# Today my first day of retirement - Advice needed (Part 2)



## jman123 (Jan 28, 2015)

Hello everyone,

So it's been a couple of months now since I retired and there has been some ups and downs. Overall , it was going well but for the last month I'm having a medical situation and that has not been fun. Our medical system (at least in Quebec) is good till you have to use it.

Anyways, regarding finances, my wife and I went to our financial adviser to discuss our income needs for our future. 

As a recap , I have about $460K in RRSPs and a LIRA, and my wife has about $420K in RRSPs (spousal and non-spousal) with this guy. 

He suggested we convert all to RRIFs and LIFs. At our ages (66 years and 64 years) that would mean we need to take out approximately 4% which would give us approximately $34K additional income for this year. 

Currently, our investments were a 80/20 split but he suggests now a 60/40 split and to put all the monies into one fund - Fidelity Global Balanced Portfolio. 

Supposedly this fund re-balances itself every day to maintain the same portions of Canadian/US/International equities and bonds. 

Every month, some units would be sold and the monies would go into our bank account.

From what he showed us, it seems to have done well over the last 10 years (10.02%),decent returns during each of the last 10 years, has a low MER and does have this 60/40 equity/bond split. 

It seems a lot (a total of $880K) to put into one product and I guess I don't have to worry that Fidelity is going to disappear with my money but I thought I would run it by you guys for your advice.

Thank you


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## kcowan (Jul 1, 2010)

Congratulations!

I can't make any specific recommendations. However, what I have gleaned from the internet in 20 years, is wait to convert to LIFs if you can because they will get more cost-effective. Increase your RRIF withdrawals to compensate.

As to specific investments, the thing to focus on beside past performance is the MER including the adviser's cut. I will leave it for others to be more specific on this.


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## Joebaba (Jan 31, 2017)

Hi Jman,

Your advisor says the Fidelity fund has a low MER. I had a look at it online, and I see an MER of 2.24%. That is far from low - I'd go so far as to say it's "high".
2.24% of $880,000 (the sum our your investments) would be $19,712 per year.
A very similar product would be Vanguard's VBAL ETF - the MER on it is 0.22%. The cost of it per year would be $1,936.
(BlackRock and BMO both have similar ETFs.)

You'd have to decide if this fellow is providing you $17,776 ($19,712, less $1,936) worth of advice each year.

I'm guessing if you want to go the VBAL way, you'd have to change advisors. You might have to find a "fee for service" advisor that charges by the hour, and have them help you set up self directed RRIFs and LIFs.
Or just be your own advisor.

Personally, I would be running from this advisor - especially if he told you the Fidelity Fund has a low MER - but again, you have to decide if he's providing you almost $18,000 per year of good advice.

As far as the mechanics of the Fidelity Fund, there is nothing wrong with it. The concept is good - the balance of equities, and bonds, and the automatic rebalancing, is all good. But the cost is pretty atrocious.

Joe

(edited to fix a typo)


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## AltaRed (Jun 8, 2009)

One flaw in the prior post. The 2.24% is shared between Fidelity and Jman's advisor. Jman's advisor and his firm will get a commission for selling the product and an ongoing trailer fee every 3 months.

I do agree the MER is anything but low. Fidelity cannot sustain enough outpetformance long term to compete with the new low cost ETF asset allocation products. Even Fidelity will abandon these mutual fund products soon.


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## RBull (Jan 20, 2013)

Congratulations Jman123.

I'm of the same opinion as Joebaba. 

$17K extra buys a lot of lifestyle for you each and every year in retirement, if you are comfortable doing it yourself with a simple all in one ETF that also automatically rebalances, or with a fee for service planner initially. You'll have to look at what other value the planner brings. 

Pretty much all funds are going to look good return wise looking back over a 10 year period now because it coincides with the deepest drop in 2009 and recovery since. 

A/R is right. Canada has the highest fund fees in the world and with ETF competition all of the mutual fund companies have been entering that arena and will have to eventually drop their expensive funds.


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## like_to_retire (Oct 9, 2016)

jman123 said:


> It seems a lot (a total of $880K) to put into one product and I guess I don't have to worry that Fidelity is going to disappear with my money but I thought I would run it by you guys for your advice.
> 
> Thank you


As mentioned there are simple one stop balanced allocation ETF's that have very low fee's such as Vanguard VBAL. Just pick your allocation.

That 2.24% is brutal. You're paying for someone else's retirement.

ltr


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## jman123 (Jan 28, 2015)

Hello,

This is Fidelity Global Balanced Portfolio Series F , Fund Code NL 2604 has a MER of 1.10%. See https://www.fidelity.ca/cs/Satellite/doc/FF_GBP_F_en.pdf

Also, I was given at the meeting a sheet that stated "Series MER at Dec 31,2018" to be 1.10% 

I will have to compare VBAL with this fund to see the differences in terms of rate of return. Personally, I look at what my net return will be and if one fund has a lower MER but a lower return then one with a higher MER but a larger net return I would go withe the later. 

I am also conflicted on whether to keep going with this adviser as I pay him 1% of my assets for his services and frankly recommending one fund and sitting on it for years doesn't seem to warrant the $8K/year for his services.


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## jman123 (Jan 28, 2015)

kcowan said:


> Congratulations!
> 
> I can't make any specific recommendations. However, what I have gleaned from the internet in 20 years, is wait to convert to LIFs if you can because they will get more cost-effective. Increase your RRIF withdrawals to compensate.
> 
> As to specific investments, the thing to focus on beside past performance is the MER including the adviser's cut. I will leave it for others to be more specific on this.


Can you explain the cost-effectiveness of waiting to convert to a LIF?

Thank you


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## OptsyEagle (Nov 29, 2009)

The F-class fund you listed is only available for fee based accounts. So either your advisor is charging you a fee, on top of the 1.10% you indicated, or you are listing the MER for the wrong series of that fund.

2ndly, everything did well coming out of the trough of one of the worst bear markets in history, that ended this time exactly 10 years ago, up to now, one of the longest bull markets in history. There is no way, in this universe, that the fund you listed, with the 2% plus, in fees taken out each year, in conjuction with the negative dollar cost averaging your own 4% withdrawal will produce (total withdrawal probably around 6%), going forward. Even if your fund earned 7.5%, the negative dollar cost averaging that a withdrawal rate of 6% plus annually creates, will still ensure your portfolio declines in value over the coming years...and that fund is never going to earn 7.5% annually, in the future, starting from where it is now.

I should add, that because of negative dollar cost averaging, reducing the volatility of your portfolio, is a must. So koodos to the recommendation to reduce the equity weighting. The RRIF idea is good as well because it will capture the pension income tax credit for you, where withdrawing from the RRSPs, would not.

As for VBAL, etc., most of fees you are paying are for advice and HST and other accounting aspects of fund investment. Unless you want to go alone, you may have to bite into some above DIY sized fees. Fee for service sounds good, but a lot of meetings one has with an advisor are just follow up to see how things are going and it gives you the ability to get answers to a couple of questions you might have on your mind. What I find, is a client might not mind paying $1,000 or more for a financial plan and the meeting to explain how to set up and utilize a portfolio in retirement. It is the meetings afterwards, where it seems like not a lot gets done, that start to feel a little expensive, when the bill is put in front of you. If you go that route, you will eventually be going it alone. Trust me.

With that in mind you either use an advisor and pay well above 1% in fees (probably closer to 2%) or you do it yourself. Your call. Good luck.


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## cainvest (May 1, 2013)

jman123 said:


> I will have to compare VBAL with this fund to see the differences in terms of rate of return. Personally, I look at what my net return will be and if one fund has a lower MER but a lower return then one with a higher MER but a larger net return I would go withe the later.


You could also look at the Mawer Balanced Fund (MAW104) while comparing VBAL. MAW104 has slightly lower fees (0.2) over your fidelity fund F series and better long term returns (10.1 vs 8.5 for 10 years).


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## agent99 (Sep 11, 2013)

like_to_retire said:


> That 2.24% is brutal. You're paying for someone else's retirement.
> 
> ltr


The sad thing is that jman would be paying that MER even if the fund is losing his money. According to the pdf link though, it is Series F : 1.10%.

If that is really the total fee, perhaps it is not so bad. But I would be very wary of an advisor that wants you to put all your money in one fund. The fund is managed by others. He has to do nothing other than collect the trailer fees? Actually fund says it does not pay trailer fees, but adviser must get paid somehow?

1.1% of 880,000 is $9680/year. And you will draw $34,000. Their cut is 22.16% of the annual cash flow! Oh, just noticed - the adviser gets another 1%? That reminds me of when I was with a Full Service brokerage. They would invest my money in mutual funds with 2+%MER then charge me another 1+% for doing practically nothing.

If the fund really could yield 10.2%, that would produce $89,760 pa. (it won't - If it will, I want some  ) I checked on Morningstar, and the return for 10 years was 10.02%. But as others said, that was from one of the worst times for markets. Over same period, average return of similar funds was 7.4%, but over 15 years 5.19% (no 15yr data for Fid, but 5.63% since inception) If I look at our own results over same period, we actually drew ~4% pa and our portfolio grew by 50%. That was because 2009 was a fortunate starting point. We are not at one now! Don't expect those sort of returns. That FID fund actually lost 0.44% in 2018.

