# Portfolio balance....help!



## favelle75 (Feb 6, 2013)

My current portfolio is 100% inside a TFSA. Its purely a retirment vehicle, and other than my house that I am feverishly paying down, it is my ONLY investment. Mid-30's...I'd like to retire before 60. The plan is tomax out my TFSA every year and I lean more towards a passive (couch potato) ETF strategy than an active one.

My holdings are as follows as of today:

10% BCE
10% DR
10% NWH.UN
10% ZUT
10% ZDV
5% XRE
5% XUS
10% XIU
20% ING Direct Streetwise Balanced Growth
10% 3-year GIC's

All within a TFSA. I just feel there is a lot of overlap (especially with BCE), and wondering if I simply have too many holdings in general. Any thoughts are welcome.


----------



## leeder (Jan 28, 2012)

Just to clarify, is your TFSA the only investment you have? Do you have anything in your RRSP or non-registered account? With your time horizon, you could focus more on growth stocks. You could also simplify your portfolio by eliminating things like the ING mutual fund and sticking with the index ETFs. Finally, keep on mind how much Canadian content you have. I would say you have about 40% in Canadian equities. Anyway, just some food for thought for you.


----------



## mike06 (Aug 4, 2011)

If you are leaning towards a passive couch potato portfolio I would suggest looking up a premade couch potato portfolio like canadiancouchpotato.com. You are approaching 60% canadian equity. You also have 20% split between 2 small cap stocks, both of which involve managing medical properties. There doesnt seem to be much balance to this portfolio at all and it appears to be quite risky. Not to say that you cant afford to take risk at your age, but your overconcentration in these areas is worrisome. For example, your holdings in northwest reit is approximately equal to your entire broad US equity exposure (after including the US portion of the streetwise fund). There also seems to be quite a bit of a reach for yield going on here. I agree with leeder as well that it might be wise to switch to low cost, broad based ETFs as well. The ING fund seems to mainly hold the largest Canadian and US holdings anyways, but at a huge multiple of the MER of the corresponding vanguard and ishares indexes.


----------



## My Own Advisor (Sep 24, 2012)

If you eventually want to go Couch Potato, keep XIU but likely ditch the ING and ZDV. XIU has many of the companies ZDV holds but ZDV also holds a few smaller caps that pay higher yields. Your call with the ZDV.

XRE is your real estate, which is good and offers good yield, so probably keep that.

I personally don't hold any GICs in my TFSA, never will, and given you've got a few decades before retirement, not sure why would either?

I would hold continue to hold BCE stock since they've paid dividends for a long time and likely always will. Sly pick with DR  Keep it.

ZUT is fine, but 0.55% MER is high. Might as well just own a few companies in ZUT directly but that's more risky and besides, you already own XIU for the biggest most liquid Canadian companies in Canada. I would likely ditch ZUT.

Everything else is a keeper and like leeder said above, might want to look at your RRSP for U.S. growth stocks or ETFs like VTI and VXUS. Those are great ones.


----------



## favelle75 (Feb 6, 2013)

leeder said:


> Just to clarify, is your TFSA the only investment you have? Do you have anything in your RRSP or non-registered account? With your time horizon, you could focus more on growth stocks. You could also simplify your portfolio by eliminating things like the ING mutual fund and sticking with the index ETFs. Finally, keep on mind how much Canadian content you have. I would say you have about 40% in Canadian equities. Anyway, just some food for thought for you.


Yes...



> Its purely a retirment vehicle, and other than my house that I am feverishly paying down, it is my ONLY investment.


Yeah, definitely too much Canadian content, I agree. And the ING fund is no different than the XIU except with 10x the MER, LOL. ING goes, agreed there too. Thanks leeder, much appreciated!


----------



## favelle75 (Feb 6, 2013)

mike06 said:


> If you are leaning towards a passive couch potato portfolio I would suggest looking up a premade couch potato portfolio like canadiancouchpotato.com. You are approaching 60% canadian equity. You also have 20% split between 2 small cap stocks, both of which involve managing medical properties. There doesnt seem to be much balance to this portfolio at all and it appears to be quite risky. Not to say that you cant afford to take risk at your age, but your overconcentration in these areas is worrisome. For example, your holdings in northwest reit is approximately equal to your entire broad US equity exposure (after including the US portion of the streetwise fund). There also seems to be quite a bit of a reach for yield going on here. I agree with leeder as well that it might be wise to switch to low cost, broad based ETFs as well. The ING fund seems to mainly hold the largest Canadian and US holdings anyways, but at a huge multiple of the MER of the corresponding vanguard and ishares indexes.


