# Portfolio Assessment



## Shaun (Jan 10, 2015)

Hello Everyone,

My portfolio is currently a carbon copy of the one recommended for Canadians in Andrew Hallam's first book, The Millionaire Teacher.


XBB.TO - Canadian Bond Index - 0.63% total cost

XIN.TO - International Stock Index, Canada Hedged - 1.01% total cost

XIU.TO - Canadian Stock Index - 0.34% total cost

XSP.TO - S&P 500, Canada Hedged - 0.10% total cost


I'm happy with my choice to divide my portfolio this way. But after doing some further reading, I'm starting to think that:

a) There are cheaper funds that are basically the exact same fund, and,

b) Having funds that are hedged to the Canadian dollar is not an optimal choice because they cost more. (although I don't really understand why)


I came to this forum in the hopes that someone could tell me if there are cheaper funds than the ones listed above and if having hedged funds are indeed a bad idea. I'm also hoping that someone could tell me which funds could potentially be a better choice. 

Thanks so much, this forum is a great resource for Canadians, thanks to all the contributors.


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## scorpion_ca (Nov 3, 2014)

I prefer ZAG, VCN, VUN, XEF & ZRE.

and for hedging - 

http://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/


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## lonewolf (Jun 12, 2012)

Hi, Shaun

Give a portion to seven & also to eight for you don't know what evil shall be on earth. (king Solomon the richest man on earth @ one time)

7 continents in the world along with gold for the 8th, invest in the most stable currency in each continent along with gold if you can afford it. Why does everyone want to play the high risk game of holding everything in the Canadian $ ?


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## uptoolate (Oct 9, 2011)

This is a fine index portfolio and Andrew Hallam's book is outstanding. As scorpion_ca has suggested, the Canadian Couch Potato is the place to go in these parts for the low down on index investing. At one point in the past, I held XBB, XIU and XSP as part of our portfolios but with the arrival of Vanguard lower cost options became available. You are really getting dinged on your International holdings at 1.01% when XEF has a MER of 0.20 and VXUS has a MER of 0.14 or VDU/VEF at 0.20. The basic couch potato portfolio has an overall combined MER of 0.14 using VCN, VUN, XEF and VAB. This is about as low as you can go. All that said, you are still way, way lower than anyone taking the mutual fund or commission-based advisor approach. Good work and welcome to the forum.


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## uptoolate (Oct 9, 2011)

At some point you may want to consider what lonewolf has suggested. Using Norbert's Gambit to obtain USD and holding VTI in place of unhedged Canadian based ETFs like VUN (as you remarked, hedging is a drag on performance and probably not worth the cost in most situations). This was a no brainer when the Canadian dollar was above parity but with the Canadian dollar at 85 cents, less so.


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## Shaun (Jan 10, 2015)

Thanks for all the replies guys. It looks like I have a lot of reading to do.

I was just informed that you don't add the management and the MER fee together, so my above post quite inaccurate. Am I correct in assuming that the MER is the cost that people are referring to when they speak about ETFs? And the management fee is just a part of the MER?


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## Woz (Sep 5, 2013)

Yes, the MER includes the management fee.

The MER is roughly equal the management fee plus sales tax. There are other operating costs included in the MER but they're typically negligible. There's also a trading expense ratio which is the cost of the ETFs transactions. Typically, it's negligible (<0.01%), but it can be higher for some active ETFs.


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## My Own Advisor (Sep 24, 2012)

You can do MUCH worse Shaun than following the advice of Andrew Hallam  The guy is great.

You could consider VSB or VAB instead of XBB in TFSA or RRSP.

You could consider VTI (US $$) or VUN (CDN $$) for U.S. investments inside RRSP.

I'm a big fan of XIU, so I wouldn't change that, but you could consider XIC or VCN for your TFSA or RRSP.

You could consider VXUS (US $$) for your international investment inside RRSP. 

Really though, you've done great with the product selections.

Meant to add, re: MER, TER, fees, etc.:
http://www.myownadvisor.ca/mer-ter-money-management-fees-fwiw/


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## Shaun (Jan 10, 2015)

Thanks again for the replies.

Is VTI an option to replace XSP and VXUS to replace XIN?

Are these still good choices if they aren't inside an RRSP? I only have a TSFA and an unregistered account. I cannot use/get an RRSP account. This is my TSFA account, and I plan to use similar funds in my unregistered, if possible.

For VTI and/or VXUS, are those funds that fall under the USA where they charge your estate a tax when you die? (or something like that) I ask because they are held in USD.

Based on your reply, MyOwnAdvisor, I'm assuming that some funds are not as good a choice when they are outside an RRSP or TSFA. This is the first I'm hearing this, but I'm a pretty big noob


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## My Own Advisor (Sep 24, 2012)

It just makes things more complicated from a tax perspective Shaun. 

Fill up registered accounts first (i.e., TFSA and RRSP). Why not get tax-free and tax-deferred income and growth first?


