# US Allocation?



## christinad (Apr 30, 2013)

Hi,

I have about 20% of the U.S. Index-E. Is that enough US allocation for my portfolio?

Thanks,

Christina


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## Xoron (Jun 22, 2010)

With out more info, there's no way to tell.

What are your other % allocations in?
What are the investments for? (Retirement, new home, new car, just extra play money)
What is your investment timeframe (30+ years, 5 years, 1 year)
How would you feel if your investments dropped 50% in one year? Panic sell or ride it out?


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## christinad (Apr 30, 2013)

It is in my RRSP - i'm 40 so I have 25 years. I have a defined benefit pension so I have a riskier portfolio. Here it is:

TD US Index 16.8%
TD Monthly income 17.5%
Mawer balanced 29.3%
Mawer Canadian Equity 24.1%

My plan is to increase the allocation to Mawer Balanced to 40% which I think would make it less risky. I may swap Mawer Canadian Equity and Monthly income for Canadian index e but I haven't decided.

Thanks,

Christina


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## leeder (Jan 28, 2012)

I haven't studied the percentages closely in terms of what makes up each of the funds. On a high level, your current portfolio doesn't have a whole lot of international equity exposure. Your US is also underexposed but not as badly as your international. Your portfolio mainly contains Canadian equities (about 40% by my rough calculation). 

In addition, if you swap out your monthly income fund, note that you're taking out some of your fixed income allocation. I believe the TD Monthly Income mutual fund contains 50% fixed income and 50% Canadian equity. Unless you can bear the risk, you shouldn't dump everything into the Canadian equity.


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## MoreMiles (Apr 20, 2011)

Mawer Balanced is 60/40, 20 in Cdn, 20 in US, 20 Int. Then 40 in FI, mostly corporate bonds I think.


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## Video_Frank (Aug 2, 2013)

With 25 years to go, I'd go with 25% FI, 35% US, 25% International and 15% Can Equity.


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## Xoron (Jun 22, 2010)

With 25 years to go (similar to myself) I'd go 25% US, 25% Intl, 25% Canadian, 25% Bonds / FI. But only if you can ride out down markets and rebalance even when it looks like the wrong thing to do.

Otherwise, I'd up the Bonds/FI % and reduce the others. I a pretty strong believer that you should invest similar % in US, Intl and Cad. 

I'm a little more agressive so I'm in at 30/30/30/10 respectively.


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## OhGreatGuru (May 24, 2009)

For a contrarian view: 25/25/25/25 is the conventional wisdom. But IMHO US & international Equity is highly overrated. And the US & Europe haven't yet solved their sovereign debt problems.


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## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> But IMHO US & international Equity is highly overrated.


Really? Tell that to the largest pension plans in the land.

CPPIB: 16.8% Canadian equity, 83.2% Non-Canadian equity
OTPP: 19% Canadian equity, 81% Non-Canadian equity


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## protomok (Jul 9, 2012)

The S&P is up 119% over the past 5 years, versus 62% for the TSX. Plus the Canadian dollar got smoked over the past year and is down 11% versus USD and I don't think CAD is going to fall forever. 2013 was a great year for US equity (especially for Canadian buyers) but I'm not convinced 2014 will repeat.

I guess for a true couch potato timing shouldn't matter but for the time being I prefer Canadian equity. That said as soon as there's a drop in the S&P I'll be going on a US equity shopping spree


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## OhGreatGuru (May 24, 2009)

GoldStone said:


> Really? Tell that to the largest pension plans in the land.
> 
> CPPIB: 16.8% Canadian equity, 83.2% Non-Canadian equity
> OTPP: 19% Canadian equity, 81% Non-Canadian equity


CPPIB and OTPP have investment horizons that are longer than most of us will live. According to the latest actuarial reports, _"contributions are projected to be more than sufficient to cover the expenditures over the period 2013 to 2022. Thereafter, a proportion of investment income is required to make up the difference between contributions and expenditures. In 2050, 27% of investment income is required to pay for expenditures." _ So, after 36 more years they will still only have to disburse 27% of (annual) earned income for pensions. What personal retirement savings plan can say the same?

The CPP total assets are projected to reach the following levels according to the 2009 actuarial report: 
$197 billion by 2015.
$275 billion by 2020.
$465 billion by 2030.