Excellent points Mike. For sure. I could easily re-balance with just purchasing more XUS (when TFSA cap room allows) and stop my NWH and DR purchasing. Or do you think its better to sell them outright?


----------



## favelle75 (Feb 6, 2013)

My Own Advisor said:


> If you eventually want to go Couch Potato, keep XIU but likely ditch the ING and ZDV. XIU has many of the companies ZDV holds but ZDV also holds a few smaller caps that pay higher yields. Your call with the ZDV.
> 
> XRE is your real estate, which is good and offers good yield, so probably keep that.
> 
> ...


Yeah, the GIC's was a tough one. It was when I was starting out and everyone said you need to balance your equities with cold hard cash. Likely now, I'll sell the GIC's when they expire and turn them into more stocks.


With ZUT and the free ETF purchasing from Questrade, it was easy to keep buying a few at a time. Same with XIU though, I should just ditch ZUT and double up on XIU, good point.

As for US stocks, any suitable ETF's for within the TFSA? Or is that a no-go because of the witholding tax?
Thanks man, great advice!


----------



## mike06 (Aug 4, 2011)

I would not tell you to sell them outright. I was just pointing those things out based on you saying that you wanted to have a balanced, passively managed ETF portfolio (couch potato style). If that is what youre going for, then it would be easiest to follow a simple plan involving a handful of ETFs that will cover canadian, US, and international equities mixed in with your fixed income and whatever other specialty sectors you might want to hit, like reits & utilities which are not very well represented in the major indexes. Everyone has their own preference. If you are looking for balance then probably ditching ZDV and the ING fund and replacing them with some more of your XIU, XUS, and adding an international fund (VXUS, or XEF if you want to stay in canadian $) would be appropriate. What you do with the individual stocks is a personal thing. I myself also hold some big weightings in a few choice stocks, but just recognize that this really throws off the balance of the portfolio and is inherently risky. 
Canadian couch potato as well as canadian capitalists 'sleepy portfolio' are pretty good models to start with, and then make your own tweaks based on personal preference.


----------



## leeder (Jan 28, 2012)

Please correct me if I'm wrong... Questrade allows free buying, it still charges commission for selling. Although the commission is still lower than most brokerages, I would still think wisely what to sell/buy. I wasn't planning to go into specifics, but if I were you, I would get sell the ING mutual funds. Take that 20%, transfer it to Questrade (hopefully, Questrade covers the transfer fee). With the proceeds there, just buy more XUS and consider buying an international ETF (e.g., XEF). If you do decide to sell something, I would consider selling NWH.un. You already have REIT exposure through XRE. You indicated you have a house, so you don't really need to have more equity tied to real estate. You can take that additional 10% and, again, shift it to US and international indices.

As for your question to My Own Advisor about investing US/international equities within TFSA and withholding tax, I think too many CMF members are concerned about withholding taxes in this forum. I hold the position that it's not end all, be all. Besides, any gain or distribution that you get is still essentially tax free (i.e., you don't have to declare it on your tax return).


----------



## james4beach (Nov 15, 2012)

I would suggest you construct a big table on overall sector exposures, just to get a big picture of your exposure across the whole portfolio.

I think it's fine to keep some ZUT, maybe reduce to 5% weight. Rationale here is that it's your only utilities exposure (XIU has less than 1% utilities)


----------



## favelle75 (Feb 6, 2013)

leeder said:


> Please correct me if I'm wrong... Questrade allows free buying, it still charges commission for selling. Although the commission is still lower than most brokerages, I would still think wisely what to sell/buy. I wasn't planning to go into specifics, but if I were you, I would get sell the ING mutual funds. Take that 20%, transfer it to Questrade (hopefully, Questrade covers the transfer fee). With the proceeds there, just buy more XUS and consider buying an international ETF (e.g., XEF). If you do decide to sell something, I would consider selling NWH.un. You already have REIT exposure through XRE. You indicated you have a house, so you don't really need to have more equity tied to real estate. You can take that additional 10% and, again, shift it to US and international indices.
> 
> As for your question to My Own Advisor about investing US/international equities within TFSA and withholding tax, I think too many CMF members are concerned about withholding taxes in this forum. I hold the position that it's not end all, be all. Besides, any gain or distribution that you get is still essentially tax free (i.e., you don't have to declare it on your tax return).


