# how does this portfolio sound?



## the-royal-mail (Dec 11, 2009)

Mutual funds (index) from RBC's lineup for my bank investments:

25% canadian
25% US
25% international
25% precious metals

Any objections to this?


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## pablito (Apr 3, 2009)

Ok, I'll bite. Isn't 25% in precious metals a little high for any portfolio? I also note the obvious lack of bonds or cash. I'd be interested in hearing the rational behind your allocation.

Pab


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## the-royal-mail (Dec 11, 2009)

The main drivers for this rebalance is on index funds (for the lower fees) and on adding international content. I did consider bond funds but everyone around here lately is saying this is a bad time to get into bonds. I had been looking at a bond index fund as well


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## Argonaut (Dec 7, 2010)

One of the asset allocations I've always been taught was the one from Harry Browne and others, the "Permanent Portfolio":

25% Stocks
25% Bonds
25% Gold
25% Cash

This seemed too conservative for me, so I modified it:

50% Stocks
25% Precious Metals
25% Bonds/Cash

With these interest rates, my bond allocation is zero and half of cash is put into precious metals temporarily. With that being said, I like the idea behind your portfolio. But international allocation is overrated, underperforming, and unnecessary. US multinationals that benefit from the emerging global consumer are much better than playing questionable foreign markets.


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## Jungle (Feb 17, 2010)

Just do the portfolios on this site:
http://canadiancouchpotato.com/


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## the-royal-mail (Dec 11, 2009)

I've looked at that website a few times but nothing seemed to jump out at me. At this moment I do not have access to funds outside those available at my bank. And the lowest-fee ones available there are index funds. So I need to do my best with what's available to me there.


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## Belguy (May 24, 2010)

I realize that there is a wide variety of opinion on this forum because there are many difference individual circumstances among investors.

What I do like about your portfolio is it's brevity, assuming one investment per category, which keeps your trading fees low (in the case of ETF's--if and when) and your rebalancing chore simple and straightforward.

I'd split your international and put part of it in VEA and the rest in VWO.

I feel that you should not put more than 5 percent of your overall portfolio in precious metals unless you have a strong stomach for volatility and, from your earlier posts, I don't see that you do. The upper limit should be 10 percent.

Also, I would never consider constructing a portfolio without bonds unless you have a defined pension plan or the like to fall back on. Bonds can provide a safety buffer should the stock markets suddenly take a dive for any number of possible reasons. I would consider a 25 percent absolute minimum bond allocation and you can put that in XSB if you so choose.

That said, every investor's circumstances are different and you have to end up with an allocation that will permit you to sleep well at night through all market conditions.

To thine own self be true.


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## GeniusBoy27 (Jun 11, 2010)

I think the % allocation into gold/precious metals is high, unless you can accept a high volatility risk. In the past year, it's doubled in my portfolio. But also I realize that it may go to half of it. 

Companies as a whole are solid in Canada. Why don't you increase your Canadian content. It also depends on what "international" means. Emerging markets make sense, but Europe as a whole, is also in trouble due to sovereign debt.


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## MikeT (Feb 16, 2010)

Argonaut said:


> But international allocation is overrated, underperforming, and unnecessary. US multinationals that benefit from the emerging global consumer are much better than playing questionable foreign markets.


+1


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## Argonaut (Dec 7, 2010)

I won't get into the "gold as an investment" argument again, but suffice it to say, a 25% allocation would have carried your portfolio all by itself in the last decade. Will it for another 10 years? Who knows, but if not the other 75% will pick up the slack. But the way governments are printing money right now, I just can't see gold not performing well.

The mutual fund does look volatile, but the metal itself is not. A huge price move for gold in a day will only represent a 1-2% shift overall, maybe slightly more than a big move in an index and certainly less than those in individual stocks.


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## dogcom (May 23, 2009)

I am also with argonaut on the international front. I think you are also better served with bonds in the international spot.


