# keep MAW100 or self direct VAB in LIF and RRIF accounts ?



## Ben Tunite (Aug 30, 2016)

greetings, I am about to change my LIRA into a LIF and my RRSP into a RRIF. This money comprises 25% of our total holdings. Both LIRA and RRSP consist primarily of MAW100, Canadian Bond Fund (distribution yield 1.94% Yield to Maturity 1.7% MER 0.74). The Mawer advisor says that i should maintain my current investment allocations for my risk profile and stay with bonds. How low will bonds go? 

I notice however that Vanguards VAB (distribution yield 4.07% dividend yield 2.77% MER 0.13) essentially tracks MAW100 for past several years.

Am thinking to switch LIRA/RRSP from Mawer to my TD WebBroker trading platform so I can self direct the RRIF/LIF using VAB and perhaps similar low risk ETFs…thoughts? 

I have a “cash bucket” with 3 years living expenses already so could perhaps purchase somewhat higher risk ETFs for RRIF. But not sure if i need to take undue risk.


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## OnlyMyOpinion (Sep 1, 2013)

Hmm, no comments yet.
It seems like at CMF we're better/quicker at responding with generalizations than feedback to specific situations. 
I suspect that is because it is impossible to know your full financial and life situation and they are important to the decisions you make.
There seem to be 2 concerns: 1. performance of MAW100 vs VAB and, 2. moving to DIY at TDDI rather than staying with Mawer. 
When I plot VAB and MAW100 on tmxmoney.com, I see pretty similar results from the two. Below are 5yr and 1yr w/ reinvestment, they are similar without reinvestment as well. You may have other metrics but I don't see enough of a difference to make a switch:
View attachment 13217

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As to moving from Mawer to DIY, it sounds like maybe you already have a component of DIY in your overall assets, and some subset with Mawer? That I think you only recently added?
I think it can be prudent to have the diversity of a few ways of managing your assets. Kind of similar to having geographical diversity, you've got more 'cylinder's to run on'. Only up to a point of course - get too diversified or spread around and it can begin to work against efficiency and performance.
So if the Mawer piece is recent and a subset of your assets, I'd be reluctant to second guess and pull the plug. Too much of that at the wrong time and/or wrong changes can be detrimental to your results.

Personally I have done something similar, I dumped substantial cash into Maw104 a few years ago (not directly but thru TDDI). My own portfolio as performed better to date, but I'm going to stay the course and let them manage that piece because I know that I'm lucky not smart.


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## Ben Tunite (Aug 30, 2016)

OnlyMyOpinion,
Good wisdom and you correct. I have been a DIYer at TDDI for years with variable success and recently went to Mawer with my pension and savings package when i was laid-off/early-retired in order to obtain investing diversity. 

I was struck how MAW100 and VAB perform so similarly yet have different optics (yields, MERs). At first naïve blush i thought the VAB would be better with lower MER, higher "yield". 

Apologies for providing a specific situation without all details but I've learned alot from this site. I was hoping some might comment on the wisdom of holding a large % of bonds over the next several years given the rise of interest rates. Also, since it is much easier as a DIYer to move money from one fund to another, or to various funds (Mawer only has 2 bond funds), i wondered what readers thought, and recommendations on other suitable safe investments. I like your wisdom and am leaning to remaining with Mawer for a while to protect myself from myself. 

many thanks


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## GreatLaker (Mar 23, 2014)

Not sure if you said how old you are. I am 59 and retiring next year. I am very much an index investor. Portfolio is 20% GIC ladders, 20% VAB, and the rest split equally among Can, US and global equity ETFs, all at TDDI. The GICs give me 5 years of guaranteed income, and VAB another 5, so I can go a long time without touching equities if we ever go through another 1970s type stagflation or a 2000ish dotcom crash. I do have a good chunk of "mad money" in MAW105, also at TDDI. I keep minimal cash in my investment account, but do keep emergency funds in whichever of Tangerine, EQ Bank and Oaken give me the best HISA rate, and also plan to keep my spending money for a year there too.

I think Mawer is a great company. Nothing wrong with holding some % of your money there. I'd put any plans for moving away from Mawer on pause and think about it for a month or more and see how you feel. Does not seem to be any rush.

As far as fixed income goes, bonds let you sleep well, equities let you eat well. Even if they don't perform really well they will add stability to your portfolio which is important to avoid sequence of return risk during withdrawal phase. Hope I am not boring you with stuff you already know. 

Vanguard published a paper that talks about bond performance during rising rates that's worth a read:
https://personal.vanguard.com/pdf/s807.pdf

CCP also published this blog post on bond ETF performance vs. duration:
http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/

Also there is this CMF post on bonds with some good debate:
http://canadianmoneyforum.com/showthread.php/104089-Bonds

You mentioned DIY makes it easier to move money among funds. Have you ever heard the saying that investors should treat their portfolio like a bar of soap? The more they touch it the smaller it gets.