I would definitely shop around. Find someone who will help YOU, rather than themselves. Don't put all your eggs in one basket.


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## OnlyMyOpinion (Sep 1, 2013)

Jman, VBAL has only been around since 2-Feb-2018 so not much history to compare to FID2604. That said, their 1 year perfomance to date is very similar, 5.33% and 5.44% respectively, according to this: https://web.tmxmoney.com/charting.php?qm_page=59508&qm_symbol=VBAL.

Morningstar shows different 1 YR results (4.58% versus 5.46%). It does not appear to be distributions that explains the difference, so I'm not sure what is going on. YTD is similar though (9.54% vs 9.67%).
http://quote.morningstar.ca/QuickTakes/ETF/etf_performance.aspx?t=VBAL&region=CAN&culture=en-CA
http://quote.morningstar.ca/QuickTa...rf.aspx?t=F0CAN070MD&region=CAN&culture=en-CA

Suffice to say that FID2604 appears to have a reasonable return history in spite of its 1.10% MER. But the advisor's ongoing 1.0% is clearly biting into your income badly.

I think the consolidation of your many funds is a good idea ( https://www.canadianmoneyforum.com/...y-first-day-of-retirement-Advice-needed/page5 ).

I recall you had one FID MF with that you felt you could roll to this proposed MF without incurring the DSC. Not sure if that still applies?

You had also mentioned that your wife was more comfortable not going the DIY route with this 80% of your assets. That may still be a big issue with her in spite of knowing he will cost you $8k/year ($666/mo) initially? She is essentially giving up more than all of her monthly OAS to pay the advisor, and as you point out, they are not doing anything once you are deccumulating from 1 fund.

We know from your earlier post that you are running a CCP with your other assets, I'd think hard about going the DIY route with something like VBAL for at least half? of the assets. As pointed out above, it will save you initial expenses of about $1233/mo ((1.1%+1.0%)-0.25%*$800k/12).

Also, I assume that if you 'RRIF' all of your RRSP-LIRA assets now it is because the extra income makes sense rather than deferring longer? (I include vacations, gifting, max'ing out your TFSA's each year, etc. as good retirement spending).

Best wishes with your decision.


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## AltaRed (Jun 8, 2009)

jman123 said:


> Hello,
> 
> This is Fidelity Global Balanced Portfolio Series F , Fund Code NL 2604 has a MER of 1.10%. See https://www.fidelity.ca/cs/Satellite/doc/FF_GBP_F_en.pdf
> 
> ...


That is helpful information, meaning 1.1% MER for the fund plus 1% AUM for advisory services. The real question then is whether you need the advisor at 1% AUM or whether you would be comfortable managing MAW104/105 on your own in discount brokerage accounts or with Mawer directly, and save at least 1%, or moving to VBAL or an equivalent for even less MER. Mawer is doing a similar thing to your Fidelity Series F fund so maybe do some performance comparison between them to get comfortable with the Mawer product relative to Fidelity.

The one issue with using an ETF over a mutual fund would be the selling commissions to sell ETF units versus no cost to sell mutual fund units. Those commissions can be mitigated by managing quarterly withdrawals instead of monthly withdrawals.

FWIW, I would not be concerned about having all assets in one holding. That is what the products are designed to do.


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## agent99 (Sep 11, 2013)

AltaRed said:


> The one issue with using an ETF over a mutual fund would be the selling commissions to sell ETF units versus no cost to sell mutual fund units. Those commissions can be mitigated by managing quarterly withdrawals instead of monthly withdrawals.
> 
> FWIW, I would not be concerned about having all assets in one holding. That is what the products are designed to do.


Several on-line brokerages do not charge trading fees on etfs. https://www.savvynewcanadians.com/discount-brokerages-commission-free-etfs-canada/

Alta - Before retirement, I had several mutual funds. Some performed OK, some not. If I had had just one, I could have lost my shirt. They are a dying breed - I stay well clear of all of them. Just can't imagine putting all my retirement savings in one mutual fund. Would you do that? That fund might be diversified, but it is diversified among other funds run by same company.


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## scorpion_ca (Nov 3, 2014)

Don't forget that there is a TER of 0.9% associated with this fund. Therefore, your total expense ratio (ER) is 1.1+1+.09=2.19%. That's the insane ER in 2019 considering we have so many low cost mutual funds and ETFs.


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## OptsyEagle (Nov 29, 2009)

jman123 said:


> Hello,
> I was given at the meeting a sheet that stated "Series MER at Dec 31,2018" to be 1.10%


If you were given that sheet at the meeting, by your advisor, AND you are not in a fee based account, then your advisor is trying to deceive you. This fund is incorrect. It does not pay any trailer commissions to dealers/advisors, so if you are not paying them in another way, they are not truly going to put your money into this series of fund. I assume they have no desires to be a charitable organization.

The reason I am telling you this, is that 1% or more for advice is not cheap, but it is outrageously expensive for an advisor that will attempt to take advantage of a client's reduced understanding of the investment world. In other words, would lie to you.

My advice. Leave this advisor. You will never know what is correct and what is a lie, going forward. Trust is everything. If he/she tells you that sheet was given in error...that will be their 2nd lie … that you know about.

Good luck.


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## kcowan (Jul 1, 2010)

jman123 said:


> Can you explain the cost-effectiveness of waiting to convert to a LIF?
> 
> Thank you


Yes. a Lif is somewhat expensive because of the risk paying you until you die. In 10 years, they are taking less risk and you will be rewarded with a lower fee. Plus by drawing more heavily on your RRIF in those years, you will reduce the reductions in your OAS.


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## like_to_retire (Oct 9, 2016)

agent99 said:


> If I had had just one, I could have lost my shirt. They are a dying breed - I stay well clear of all of them. Just can't imagine putting all my retirement savings in one mutual fund. Would you do that? That fund might be diversified, but it is diversified among other funds run by same company.


I agree with you Agent99. I can't imagine putting all my eggs in one "basket". Systemic risk isn't the problem, it's that pesky unsystemic risk that is uncorrelated with stock market returns that I would lose sleep over. At the very least I would look into a couch potato portfolio.

ltr


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## jman123 (Jan 28, 2015)

OptsyEagle said:


> If you were given that sheet at the meeting, by your advisor, AND you are not in a fee based account, then your advisor is trying to deceive you. This fund is incorrect. It does not pay any trailer commissions to dealers/advisors, so if you are not paying them in another way, they are not truly going to put your money into this series of fund. I assume they have no desires to be a charitable organization.
> 
> The reason I am telling you this, is that 1% or more for advice is not cheap, but it is outrageously expensive for an advisor that will attempt to take advantage of a client's reduced understanding of the investment world. In other words, would lie to you.
> 
> ...


I'm a bit confused here. That sheet was from Fidelity itself and something similar can be found on their website. I believe I am in a fee based account (I'm paying 1% for his services) so I don't understand why you say he is lying to me.


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## jman123 (Jan 28, 2015)

kcowan said:


> Yes. a Lif is somewhat expensive because of the risk paying you until you die. In 10 years, they are taking less risk and you will be rewarded with a lower fee. Plus by drawing more heavily on your RRIF in those years, you will reduce the reductions in your OAS.


Is there a fee when you convert a LIRA to a LIF? I don't think I have to worry about reductions in my OAS because splitting my income with my income will never cause a clawback to my OAS or hers


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## jman123 (Jan 28, 2015)

agent99 said:


> That fund might be diversified, but it is diversified among other funds run by same company.


I see that the fund itself is diversified among other Fidelity Funds but each of those funds own stocks/bonds of actual companies and governments so is that an issue?


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## OnlyMyOpinion (Sep 1, 2013)

Jman, I don't believe Optsy picked up on the fact that you have a fee-based advisor, iwc the advisor was not lying. 

Keith, I'm confused by your reply to Jman re/ the LIF. My understanding is that Jman has a LIRA (or locked-in RSP), presumably from a DC pension they left. Much as a personal RRSP transfers to a RRIF, a LIRA transfers to a LIF, with the same prescribed minimums as a RRIF but with a prescribed max as well. 

Fidelity has $2.5 trillion under management, FID2604 is $5.6 billion CAD in size. I get the concern about having all your eggs (or 80%) in one fund, but like AltaRed, this wouldn't be my primary concern. I haven't read similar concerns about Mawer for example. I'd be more uncomfortable with the high advisor's fee for a simple 1 fund account(s).

(disclosure: our RRSP's are comprised of maw104, vbal, and strip bonds)


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## agent99 (Sep 11, 2013)

jman123 said:


> I see that the fund itself is diversified among other Fidelity Funds but each of those funds own stocks/bonds of actual companies and governments so is that an issue?


It would be to me. You are relying on individuals, all working at one company, who receive guidance from that same company, to invest your hard earned retirement savings. 