Good point about the withholding tax.

For ETF's on Questrade, yes, its only free buying, not selling. But if you are in long-term, and you only add more shares to rebalance, then its pretty frickin' awesome to be buying them every time for FREE.

Yeah, I did feel over-leveraged/exposed to RE. But I considered NWH more of a medical stock than a true REIT. I could be wrong however.


----------



## favelle75 (Feb 6, 2013)

james4beach said:


> I would suggest you construct a big table on overall sector exposures, just to get a big picture of your exposure across the whole portfolio.
> 
> I think it's fine to keep some ZUT, maybe reduce to 5% weight. Rationale here is that it's your only utilities exposure (XIU has less than 1% utilities)


That was my thinking with ZUT. There wasn't much overlap with it and the other stucks. Although, its been my worst-performing stock/ETF since I started buying stocks. I really should keep DCA-ing it to bring my entry point down.


----------



## james4beach (Nov 15, 2012)

It's true that the income paid by ZUT has been declining, and the price has declined at the same time. This is an upsetting combination.


----------



## liquidfinance (Jan 28, 2011)

james4beach said:


> It's true that the income paid by ZUT has been declining, and the price has declined at the same time. This is an upsetting combination.



The question with an ETF like ZUT is if you were to produce your own utilities exposure would you put 10% into Just Energy? Im not sure I would consider investing in Transalta at the moment either. Of course the ETF takes your emotion away from it but why knowingly invest in a bad / declining stock?


----------



## favelle75 (Feb 6, 2013)

liquidfinance said:


> The question with an ETF like ZUT is if you were to produce your own utilities exposure would you put 10% into Just Energy? Im not sure I would consider investing in Transalta at the moment either. Of course the ETF takes your emotion away from it but why knowingly invest in a bad / declining stock?


Yeah, ZUT may be on of those turds I take to the grave....or maybe just cut my losses and get rid of it now? Or dollar cost it and hope for a mild turn around and then exit with no loss? With a 5.3% yield, I'm not actually out that much on it really. My buy-in price was $15.50. Anything above $15 with the dividends I've collected will put me in the green, albeit a miniscule amount. I don't know...


----------



## liquidfinance (Jan 28, 2011)

It's a tough call. You should still research some of the underlying holdings. If you dollar cost average then you are believeing the Just Energy for example will turn around and that it's payout is now sustainable. If JE falls then it will drag on ZUT and eventually force them to reduce the payout. Of course this could be off set by the rise of payout for some of the more high quality holdings. 

This is one time where the point AndrewF makes about real return becomes more apparent. Why have a divi yield of over 5% if your real return is negative?


----------



## mike06 (Aug 4, 2011)

favelle75 said:


> Yeah, ZUT may be on of those turds I take to the grave....or maybe just cut my losses and get rid of it now? Or dollar cost it and hope for a mild turn around and then exit with no loss? With a 5.3% yield, I'm not actually out that much on it really. My buy-in price was $15.50. Anything above $15 with the dividends I've collected will put me in the green, albeit a miniscule amount. I don't know...


It seems like your first priority should be to simply figure out what you want your asset location to be, stick to it and just rebalance when needed. If you are thinking too much you might end up making rash decisions and trading too much, which will only increase your costs and probably not provide a whole lot of benefit. If you keep a set allocation in mind and only trade when the %s get out of whack you will save money on trades and also be constantly buying lower and selling higher.

Based on your original portfolio, if you want to convert it to more of a passive portfolio while keeping your individual holdings intact you might consider something along the lines of:
10% GIC 
5% ZUT 
5% XRE
30% "play money" for individual stock picking - assuming you want to keep your 3 holdings of NWH, BCE and DR
the last 50% split pretty evenly between XIU, XUS and XEF (or VXUS) 

this largely keeps your original portfolio intact but with a slight twist to diversify your broad index exposure


----------



## favelle75 (Feb 6, 2013)

liquidfinance said:


> It's a tough call. You should still research some of the underlying holdings. If you dollar cost average then you are believeing the Just Energy for example will turn around and that it's payout is now sustainable. If JE falls then it will drag on ZUT and eventually force them to reduce the payout. Of course this could be off set by the rise of payout for some of the more high quality holdings.
> 
> This is one time where the point AndrewF makes about real return becomes more apparent. Why have a divi yield of over 5% if your real return is negative?