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## the-royal-mail (Dec 11, 2009)

Thanks for all of the comments! I have carefully considered all of them and am looking at each of them in my globeadvisor fundlist. I added a few bond, emerging market and international funds to the list as suggested. But I don't think these will work as the only index bond fund RBC has is RBC Canadian Bond Index. The INT bond and equity funds are all managed funds with higher fees and they don't have the best performance. These are probably the reason I probably didn't go with those earlier on.

I'm in the process of setting up a brokerage account with questrade (which seems to be taking forever), and the ultimate intention with this is to give me more control and access to a wider array of funds on the TSX. There isn't enough money there yet to make any kind of difference and so this whole exercise concerns the RBC $. Some of it has been invested in precious metals and some in CDN index and the rest is cash. I also have other cash (tier 1 $) that will NOT be invested in the markets and will be kept aside in a savings account. So that will ultimately lower the allocation % to equities by default as more cash is saved in the front end.

What I'm trying to do now is crunch the numbers to come up with something like argonaut mentioned and include some element of bond fund, for the international portion. And include cash as part of this portfolio.


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## pablito (Apr 3, 2009)

Argonaut said:


> But international allocation is overrated, underperforming, and unnecessary. US multinationals that benefit from the emerging global consumer are much better than playing questionable foreign markets.


This is an interesting thought that I haven't heard before. So how do you accomplish this exactly? Do you have a particular ETF or fund in mind or are you stock picking US multi-nationals?


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## humble_pie (Jun 7, 2009)

it's a fairly common thought. Also a smart thought.

an investor has to develop a personal knowledge base of which multinationals are doing what and where. A canadian miner with a single property in mongolia or senegal or colombia is going to be wildly different from barrick, for example, and different again from proctor & gamble or a diversified international bank like bns.

i've said this before & would like to say again: i for one believe that the ability of multinational corporations to assess & control sovereign risk in the countries where they carry on business is far superior to the ability of any fund manager to do the same. All the fund managers ever do is rely on a prominent broker in each host country. Sometimes they'll save by having just one broker for an entire region.


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## OhGreatGuru (May 24, 2009)

the-royal-mail said:


> I've looked at that website a few times but nothing seemed to jump out at me. At this moment I do not have access to funds outside those available at my bank. And the lowest-fee ones available there are index funds. So I need to do my best with what's available to me there.


RBC has a Bond Index Fund, besides its CDN Equity Index Fund, US Equity Index Fund(s), and Currency-Neutral International Equity Index Fund, all of which would fit in the Couch Potato.

I was not aware that RBC had a Precious Metals Index Fund.


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## OhGreatGuru (May 24, 2009)

the-royal-mail said:


> .... I added a few bond, emerging market and international funds to the list as suggested. .... The INT bond and equity funds are all managed funds with higher fees and they don't have the best performance. These are probably the reason I probably didn't go with those earlier on....
> 
> What I'm trying to do now is crunch the numbers to come up with something like argonaut mentioned and include some element of bond fund, for the international portion. ...


Like you, I have never been impressed with the performance of RBC's Global Bond Fund. If they didn't keep sticking it into their portfolio funds I think it would have few buyers left. It used to be an "RSP" Global Bond Fund, before they changed the rule on foreign content. To do this, most of their "foreign" bonds were actually bonds issued by Canadian federal or provincial governments, but denominated in foreign currencies (for sale on foreign markets.) As noted by Andrew Bell in "Mutual Funds for Candians, this means you were getting the risk of foreign currency exposure, but without getting any advantage of higher interest rates that foreign bond issuers might offer. He thought this type of fund was a bad bargain, and weren't really global bond funds, and I agree. I can't tell from RBC's current prospectus if this has changed, nor from Globefund's geopgraphical breakdown. (You can't tell if it's a bond issued by a foreign country, or a Canadian bond issued in a foreign currency.) You would have to dig into their annual reports of holdings to try to figure it out. But I suspect there hasn't been much change.


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## Belguy (May 24, 2010)

As mentioned in the past, and for whatever it is worth, my core bond holding is the PH&N Bond Fund D.

At this point in the economic cycle, I prefer to have professional management at a relatively low fee with a good, long term track record.