To me, that fund looks like something someone earlier in life might invest in. Well diversified around the world. Even their site suggests it as being only suitable for those with a long investment horizon. They have very little in Canada. Us retirees spend most of our money in Canada. I like to earn Canadian dollars plus just a little in US$ for our trips South. I wonder how they avoid currency exposure risk?


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## agent99 (Sep 11, 2013)

OnlyMyOpinion said:


> I haven't read similar concerns about Mawer for example. I'd be more uncomfortable with the high advisor's fee for a simple 1 fund account(s).
> 
> (disclosure: our RRSP's are comprised of maw104, vbal, and strip bonds)


I would be just as concerned if it was all M104. I read all the good stuff about it here, but as a retiree I have never seen how it would be good for us. You have to rely on growth. Which with markets at what may be top of bull run, is that or the Fid MF a good place to be?


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## Jimmy (May 19, 2017)

I think converting to the RRIF makes sense if you need the income. You then get to claim the pension deduction on that retirement income for a ~ 5? extra yrs vs starting at 71. $2,000 credit each yr so a $10,000 total benefit. Not too bad.


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## AltaRed (Jun 8, 2009)

agent99 said:


> OnlyMyOpinion said:
> 
> 
> > I haven't read similar concerns about Mawer for example. I'd be more uncomfortable with the high advisor's fee for a simple 1 fund account(s).
> ...


Why? The OP is already 80/20 so moving to a 60/40 is in the right direction if the markets are frothy. Would seem very good timing to reduce risk.

Nothing wrong with these AA funds that are wrappers of a suite of underlying funds. A person is actually getting auto diversification by geography and asset class, doing what most investors cannot do well themselves. 

I think you are letting personal biases get in the way of perfectly legitimate automated set-and-forget solutions.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I think you are letting personal biases get in the way of perfectly legitimate automated set-and-forget solutions.


Not true. I am just concerned that jman will be influenced by his adviser (and some here) to do something he and his wife will regret down the road.


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## AltaRed (Jun 8, 2009)

agent99 said:


> AltaRed said:
> 
> 
> > I think you are letting personal biases get in the way of perfectly legitimate automated set-and-forget solutions.
> ...


So what would be your couch potato alternative offering? TD e-funds? VBAL? A 3 fund ETF portfolio of something like VCN, XAW, VAB? Don't want to trust Vanguard or BlackRock or BMO for ETFs? 

I am not promoting Fidelity and I have no desire to own their actively managed products but they are huge, survive quite well globally, etc. If you don't like the product, that is fine, but I would suggest it is unfair to knock the company. Couch potato investing does involve buying corporate offerings.

Added: With these assets being in registered products, it doesn't cost much to switch products if that becomes obvious in the future.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I am not promoting Fidelity and I have no desire to own their actively managed products but they are huge, survive quite well globally, etc. If you don't like the product, that is fine, but I would suggest it is unfair to knock the company.


Did I knock Fidelity? I don't think so. I knocked the advice that suggests buying such a fund for a retiree who requires income. This fund produces no income. 

The 1.1% trailing yield if maintained would just cover the MER. But then the 1% adviser's fee would result in a negative yield. (ShareClass Type: Fee-based Advice). This fund would rely entirely on growth to maintain retirement income. If markets retract and owner continues to draw 4% (+inflation?) of the original amount, he/she may soon run out of money. That would be worse than putting the money under the mattress.

I already suggested something - find a different adviser. One who will build a portfolio of dividend payers and fixed income that provides a substantial cash flow while preserving capital. Not hard to do. I don't use ETFs, but maybe they could work too.


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## AltaRed (Jun 8, 2009)

Yield is expressed after MER so the yield is real. But point taken. I won't get into the forever argument that Total Return is what matters. Couch potato portfolios are not dividend focused since they represent indices anyway.

Forget about building a stock and bond portfolio. That is where % of AUM advisors will almost always underperform. That is the last thing the OP should allow an advisor to do.

For the OP the very best he can do for himself is to have a broad based index couch potato portfolio that an advisor cannot screw up.


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## OptsyEagle (Nov 29, 2009)

jman123 said:


> I'm a bit confused here. That sheet was from Fidelity itself and something similar can be found on their website. I believe I am in a fee based account (I'm paying 1% for his services) so I don't understand why you say he is lying to me.


Well that would be useful information. So it is the right fund if you are in a fee based account and therefore you can disregard my comments about the advisors integrity. You do need to start thinking about 2.1% in fees and stop talking about 1.1% MERs. Your Management Expense Ratio is 2.1% annually. That is where my confusion came from.

That said, with 2.1% in fees and a withdrawal rate of 4%, there is no doubt in my mind that the fund you mentioned will result in your portfolio declining in value overtime. How long it will last will always be an unknown, but I doubt it will keep up with that rate of withdrawal, when negative dollar cost averaging is also taken into account. It might keep up, but probably not. It definitely is not going to make 10%, starting from the stock market levels we have today and we cannot go back to May 2009 to start our investment plan.


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## AltaRed (Jun 8, 2009)

I agree it would take an optimistic view of market returns for a portfolio burdened with 2.2% in costs and a 4% SWR to last 30 years. Fixed income I performance in particular cannot match historical returns, and sentiment is that equity market returns will be lower going forward due to lower global GDP growth and corporate debt burdens.

So that leaves either one or both of reducing portfolio costs and changing withdrawal rates. I would do both by cutting out 1% in costs and changing to VPW (variable percentage withdrawal) for withdrawal rates to be sensitive to forward markets.

I know Agent99 suggests a new advisor who could put together a dividend stock and FI portfolio that generates more income with less cost, but the dilemma is finding a trustworthy advisor who has the OPs interests at heart and even a fiduciary duty to the OP. The waters are shark infested out there and it is too easy to end up with a damaged portfolio in 5 years if the advisor does not work out well.

Hence why I push for couch potato index products to minimize the damage, or a firm like Mawer with a track record. An advisor is not necessary if one sticks with global neutral balanced 60/40 asset allocation products. They take care of themselves, including avoiding over reliance on the standing of the loonie.


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## jman123 (Jan 28, 2015)

agent99 said:


> Did I knock Fidelity? I don't think so. I knocked the advice that suggests buying such a fund for a retiree who requires income. This fund produces no income.
> 
> The 1.1% trailing yield if maintained would just cover the MER. But then the 1% adviser's fee would result in a negative yield. (ShareClass Type: Fee-based Advice). This fund would rely entirely on growth to maintain retirement income. If markets retract and owner continues to draw 4% (+inflation?) of the original amount, he/she may soon run out of money. That would be worse than putting the money under the mattress.
> 
> I already suggested something - find a different adviser. One who will build a portfolio of dividend payers and fixed income that provides a substantial cash flow while preserving capital. Not hard to do. I don't use ETFs, but maybe they could work too.


I think maybe I should go back to my adviser and express my concern about the growth aspect of this fund versus income. I did bring up dividend income at our meeting and it seems that he provided the same type of answer I received on this (or maybe the Investment sub forum) regarding relying on dividend income. That the main thing to consider is return, that dividends provide "no free lunch" as it can decrease the profit of the dividend paying company resulting in a lower share price and worth. That living off the dividends and not touching the principal is a fallacy. 

Finding another adviser that will propose a broad based index couch portfolio that will produce mostly income and some growth is easier said than done. Where does one find that type of adviser?
I realize that not going the DIY way is going to cost me as no adviser is doing any work for me out of the goodness of his heart. I either pay the 1% (or whatever) fee, pay it out with higher MERs for the products they want me to get (which I had been doing for probably 40 years) or find someone that will do it for a one time fee (but have no skin in the game , so to speak). 

Getting back to this Fidelity fund I see the following calendar returns :

(2019 = 9.6%) (2018 = -0.44%) (2017 = 9.53%) (2016 = 2.50%) (2015 = 11.57%) (2014 = 11.25%) (2013 = 15.59%) (2012 = 10.95) (2011 = -1.76)

I am not unaware that my steady withdrawal of 4%+ each year (plus the additional 1% adviser free), dictated by the fact that the monies are coming from a RRIF could deplete my capital.

Especially , if the years ahead provide the results as 2018,2016 and 2011 (not even getting into 2008). Then , in my 70's , it looks like I will need to withdraw on average 5.5% each year according to those RRIF withdrawal rates. 

I can only think that for the amounts I withdraw now some of it will go back into our TFSAs (and possibly non-registered accounts) and that we use these to supplement the lean years if we need to. It's quite a balancing act.


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## AltaRed (Jun 8, 2009)

Indeed. One does not have to spend required RRIF withdrawals. Re-invest the excess back into TFSAs or a non-reg portfolio.

Dividends are not a fallacy as the advisor suggests but there is a balancing act on yields vs re-investment back into growth. Too many investors chase yield and forget about overall company performance. Companies like CN are going places versus the likes of BCE and IPL. For the latter, investors are questioning whether they can grow with double digit ROE/ROCE.