The market capitalization of the TSX is ~$2.125 Trillion. So CPP assets are projected to be:
~9.2% of current TSX market cap by 2015;
~12.9% of current TSX market cap by 2020;
~21.9% of current TSX market cap by 2020.
It is simply too big to invest mainly in the Canadian market. Somehow I doubt any one person's RRSP falls into the same category.


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## OhGreatGuru (May 24, 2009)

protomok said:


> The S&P is up 119% over the past 5 years, versus 62% for the TSX. ....


I thought we were talking about long-term investing here, not market timing. Also I don't know if your quote for S&P is currency adjusted. Most CDN investors should be concerned about foreign returns in CDN dollars.

Returns to Dec.31, 2013: - 5/10/15/20- Yr. Returns 
S&P/TSX Composite Index 11.92%/ 7.97% /7.49% /8.28%
S&P500 Composite ($CDN) 14.14%/ 5.08%/2.0% / 8.03%


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## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> Returns to Dec.31, 2013: - 5/10/15/20- Yr. Returns


Why stop at 20 years?

44 years, 1970-2013, average geometric annual gain in Canadian dollars, dividends included

100% S&P/TSX Composite: 9.41%
50% S&P500, 50% EAFE: 10.46%

Typical individual investor has about 30 years to accumulate the retirement nest egg. Let's take a look at the rolling 30 year periods.

*1970-1999*

100% S&P/TSX Composite: 11.07%
50% S&P500, 50% EAFE: 14.96%

*1975-2004*

100% S&P/TSX Composite: 11.78%
50% S&P500, 50% EAFE: 14.35%

*1980-2009*

100% S&P/TSX Composite: 9.43%
50% S&P500, 50% EAFE: 10.63%

*1985-2013*

100% S&P/TSX Composite: 8.92%
50% S&P500, 50% EAFE: 10.07%

If you are unlucky, *your* 30 years of accumulation may end up looking like 1970-1999. 4% underperformance. That's a huge difference. Here's what it means in dollar terms.

Contribute $1000 monthly for 30 years. Final portfolio value:

100% S&P/TSX Composite (11.07%): $2,847,661
50% S&P500, 50% EAFE (14.96%): $6,859,057

Still feel that international diversification is overrated?

Note, I'm not saying that 50% S&P500, 50% EAFE will always outperform 100% TSX. My point is, it's not prudent to bet your retirement on a small stock market that represents just 4% of the world market cap. 40/20/20/20 model is not controversial. Guess what, it overweights Canada 5 times compared to its market cap. Why would you want to overweight it any further?


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## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> The CPP total assets are projected to reach the following levels according to the 2009 actuarial report:
> $197 billion by 2015.
> $275 billion by 2020.
> $465 billion by 2030.
> ...


You compared future CPP assets to the current market cap. This is not kosher. The same factors that drive CPP asset growth will drive TSX market cap growth. The two rates of growth may deviate a bit, but they are unlikely to be widely different. But that's just a minor quibble. I made my main point in the previous post.


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## OhGreatGuru (May 24, 2009)

I compared the projected CPP assets to current TSX because I was too lazy to try to project TSX inflationary growth. I stated I was comparing it to current TSX market cap to at least be honest.

Until 2022 CPP will be taking in more money than it has to pay out, so its invested assets growth should exceed TSX market cap growth.


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## christinad (Apr 30, 2013)

Thanks for all the advice and the interesting commentary. I think I may increase my US allocation to 25%, and add in international equity to 25%. I may try the Mawer global small cap. I have a defined benefit pension so i'm not really concerned with fixed income. I'm debating whether to wait for gic rates to go up and then substantially increase the amount I dedicate to gics.


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## christinad (Apr 30, 2013)

I may actually just get the td international index e fund since the small cap fund seems to have such a high MER. Unless anyone has any other recommendations?

Thanks,


Christina


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## My Own Advisor (Sep 24, 2012)

With 25 years to go to retirement, I'd have less bonds personally, they pay next to nothing now and if/when equities tank I'll just try and buy more equities.

My non-CDN equity is about 40% but I'd like it to be higher...maybe 50-60%. 