I agree. Bu the fund is slightly managed. If Just Energy tanks, BMO can just delete it from the holding. They certainly changed their position on ATP in this very fund a while back.


----------



## favelle75 (Feb 6, 2013)

mike06 said:


> It seems like your first priority should be to simply figure out what you want your asset location to be, stick to it and just rebalance when needed. If you are thinking too much you might end up making rash decisions and trading too much, which will only increase your costs and probably not provide a whole lot of benefit. If you keep a set allocation in mind and only trade when the %s get out of whack you will save money on trades and also be constantly buying lower and selling higher.
> 
> Based on your original portfolio, if you want to convert it to more of a passive portfolio while keeping your individual holdings intact you might consider something along the lines of:
> 10% GIC
> ...


I think that may be my question as a whole then....what SHOULD my assest allocation be? I am not adverse to risk (at all), and every single investment I have stock-wise was bought with the long term in mind (20-22 years). Is Canada a good buy? Is there value in emerging markets? What's up with the US? I just want to feed monthly into my stocks, the amount to maximize my TFSA every year and make sure my bases are covered.


----------



## mike06 (Aug 4, 2011)

favelle75 said:


> I think that may be my question as a whole then....what SHOULD my assest allocation be? I am not adverse to risk (at all), and every single investment I have stock-wise was bought with the long term in mind (20-22 years). Is Canada a good buy? Is there value in emerging markets? What's up with the US? I just want to feed monthly into my stocks, the amount to maximize my TFSA every year and make sure my bases are covered.


Unfortunately theres no right answer to that question. Everyone has their own preference and even the so-called experts have huge variations in asset allocation.

I would suggest you do a bit of research and come up with a conclusion about allocation on your own. A plan that makes the most sense to you is a plan that you are more likely to stick with and not be swayed by the ups and downs of the markets. 

A traditional indexing approach would suggest to park about 30-40% in bonds and the rest in a pretty even mix of canadian, US, and international ETFs. Rebalance as necessary and add more money when its right for you.


----------



## leeder (Jan 28, 2012)

favelle75 said:


> I think that may be my question as a whole then....what SHOULD my assest allocation be? I am not adverse to risk (at all), and every single investment I have stock-wise was bought with the long term in mind (20-22 years). Is Canada a good buy? Is there value in emerging markets? What's up with the US? I just want to feed monthly into my stocks, the amount to maximize my TFSA every year and make sure my bases are covered.


That's really your judgment and there's no correct answer. I remember there was one post in this forum couple weeks ago that analyzed the sector weighting between TSX Composite, S&P 500, and EAFE. I think that individual stated that the most even allocation between all the sectors is to have 10% Canadian, 45% US, and 45% international. That said, no one has really gone wrong allocating 1/3 in each of Canadian, US, and international either. 

It is *extremely* important to remember that no one in this forum or the so-called "experts" on TV know what is the best investment (or what best to buy). Otherwise, they wouldn't need to be in this forum or working a job. All you can really do is set a portfolio allocation that allows you sleep well at night and keep putting in money either when you have the money to invest or your allocation is out of whack. Let the power of compounding do its job! Good luck and happy investing!


----------



## favelle75 (Feb 6, 2013)

mike06 said:


> Unfortunately theres no right answer to that question. Everyone has their own preference and even the so-called experts have huge variations in asset allocation.
> 
> I would suggest you do a bit of research and come up with a conclusion about allocation on your own. A plan that makes the most sense to you is a plan that you are more likely to stick with and not be swayed by the ups and downs of the markets.
> 
> A traditional indexing approach would suggest to park about 30-40% in bonds and the rest in a pretty even mix of canadian, US, and international ETFs. Rebalance as necessary and add more money when its right for you.


With the rise in interest rates coming eventually (soon?), is ANY allocation into bonds a smart move? If I just allocated a certain % into XBB, can I effectively be done with my bond allocation?