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## OnlyMyOpinion (Sep 1, 2013)

OptsyEagle said:


> ... That said, with 2.1% in fees and a withdrawal rate of 4%, there is no doubt in my mind that the fund you mentioned will result in your portfolio declining in value overtime. How long it will last will always be an unknown, but I doubt it will keep up with that rate of withdrawal, when negative dollar cost averaging is also taken into account. It might keep up, but probably not. It definitely is not going to make 10%, starting from the stock market levels we have today and we cannot go back to May 2009 to start our investment plan.


The assets are in their RRSP/LIRA to be RRIF/LIFaccounts. So the intent is that they will decline in value over time as the funds are withdrawn, and if they make the prescribed minimum withdrawls, we know they will last until death/100 since RRIF's use a variable percentage withdrawl (VPW) method (minimum withdrawl amount is a percentage of previous yearend balance. 

I think your concern is about the performance of FID2604, what it's year end value will be, and whether the annual withdrawls are sufficient to meet their spending needs. Last year is a good example, it lost 0.44% compared to the benchmark -3.04%. It's worst 3mo performance was -20.9% in 2008.

Jman should have some (after tax) scenarios run to understand how short and long term poor performance might affect their income streams.

I think they should negotiate a much lower fee from their advisor (0.5% or less) if that is how they plan to go, otherwise be prepared to move to SD.

Added: Personal bias, but I have a 5 year FI wedge in each of our accounts sufficient to cover the minimum w/d's for those first years (strips or gic's) to try to mitigate seq of returns risk. If funds do well I can sell and rollover the FI, otherwise use the FI that year. That will get us from 72 to 77. For Jman I think this would mean a 5yr x 32k ladder or $160k of the $800k.


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## cainvest (May 1, 2013)

AltaRed said:


> Dividends are not a fallacy as the advisor suggests but there is a balancing act on yields vs re-investment back into growth. *Too many investors chase yield and forget about overall company performance. *


Exactly. Dividend streams can definitely help smooth out lower return years like the (2018 = -0.44%) and (2011 = -1.76) you've shown above.

jman123, not sure if you've run the numbers but capturing an extra 1-2% (especially on fees) over the life of your portfolio during the depletion phase is pretty significant. It would seem going a self directed route could save you this much and even possibly provide better returns as well.


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## OptsyEagle (Nov 29, 2009)

jman123 said:


> Getting back to this Fidelity fund I see the following calendar returns :
> 
> (2019 = 9.6%) (2018 = -0.44%) (2017 = 9.53%) (2016 = 2.50%) (2015 = 11.57%) (2014 = 11.25%) (2013 = 15.59%) (2012 = 10.95) (2011 = -1.76)
> 
> I am not unaware that my steady withdrawal of 4%+ each year (plus the additional 1% adviser free), dictated by the fact that the monies are coming from a RRIF could deplete my capital.


Yes. As I said, it WAS called a bull market. One of the longest in history. Those numbers are unlikely to be repeated from this level. I would suggest going back to 1999 to 2009 to see a more likely scenario for your results, since 1999 was after a long bull market as well. Trust me. The performance numbers will not look anything like the ones you listed. You will almost think it is not the same fund. There were two bear markets, each with almost 50% declines, with the first one lasting almost 3 years. With your withdrawal rate and the fees we discussed I would suspect your nest egg to be almost depleted after 10 years, in that kind of environment. The only thing would retain any savings for you at all, would be the 40% fixed income component. Definitely don't give that up, for any promise of higher potential returns.


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## AltaRed (Jun 8, 2009)

The asset mixer on the Stingy Investor site is a good place to run scenarios in CAD equivalent at various asset allocations over various time periods. I agree the 20 year period from 1999-2018 is a good proxy with a few caveats.
1. These returns are before fees.
2. It includes the last 15 years of the greatest bond bond market in history. Bond returns will be less over the next 20 years.

The asset mixer is great because it also presents the variables, standard deviations, etc over the time period selected.

I think the OP said that spouse would be reluctant to go fully self-directed, so some compromise is necessary. Absent an ability to negotiate the % of AUM advisor down, maybe a 'fee only' planner would be worthwhile at $2k per year to provide the annual guidance on a couch potato VBAL or MAW104 type plan to satisfy spouse, and the OP can then execute through self-directed accounts.


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## fireseeker (Jul 24, 2017)

OnlyMyOpinion said:


> I think they should negotiate a much lower fee from their advisor (0.5% or less) if that is how they plan to go, otherwise be prepared to move to SD.


I don't think this is realistic. I'm not aware of full-service advisors with such modest fees, unless the portfolio is deep into seven figures. 0.5% is at the level of robo-advisors.
So, maybe a robo is the way to go for jman. Using ETFs, it would cut your total fees to under 1%. Plus it might satisfy your wife's concern about not going solo.

Personally, I would go self-directed couch potato, given you already have some experience with that, or doing what Alta suggests and using a fee-only advisor for annual checkups on an ETF portfolio.
But jman's personal situation does sound like it would be a good fit with a robo. Maintaining the current arrangement -- paying 2.1% in fees for a balanced mutual fund portfolio -- seems like the worst of all possibilities.


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## kcowan (Jul 1, 2010)

jman123 said:


> That the main thing to consider is return, that dividends provide "no free lunch" as it can decrease the profit of the dividend paying company resulting in a lower share price and worth. That living off the dividends and not touching the principal is a fallacy...


Living off dividends is all about LBYM and relying on principal growth to compensate for inflation. He is this adviser? And VPW!


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## like_to_retire (Oct 9, 2016)

fireseeker said:


> Personally, I would go self-directed couch potato, given you already have some experience with that, or doing what Alta suggests and using a fee-only advisor for annual checkups on an ETF portfolio.


Every once in a while a smart guy like jman123 comes along and it seems obvious that they have done all the right research, and made all the right conclusions, and are completely capable of executing a proper self directed portfolio and they still want to pay and involve some third party in the process. And even involving them when it's as simple as a couch potato strategy. I agree that there are quite a few people that should simply not invest on their own, but this ain't one of those cases.

ltr


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## AltaRed (Jun 8, 2009)

There is a spouse involved who does not appear ready to go fully DIY. That has to be respected. 

Hence having a lifeline of some kind, e.g. fee only planner, or robo-advisor may be the training wheels to fully solo. There is more than one way to Rome.


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## kcowan (Jul 1, 2010)

Yes I think it is easier convincing yourself that convincing a skeptical spouse. Plus he is just spouting the party line here and has not actually taken any steps.

Back in the day, I did it gradually, building confidence to take on spouse's and MILs portfolio.


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## agent99 (Sep 11, 2013)

kcowan said:


> Living off dividends is all about LBYM and relying on principal growth to compensate for inflation. He is this adviser? And VPW!


Sorry - What did you say?


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## agent99 (Sep 11, 2013)

like_to_retire said:


> Every once in a while a smart guy like jman123 comes along and it seems obvious that they have done all the right research, and made all the right conclusions, and are completely capable of executing a proper self directed portfolio and they still want to pay and involve some third party in the process. And even involving them when it's as simple as a couch potato strategy. I agree that there are quite a few people that should simply not invest on their own, but this ain't one of those cases.
> 
> ltr


I agree. But a once a year financial check up type adviser as Alta suggested, makes sense. Have them set up a plan. Then run it yourself. After 6 months have a checkup. If all well, once a year. 

I don't believe all that Total Return stuff that make dividends looks bad. It's mostly just theoretical stuff that may only work in long term. How many of us retirees avoid dividend payers?

Jman - Think about our big banks. They all pay a healthy dividend. One that keeps increasing. But then so does their share price. Good companies provide a balance between dividends and growth. There a quite a number of very good Canadian (and other) companies that pay dividends in the 3.5-5.5% range. These will provide cash flow even if markets tank. And when they recover, their shares bounce back up first - because they are strong companies. BTDT. It is not hard to find these companies, but a good one-time adviser can help.

When I retired, I had no interest in looking after our investments. But that soon changed once I got a similar spiel to the one you have received. "Give us all your money and we will produce $X in income" But they neglect to say that they will now collect x% of a bigger number. That seems to be their motive.


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## AltaRed (Jun 8, 2009)

Where I differ is your 3.5-5.5% dividend yield range. My view is 1.5-4% being a reasonable range for paying out maybe 50% of cash flow to shareholders. Companies that pay higher payouts are mature and going nowhere fast OR are potential value traps (or low ROE). Companies like PWF and BCE strike me as long term 'also rans'.

Anyways, Canadian capital markets seem addicted to dividend yield more than the US and Europe et al. Your yield range is not sustainable in a diversified couch potato portfolio for the next 30 years.

Added: The best Cdn equity ETFs specializing in high dividend yield stocks yield in the range of 4.5% and they are highly concentrated in a few sectors. That might work for a circa 25% Cdn equity component but doesn't cover the rest of the global market. FWIW, my ex has a holding in XDIV but not a large holding due to its skewed sector allocations.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Where I differ is your 3.5-5.5% dividend yield range. My view is 1.5-4% being a reasonable range for paying out maybe 50% of cash flow to shareholders. Companies that pay higher payouts are mature and going nowhere fast OR are potential value traps (or low ROE). Companies like PWF and BCE strike me as long term 'also rans'.