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## Shaun (Jan 10, 2015)

My Own Advisor said:


> It just makes things more complicated from a tax perspective Shaun.
> 
> Fill up registered accounts first (i.e., TFSA and RRSP). Why not get tax-free and tax-deferred income and growth first?


TSFA is full. As far as I know, my only option now is an unregistered account.


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## Shaun (Jan 10, 2015)

Hello everyone,

After reading your replies and doing some research, I've decided to revamp my portfolio to include some cheaper options. 

I'd appreciate any feedback. I plan on selling everything I have and replacing it with the stocks below. My main question is if anyone sees any problems with me selling off my old holdings, or if I'm better to just hold what I have and create a secondary portfolio.

Replacing *XBB* with an even split of *VSB* and *VAB*

Replacing *XIN* with *VXUS*

Replacing *XSP* with *VUN* (more expensive but NOT hedged)

Replacing *XIU *with *XIC *

As you can see, I don't want to change my strategy, I just wanted to make my portfolio cheaper. I REALLY want to get away from the hedged fund. But my other funds also seem too expensive.

Thanks for everyone's help.


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## My Own Advisor (Sep 24, 2012)

Looking even better Shaun.

If your TFSA is full, that's a great thing. If you are set with those products, I would suggest bond ETF (only need one?) like VAB inside TFSA. Keep VUN in TFSA. If you have money leftover, no RRSP and TFSA full, put your CDN ETF in non-registered. 

VXUS is a U.S.-listed ETF, so best to have this a) in RRSP and b) in a USD $$ RRSP. 

Instead of VUN + VXUS you might consider VXC for your TFSA.

So your portfolio might look like:

TFSA = VAB + VXC
Non-Registered = XIC.

Keep in mind if you stay with XIU, you should be eligible for the dividend tax credit.
http://www.myownadvisor.ca/dividend-tax-credit-101/

XIU is a tax-efficient ETF that is a fit for a non-registered account.


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## Shaun (Jan 10, 2015)

My Own Advisor said:


> Looking even better Shaun.
> 
> If your TFSA is full, that's a great thing. If you are set with those products, I would suggest bond ETF (only need one?) like VAB inside TFSA. Keep VUN in TFSA. If you have money leftover, no RRSP and TFSA full, put your CDN ETF in non-registered.
> 
> ...


Do you know what percentage of VXC is American stocks?

I think you mean I can use VXC to replace VUN + VXUS?

Also, can you tell me why XIC or XUI isn't a good idea in my TSFA? I want to have some Canadian exposure in this portfolio.

I plan to do a completely different portfolio/strategy in my non-registered account.

I was thinking about using both VSB and VAB to add more diversity. Maybe that's not a great idea. I just thought it made sense since I plan to keep 40% of my portfolio in bonds, I can diversify that section even further.


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## leeder (Jan 28, 2012)

I would say any investment products (stocks, ETFs, mutual funds) would fit well in a TFSA or RRSP first. These accounts are either nontaxable or tax deferred. You should always maximize those accounts first before investing in your taxable account. Be aware that there is a withholding tax on foreign dividend paying equities/equity ETFs. But don't let that get in your way of your investment allocations. 

As for VXC, I believe it is 52% US and 48% international. You can probably treat it as 50-50 for simplicity's sake. In my opinion, the difference between investing in VTI/VXUS combination vs VXC is the currency conversion. In order to invest in products that trade in the US, you'd have to convert your Canadian dollar to US, which requires you to pay a few trading commissions (if you use Norbert's Gambit). The MER may be lower with the products that trade in the US, but VXC offers simplicity of not having to use Norbert's Gambit or the brokerage currency exchange.

You have indicated in an earlier post on this thread that the only accounts you have are non-registered and TFSA. I personally would keep what you plan on doing with your Canadian and US holdings (XIC and VUN). For your international holding, I would use XEF instead of VXUS for two reasons. Firstly, you will reduce your need to convert CAD to USD when you rebalance. Secondly, if you are a big believer in Andrew Hallam, you would know that he is not the biggest fan of the emerging markets due to its volatility. His own portfolio only has VTI (US total market), VEA (EAFE index), and XSB (Canadian short term bond index). If you do want to add an emerging market ETF, I would recommend a small allocation of XEC.

In summary:

Canadian: XIC
US: VUN
International: XEF
Fixed income: VAB
Emerging markets (optional): XEC


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## Shaun (Jan 10, 2015)

leeder said:


> I would say any investment products (stocks, ETFs, mutual funds) would fit well in a TFSA or RRSP first. These accounts are either nontaxable or tax deferred. You should always maximize those accounts first before investing in your taxable account. Be aware that there is a withholding tax on foreign dividend paying equities/equity ETFs. But don't let that get in your way of your investment allocations.
> 
> As for VXC, I believe it is 52% US and 48% international. You can probably treat it as 50-50 for simplicity's sake. In my opinion, the difference between investing in VTI/VXUS combination vs VXC is the currency conversion. In order to invest in products that trade in the US, you'd have to convert your Canadian dollar to US, which requires you to pay a few trading commissions (if you use Norbert's Gambit). The MER may be lower with the products that trade in the US, but VXC offers simplicity of not having to use Norbert's Gambit or the brokerage currency exchange.
> 
> ...