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## james4beach (Nov 15, 2012)

The first question is the relatively performance between these two things. Morningstar is a good place to compare that. See MAW100 performance and VAB performance

5 year performance (the longest data that exists) is VAB 2.97% per year, MAW100 2.71% or only about 0.26% better for VAB. What's under the hood of these two different bond funds?

VAB
Avg maturity: 10.7 years
Credit quality: 45% AAA, 37% AA, 9% A, 8% BBB

MAW100
Avg maturity: 10.3 years (my estimate based on morningstar data)
Credit quality: 41% AAA, 33% AA, 15% A, 10% BBB

These have remarkably similar composition. Both hold quite high quality bonds. VAB should have a theoretical advantage of 0.6% per year based on lower fees, but that doesn't seem to have played out in reality. I think either of these are OK to hold. On paper VAB is slightly better, but in practice I don't think it's a big enough difference to justify shifting away from Mawer.



> I was hoping some might comment on the wisdom of holding a large % of bonds over the next several years given the rise of interest rates.


There's no way to tell if interest rates are going higher. People were positive back in 2013 that rates would go higher, and the opposite happened. Nobody can predict this.

The Vanguard paper explains why you should not abandon bonds out of fear of rising interest rates. Bonds still do fine in a mildly rising rate environment, and more importantly, they are still much safer than stocks -- and diversify a portfolio.

If the bonds still make you nervous, add some GIC exposure. These days with discount brokerages offering GICs, and online arms of credit unions (I use Outlook Financial), you can get some very competitive rates.


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## james4beach (Nov 15, 2012)

GreatLaker said:


> Even if they don't perform really well they [bonds] will add stability to your portfolio *which is important to avoid sequence of return risk* during withdrawal phase.


I want to emphasize this important point. Investment priorities change in retirement when you start drawing money out of your portfolio and living off capital. "Sequence of returns risk" refers to the danger of withdrawing money out of your portfolio during a stretch of down years. Bond exposure makes your portfolio more stable and mitigates sequence of return risk.

Some of the newest research in this field (Rising Equity Glide Path) advises that you start retirement with an even higher bond exposure, over 50% fixed income actually. Why? High equity exposure and the sharp drops that could happen due to it are extremely destructive to portfolios.

Bonds cannot drop as severely as stocks can.


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## Ben Tunite (Aug 30, 2016)

GreatLaker, thanks for the excellent papers. 
I will be 59 in a few months and aiming for 100. My parents lived to mid nineties eating the "Polish Diet" of meat, cheese, potatoes, eggs cooked in butter, etc...

My financial planner said for tax purposes to immediately begin to withdraw from RRIF/LIF (which are 90% MAW100 Bond Fund). My bonds have dropped 3% since purchase in the summer. I won't sell the bonds but am thinking about postponing cash withdrawal given that the bond interest payments next year will work to offset the losses. I need to run my numbers but don't think a delay in withdrawal will affect OAS clawback.


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## Ben Tunite (Aug 30, 2016)

james4beach said:


> Some of the newest research in this field (Rising Equity Glide Path) advises that you start retirement with an even higher bond exposure,


Thanks for posting this excellent resource. I agree, wont be selling my bonds, but do wonder how interest rates will behave in a Trump world...have we seen the end of the 35 year bond run and now will see a small sequence-of-returns issue in long bonds?


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## canew90 (Jul 13, 2016)

Clearly, your just turning 71. I'm going on 75 and think you need to decide whether you need to draw down any of those funds, or are you just looking to find somewhere to invest the money. We have all of our investments in high quality dividend growth stocks. No bonds, gic's, mutuals, preferreds or etf's. We chose this route because we wanted a growing income from our investment and we've achieved it. Our rrif dividends exceed the min withdrawal rates, so we don't really draw any of the capital. In fact our div income far exceeds our annual expenses so most gets reinvested, generating more income each year.
Another benefit of the DG strategy is that our yield on invested dollars keeps rising, even during periods when the market is down.


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## james4beach (Nov 15, 2012)

^ every dividend is intrinsically the same as drawing down capital. Stocks are not bonds, and dividends are nothing like bond interest.

By exclusively seeking dividend equities instead of fixed income, you have unwittingly increased your vulnerability to a market decline and sequence of return risk, because all equities (yes even dividend stocks) are much riskier than fixed income.

In periods where the stock market is down, your dividends are doing the worst damage to your capital -- no different than if you sold shares during a down market.

The whole strategy may work out fine for you, but you're taking on much more risk than a typical stock + bond allocation.