Hey Alta, we had this discussion before. Now you made me go and check my own portfolio yields again 

BCE 5.21%, CIBC 5.06%, NB 4.1%, RBC 3.87%, TRP 4.62%, BNS 4,87%, BMO, 3.85%, EMA 4.58%, REI.UN, 5.43%, TD 3.98%, PWF 6.12%, POW 5.77%, CU 4.56%, T 4.55%, AQN 4.87%, Plus a number of foreign ADRs from major international companies with yields in 5-5% range. 

Do you really think those companies are all going nowhere? I hope not - I own all of them  I also have some with lower dividends like say Methanex, Weston, Loblaws, Rogers. To be honest, I think those are the ones that are 'going nowhere fast' . Probably sell off some, except Methanex because as Chem Eng I need some chemicals  Also own some like VET, EIF, RUS, IPL with even higher yields (but not that much)

With target withdrawal of 4%, I have always tried to earn 4% or more from portfolio in dividends and interest. It has worked for us and portfolio continues to grow. FI yields lower these days, so using pfds if need be. Right now, our overall distribution yield from Equity and FI is 5.06%. And that with 40% FI and no undue risk. Our portfolio has almost doubled in 15 years, but as outlined earlier, this was in a bull market with just one blip in 2008/9. Without the bull, we may have only maintained original capital? That could happen to Jman, especially if he heeds some of advice he has been getting!

If someone with no training in investing, like myself, can do this, Jman , perhaps with some guidance from a knowedgeable fee only adviser, should be able to do the same. Alternatives are more simple, but life will have to be too.


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## like_to_retire (Oct 9, 2016)

agent99 said:


> Hey Alta, we had this discussion before. Now you made me go and check my own portfolio yields again
> 
> BCE 5.21%, CIBC 5.06%, NB 4.1%, RBC 3.87%, TRP 4.62%, BNS 4,87%, BMO, 3.85%, EMA 4.58%, REI.UN, 5.43%, TD 3.98%, PWF 6.12%, POW 5.77%, CU 4.56%, T 4.55%, AQN 4.87%, Plus a number of foreign ADRs from major international companies with yields in 5-5% range.
> 
> Do you really think those companies are all going nowhere? I hope not - I own all of them  .


Yeah, a lot of us own all those stocks too Agent99. And they all seem to increase their dividends every year greater than inflation, and then the share price has to increase to keep up, so I think those are all great companies too. Those companies can keep doing that forever and I'll be pleased.

ltr


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## james4beach (Nov 15, 2012)

AltaRed said:


> Anyways, Canadian capital markets seem addicted to dividend yield more than the US and Europe et al.


I think it's because, due to luck, our banks didn't catastrophically cut dividends (they got close, though). The amazing resilience of Canadian large cap dividends through the last market cycle has led to overconfidence about dividends in Canada. Dividends have been reliable for the last ~20 years and many people now assume (incorrectly) that this will always be the case.

In US and Europe, investors who assumed that dividends were safe have already had this belief "corrected", shall we say. Historical US market data shows that a 10% to 30% contraction in dividends is pretty normal during bear markets.

Reality is, dividends correlate with share prices in general. A sharp decrease in prices generally comes along with a decrease in dividends. While it's true that the dividend stream is smoother, and doesn't fall as sharply as prices, it should not be seen as bullet-proof.


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## AltaRed (Jun 8, 2009)

I would suggest some of those stocks have mediocre mid-single digit ROE returns with high payouts, so yes, they don't fit in a 30 year portfolio. But that is a distraction to what is likely more important from a portfolio construction perspective for a retiree. 

Very few people should have stock portfolios and even less so starting in retirement. Jman would have to implicitly trust his advisor who doesn't have a fiduciary duty to him. Is that a risk worth taking versus a couch potato?


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## agent99 (Sep 11, 2013)

james4beach said:


> *Reality is, dividends correlate with share prices in general.* A sharp decrease in prices generally comes along with a decrease in dividends. While it's true that the dividend stream is smoother, and doesn't fall as sharply as prices, it should not be seen as bullet-proof.


This is true. But if a company that pays a dividend sees fit to cut it's dividend, then there must be a reason? Suppose an equivalent company that pays a much smaller or no dividend is faced with same problem. What do they do? They can't cut the dividend much. The problem will show up on bottom line when they report their financials, and their shares too will plummet. I could see this happening in Canadian telecoms. For example Telus vs Rogers if CTRC allowed a large foreign telecom into the field. I don't think fact that Rogers pays a miserly dividend would help them much.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Very few people should have stock portfolios and even less so starting in retirement.


OK all retirees listen up. 

Alta says we should all get rid of our stocks and become couch potatoes


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## OnlyMyOpinion (Sep 1, 2013)

Agent, to run with your proposal (a portfolio of dividend paying equities and some FI), I'm interested what we do at age 73 when we have to w/d 5.5%, increasing to 6% when we're 76, and increasing upward. Do we - or the wife if we've died - sell a bit of each stock, the best performer, or the worst? Jman mentioned monthly, do they sell monthly or just once a year? 

My point is that while your portfolio may work well for you now and even into your late years, it may not suit everyone. Simplicity may become a priority, dying the wealthiest man in the cemetery may not.

I'm not slagging your approach - we currently live on dividends from an unreg portfolio not unlike yours. 
We are winding it down though and things will be simpler when our RRIF's kick in at age 72. 
I've been assuming that Jman is inclined to simplify as well, from mutiple mf's in their RRSP'S to few, not go the other way. But in the event they went with a dividend portfolio now, how do you envisage the mechanics of unwinding it over the years?


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## AltaRed (Jun 8, 2009)

agent99 said:


> AltaRed said:
> 
> 
> > Very few people should have stock portfolios and even less so starting in retirement.
> ...


Hardly, but it is situational and few would start investing in stocks once into retirement. CMFers are a very small minority of Canadian investors and stock investors are even a smaller minority.

Added: I have dividend paying stocks of varying yields for my Cdn equity component and ETFs for everything else. I fully intend to wind down my Cdn stocks over the next 20 years and maybe sooner if I feel I am losing my cognitive abilities. A simple couch potato portfolio would be much better for my POA to manage. The KISS principle.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I fully intend to wind down my Cdn stocks over the next 20 years and maybe sooner if I feel I am losing my cognitive abilities.


You are a lot younger than I am. And Jman is younger too. I have found that keeping an interest in our investments helps maintain cognitive abilities. 
I also help my neighbor with his computer & internet. He is 93, still owns equities and uses his computer to track performance. He does have an adviser at Nesbitt Burns, but just for part of his holdings. That sort of thing might also work for Jman. Open an account at Nesbitt Burns plus one at BMO Investorline. Let Nesbitt prepare a plan for 1/2 the savings and then use that as guidance when handling the DIY brokerage part?


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## AltaRed (Jun 8, 2009)

Different strokes for different folks. There is no one right way. Jman will ultimately make his own decisions, as have you, and as have I.


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## agent99 (Sep 11, 2013)

OnlyMyOpinion said:


> Agent, to run with your proposal (a portfolio of dividend paying equities and some FI), I'm interested what we do at age 73 when we have to w/d 5.5%, increasing to 6% when we're 76, and increasing upward. Do we - or the wife if we've died - sell a bit of each stock, the best performer, or the worst? Jman mentioned monthly, do they sell monthly or just once a year?


This is not a problem. What I do, is accumulate cash in the RRIF over the year. This comes from bonds that mature as well as dividends and interest. Some of this is in US$ from stocks that pay divs in US$. I keep the cash in HISAs within RRIF. 

When withdrawal time comes (We do it all at once at beginning of year), I chose a stock or two that I can withdraw in kind. For example, suppose I have to withdraw $40k from RRIF. I might withdraw 200 shares of RY at $105 = $21,000, US$3760 cash (C$5000) and $14,000 in cash. Once in the taxable account, I usually just leave the shares there. The US$ we move to HISA and use for trips south. If we need more, I might sell some RY or another interlisted stock on the US side. The C$ we use to contribute to TFSA as well as set aside for tax installments. Our retirement income comes mainly from dividends in the taxable accounts, so we don't sell shares very often.



> My point is that while your portfolio may work well for you now and even into your late years, it may not suit everyone. Simplicity may become a priority, dying the wealthiest man in the cemetery may not.
> 
> I'm not slagging your approach - we currently live on dividends from an unreg portfolio not unlike yours.
> We are winding it down though and things will be simpler when our RRIF's kick in at age 72.
> I've been assuming that Jman is inclined to simplify as well, from mutiple mf's in their RRSP'S to few, not go the other way. But in the event they went with a dividend portfolio now, how do you envisage the mechanics of unwinding it over the years?


There is no one size that fits all. Was just saying that Jman has enough saved that he could earn enough income in dividends and interest for day to day living. And only sell stocks when special things come up. 

