# Please help me with my first index portfolio



## Donkey (May 26, 2009)

First post!

My wife and I currently have about $110,000 entirely in mutual funds (MER about 1.4) in our RRSP's and TFSA's. I'd like to convert these funds plus ongoing monthly contributions (currently $2200/month for RRSP's plus $5000 lump each yearly for TFSA's) into some form of sleepy/couch potato/etc index portfolio.

We are ages 29 and 33 and want to leave this money for retirement - ie. prob 30 years-ish. We're comfortable with fluctuations and are most interested in max long-term return.

1. Initially I was keen on TD Efunds, but with these amounts are we better off with ETF's despite monthly transaction fees?

2. I'm most keen on a diversification between Canadian/US/EAFE/Developing equities (+/- some small percentage of bonds?). Any suggestions on appropriate splits?

3. I'm quite overwhelmed by the number of ETF's available on the different exchanges - mostly I just want appropriate diversification with minimum fees and nothing fancy. Suggestions for specific funds to meet our needs?

4. Best/cheapest discount broker to go with if we do ETF's?

5. Currency hedge part of the portfolio?

6. How often to rebalance ideally?

7. Am I way off base with what i'm trying to do here? Any other major considerations?

Thanks!


----------



## Sampson (Apr 3, 2009)

My wife and I are still trying to complete this transition, started about 1.5 years ago (I know we're slow, but most of the money is out of high MER funds now ).

1. Depends how much you invest per transaction. If its a low $ amount, you may be better off first buying the TD efunds, then making lump transfers/investments into ETFs (Canadian Capitalist had an article on this a few weeks back).

2. I believe the most important aspect of asset allocation is first and foremost (i) your fixed income to equities breakdown, followed by (ii) market cap (growth potential of the equities), then (iii) international breakdwon, then (iv) sector allocations. I don't know if there is an optimal mix - but you make a call on where you believe growth will occur (e.g. overweight energy-->therefore have a strong weighting in Canada over USA). My advice here is make sure you have both small and midcap representation for maximal growth potential.

3. I usually make a list of equivalent funds from the big ETF companies (iShares, Vanguard, State-Street-SPDRs, & Claymore) - then look at fees, and EXACTLY how they track the index, since they aren't all equal. I have mostly iShares products.

4. With over $100k household assets, any discount broker should offer you the low cost trades ($10 or lower) and no account fees. I use RBC Direct Investing.

5. Not necessary (in some peoples opinions) - I personally own a lot of USD versions - all held in the RRSPs.

6. Once a year for a big rebalance - but I do nearly all my rebalancing with new purchases - and adjust new contributions accordingly.

7. sounds like you got a good plan!

Man, my first essay on this forum.


----------



## CanadianCapitalist (Mar 31, 2009)

@Donkey: Why don't you check out my blog (in the signature below)? Pretty much every question has been answered in posts written over the years.

As a background, I've personally moved over the past few years from a mostly-stock portfolio to a mostly-indexed portfolio.


----------



## Donkey (May 26, 2009)

Thanks Sampson and CC!

I've been reading lots of the old posts etc and i'm piecing things together. Bit of information overload however, plus i'm not always sure how up-to-date some of the old specific fund references might be?

I'm also not clear on the logistics/pros/cons of buying ETF's on the TSX vs other exchanges? Should I just be considering TSX-listed ETF's?

Thanks again.


----------



## leslie (May 25, 2009)

Stick with large ETFs with low spreads from the NAV (these are disclosed on the individual fund's site) and high daily transaction volume (so the NAV spread does not widen when a crises hits).

Stick to large indexes that will include all the diversification you need between sectors, etc.

I agree to hedge currencies, which limits you to Cdn issued ETFs.

I am no great fan of rebalancing. Let your winners run. 

I am no fan of asset allocation. For the past 20 years, bonds have moved in lock step with equities and provided no balance. In the past year only Government debt provided safety (not corporate debt). You could have accomplished the same thing by simply selling your common equity when Lehman collapsed and it became perfectly clear the world had changed.

T- XIU Cdn index
T- XSP currency hedged S&P index
T- XLB Cdn long bond index
T- XIN currency hedge EAFE index
Q- ADRE emerging market BLDRS, or
T- CBQ BRICK countries (can't remember if currency hedged)


----------



## jgood76 (Apr 3, 2009)

My wife and I are similar in age to you, and also have $100k split between our 2 RRSPs. We have our accounts with TD Waterhouse Discount Brokerage. We made our initial $100k of purchases in one lump sum, and paid $10 per transaction, thus a total of $80 in commissions. 