However, always do you own 'due diligence' before investing.


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## larry81 (Nov 22, 2010)

Belguy said:


> As mentioned in the past, and for whatever it is worth, my core bond holding is the PH&N Bond Fund D.
> 
> At this point in the economic cycle, I prefer to have professional management at a relatively low fee with a good, long term track record.
> 
> However, always do you own 'due diligence' before investing.


cant go wrong with PH&N, however in the short-term with rising interest rates bondss will take a hit, even with the experts hands of ph&n folks managing a portfolio


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## Belguy (May 24, 2010)

But older investors especially, along with any investor with an aversion to risk, should have a significant weighting in fixed income investments.

Nobody knows how far away we are from the next stock market crash!!


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## larry81 (Nov 22, 2010)

Belguy said:


> But older investors especially, along with any investor with an aversion to risk, should have a significant weighting in fixed income investments.
> 
> Nobody knows how far away we are from the next stock market crash!!


hopefully, not far !

crash = buy in opportunity for everyone with cash on hand


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## Belguy (May 24, 2010)

Somehow, stock crashes become less welcome the older that one gets.


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## dogcom (May 23, 2009)

Get used to it we are in for another one. We are going to get crashes going both ways so that is up like crazy and down like hell. Bull and bear beware nothing is going to be easy.


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## the-royal-mail (Dec 11, 2009)

Alright, I have tried to integrate the comments in this thread along with option 3 of the global couch potato (very rough match) and have come up with the following. Keep in mind this is ever changing and is based on the assets I have, some already invested.

cash 26%
cdn bond 21%
cdn equities 16%
precious metals 16%
unallocated 21% <trying to stick with index funds and add to foreign exposure is difficult, all I came up with for low MER index funds was rbc int index and rbc us index, but these are poor performers, what to do with this 21%??>


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## Belguy (May 24, 2010)

It probably goes without saying but, if you invest in an index fund, you are buying the performance of the applicable index less the management fee.

While the U.S. and International indexes have underperformed the Canadian index over recent time frames, there is no guarantee that this will be so going forward.

If you don't want to diversify geographically, you might choose to do so by sectors.

Personally, I feel that the U.S. indexes will outperform the Canadian indexes in the foreseeable future and, as stated before, you could split your international allocation between VEA and VWO.

Also, consider the Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS) for potentially better long term results albeit with possibly more volatility along the way.


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## the-royal-mail (Dec 11, 2009)

Belguy, I don't have access to those other funds in this pool. This concerns RBC money only. I've chosen index funds because they have the lowest fees, making an exception for precious metals because the performance is so good.


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## Belguy (May 24, 2010)

One of the rules of investing is to never chase after hot returns.

Depending on your individual circumstances, I would limit your precious metals exposure to 5% if you are risk averse and 10% if you could still sleep at night if one of your investments should take a sudden drop for whatever reason.

I still question the wisdom of shutting yourself out of the U.S. and International markets on the basis of recent performance.

A well diversified portfolio should include these geographical sectors.

I would also urge you to strongly consider setting up a discount brokerage account so that you are not restricted regarding what you are able to invest in.

Once you do, you will never go back!!!


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## Jungle (Feb 17, 2010)

Royal, can you get your money out of there an into TD? 

Last year, my wife had her entire rrsp in a Scotia savings account, earning like 0.5% interest. (not even one percent) Scotia had index fund options, just like Royal Bank, but were still like 1% + mer. Believe me, it was well worth to switch. 

TD's e-series funds are almost the same, if not better then ETFs in some circumstances. I would try and get your money in there, they are among the best. Actually I think they are, without going to ETFs.


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## the-royal-mail (Dec 11, 2009)

I actually addressed the online brokerage thing in my previous posts. Again, I am in the process of setting up an account with questrade but it's taking forever. What a hassle. I hope they're going to activate the darn thing soon or else I'm backing out of the process. Once that is done (assuming it is), I want to play around with a token amount in the market to try and learn the ropes before investing the rest of my money.