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## hboy54 (Sep 16, 2016)

james4beach said:


> ^ every dividend is intrinsically the same as drawing down capital. Stocks are not bonds, and dividends are nothing like bond interest.
> 
> By exclusively seeking dividend equities instead of fixed income, you have unwittingly increased your vulnerability to a market decline and sequence of return risk, because all equities (yes even dividend stocks) are much riskier than fixed income.
> 
> ...


"Unwittingly". Did you really intend to suggest he is stupid? I suggest that instead of unwittingly, it was done quite on purpose because he like me saw in his youth that stocks are the highest returning asset class, though riskier in the short term, and quite rationally decided to go with stocks exclusively. You realise his portfolio is likely 2 to 5 million right? And at age 75 he has about 15 years to finance right?

Sequence of returns risk does not matter if as a young person you invest in a risky yet rational way mostly in stocks and arrive at retirement with millions. He as done this. I have done this. Others have done this.


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## My Own Advisor (Sep 24, 2012)

Ben Tunite said:


> GreatLaker, thanks for the excellent papers.
> I will be 59 in a few months and aiming for 100. My parents lived to mid nineties eating the "Polish Diet" of meat, cheese, potatoes, eggs cooked in butter, etc...
> 
> My financial planner said for tax purposes to immediately begin to withdraw from RRIF/LIF (which are 90% MAW100 Bond Fund). My bonds have dropped 3% since purchase in the summer. I won't sell the bonds but am thinking about postponing cash withdrawal given that the bond interest payments next year will work to offset the losses. I need to run my numbers but don't think a delay in withdrawal will affect OAS clawback.


Interesting that your planner said for tax purposes, withdraw from RRIF/LIF now vs. waiting until your 70s. Seems like a better plan because I suspect although I don't know for sure, he/she is suggesting once you add CPP and OAS - you're going to be taxed more.

Given that CPP and OAS are fixed income, have you considered Ben that your 3-year "cash bucket" is plenty? 

I recognize this bucks conventional wisdom but given where bond yields are now, and where bond prices are likely to stay for the next 20+ years (who knows, but the actuaries say that) - why not go with a 30/70 fixed income/equity split and own more equities as you get older?

Seems like a few ETFs, including keeping VAB for your fixed income, is the way to go for you.


@hboy54 - I noticed that as well from James. I don't think he meant it that way but if so, anyone with a few million in the bank like cannew at age 75 doesn't need investing advice - regardless of how he invests. He's done very, very well.


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## OnlyMyOpinion (Sep 1, 2013)

On the subject of how one unwinds their assets for retirement income, I enjoy checking out Wade Pfau's articles from time to time.  https://retirementresearcher.com/blog/


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## james4beach (Nov 15, 2012)

hboy54 said:


> "Unwittingly". Did you really intend to suggest he is stupid?


'Unintentionally' and 'unwittingly' are synonyms. Perhaps it's intentional -- I don't know his motivations. There's nothing wrong about drawing down capital, and dividends are a great way to do it. But in the last few years I've seen a lot of people post about how they are pursuing dividend strategies because they want to leave capital alone, and the post sounded like one of those so I was pointing out that taking cash in the form of dividends is another way of drawing down capital. In case he was not aware.

Did you object to my post because I did not acknowledge that he is _deliberately_ doing this, in contrast to the many other people who are doing it for the wrong reasons?

To hboy and My Own Advisor: I don't know the specifics about this particular poster or his net worth. But surely you have seen the long list of posts in CMF from people who think that taking only dividends preserves all capital growth and is radically different than selling shares to extract capital. Remember that someone else might read canew90's post, not know the context (that he has many millions) and might take away the wrong lesson from it.



hboy54 said:


> Sequence of returns risk does not matter if as a young person you invest in a risky yet rational way mostly in stocks and arrive at retirement with millions. He as done this. I have done this. Others have done this.


Sequence of return risk doesn't matter at all for people earning employment income and still growing their savings. It only starts to matter once you retire and draw down your capital. And yes you have a point... if you have so many millions that there is no risk of depleting your equity during a bear market, then sure -- doesn't matter. As you are well aware though, this is an outlier scenario. Most people really have to worry about making their retirement money stretch out.

You guys are outliers. Most retirees, even coming from good careers, don't have 5+ million.


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## My Own Advisor (Sep 24, 2012)

I don't keep a database either...I just remembered James. You remember much more than I do on this forum....

As for dividend investing, yes, you are eating your capital, just somewhat differently. The debate will never end 

I have no problem with any investing method as long as the investor is reaching their own objectives and goals. Who are we to decide what is best for anyone else? Nobody here or anywhere. That's just me. 

Whether the investor wants to keep money under the mattress, 100% fixed income, high-risk stocks, etc. - that is their call - as long as they fully understand the implications of their decisions. And that, for most investors, including me, you never really know because the crystal ball is always very cloudy.