Thanks for taking the time to reply, Leeder.

If I'm understanding, VXC includes emerging markets, whereas XEF does not?


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## leeder (Jan 28, 2012)

Correct. If you visit the Vanguard website and look up VXC and its characteristics, you will see certain countries that belong in the emerging market index (e.g., China, Taiwan, India, etc.). XEF tracks the standard MSCI EAFE IMI index, which excludes the emerging markets.


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## none (Jan 15, 2013)

Shawn, you're way over complicating things when you don't have too. 

Just do the three vanguard one here: http://canadiancouchpotato.com/2015/01/15/couch-potato-model-portfolios-for-2015/


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## james4beach (Nov 15, 2012)

Shaun said:


> I'd appreciate any feedback. I plan on selling everything I have and replacing it with the stocks below. My main question is if anyone sees any problems with me selling off my old holdings, or if I'm better to just hold what I have and create a secondary portfolio.
> 
> Replacing *XBB* with an even split of *VSB* and *VAB*
> 
> ...


The only aspect of the couch portfolio method I don't agree with is the use of bond funds; I think bond ETF + GIC ladder is better. Yes bond funds are liquid, so that part is great. But if you're talking about long-term investing, I think a *5 year GIC ladder* provides both higher yields and safety (CDIC insurance) versus a bond ETF. Beware that VAB and VSB yield-to-maturity on their web site is stale information, from end of December. Bond yields have declined a lot since then.

Thus VAB currently only has approx 1.6% yield-to-maturity today. But if you had a GIC ladder, you would routinely buy 5 year GICs which are currently 1.86% (at TDDI, CDIC insured). Downsides of the GICs: not liquid, can't benefit from price appreciation. Upsides: insured deposits, can't possibly lose money on them as with bond funds, and higher yields.

Personally I think a winning combination is VSB/XSB plus GICs. You've got great liquidity in the short-term bond ETF, and superior yields an safety in the GICs -- without having to expose yourself to longer maturity bonds.

Other points: yes I think getting away from the hedged ETFs is a good idea. I'm not sure I would ditch XIU for XIC since you already own it -- that seems unnecessary. XIU has much better trading liquidity and tighter spreads. That's important too because every time you buy/sell shares, XIU would give the most efficient pricing.


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## Ihatetaxes (May 5, 2010)

Leeder has some good advice above. I recently ditched my emerging markets VWO/DEM and sold VEA as well. Moved that American cash into larger VTI holdings and bought XEF in CDN $$ for my international.

James has suggest you hold some GICs which I also do in my RSP (a 20 rung 5 year ladder buying a new 5 year GIC the 1st day of each calendar quarter) as well as XSB for short term bond. I am happy with this combo for a total of 25% of my portfolio.

I am trying to use the KISS method and have reduced the number of holdings while also reducing costs.


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## Moneytoo (Mar 26, 2014)

Also, a refresher on what goes where: http://www.theglobeandmail.com/glob...tegies-remember-the-tax-angle/article22842779


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## GreatLaker (Mar 23, 2014)

james4beach said:


> Personally I think a winning combination is VSB/XSB plus GICs. You've got great liquidity in the short-term bond ETF, and superior yields an safety in the GICs -- without having to expose yourself to longer maturity bonds.


I take a similar approach using a combination of a short term bond ETF and an aggregate bond ETF to get an average duration that I am comfortable with and is in alignment with my projected need for the funds.

Using ETFs for liquidity, I calculated if there was a major bear market in equities, how much fixed income I may need to sell to rebalance my portfolio to my target allocation. I keep that much in bond ETFs and the rest of my fixed income in GIC ladders.


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## GreatLaker (Mar 23, 2014)

Ihatetaxes said:


> a 20 rung 5 year ladder buying a new 5 year GIC the 1st day of each calendar quarter


Ihatetaxes what is your reason for a 20 rung GIC ladder rather than just a 5 rung ladder? Liquidity? Ability to take advantage of changing rates? Just curious. Thanks.


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## Shaun (Jan 10, 2015)

I just wanted to thank everyone for their contributions, ya'll really helped make this easier. Here is what I finally landed on:

Replaced *XBB* with *VAB*

Replaced *XIN* with *XEF*

Replaced *XSP* with *XUU*

Held on to *XIU*

Since my TSFA is maxed out and I can't do RRSPs, I'll be opening a non-registered account. I'm thinking about going with a Permanent Portfolio; I'll post my ideas and see what ya'll think.

Thanks again!


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