You seem to be considering RRIF withdrawal as income. I do not. I think of it just as a transfer from registered account to taxable account. And we have to pay tax on that transfer, so need some cash from RRIF or elsewhere for that. If you need to sell stocks for income, I would not try and do it monthly. Maybe sell enough of one or two stocks that with cash in RRIF will provide for say 3 months or whole year's income. Put that in a HISA or elsewhere where you can access it monthly while earning some interest.

Regarding dying wealthy - Our kids will like that and it is part of the plan


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## AltaRed (Jun 8, 2009)

Way too complicated for most investors and out of reach for the vast majority.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Way too complicated for most investors and out of reach for the vast majority.


To complicated? Really? I was actually responding to OMO's questions - I am sure he could do it.

Amount CRA determines I must withdraw from RRIF shows up in BMOIL soon after Jan 1st. 
I do some simple arithmetic to see how to best raise that amount in RRIF. Usually a stock or two and some cash.
Make a call to BMOIL and it is done. Just once a year.
TFSA contribution is done on-line on same BMOIL site. - takes a few minutes.

If some think this is complicated, then they could pay an adviser to do it for them. But then those same people probably can't do their own tax returns either - they are way more complicated.


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## like_to_retire (Oct 9, 2016)

agent99 said:


> Amount CRA determines I must withdraw from RRIF shows up in BMOIL soon after Jan 1st.


Where does that _show up_? Is it in a message they send you?



agent99 said:


> I do some simple arithmetic to see how to best raise that amount in RRIF. Usually a stock or two and some cash.


My plan is to set aside the cash whenever a GIC comes due during the year and buy a new GIC with the remainder. Then take the cash out at that time and put it in my non-registered account for investment. I feel there's no use leaving that cash in the RRIF since the best I could do with it would be my HISA and I could do better (although taxable) in the non-registered account. So I would arrange the RRIF official withdrawal date with the broker to be Dec 31, but I would have removed it myself through the year when a GIC happened to come due. My RRSP is 100% GIC's.



agent99 said:


> Make a call to BMOIL and it is done. Just once a year.


Why do you have to phone - can you not do this on-line?

ltr


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## agent99 (Sep 11, 2013)

like_to_retire said:


> Where does that _show up_? Is it in a message they send you?
> 
> Why do you have to phone - can you not do this on-line?
> 
> ltr


There is a section on main page - My Portfolio - RIF Payments. Has calculated Min Payment and year end portfolio value. It also appears in January statement.

BMOIL does require a phone call for RRIF withdrawals. It does help in my case because they work out value of the US$ cash immediately and adjust C$ cash to bring withdrawal to the Min amount reqd in C$.


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## jman123 (Jan 28, 2015)

Hello all,

I had sent the following to my advisor after he suggested the one-fund approach: 

>>
Hello Mr.Advisor,

My wife and I have been discussing this and we would prefer not to go with a one fund approach for all our monies.

Also, even though the fund has done well over the last 10 years we are worried about some of the down years (2018 = -0.44, 2016 = 2.50, and 2011 = -1.76).

We realize that this is how the market goes and that there will be some down years but with a forced withdrawal rate of 4-5% due to the RRIFS,LIF we were hoping that we could safeguard some of the principal by offsetting growth with income. That is why we had talked to you about dividend income so that we would maybe not have to sell units (or maybe not as many units) in a down market.

We realize there is no free lunch and that income distributed by a company though dividends, etc… affects their share price but would prefer something that would produce more than the 1.18% yield that the Fidelity Global Balanced Portfolio will give. 

So, we have no objection to putting some of our monies in FID2604 (maybe up to 50%) but have heard that some banks, utilities, mutual funds, etc… could give us a better yield (in the 3-5% range) which we would prefer. Is that something you could look into? We know a one fund approach simplifies the selling of units on a monthly basis but it is not a show stopper if we could receive income on a quarterly, semi-annually or yearly basis and that a good part of that income come from the cash portion of our accounts due to dividends, interest, etc.. 

We definitely agree that a 60/40 approach is good and to convert our RRSPs and LIRA to RIFs and a LIF.

Regards,

Mr. Jman123
<<

I received the (edited) response below as well as a couple of attachments regarding the 2 funds now recommended. He is referring to just my portion of my investments with him.

>>
Hello Mr, Jman123,

$200,000 has been set aside into the Fidelity Multi-Bond mandate that yields over 4%. This would provide you personally with over $9,000 in retirement income without touching your capital.
$222,007+/- is your capital appreciation generator invested in the Fidelity Global Growth Portfolio. This is a managed solution very similar to the Fidelity Global Balanced mandate but with a higher concentration into global stocks, equities. 

Overall your portfolio is a 55% Fixed Income – 45% stock portfolio.

The reports will show impressive numbers but what the reports will not show is the benefits of having an automatic rebalancing feature built into our planning. In addition, by consolidating your holdings to Fidelity, you and your wife will benefit from preferred pricing since your combined accounts exceed $500,000. Once we have over a million with fidelity which we are very close already, the reduction in management fees kick in even more. The total fee reduction can range between 5% to 10%. 

I looked at many different firms for your income generation and the issue was that many of the high yielding securities was a blend of return of capital and interest. That can mislead many investors since return of capital is nothing short of giving back your own money. The reporting on the yield can show up in the form of a high number but does not separate the portion of return of capital and/or interest. In other words, the yields look very attractive on paper.

I also did not want to spread the portfolio too thin because you end up having 3,4,5,6 different portfolio managers not sync with each other. Maybe today 5 different portfolio managers look good on paper but over time they can easily overlap or even contradict each other resulting in wasted money spent on management fees. 

I recommend that we take on less risk in today’s environment and this is an efficient way to do that. I also want to respect your request to generate more income from the portfolio without touching the capital. This approach covers both requests. 

Let me know what you think.

Regards,
Mr.Advisor
<<

I received in the attachments what appears to be a Morningstar report (Portfolio X-ray) for :

Fidelity Multi-Sector Bond Fund F (CAD)
Fidelity Global Growth Portfolio Sr F (CAD)

It looks like for the Bond fund it is allocated as such :

Cash : 8.25%
Canadian Equity : 0.00 
US Equity : 0.28%
International Equ : 0.00
Fixed Income : 88.70%
Other/Not Classified : 2.77%

In the "Portfolio Snapshot" has a portfolio yield of 4.17% , Avg. Fund MER 0.92% 
It seems to be only around for a couple of years.

For the Growth fund it is allocated : 

Cash : 6.52%
Canadian Equity : 18.20 
US Equity : 34.17%
International Equ : 29.30%
Fixed Income : 10.84%
Other/Not Classified : 0.97%

In the "Portfolio Snapshot" has a portfolio yield of 0.77% , Avg. Fund MER 1.17% 

Not sure , but I am calculating the Bond Fund is approximately 97% FI (8.25% Cash + 88.70% Fixed Income) and the Growth fund is 17% FI (6.52% Cash + 10.84% Fixed Income). 

So it appears to me that for my total investment of $420,000 if I look at the stock/fixed income split : 

60/40 = $120K Bond fund , $300K Growth fund
50/50 = $173K Bond Fund, $247K Growth fund 
45/55 = $200K Bond Fund , $220K Growth fund <-- advisor's recommendation
40/60 = $226K Bond Fund, $196K Growth fund

So , now I am puzzled (and a bit confused), if I originally wanted a 60/40 split I should only put in $120K in the bond fund and not the $200K as he recommends but I won't get the 4.17% yield on that $80K difference. 

Geez , all I wanted originally was a 60/40 split with a 4% return.

Your comments and suggestions are most welcome.


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## AltaRed (Jun 8, 2009)

Don't mix yield with return. Yield is what you get in investment income. Return is what you get with the sum of investment income plus capital appreciation. Which do you want?

I do agree with the advisor on one thing. Funds with high yield often have a ROC component that is giving back some of your own capital without necessarily telling you explicitly (only known in a non-reg account when it shows on a T3 tax slip). That is not necessarily a bad thing in retirement since the ultimate goal IS to eat away at capital over time, but you should at least be aware of it and how that plays out over 20 years or so.

Overall I am not fond of the Fidelity choices. There is no reason today why you cannot get a yield of 3*% in a good dividend ETF for your equity (maybe 6% total return with capital appreciation). Hard to get a 3% yield out of a fixed income product unless it is a higher risk corporate bond product - stay away from high yield (below investment grade, i.e. junk) bonds. 

Only you and your advisor can decide whether to be 60/40 or 45/55 allocation. We are nearing the end of the current business cycle so the question is when, not if. How do you want to prepare for that, if at all?

Added: If you actually mean 4% yield with a 60/40 portfolio net of advisor fees, that will be near impossible without return of capital, or taking concentrated risk in both your equity and fixed income allocations, or giving up capital appreciation (examples include lame stocks like PWF), or even putting capital at risk.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> Overall I am not fond of the Fidelity choices. There is no reason today why you cannot get a yield of 3*% in a good dividend ETF for your equity (*maybe 6% total return with capital appreciation*).


Yeah agreed, for sure. And that _total return_ is all in your pocket without an advisor siphoning it off toward their own retirement.

Reading that interchange with jman123's advisor makes me weak. Sigh.... 