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## james4beach (Nov 15, 2012)

Ben Tunite said:


> Thanks for posting this excellent resource. I agree, wont be selling my bonds, but do wonder how interest rates will behave in a Trump world...have we seen the end of the 35 year bond run and now will see a small sequence-of-returns issue in long bonds?


You're welcome for the link. I have no idea if the world of bonds has permanently changed now 

As others have pointed out in some posts above, if you have a huge amount of capital, then you might not have to worry at all about sequence of return risk or capital depletion. In such a situation you can afford higher equity exposure, and/or long-duration bond exposure, which can be done with XLB. These bonds have large interest payments ... the fund has 3.7% distribution yield. It comes with a much greater risk of price decline, but for people who have such large amounts of capital this does not matter. Pension funds for example carry long duration bonds because they never have to withdraw their capital.

If someone has huge amounts of capital and never would be in danger of running out, then XLB could be suitable for their fixed income allocation. Why not just go 100% equities? Asset class diversification.

I could imagine a theoretical retiree with $10 million having a portfolio composition like $6 million XIU (& friends) and $4 million XLB. You get dividend growth and constantly rising dividends in XIU (until a bear market -- often forgotten about). The long maturity bonds give you the best long-term performance and a steady interest stream, totally suitable when they will remain invested forever. Whether or not interest rates go up, the best long term bond performance will be at the longest maturities. That's a corollary of what I pointed out earlier that regular bonds like VAB will outperform cash in the long term.

At that point you've basically constructed a pension fund. This is basically the same as a pension fund asset mix.


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## Ben Tunite (Aug 30, 2016)

james4beach said:


> ... if you have a huge amount of capital, then you might not have to worry at all about sequence of return risk or capital depletion. In such a situation you can afford higher equity exposure, and/or long-duration bond exposure, ...
> I could imagine a theoretical retiree with $10 million having a portfolio composition like ... .


 I wish I was the capital-laden theoretical retiree above but sadly am not. Given what you mentioned in another thread regarding investing horizon, withdrawals and long vs short bonds....



james4beach said:


> To the original poster: what is your investment horizon? When might you start withdrawing from this investment? If the answer is "more than 15 years", then the answer is simple: buy VAB, and yes it is a good time to buy. If the answer is "less than 10 years" then you need short term bonds like XSB, XSH, VSB, VSC. It's a good time to buy bonds right now; prices have fallen and yields have gone up. .


 ...and that I will soon begin withdrawing RRIF money starting at a rate of 3.13% from an average-performing MAW100 bond fund with avg maturity 10.3 years , do you still think it still suitable to remain with this fund? or 
go seek better performing shorter term bond funds, bond ETFs outside of Mawer? or
since MAW100 has dropped buy more? (ie. I'd sell some of my Mawer Equity fund)


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## GreatLaker (Mar 23, 2014)

Ben Tunite said:


> ...and that I will soon begin withdrawing RRIF money starting at a rate of 3.13% from an average-performing MAW100 bond fund with avg maturity 10.3 years , do you still think it still suitable to remain with this fund? or
> go seek better performing shorter term bond funds, bond ETFs outside of Mawer? or
> since MAW100 has dropped buy more? (ie. I'd sell some of my Mawer Equity fund)


In full disclosure, I crossed the Rubicon to indexing several years ago, so I may be subject to confirmation bias.

Mawer is a great fund company, one of the few small low-cost client-friendly fund companies in Canada. I own some MAW105 as my "mad money". There is also some benefit and simplicity to keeping most or all of your retirement funds in one place.

From what I have seen and read, the more efficient a market is, the harder it is for active management to overcome its cost. Bonds and US equities are two large efficient securities markets. Steadyhand does not offer a pure bond fund or a US equity fund for that reason. You can see that in Mawer's results. Their Canadian and global equity funds have a good record of exceeding their benchmarks, but their bond and US equity funds don't. Mawer's Canadian Bond Fund benchmarks the same index that XBB seeks to track, yet XBB outperforms it in almost every period according to Morningstar data. VAB tracks a different aggregate Canadian bond index, but its results are similar to XBB. Edit: you could look at historical returns for MAW100 vs XBB or VAB and see if you think the difference would be significant for you. (That assumes the historical differential continues... bond funds are a lot less volatile than equities so there's a good chance it won't change too much.)

As far as duration, I am reluctant to hold a bond fund with an 8 or 10 year duration when I may be withdrawing money over the next 1-5 years. You would only get hurt if there was a simultaneous market crash and increase in interest rates, so very unlikely, but not impossible. I hold about a 50/50 split of fixed income between a 5-year GIC ladder and VAB. You could also hold something like VSB or VSC or XSB, but I like the certainty of having some money that is absolutely guaranteed by CDIC (unless there is a total economic meltdown).

As far as which asset class to withdraw from, yes, sell whatever you need to maintain your allocation target. Here is a link to a Moneysense article that explains it really well.
A better way to generate retirement income

Hope this helps.


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