----------



## favelle75 (Feb 6, 2013)

leeder said:


> That's really your judgment and there's no correct answer. I remember there was one post in this forum couple weeks ago that analyzed the sector weighting between TSX Composite, S&P 500, and EAFE. I think that individual stated that the most even allocation between all the sectors is to have 10% Canadian, 45% US, and 45% international. That said, no one has really gone wrong allocating 1/3 in each of Canadian, US, and international either.
> 
> It is *extremely* important to remember that no one in this forum or the so-called "experts" on TV know what is the best investment (or what best to buy). Otherwise, they wouldn't need to be in this forum or working a job. All you can really do is set a portfolio allocation that allows you sleep well at night and keep putting in money either when you have the money to invest or your allocation is out of whack. Let the power of compounding do its job! Good luck and happy investing!


I agree with both of you guys. Is the call for so little % in Canadian because the TSX is so concentrated in financials and resources?


----------



## leeder (Jan 28, 2012)

favelle75 said:


> I agree with both of you guys. Is the call for so little % in Canadian because the TSX is so concentrated in financials and resources?


Yes, I believe so.


----------



## My Own Advisor (Sep 24, 2012)

Nothing wrong with CDN financials or resources, has and will likely always make our country run, but I agree with the points about not being "a homer" and looking beyond Canada for foreign exposure. 

As for XBB, I love this guy since it's my all-in-one bond product. Held it for years and no intention of changing that.


----------



## favelle75 (Feb 6, 2013)

My Own Advisor said:


> Nothing wrong with CDN financials or resources, has and will likely always make our country run, but I agree with the points about not being "a homer" and looking beyond Canada for foreign exposure.
> 
> As for XBB, I love this guy since it's my all-in-one bond product. Held it for years and no intention of changing that.


But are bonds a risky investment now with rates only either staying the same or going up?


----------



## james4beach (Nov 15, 2012)

My Own Advisor said:


> As for XBB, I love this guy since it's my all-in-one bond product. Held it for years and no intention of changing that.


But with a GIC ladder you'll get even higher returns, with no risk of price declines or capital loss. Plus it's CDIC insured. Wouldn't that be better than XBB?


----------



## leeder (Jan 28, 2012)

If you're worried about rates going up, either do GIC ladder or switch to short duration bond funds.


----------



## Mike59 (May 22, 2010)

favelle75 said:


> I think that may be my question as a whole then....what SHOULD my assest allocation be? I am not adverse to risk (at all), and every single investment I have stock-wise was bought with the long term in mind (20-22 years). Is Canada a good buy? Is there value in emerging markets? What's up with the US? I just want to feed monthly into my stocks, the amount to maximize my TFSA every year and make sure my bases are covered.


Trust me, there's no such thing as "I'm not adverse to risk at all"...Take a few market-punches in the gut (like I did losing 10% in one day for several days in a row on mining stocks earlier this year). 

Early in one's investing journey, it might be more suitable to be conservative, to learn the value of month by month additions and to learn to steer a small boat before it swells into a much larger one. Ride the volatility, enjoy some winnings, and experience some losings. 

I'd say no more than 30% to equities initially, until you have the equivalent of 2 years of retirement income saved (learned this from Jim Otar, who is a bright guy IMHO). 

I agree with suggestions made earlier to look at the couch potato-> My own spin on it has me down to 3 equity index funds , one commodity fund, and the rest in HISAs.


----------



## MoreMiles (Apr 20, 2011)

Mike59 said:


> Trust me, there's no such thing as "I'm not adverse to risk at all"...Take a few market-punches in the gut (like I did losing 10% in one day for several days in a row on mining stocks earlier this year).


+1

This type of claims is almost always from 20 year-olds, who have nothing to lose. They are always fearless and always feel invincible....except, read my other post...

http://canadianmoneyforum.com/showt...vesting-amp-Sector-Weight?p=190431#post190431

Also, the OP said: *My current portfolio is 100% inside a TFSA. Its purely a retirment vehicle, and other than my house that I am feverishly paying down, it is my ONLY investment. Mid-30's...I'd like to retire before 60. *

Imagine that you have paid down half of your house, with $300,000 from working overtime and weekend years after years... you are almost there. You use Smith Maneuver to take out home equity to invest to save taxes, but it's all wiped out in a stock crash. All the hard work you "feverishly paid down" in the last 20 years, gone overnight, do you still feel there is no risk? What if you have to start from scratch and postpone retirement by 20 more years?