I could poke more holes in it than Swiss cheese - but why bother.

This thread has gone on a long time. I decided to re-read it today to get a better feel for it and I would say jman123 simply isn't listening to what people are telling him.

Even on page one.



jman123 said:


> I am also conflicted on whether to keep going with this adviser as I pay him 1% of my assets for his services and frankly recommending one fund and sitting on it for years doesn't seem to warrant the $8K/year for his services.





OptsyEagle said:


> ...you either use an advisor and pay well above 1% in fees (probably closer to 2%) or you do it yourself. Your call. Good luck.


jman123 could make a lot of investing mistakes for the kind of money his advisor is pulling in.

As AltaRed says, and backed up by most of the regulars here, there is no reason today why you cannot get a yield of 3*% in a good dividend ETF for your equity (*maybe 6% total return with capital appreciation)*.

ltr


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## AltaRed (Jun 8, 2009)

Even if the OP still wants (or needs) to keep a 1% AUM advisor, it would seem to me that there are better product choices (recognizing the advisor is NOT making money directly off F class Fidelity mutual funds). At the very least, I would challenge the advisor as to why index ETFs are not recommended in the mix. Challenge him to think outside the box vis-a-vis index vs actively managed products which over time are highly unlikely to beat the index anyway net of MER. If an advisor cannot get over either/both of mutual funds and indexing, that advisor would not appear to be putting client's interests first. It would be an interesting test...if nothing else.

Example: XDIV is a 'concentrated' dividend equity ETF yielding about 4.2+% (again not talking return here). The risk is concentration in financials and Canadian market only, but if the OP doesn't care about capital growth much, and is willing to risk Canadian market exclusivity, what is wrong with XDIV? That would handle the equity part. I don't know enough about Corporate (not high yield junk) bond ETFs but I am guessing 3% yield (don't mean return) should be consistently doable? That is pretty close to 4%p on a 60/40 before advisor fee.

P.S. I mention XDIV rather than XDV due to MER.


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## kcowan (Jul 1, 2010)

I think it just shows lack of confidence in his own ability to invest without hand-holding. I remember my first investments buying bond and stock at TD Greenline. Sort of like taking that first bungee jump. And in those days, there were no forums to seek advice. Gradually, I came to realize how easy it was and how to back out of bad choices.

I made out like a bandit on convertible debentures until the bank bailout of Yellow Pages cost me big time. Now I don't touch them.

I avoided major disasters like Nortel and their other US cousins.


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## AltaRed (Jun 8, 2009)

Also depends on where spouse is at on any decision to go DIY or not. That may have already been discussed somewhere in the 60+ posts.

P.S. After my last post above, I looked at the list of BMO Corporate Bond ETFs for 12 month trailing yield..... The best investment grade corporate bond ETF is in the 3-3.5% range - excluding high yield and US bond ETFs. That will be a bit less today because of the recent surge in bond prices. Not the best time to be buying into bonds. 

Which also then tells me, why go for 45/55 equity/bond split at this time of high bond prices? I would suggest the OP stick closer to his 60/40 allocation, or close to it.


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## jman123 (Jan 28, 2015)

AltaRed said:


> Don't mix yield with return. Yield is what you get in investment income. Return is what you get with the sum of investment income plus capital appreciation. Which do you want?
> 
> I do agree with the advisor on one thing. Funds with high yield often have a ROC component that is giving back some of your own capital without necessarily telling you explicitly (only known in a non-reg account when it shows on a T3 tax slip). That is not necessarily a bad thing in retirement since the ultimate goal IS to eat away at capital over time, but you should at least be aware of it and how that plays out over 20 years or so.
> 
> ...


Yes, ideally, I would like a 4% yield with at least a 4% return over time. I interpret take this as meaning living off the principal but if this is is not possible then at least have a 4% return. 

I think I still want to go the 60/40 route, which in my case, would be approximately investing 30% in the bond fund, the remainder in the growth one. 

I started another thread talking about what I would do with the $200K I have under my control. 

Recently, I thought maybe my approach would be to split it 5 ways, each 20% with Canadian,US, International, Bond ETF dividend funds as well as a GIC ladder. That would maintain the 60/40 split, be similiar in approach to the Couch Potato Portfolio as well as provide dividend income 

Using https://www.myownadvisor.ca/top-international-dividend-etfs-for-your-portfolio-2017/ and https://www.myownadvisor.ca/top-canadian-dividend-etfs-for-2018/ as well as other sites as a guide in helping me decide what to choose.

Wondering if that is good approach? 

I can bring this up as well with my advisor but honestly from his e-mail and past meeting I think he will push for his two fund approach. As explained before, for 80% of my assets I cannot do the DIY approach. In terms of past performance he has been doing OK so maybe his two fund approach will be fine with a 30/70 split between the two funds. 

I will , at least put forward my own dividend investing strategy to get his opinion.

Ideally, if I do better than him over time using the same 60/40 objective maybe DIY could be option for all of my nest egg


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## AltaRed (Jun 8, 2009)

jman123 said:


> Yes, ideally, I would like a 4% yield with at least a 4% return over time. I interpret take this as meaning living off the principal but if this is is not possible then at least have a 4% return.
> 
> I think I still want to go the 60/40 route, which in my case, would be approximately investing 30% in the bond fund, the remainder in the growth one.
> 
> ...


Firstly, I don't understand your 4% comment above. Yield is NOT the same thing as return. A 4% yield (annual investment income) only means a 4% return if there is no other capital appreciation in your holdings. If you draw 4% from a portfolio that has a 4% yield, you ware not tapping into any principal. The principal will continue to grow if there is capital appreciation in the underlying holdings.

It is not clear to me what you are really wanting from your DIY portfolio and how you want to draw from it. Firstly, I don't know why you might want to mix couch potato and stock picking. With only $200k at your disposal, and you wanting to be able to pull 4% from this portfolio on an annual basis, you have to first decide whether all of this 4% is going to be from annual yield (investment income), or it is a combination of investment income and draw down of your capital. Both have their pros and cons, the former being a fairly concentrated bet on high(er) yielding holdings, the latter being a more geographically diverse and likely robust investment (Canada, US, International). If you truly want a classic Couch Potato portfolio, you will have to do the latter as there is no geographically diverse "investment grade" portfolio that will give you a 4% yield. You can get relatively close to 4% yield by picking targeted dividend ETFs from, for example, the links you noted, but you will have to draw from capital to top it up.

My best advice is not to stock pick, but to use dividend ETFs for your equity component. On the Canadian side, the MOA website for some reason does not mention XDIV ETF which has a lower MER than XDV. I will leave it to you to research the comparison IF you are considering XDV for your Canadian component.

I will continue to mention the all-in-one asset allocation ETFs as an alternative to picking your own suite of 3-5 ETFs because these asset allocation ETFs make all the diversification and asset allocation decisions for you. Example: VBAL at 60/40 for a total MER of 22bp. But since it will not yield 4% in investment income, you will have to tap into capital as well for a 4% draw.


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## jman123 (Jan 28, 2015)

AltaRed said:


> Firstly, I don't understand your 4% comment above. Yield is NOT the same thing as return. A 4% yield (annual investment income) only means a 4% return if there is no other capital appreciation in your holdings. If you draw 4% from a portfolio that has a 4% yield, you ware not tapping into any principal. The principal will continue to grow if there is capital appreciation in the underlying holdings.
> 
> It is not clear to me what you are really wanting from your DIY portfolio and how you want to draw from it. Firstly, I don't know why you might want to mix couch potato and stock picking. With only $200k at your disposal, and you wanting to be able to pull 4% from this portfolio on an annual basis, you have to first decide whether all of this 4% is going to be from annual yield (investment income), or it is a combination of investment income and draw down of your capital. Both have their pros and cons, the former being a fairly concentrated bet on high(er) yielding holdings, the latter being a more geographically diverse and likely robust investment (Canada, US, International). If you truly want a classic Couch Potato portfolio, you will have to do the latter as there is no geographically diverse "investment grade" portfolio that will give you a 4% yield. You can get relatively close to 4% yield by picking targeted dividend ETFs from, for example, the links you noted, but you will have to draw from capital to top it up.
> 
> ...


I believe I understand the difference between yield and return. Basically I would wish that I get a 4% yield without tapping off the principal. This would mean, I presume that my return would be at least 4% and I would be living off the principle. Of course I do not take inflation or investor fees into account so in an ideal situation it would be a 4% yield with a 7% return (2% inflation and 1% investor fees). Most probably in these uncertain times I have been told that there is no guarantee that this is realistic. 

It has also been suggested to me to look at VPW instead of this 4% golden withdrawal rate rule that permeates a lot of peoples thinking.
Right now, I think I will stick with what the RRIF withdrawal rates are (3.85% for me this year, 4% next etc...). 

I have dabbled with investing over the last few years. Before that I was concentrated on my work and I left it to my financial advisor (starting with Investors Group, then a private firm, then ScotiaBank, then RBC Dominion Securities and now back to a private firm) to handle this. I did not question MERs or investor fees. I was looking at returns and it seems that mutual funds made sense (diversification). I had good results. I don't know if they beat the index.
I know a few people who lost a bundle on Nortel and/or Bombardier so doing my own stock picking is not for me. 

