheers. 

Mike Ashley


----------



## Siwash (Sep 1, 2013)

Money4life said:


> OK, so I should never look at the price of mutual funds when contributing? Does this apply more to ETFs or just individual stocks?



I think if you follow that "dollar-cost averaging" strategy, you're supposed to put the same amounts every month or whenever you contribute… some periods you're paying a premium for stocks, other times you are getting a bargain when the market dips… but over the long run, this strategy is best..

I read this in _*The Elements of Investing*_ by Burton G. Malkiel and Charles D. Ellis… a great little book that simplifies investing..

I really think the "couch potato" strategy is what most of us should be following.. I think we get greedy and try to get better returns when in the end, the passive investing seems to outperform almost 80% of the time…


----------



## Eclectic12 (Oct 20, 2010)

OnlyMyOpinion said:


> Consider putting it towards US/international index fund exposure ...


If the US index fund is for the TFSA, just bear in mind that where it pays dividends - the IRS is going to take their 15% withholding tax from the TFSA.


Cheers


----------



## Money4life (May 17, 2012)

Hey guys,

Thanks so much for the advise. I've been meaning to reply to this thread earlier but have been a bit busy! 

I think I agree that the most important thing I need to determine is _my_ asset allocation and then it will be easier to determine where I should be putting my money. I've read that a generally good allocation should be 100 subtract their age. So in this case, my asset allocation would be 73% Equity and 27% Bonds. However, in a recent piece from MoneySense magazine, because of our low-rate environment, coupled with the fact that people are living longer, this conventional asset allocation may need to be changed. This section reveals that conservative investors should be 110 subtract their age while aggressive investors should be 120 subtract their age. I think I would like to be somewhere in the middle in that last sentence.

So I think my strategy should be 115 subtract my age. So my asset allocation shall be 88% Equity and 12% Bonds. What makes it tricky for me to determine this for my entire portfolio is that I also have a DC Pension Plan from work. For this pension plan, we are not allowed to alter the asset allocation; the last I checked, the asset allocation was 28% Canadian Equities, 33% Global Equities, 35% Fixed Income and 4% Cash and Short Term. I think this is why that I've been heavily leaning, without much thought, into equities for my personal investments. Should I include this pension plan that I cannot change when determining my asset allocation? What's frustrating is that we don't have online access to see how the funds are doing. Information pertaining to our funds is only mailed to us once a year.


----------



## Siwash (Sep 1, 2013)

What if you took a hybrid approach; say regular $500 monthly contributions and then buy more equity when the market goes down? If it goes up maintain the $500 monthly deposit…


----------



## OnlyMyOpinion (Sep 1, 2013)

*"I also have a DC Pension Plan from work. For this pension plan, we are not allowed to alter the asset allocation"*


Should check further on that DC Plan. It would seem to be an unusual and very restrictive plan that would not let you reallocate at least once a year. Probably at least half the money going into it is yours, why the h wouldn't you be able to determine how it is invested?


----------



## Money4life (May 17, 2012)

OnlyMyOpinion said:


> *"I also have a DC Pension Plan from work. For this pension plan, we are not allowed to alter the asset allocation"*
> 
> 
> Should check further on that DC Plan. It would seem to be an unusual and very restrictive plan that would not let you reallocate at least once a year. Probably at least half the money going into it is yours, why the h wouldn't you be able to determine how it is invested?


Oh I know! The problem is that I'm a unionized employee so our pension is determined by our CBA. I've brought these issues up to our union reps and they didn't care. They said that most people just want their money to be managed and that they don't want to worry any more than that.

The only benefits of this DC Plan is that we no longer need to contribute money in order for the company to contribute themselves and the MER is only 0.37%. The employer now contributes 5% into our pension without us having to do anything.

Still, I'm not a big fan of how this DC Plan is run.


----------



## Spudd (Oct 11, 2011)

I would handle it in the following way. Rebalance your investments when the annual DC statement comes out. Look at the portfolio as a whole, and make a spreadsheet to add up the total in each category between your personal investments and your DC account. Then rebalance your personal investments in such a way that will bring it as close as possible to your desired asset allocation. For the rest of the year, just contribute to your personal investments in whatever proportion you think will keep it at the desired allocation, and then rebalance whenever your DC statement comes.


----------



## Money4life (May 17, 2012)

Spudd said:


> I would handle it in the following way. Rebalance your investments when the annual DC statement comes out. Look at the portfolio as a whole, and make a spreadsheet to add up the total in each category between your personal investments and your DC account. Then rebalance your personal investments in such a way that will bring it as close as possible to your desired asset allocation. For the rest of the year, just contribute to your personal investments in whatever proportion you think will keep it at the desired allocation, and then rebalance whenever your DC statement comes.


Thanks Spudd! This is good advice.


----------