----------



## cainvest (May 1, 2013)

Mike59 said:


> Trust me, there's no such thing as "I'm not adverse to risk at all"...Take a few market-punches in the gut (like I did losing 10% in one day for several days in a row on mining stocks earlier this year).


"I'm not adverse to risk at all" might be a little much but a close statement for some. What about those who didn't worry a bit during the 2008-2009 drop (I gather you'd consider that a market gut punch) and just ended up buying more at that time?


----------



## favelle75 (Feb 6, 2013)

cainvest said:


> "I'm not adverse to risk at all" might be a little much but a close statement for some. What about those who didn't worry a bit during the 2008-2009 drop (I gather you'd consider that a market gut punch) and just ended up buying more at that time?


That's what I would have done. I would have doubled down and DCA everything I had.


----------



## Mike59 (May 22, 2010)

cainvest said:


> "I'm not adverse to risk at all" might be a little much but a close statement for some. What about those who didn't worry a bit during the 2008-2009 drop (I gather you'd consider that a market gut punch) and just ended up buying more at that time?


Not sure there were many who didn't worry during 2008-2009, as reflected in the prices. The fact that the major indices lost half their value from the highs suggests most people ran for the exits. If you lose 50% you need a double to get back to par. Not sure we'd be there right now without the Fed. 

I agree that in theory, the ideal is to be courageous enough to buy when everyone else is panicking. The hard part is looking at your brokerage account screen, seeing all red, and wondering if it'll ever gain enough in your lifetime to break even!? :hopelessness:


----------



## cainvest (May 1, 2013)

Was it just worry that caused selling or selling to lock in gains in order to buy again at a lower price?
For the long term investor, did you really see a 50% drop on paper? Only for investments you bought right near the top and the percentages are much less over the years looking back, especially in late 2002- early 2003 when people should have been buying. I don't think one needs to be courageous, just follow a simple set of rules and leave emotion out of it.


----------



## favelle75 (Feb 6, 2013)

Historically, how long do those giant dips last for? Couple years? Couldn't you just cash out on the other side of a big dip instead of contributing to the madness?


----------



## MoreMiles (Apr 20, 2011)

favelle75 said:


> Historically, how long do those giant dips last for? Couple years? Couldn't you just cash out on the other side of a big dip instead of contributing to the madness?


Hmm... look at Japan stock market index... despite the recent run, it's at the same level 25 years ago, in 1988!

http://en.wikipedia.org/wiki/Nikkei_225

How many 25 years does a person have, in order to wait it out, in a lifetime? For many people, they accumulate and invest between 30 to 70 years old... that is a period of only 40 years. If you are unlucky from bumping that at the end of your working years, you may never see it return in your lifetime.

Wait it out? Sure, it's easy to say than be done.


----------



## leeder (Jan 28, 2012)

MoreMiles said:


> Hmm... look at Japan stock market index... despite the recent run, it's at the same level 25 years ago, in 1988!
> 
> http://en.wikipedia.org/wiki/Nikkei_225
> 
> ...


A good example of why we need to diversify beyond one market. You never know when Canada can go on a 25 year bear run... *touch wood*



favelle75 said:


> Historically, how long do those giant dips last for? Couple years? Couldn't you just cash out on the other side of a big dip instead of contributing to the madness?


Questions that no one in this forum can predict or answer. Most investors would become fearful and sell their money at the worst possible moment. In 2008, I'm sure many people locked in their 50% loss. For those who invested through the market crash in 2008, they would have earned their money back and more. For those people who abide by Warren Buffett's quote, "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”, they would have earned much more. In essence, all you can do is diversify, keep your time horizon into perspective (i.e., if you have a 30-year horizon, you're going to experience a few bumps and bruises along the way), maintain a comfortable portfolio allocation that allows you to sleep at night, and keep investing.


----------



## james4beach (Nov 15, 2012)

In my opinion the stock rebound since 2009 was a total "financial engineering" feat... all monetary policy, free money, QE, and semi-illegal activities by the central banks overstepping their bounds. The investors who bought the dip or doubled down into that rebound, got very lucky. That's my opinion.