There's a big world out there


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## leeder (Jan 28, 2012)

I've lost track as to what your ultimate allocations are. Can you please summarize what your plan is now and what % you're allocating, etc.? Also, some people say with a DB pension, they are more than willing to go with more risk in their portfolio. However, if the market crashes, you might still have some sleepless nights. Know your risk appetite well.


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## christinad (Apr 30, 2013)

I'm waffling but here is what i'm thinking:

Mawer Balanced 40%
Mawer Canadian Equity 20%
TD Us Equity E 20%
International Equity E 10%
Gics 10%

I realize i'm imbalanced in international but I still feel uncomfortable with international as I lost money on a td international equity mutual fund. I realize that isn't a reason to not contribute but maybe we are all gun shy about something. I think I could reassess this in 5 years and decide if I wanted to allocate more to fixed income and international. Does a 5 year check in sound reasonable?

Thanks,

Christina


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## leeder (Jan 28, 2012)

I think it's pretty reasonable allocation. You aren't as underweight as international as you may think, since Mawer Balanced fund have a pretty good chunk invested in international equities (~25% of the fund and about 10% of your portfolio). Add in the international equity e-series fund, you're at about 20% of your total portfolio. If I had to tweak, I would bring the Mawer Canadian Equity down to 15% and boosting international equity up to 15%, but that's a pretty minor difference. 

Better yet, for simplicity sakes, you can even consider putting everything into Mawer balanced fund. In itself, the allocation is pretty reasonable. The MER is higher than investing in e-Series funds, but it's a one fund no brainer. There wouldn't be a need to tinker around buying other funds/ETFs to rebalance. As you near retirement, you can just use new funds to buy GICs or other fixed income instruments to increase your fixed income allocation.

While losing money may not be a good thing, it also means that component (i.e., international) is cheaper than other components. If you're invested for the long term, don't let the short-term dips bother you. Every market will have its ups and downs.


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## EndersGhost (Jan 20, 2014)

I've been playing with allocations, and trying to track performance (using google finance, and spreadsheets sometimes). I've been going back and forth between Mawer balanced, ETFs, or a mix like you have. Right now, I'm not too sure which way to go just yet, but I think your allocation is decent. The hardest part is figuring out how much "allocation" you have in mawer, so that you know how much to add in mutuals to meet your allocation goal.

Edit: Just thought I'd add that I've played around with this some, comparing a 80/20 portfolio (50% mawer balanced, 50% made up with other mawer funds) vs a pure mawer balanced, and if you remove 2008, the returns are much better on the 50% portfolio, but if you add 2008, they are almost dead even. So as per usual, 2008 hit the 80/20 harder. Not to side track, just thought I'd share. They are historical, so take it for what it's worth. Just sort of justifies a bit of the sentiment that the all in one fund does really well on it's own.


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## AltaRed (Jun 8, 2009)

I would not quibble too much about Mawer's MER. They are pretty darn good active managers and they may well overcome the drag that MER would otherwise cause. If I had to buy only one investment, it would be the Mawer Balanced fund.


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## GoldStone (Mar 6, 2011)

AltaRed said:


> If I had to buy only one investment, it would be the Mawer Balanced fund.


+1

In my opinion, it doesn't make much sense to build a portfolio that mixes Mawer Balanced with your own assortment of funds.

You pay Mawer 1% a year to manage asset allocation and rebalancing in the balanced fund. They are very good at it - their track record is the evidence.

By overlaying your own funds on top of Mawer Balanced, you effectively undermine their asset allocation & rebalancing calls. Why would you do that? You either trust them or you don't. If you think you can handle asset allocation & rebalancing on your own, drop Mawer Balanced. Run your own couch potato portfolio.


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## My Own Advisor (Sep 24, 2012)

I'm with GoldStone. 

Mawer Balanced = 31% fixed income, 23% international, 21% U.S. equities, 19% CDN equities, and a little cash. 

It's already set up as an all-in-one product. No need for anything else.


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## EndersGhost (Jan 20, 2014)

Goldstone and My own advisor: I agree with your sentiments (I've just been trying various scenarios). I also share your sentiments, because while it's past data and means nothing about how it's going to perform in the future, I seem to see better returns off the mawer balanced fund then a standard ETF portfolio that I put together (at 80/20 split may I add). So all in all, from everything I've seen they are pretty much the only MF company I'd trust.