Then recently I guess I became "woke". MERs are bad, DIY is good, most financial advisors can't beat the index even though they think so, etc... 
Oh, yeah, BTW, I just sent an email to my advisor asking his opinion on index ETFs. Dollars to doughnuts, he comes back stating that he can and will outperform ETFs.

Everyone,it seems, has their own point of view regarding dividends. Just recently, I was following (or trying to follow) a thread on the Investing subforum about dividend versus non-dividend stocks so it looks like there are two camps regarding the method of investing.

I am looking at eventually convincing my wife to let me handle our money. I am looking , with my 200K RRSP (and a 34K LIRA ) to prove that the ETF approach is a better one than the advisor one. I am looking to have these small accounts be a "model" for the future. 

So, what is the route? A few years back I started the Couch Potato Portfolio route after reading MoneySense. I invested in ZAG, XAW, VCN and XUU. Made sense, split it up between Canadian,US, International and bond. 

Now, in retirement mode, with every friend/crony suggesting I need at least 3% or more in dividends I should invest in the 5 big banks banks,utilities, etc.. I have become indecisive. 

So, I now am thinking, what about combining the two? Diversify like the couch potato portfolio for the equity portion (Canada,US and International ETFs) but look at dividend ETFs within each. The Bond portion, leave the same (probably , stick with ZAG). Each 20%. 

Or maybe 50% couch potato, 50% dividend ETFs but maybe too small a portfolio to do.

So presently, I am doing my research. I am looking at XDIV,XDV,ZDV,XEI and VDY for Canada (probably go with ZDV) and think maybe ZDY for US and will start looking at International soon. 

I looked at VBAL. It looks like it has a yield of 1.89% , a MER of 0.25%, YTD of 7.04%, 1 YR at 3.03% and since inception a return of 2.22%. 
It is convenient. Gives me that 60/40 split without busting my head but to be honest, not impressed with the results. Am I missing something?
Also, can I scale this up from $200K (or $250K) to the $1.25M portfolio? I didn't want to go with the 1 fund Fidelity fund so why go with this 1 fund solution (although how much better is this 2 fund Fidelity approach, I wonder).


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## AltaRed (Jun 8, 2009)

Firstly, VPW methodology is the same methodology as RRIF methodology, but with a range of withdrawal rates for different asset allocations. The same principles are involved. But it is a personal choice on how one wishes to approach it. Financial advisors are stuck in traditional ways when they still promote 4% SWR without flexibility for market conditions. That said, 4% SWR is not bad as a way to easily understand withdrawal methodology (KISS principle). 

FWIW, while dividend ETFs have a bias towards higher dividend yielding stocks, I contend they are still broad enough in their holdings and market sectors to be legitimate couch potato index ETFs. They actually replace individual dividend stock picking for those that don't want to venture into picking individual stocks.

VBAL performance is no different from that of a couch potato portfolio of Canadian, US, and International stocks for equity, and Canadian and hedged International bonds for the bond portion of the portfolio. IOW, the so called anemic performance of which you speak of the past year is no different than what a portfolio of 5-6 separate broad index couch potato ETFs would have gotten you in the past year.

That said, if you decided to bias the equity portion towards dividend ETFs, you would have likely seen more yield, but not more overall total return performance. Certainly not on a longer term multi-year basis. VBAL represents and delivers global market return for a 60/40 portfolio.

Added: All the various ETFs that are based on the same themes, e.g. dividend stocks, will have essentially the same performance over longer periods of time. The 'index' for each ETF has been built by the issuer, e.g. Blackrock, BMO, Vanguard, based on algoritms via backtesting OR they purchase index rights from the likes of FTSE, S&P. MSCI. Thus XDIV, XFV, ZDV, VDY et al total return performance should be almost identical over longer periods of time, depending on the performances of the underlying sectors. For example, a dividend ETF that had a higher proportion of energy stocks in Canada would have underperformed the last 5 years due to the collapse of the energy sector during that period of time, but over 10 years, or 20 years, not so much. No one knows which sectors will outperform going forward, so these dividend ETFs are likely to be like a horse race with different horses leading at different stretches around the track.

The key is not to get caught up in minute differences in performance over 1-3 year terms. One takes their best shot at what 'theme' and 'specifics' sounds best for them and runs with it.

P.S. I now understand what you mean by 'living off principle'. It's interpretation of wording. What you really mean is 'living off investment income generated by the principle'. I had interpreted it as the exact opposite. You are not going to get 4% investment income yield, at least net of 1% advisory fees, with a diversified portfolio. The likes of VBAL, XBAL and ZBAL are the three 60/40 global asset allocation ETFs that tell you what you can get for 18-25 bp MER. Only VBAL has a one year performance. XBAL and ZBAL are way too new to have any performance (ignore XBAL historical numbers because it is a total re-vamp of an older ETF that is no longer relevant).


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## AltaRed (Jun 8, 2009)

jman123 said:


> So, what is the route? A few years back I started the Couch Potato Portfolio route after reading MoneySense. I invested in ZAG, XAW, VCN and XUU. Made sense, split it up between Canadian,US, International and bond.
> 
> Now, in retirement mode, with every friend/crony suggesting I need at least 3% or more in dividends I should invest in the 5 big banks banks,utilities, etc.. I have become indecisive.
> 
> ...


At the risk of some repetition, I would like to address the above a bit more directly than my prior post.

Firstly, the 4 ETFs you have been in (are in) with your DIY portfolio is as good a selection of ETFs as any, albeit you get an overweighting of US because XAW contains a heavy US component. The confusion you are running into is the sometimes 'dogged' insistence that suddenly in retirement when one begins to withdraw rather than accumulate, you need to have more 'yield' in the form of investment income to provide more certainty of your cash flow stream. Technically, it matters not much whether that cash flow need comes from yield (investment income) alone, or through the sale of stock/ETF units alone, or a combination of both, but there is more consistency and a better (less vulnerable) feeling when more of one's 'return' comes in the form of investment income (yield) than from share price appreciation. That is really what the long time debate is between growth vs income stocks, momentum vs value, etc, etc. I would ignore people who say you should concentrate your equity holdings in a narrow selection of stocks in specific bank, utility, lifeco, telecom, infrastructure stocks. As you mentioned, you are not a stock picker..... so you rightfully conclude that a dividend biased ETF is better for you. As my prior post suggests, nothing wrong with that because higher yielding holdings will likely provide more consistency and confidence in the performance of your portfolio. So switching out VCN and ZAW for dividend leaning ETFs is not a bad idea. Just recognize that you won't get US nor Int'l dividend ETFs yielding as much as Canadian dividend ETFs. US and Int'l market investors are not as focused on dividend yield as Canadian investors are. You may find that XAW remains your best bet for ex-Canada equities.

I am not going to try and persuade you to pick an asset allocation ETF like VBAL, XBAL or ZBAL where the sponsor does the asset allocations for you. Just remember that Total Return of those ETFs will likely be about the same long term as your selection of 4 individual ETFs, differing only by the individual performances of each component on a short term 1-5 year basis. No one knows in advance whether Canadian, US or International equities will outperform over any selected time period. It's a simple guess. Likewise no one knows is Canadian bonds alone, or Canadian bonds together with a hedged global bond component will out perform long term. If you look under the hood of each of VBAL, XBAL and ZBAL, you will see some differences in sector and geographic allocations. Which will outperform over a given time period is anyone's guess. It's a roll of the dice.

As to your question whether one could go 'all in' on one of the asset allocation ETFs is an interesting question. Certainly some investors are leaning that way, and most retail investors likely should go that way only to protect themselves from themselves. Investors have a habit of second guessing themselves, chasing performance, buying high and selling low. Its also not a bad way to invest when one gets old and disinterested and/or incompetent to avoid making serious mistakes. Time will tell. I only know that my ex has all of her TFSA in VBAL, and my current spouse will eventually have all of her RRIF in VBAL. I am trying to set them up for the future should I die or become incompetent. As for me, my TFSA is 100% MAW104, a 60/40 balanced mutual fund which is essentially direct competition with the asset allocation ETFs. No way of knowing who will outperform. Only time will tell.

As to whether one would go 'all in' with $1 million in the same way they might with $200k, my response would be....why not? The key risk is Vanguard may pack up someday and move out of Canada, but I am guessing they would 'sell' their assets to someone else in Canada. Is that a bad thing? Don't think so, but if a person is troubled by a single holding like that, then split it 50/50 with either XBAL or ZBAL to cover that risk. The point is... there is no issue at all with a 60/40 asset allocation so whether one does it with VBAL or some combination with either, or both of XBAL and ZBAL is a personal choice.


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## kcowan (Jul 1, 2010)

Just to clarify the terms since it might have been lost in the blizzard of words:
-Living off the principal means spending your assets
-Living off the yield means the dividends and interest earned
-Total return means the sum of yield and principle gain/loss


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