Any extra funds that couldn't purchase an even lot of shares, were put in TD e-funds. Future RRSP contributions will also initially be put into TD e-funds (30% in Canadian Index, 20% in Canadian Bond Index, 22.5% in U.S. Index, and 27.5% in International Index), until the e-fund has enough money in it to buy atleast 100 shares of the related ETF.

Here is the approx. breakdown:

*Wife's RRSP*
XIU $30,000 iShares CDN LargeCap 60 Index 0.17 MER
XSB $5,000 iShares CDN Short Bond Index 0.25 MER
XBB $5,000 iShares CDN Bond Index 0.30 MER
XRB $5,000 iShares CDN Real Return Bond Index 0.35 MER
XRE $5,000 iShares CDN REIT Sector Index 0.55 MER

*My RRSP*
VTI $22,500 Vanguard Total Stock Market 0.09 MER
VEA $22,500 Vanguard Europe Pacific 0.16 MER
VWO $5,000 Vanguard Emerging Markets 0.27 MER


----------



## Donkey (May 26, 2009)

ok - very helpful - thanks!

for max growth/volatility/diversification + long-term horizon i'm thinking of a split of:

1. XIC or XIU (suggestions?) - canadian large cap
2. XCS - canadian small cap
3. XRE - canadian REIT
4. XSP - US large cap
5. XSU - US small cap
6. XIN - EAFE
7. something to capture China/India

subtractions/additions/revamps?


----------



## DrStan (Apr 5, 2009)

Donkey said:


> ok - very helpful - thanks!
> 
> for max growth/volatility/diversification + long-term horizon i'm thinking of a split of:
> 
> ...


I would skip XRE. If you look at its holdings, a few large REITS make up most of the portfolio. Considering the MER on XRE, it would likely be a better idea to pick a REIT (or two, or three) and buy shares outright.

I would pick XIU over XIC, but that is a question of preference. With XIU, there is more concentration in larger cap stocks, which I like. XIC is more diversified, at the cost of a slightly higher MER. I suggest you look at the holdings of both funds on the iShares site and then decide.


----------



## mogul777 (Jun 2, 2009)

1. Initially I was keen on TD Efunds, but with these amounts are we better off with ETF's despite monthly transaction fees?

Have to do the math, probably ETFs are better. 

2. I'm most keen on a diversification between Canadian/US/EAFE/Developing equities (+/- some small percentage of bonds?). Any suggestions on appropriate splits?

equal or 40/20/20/20 or some variation

3. I'm quite overwhelmed by the number of ETF's available on the different exchanges - mostly I just want appropriate diversification with minimum fees and nothing fancy. Suggestions for specific funds to meet our needs?

basic broad market ETFs

4. Best/cheapest discount broker to go with if we do ETF's?

Questrade or with sufficient capital most other brokerages are competitive.. IB if non-registered.

5. Currency hedge part of the portfolio?

No, adds risk and cost.

6. How often to rebalance ideally?

Annually or semi-annually

7. Am I way off base with what i'm trying to do here? Any other major considerations?

On track and of course there are always several. Focus on the basics first.


----------



## Donkey (May 26, 2009)

Thanks to all for the great answers thus far!

How about this for a plan?


*1. For our current $110,000 or so, purchase through TDW:*

35% XIU - MER 0.17
5% XCS - MER 0.55
25% XSP - MER 0.24
5% XSU - MER 0.35
25% XIN - MER 0.49
5% CBQ - MER 0.60

Combined MER 0.32 I think?


*2. For our ongoing monthly contributions of $2,200 purchase:*

40% TD eCI - MER 0.31
30% TD eUSI - MER 0.33
30% TD eII - MER 0.48

Combined MER 0.367 I think?


*3. Transfer money from TD efunds to ETF's and rebalance once yearly plus top up our TFSA's.*


Does this seem a reasonable approach to diversification and minimum fees for maximum growth given our long time horizon and high tolerance for volatility?

I'm not clear on how the 90 day penalty works for withdrawing from the TD efunds and how this might impact my plan. Any clarification?

Also, I understand Claymore has a PAC system now. If I were to incorporate purchases of CBQ into my monthly contributions, how should I then adjust the relative percentages between it and the TD efunds listed above?


Thanks!!


----------



## CanadianCapitalist (Mar 31, 2009)

Donkey said:


> I'm not clear on how the 90 day penalty works for withdrawing from the TD efunds and how this might impact my plan. Any clarification?


I think there is also a $35 penalty for buying and selling an e-Series fund within 30 days of each other. I was dinged with this at one point but the details are vague now.


----------



## Robillard (Apr 11, 2009)

The redemption charge if redeemed early is actually 2% of the amount redeemed, not a fixed penalty. It's probably be best to wait the 90 days for this redemption charge to disappear unless you have a pressing need to redeem right away.


----------