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## christinad (Apr 30, 2013)

Thanks for the advice. I still don't know if I want to put all my eggs in one basket. I guess I have to think of it as a fund of funds.

I have enough money in Mawer funds (50,000) to have my money stored directly at Mawer. The advantage would be there is no redemption fee and there is no minimum deposit (TD has redemption fee of $45.00 and 1000/month deposit). However, i'm a little concerned that is less secure then at TD Waterhouse. Can you think of other disadvantages to having stored at Mawer? Should I be concerned about security?

Thanks,

Christina


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## EndersGhost (Jan 20, 2014)

I'm not sure about the security aspect, but I would like to believe they will ensure there money is safe and secure. It's probably no different than TDW. As for the funds, if you look at the holdings inside the mawer balanced, all it does is hold the other mawer funds. It keeps them at a 65/35 (right now) allocation, and for what I've read and understand they can move that higher and lower depending, but they try to keep in a range. It sucks that TDW has those restrictions. I'm able to buy and sell them for free with iTrade luckly.

One added value you have going with mawer is I think you can get "help" from their advisors if you wanted. IE, they could work with you to put together a portfolio if you don't want the balanced, but a different allocation. Just food for thought.


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## GoldStone (Mar 6, 2011)

christinad said:


> I have enough money in Mawer funds (50,000) to have my money stored directly at Mawer. The advantage would be there is no redemption fee and there is no minimum deposit (TD has redemption fee of $45.00 and 1000/month deposit). However, i'm a little concerned that is less secure then at TD Waterhouse. Can you think of other disadvantages to having stored at Mawer? Should I be concerned about security?


In terms of security, there is no difference. Your money ends up in the same place, whether you invest directly at Mawer or at TD Waterhouse. Mutual funds are organized as trusts. Your money buys the units of a trust. Mutual funds assets are held at the fund custodian. Mawer uses RBC Investor Services Trust as their custodian. Mawer fund assets are fully segregated from Mawer company assets. If Mawer company goes bankrupt, Mawer fund assets remain safe at the fund custodian.


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## christinad (Apr 30, 2013)

Thanks Goldstone. I didn't know that was how it worked.

One other thing I am thinking about Mawer Balanced is when interest rates rise, bonds will go down. This will affect Mawer Balanced performance, won't it? Maybe they would adjust the amounts in bonds to compensate it is hard to tell.


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## EndersGhost (Jan 20, 2014)

Christinad, I feel the same way, but I think it matters what type of bonds they hold too. Like if it's short term bonds, it's ok, but longer would be an issue. They do actively manage it too, so it's possible for them to just swap out to what's doing better?


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## GoldStone (Mar 6, 2011)

christinad said:


> One other thing I am thinking about Mawer Balanced is when interest rates rise, bonds will go down. This will affect Mawer Balanced performance, won't it? Maybe they would adjust the amounts in bonds to compensate it is hard to tell.


1. You said _"when interest rates rise"_. I say _"if interest rates rise"_. I think it's a big if. I happen to think we will stay in a low interest rate environment for a long time. Everyone expected the rates to rise in 2014. So far they have fallen. The world economy remains rather sluggish.

2. Mawer Balanced already reduced their bond allocation. They are currently 65-66% equities, 28-29% bonds, 5-6% cash. Their normal allocation to bonds is higher than that.

3. They also have shortened their bond maturities. Shorter bonds are less sensitive to interest rates.

4. You do want to own some long bonds as an insurance against deflation. Deflation is a real risk in the developed world. Japan has been suffering deflation for a decade. Europe is flirting with deflation right now. Long bonds is the best asset class to own in the deflationary environment. OTOH, deflation is bad for equities.

5. If and when interest rates rise, hopefully it's because the economy is booming. Your bonds might have a couple of bad years. A bad year for bonds is -1% ... -2%. Hopefully your equities are rocketing at the same time. The overall portfolio should do just fine. That's why we diversify, right?

6. As a long term bond investor, you should welcome the higher rates. You will be reinvesting coupons and matured bonds at a higher rates. Your future rate of return will improve. Short term pain, long term gain.

7. The whole point of buying a balanced fund is that you don't have to think about all of the above!


P.S. I don't want to sound like a Mawer cheerleader. I don't use Mawer Balanced myself. I manage my own portfolio. As hard as I try, my long term performance record is worse than Mawer Balanced.


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