# How to allocate?



## jman123 (Jan 28, 2015)

Greetings,

I am interested in trying to manage my money myself and need some advice. I will be 64 years soon and I will probably go into semi-retirement mode sometime in 2017 (3 days a week working) and then when I turn 65 years old be fully retired. I am married and my wife also has an RRSP and a spousal one as well but she prefers to have some professional handle her portfolio.

I have no debt and no company pension and am currently collecting QPP. 
I have approximately $500K split in about equally between my RRSP and LIRA (and about $50 in non-RRSP and TFSA). I have mostly Fidelity Mutual funds but some other mutual funds as well in my RRSP and LIRA. 

I have been trying to self-educate myself over the last few years and have been reading the MoneySense magazine and checking out this web site and the couch potato one as well. 

There seems to be 3 ways to go with regards to investing that I have been reading lately (Couch Potato, Dividend Stocks and Canada/USA stocks).

I will definitely need some income from my investments in 2018 and it seems that Dividend Stocks are the way to go in order to produce income. Don't know how much income per year I will need but something like $20K+ I figure

I guess it's best at my age to be on the conservative side but I was thinking somewhere along these lines:

40% in Coach Potato (Cautious) with 55% in VAB or similiar bond fund
40% in Dividend Stocks (Bank of Montreal, CIBC, etc...)
20% in Canada/US stocks 

Advice, Suggestions?

Thank you


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## Spudd (Oct 11, 2011)

20K from a 500K portfolio is a 4% withdrawal rate, so that's a reasonable expectation. But you need to look at your budget together with your wife and figure out how much you spend and how much you will really need to withdraw. You seem a little unsure. This is the first step. 

Then to decide on your allocation, I think you're better off to think of your overall allocation first and then pick a strategy after that.

What you're currently looking at is:
22% bonds
78% stocks

That seems a little aggressive for someone your age.

You don't *need* dividend stocks to produce income. A couch potato portfolio will produce income, and if you need more than the dividends it throws off, you can sell some units. There is nothing wrong with that. 

What some people do is use ETF's for their bonds/US/international allocation and pick dividend stocks for the Canadian part. If you're very keen on picking stocks you may like to do this. But since you have never picked a stock yet in your life, I don't know that I would start now. There's nothing wrong with just using ETF's and going couch potato for the whole portfolio. It has the advantage of simplicity and it will be a lot less tempting to do a lot of trading which makes the commission fees really add up.


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## My Own Advisor (Sep 24, 2012)

When in doubt, go Potato. Simplicity, lower money management costs, ease of asset location and allocation are top reasons to do it. 

You can go Potato with 2-4 ETFs and be done with it.

On the subject of equity vs. bond allocation, I know a number of seniors that plan to increase stock exposure as they get older. It's not conventional wisdom I know but I think it makes great sense. Spend your fixed income and let equities ride, fight inflation with them; sell as you age.
http://riverbendinvestments.com/reduce-risk-exposure-get-older/


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## jman123 (Jan 28, 2015)

Thank you for your advice.

It seems that the Couch Potato basically has 3 funds : VAB , VCN and VXC with a dividend yield of 2.77%, 2.30% and 1.80% respectively.
The website also refers to another website called Canadian Portfolio Manager who has 5 funds : VSB , VCN, VUN, XEF, XEC which I will investigate 

Right now, I'm coming from a world of 20-25 mutual funds so going down to 3-5 funds and just one or two fund companies (Vanguard & iShares) seems strange even though that is the whole point of ETFs, I guess. I guess me having most of my money in Fidelity is the same thing (only the size differs between the fund companies). 

If I go the Couch Potato way should I look outside the Vanguard and iShares funds or is there any point to that?

Thanks.


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## james4beach (Nov 15, 2012)

I like the couch potato approach too and I echo Spudd's comments. My choice of funds would be slightly different, but equivalent: VAB, XIU, VXC. Yes, just 3 will do it!

The reason is that XIU has a very long track record and is extremely tax efficient (nearly pure eligible dividends, getting you tax breaks). The shares are also ridiculously liquid so it's a good for occasional share sales. I think it's also good to diversify between ETF fund companies. VAB and VXC are Vanguard, XIU is iShares.

I think you'll want maybe 50% or 60% stock exposure at the most.

Don't get hung up on dividend yields; it really doesn't matter. The goal is to get the best total return, and you will simply withdraw the desired amount of money out of the portfolio. It does not make any difference whether cash is withdrawn in the form of dividends, or sale of units. Think of the portfolio as a "black box" that grows at a certain rate over time. You will simply be withdrawing cash from this "black box", and the mechanism for doing this doesn't really matter.

I strongly recommend against picking dividend stocks and running your own portfolios. This is difficult to do and there are many pitfalls. Your investment needs can be solved so easily with three ETFs ... I'd also add a small amount in a GIC ladder (5 year GIC ladder) to provide the short term cash needs. These have good returns too and don't have any of the market fluctuation risk of ETFs.


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## Eclectic12 (Oct 20, 2010)

jman123 said:


> ... It seems that the Couch Potato basically has 3 funds : VAB , VCN and VXC with a dividend yield of 2.77%, 2.30% and 1.80% respectively.


You may also want to check out the portfolios at Canadian Couch Potatoe as they talk about some other choices that may or may not make sense in your situation.
http://canadiancouchpotato.com/model-portfolios-2/


For FAQ ...
http://canadiancouchpotato.com/couch-potato-faq/



Cheers


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## jman123 (Jan 28, 2015)

Thanks to all who responded to my question. 

Happy New Year!


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## canew90 (Jul 13, 2016)

Looking for another view, check out The Connolly Report. http://www.dividendgrowth.ca/dividendgrowth/

A lot of free information on his home page. We've followed his advice for years, manage all our own finances and are happily retired (75 this month).


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