IN THE MEANTIME, the money I already have should enjoy a little more growth. I don't have the appetite to go and move my money from one bank to another and mess with filling out old school forms and dealing with call centers, paying fees and jumping through other hoops. I'm getting a taste of that with questrade right now and it's a test of my patience. This thread is about the other money I have.


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## Belguy (May 24, 2010)

Well, if it had been my money, I would have just left it with the bank that you were already doing business with and have them move it to their discount brokerage because I am a simple man.


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## Sherlock (Apr 18, 2010)

Have you considered an energy fund? For example CIBC's energy fund has returned 45% in the last year.


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## the-royal-mail (Dec 11, 2009)

Sherlock said:


> Have you considered an energy fund? For example CIBC's energy fund has returned 45% in the last year.


Good idea. I have the RBC Global Energy fund on my watchlist. 7.33% gain this year so far. I could use that for the international component, definitely a valid choice when you consider the ever-increasing price of gas.


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## Belguy (May 24, 2010)

I like to hold an energy fund because, when the price of gasoline goes down, I am a happy driver and when it goes up, I am a happy investor.

The end result: I am ALWAYS happy!!

You can't lose!!!


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## the-royal-mail (Dec 11, 2009)

cash 26%
foreign energy 21%
canadian bond 21%
cdn index 16%
precious metals 16%

Note this is tier 2 and 3 money, in my case. Except the cash, which is tier 1.


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## Brian Weatherdon CFP (Jan 18, 2011)

Honour the question raised. Yet am I the only one who was here watching gold in the latter 1980s/90s? While gold is doing well currently (and can continue) it's as stable as a spider monkey. And cash is a guaranteed negative return (in my opinion).

You might consider simplicity of a 5-split: 20% each to Dividends, large cap growth-at-reasonable-price, small/mid cap, income, and international (esp emerging mkts). BTW this can offer high energy, materials, gold exposure.

If bonds, I'd look for real-return. 

And consider if international exposure might be safer over the coming 5 years in emerging markets (unless it's currency hedged).

_(All depending on your time horizons and risk tolerance.)_

Cheers!
Brian


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## andrewf (Mar 1, 2010)

I always assume that when people say cash, they mean MMF or the like. Because cash in your mattress would be crazy.


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## zylon (Oct 27, 2010)

Brian Weatherdon CFP said:


> ...Yet am I the only one who was here watching gold in the latter 1980s/90s? ...


Related to that thought, when I see posts elsewhere on this forum indicating that people are buying stocks near the 52 week high, and doing so on margin, I wonder if they even knew what _TSX_ was in 2008 ... or are our memories that short?

On the positive side, for those who have some cash, a 10% correction in the broad market will result in some outstanding bargains in individual stocks when the margin calls begin.

I've had $100k available margin for years, which I have never used, but if dividend yield on some of my favorite stocks increases by 2% or so, I might indulge in some leveraged buying.

for what it's worth ... re gold: in today's economy, I believe holding cash which yields zero or less is higher risk than owning a basket of precious metals *producers*.


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## Brian Weatherdon CFP (Jan 18, 2011)

Hi Zylon, one quick look at my own portfolio says I agree with you! Anything paying less than 4% leaves us at high risk of running out of money before we run out of time. (I'd say the same of <6%).


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## the-royal-mail (Dec 11, 2009)

Further to the above portfolio, I have purchased the Global Energy portion. The final stage is what to do with that 21% that I had allocated to bonds. It seems these are on the decline and the conventional wisdom these days is to avoid them. Remember that I would have been buying a cdn bond index fund, not actual bonds. But in any case, I think I might switch that allocation to a low-fee us index instead. So here is my latest idea. Any objections?

cash 26%
global energy 21%
us index 21%
cdn index 16%
precious metals 16%


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## HaroldCrump (Jun 10, 2009)

Why not leave the 21% as cash for now, to take advantage of opportunities if/when they arise.
There are rumblings that the market (at least, TSX) is getting over-bought and may correct.
It's nice to have some cash around for new opportunities or for averaging down.


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