The evidence I see for this is that GDP growth is still very low, US employment is barely improving, and the stock market has a total correlation with central bank QE programs. We had a credit fueled bubble before the '08 crash, and now we've gotten pumped all the way back up, again with a credit fueled bubble. Same in USA, Canada, Europe, and Japan. It's a global credit bubble. First it was consumer credit and mortgages, now government debt is a big problem, and markets like Canada still have the mortgage bubble.

I think that when central banks engineered this asset price rebound, it reinforced the dangerous behaviour of "buying the dips"

For the record, I don't think "buy the dip" will always work. I think that sometimes the market stays overvalued for long periods of time, as it is now, and once that ends you can have decades of negative returns. I don't know when this chronic overvaluation will end. This author thinks the market has been overvalued since the early 1990s, about 20 years. That would actually be consistent with the start of Sir Alan Greenspan's term at the Federal Reserve, and that was guy was hell bent on pumping asset prices.


----------



## leeder (Jan 28, 2012)

james4beach said:


> In my opinion the stock rebound since 2009 was a total "financial engineering" feat... all monetary policy, free money, QE, and semi-illegal activities by the central banks overstepping their bounds. The investors who bought the dip or doubled down into that rebound, got very lucky. That's my opinion.
> 
> The evidence I see for this is that GDP growth is still very low, US employment is barely improving, and the stock market has a total correlation with central bank QE programs. We had a credit fueled bubble before the '08 crash, and now we've gotten pumped all the way back up, again with a credit fueled bubble. Same in USA, Canada, Europe, and Japan. It's a global credit bubble. First it was consumer credit and mortgages, now government debt is a big problem, and markets like Canada still have the mortgage bubble.
> 
> ...


With your position on the global economy, are you invested in the markets? Or are you waiting for the markets to tumble down to what you think is fair or undervalued, and in the mean time, holding a large position in cash? After all, an overvalued market will always retreat back to the norm at some point.

For me, I don't know who to believe. Some analysts have indicated, based on various ratios and calculations, that the markets are actually undervalued. There are always analysts who are either bullish or bearish. My position is I have no opinion and am not smart enough to figure "value" out. I don't know where the markets will go. All I can control is my own portfolio allocation. If the markets turn bad and I have extraneous money, I invest. If the markets go up and I have extraneous money, I invest. To me, there are no dips and peaks. Besides, one of the first questions that a financial advisor would ask investors is, "how much risk can you tolerate?" If an investor can't stomach a 50% drop in the equity markets, then he/she better start cranking up that fixed income now.


----------



## james4beach (Nov 15, 2012)

leeder said:


> With your position on the global economy, are you invested in the markets? Or are you waiting for the markets to tumble down to what you think is fair or undervalued, and in the mean time, holding a large position in cash? After all, an overvalued market will always retreat back to the norm at some point.


I have some stock investment, only 6% of my assets. But in my particular case I need lots of cash & fixed income due to life circumstances. If you leave aside the chunk of wealth I need to keep for my special needs, I'm more like 30% in equities.

I don't necessarily expect stocks to tumble down to fair value (though I suspect it will happen, reversion to mean). I'm not waiting for a 'fair value' entry price, some magic number where where the TSX or S&P 500 is attractive. Instead what I am waiting for is a fundamentally sound financial system, as opposed to a shaky foundation. Here's what I want to see before seriously buying into stocks:


No emergency support - the economy no longer needs special emergency measures from the central banks. Currently US Fed, ECB, BoJ all employ special emergency measures, things like buying sovereign debt, supporting some commercial paper, and other weird asset purchases
No stealth/illegal central bank activities - like the weird bailouts and secret credit facilities used by the Federal Reserve and Bank of Canada in 2008-2009. I want to be sure that's not happening any more, and since they keep it secret, it takes years for these things to be exposed anyway (usually only by court order)
No ZIRP - the economy no longer depends on zero interest rate policy (ZIRP and QE) to function, and companies and consumers can actually operate under normal interest rate levels
Solvent banks - which have sufficient capital (currently they're all undercapitalized by my measures) and which can survive without ZIRP. Currently they can't.
Derivatives market - currently the global derivative market is enormous, over-the-counter, and largely off balance sheet. I need to see a more sane derivative market with tighter regulation, less OTC, and nothing hidden off balance sheet.

The last time most of this list was satisfied was around 2000. We've had a very weird financial system post-2000, and it got a lot weirder starting in 2009. I don't think it's a stable, properly operating system.



> For me, I don't know who to believe. Some analysts have indicated, based on various ratios and calculations, that the markets are actually undervalued. There are always analysts who are either bullish or bearish.


I agree, there are many theories and many conflicting views on things like valuation and pricing. However I still plan on waiting for a more sound financial system, looking at things like what I listed above. I won't take equity risk when the economy is on life support (as it has been for 6 years continuously).

When the economy is truly healthy, able to sustain itself, it won't need all those special measures. A healthy economy doesn't require life support. Yes I realize these things don't directly translate to stock prices, but it's *system stability* that concerns me the most. 2008 was illustration of what happens when the system is fundamentally unstable. Derivatives started blowing up and under-capitalized banks starting causing cascading problems. I think things like that are going to keep happening, from time to time, until the whole system becomes more stable.


----------



## Retired Peasant (Apr 22, 2013)

Why are you risking even 6%?


----------



## james4beach (Nov 15, 2012)

Retired Peasant said:


> Why are you risking even 6%?


6% exposure doesn't cause me any stress. It's about as much as I have exposed in gold & silver.


----------



## cainvest (May 1, 2013)

james4beach said:


> For the record, I don't think "buy the dip" will always work. I think that sometimes the market stays overvalued for long periods of time, as it is now, and once that ends you can have decades of negative returns.


The "buy the dip" might be the market trend for the next decade or even longer. If the fed pulls back and then reapplies QE chances are they'll create the dips themselves which could lead to an interesting investment time ahead for all of us.


----------



## leeder (Jan 28, 2012)

james4beach said:


> I have some stock investment, only 6% of my assets. But in my particular case I need lots of cash & fixed income due to life circumstances. If you leave aside the chunk of wealth I need to keep for my special needs, I'm more like 30% in equities.
> 
> I don't necessarily expect stocks to tumble down to fair value (though I suspect it will happen, reversion to mean). I'm not waiting for a 'fair value' entry price, some magic number where where the TSX or S&P 500 is attractive. Instead what I am waiting for is a fundamentally sound financial system, as opposed to a shaky foundation. Here's what I want to see before seriously buying into stocks:
> 
> ...


You might be in for a very long wait to see a "stable system". Wouldn't surprise me if the current situation is the new norm, with government having a heavy hand over the economy, which, in turn, influences the markets. It is still my belief in this day and age that people need to be invested in the markets and keep investing through the ups and downs.


----------



## james4beach (Nov 15, 2012)

leeder said:


> You might be in for a very long wait to see a "stable system". Wouldn't surprise me if the current situation is the new norm, with government having a heavy hand over the economy, which, in turn, influences the markets. It is still my belief in this day and age that people need to be invested in the markets and keep investing through the ups and downs.


You could be right. Perhaps this is the new normal... government and central banks managing the economy like puppet masters (harkens to the days of Soviet central planning).

I really hope it isn't the new normal.


----------



## My Own Advisor (Sep 24, 2012)

I'm with leeder, people need to be invested in the markets and stay invested regardless how it performs since over time, the trend has always been upwards.


----------



## favelle75 (Feb 6, 2013)

Thanks for all the help guys. Going forward, this is what I have an will allocate accordingly:

20% GIC (laddered)
20% XUS
20% play stocks (BCE, CCO, DR. NWH.UN, etc)
10% XIU
10% XRE
10% ZUT
10% ZDV

Anything glaringly wrong with those ratios?


----------



## leeder (Jan 28, 2012)

favelle75 said:


> Thanks for all the help guys. Going forward, this is what I have an will allocate accordingly:
> 
> 20% GIC (laddered)
> 20% XUS
> ...


Nothing wrong with the ratios, as long as you're comfortable with the allocation. Personally, I would do away with ZDV and ZUT (or XRE) and go with an international index, such as XEF. But, again, just me...


----------



## My Own Advisor (Sep 24, 2012)

A better set-up than before, yes.


----------



## favelle75 (Feb 6, 2013)

Thanks guys. Hard to jump in on POT today...wish I could sell my ZUT and get in on it, but I refuse to take a loss on ZUT (about $0.50 off my purchase price right now).


----------

