# What do you think of this portfolio?



## vi123 (Oct 29, 2015)

Hi everyone. A quick background first. Our current financial advisor has our money in about 30 different securities including ETFs, a couple of unit trusts, some individual preferred shares. There's some duplication and what looks like a lot of unnecessary positions. I'm considering ditching the advisor (and his 0.85% fees), and doing it myself.

Here are a few examples:
1. We own three USD-denominated ETFs to cover the US equity market: SPY, IWM, and IWR. Wouldn't it be easier just to own VUN (Vanguard U.S. Total Market Index ETF), which covers the whole US market? It is CAD-denominated, low-MER, and would be a lot less work at tax time too.
2. We own 3 ETFs to cover the Canadian equity market: XCS, XDV, and XIU. Wouldn't it be easier just to own something like VCN?
3. Another example is Canadian preferred shares. We own 3 individual preferreds, plus CPD and XPF. Wouldn't it be easier just to own CPD alone?
4. Our TFSAs contain positions in a US equity fund (IWR - ISHARES RUSSELL MIDCAP ETF). My understanding is that US dividend-paying stocks should not go into a TFSA. We have a REIT ETF (XRE) in our taxable account that could be moved into the TFSAs instead.

What I want to do is create a really simple, low-MER portfolio that I can manage and rebalance myself. I also want to make sure the right securities are going in our tax-sheltered accounts. All our RRSPs, TFSAs, RESP are maxed out and we have a decent amount in our taxable accounts too. My wife and I are in our 30s and our risk tolerance is moderate.

I'm thinking about this kind of allocation:

30% VSB - Vanguard Canadian Short-Term Bond Index ETF)
10% CPD - iShares S&P/TSX Canadian Preferred Share Index ETF
18% VCN - Vanguard FTSE Canada All Cap Index ETF
18% VUN - Vanguard U.S. Total Market Index ETF
15% XEF - iShares Core MSCI EAFE IMI Index ETF
4% XEC - iShares Core MSCI Emerging Markets IMI Index ETF
5% ZRE - BMO Equal Weight REITs

And here's where they would go:
TFSAs - ZRE (REITs) and VSB (bonds)
RESP - ZRE (REITs)
RRSPs - VSB (bonds)
Taxable accounts - everything else, including residual balances of ZRE and VSB

Any thoughts on this portfolio? Thanks in advance


----------



## Moneytoo (Mar 26, 2014)

> TFSAs - ZRE (REITs) and VSB (bonds)

I'd put XEF in TFSA (as it holds stocks directly and has a higher growth potential as REITs and bonds, so you'll save more on taxes in the long run) Since you're going to keep part of ZRE in a taxable account anyway - why not to keep all of it there? And put another higher grower in RESP as well?

Other than that looks great!


----------



## larry81 (Nov 22, 2010)

1. if you already have a USD-denominated ETFs , you might be better to use VTI instead of VUN
2. ditch the Preferred Share, they add complexity to your portfolio without providing any real diversification
3. if you plan to hold bonds in your non-reg account, take a look at HBB

what about this:

BONDS = 35% VSB/HBB
CAN = 20% VCN
US = 20% VUN/VTI
INTL = 15% XEF / 5% XEC
REIT = 5% ZRE


----------



## vi123 (Oct 29, 2015)

Moneytoo said:


> I'd put XEF in TFSA (as it holds stocks directly and has a higher growth potential as REITs and bonds, so you'll save more on taxes in the long run) Since you're going to keep part of ZRE in a taxable account anyway - why not to keep all of it there? And put another higher grower in RESP as well?


Thanks! I guess the logic of holding XEF in the TFSA is that XEF holds international stocks directly so it wouldn't be subject to US withholding tax?


----------



## RBull (Jan 20, 2013)

Sounds and looks like you know what you're doing. It's a good balanced proposed portfolio, well account allocated and the costs may be 15-20% of what you were paying.


----------



## vi123 (Oct 29, 2015)

larry81 said:


> 1. if you already have a USD-denominated ETFs , you might be better to use VTI instead of VUN
> 2. ditch the Preferred Share, they add complexity to your portfolio without providing any real diversification
> 3. if you plan to hold bonds in your non-reg account, take a look at HBB
> 
> ...


Thanks, I really appreciate the feedback.

> *1. if you already have a USD-denominated ETFs , you might be better to use VTI instead of VUN*
I wanted to keep things as simple as possible. Having said that, most of our income is in USD so it might make sense to use VTI. That way we save the fees and avoid the FX costs. Thanks for the input.

> *2. ditch the Preferred Share, they add complexity to your portfolio without providing any real diversification*
Prefs are weakly correlated with the other asset classes and pay a decent dividend, so that's why they're in there. Plus, it doesn't seem to make much sense to have held them for the past year and sell them now when they are (or seem to be) on sale!


----------



## vi123 (Oct 29, 2015)

larry81 said:


> 3. if you plan to hold bonds in your non-reg account, take a look at HBB


I just looked up HBB, and I guess there's an extra swap fee that takes the effective MER up to .30% plus (vs. .11% for VSB). So I guess the questions to ask would be:
1. Is the tax deferral worth the extra MER?
2. Is there any risk of the swap structure getting banned by CRA and forcing a sale at some point?

Things are starting to get complicated...


----------



## Moneytoo (Mar 26, 2014)

vi123 said:


> Thanks! I guess the logic of holding XEF in the TFSA is that XEF holds international stocks directly so it wouldn't be subject to US withholding tax?


Yep: http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/ 

Plus potentially higher capital gains than income from bonds (especially if you go with short-term ones): http://www.moneygeek.ca/weblog/2014/08/07/should-you-always-hold-bonds-inside-your-tfsa-or-rrsp/


----------



## vi123 (Oct 29, 2015)

Moneytoo said:


> Yep: http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/
> 
> Plus potentially higher capital gains than income from bonds (especially if you go with short-term ones): http://www.moneygeek.ca/weblog/2014/08/07/should-you-always-hold-bonds-inside-your-tfsa-or-rrsp/


Awesome, thanks. 

I know that REITs are really tax-inefficient in a taxable account. So how about this:

RESP and RRSPs - ZRE (we have just enough room in these accounts to fit all the ZRE) 
TFSAs - XEF (as much as we can get in there)

This way we avoid a few accounting headaches with ZRE too.


----------



## Moneytoo (Mar 26, 2014)

vi123 said:


> This way we avoid a few accounting headaches with ZRE too.


We don't have a non-reg account yet, but yeah, I hear REITs are the worst


----------



## gibor365 (Apr 1, 2011)

> 2. ditch the Preferred Share, they add complexity to your portfolio without providing any real diversification


 I prefer Dividend 15 Split like DFN.PR.A


----------



## vi123 (Oct 29, 2015)

*Adjusted portfolio*

Thanks for all the feedback so far! I'm going to make a few changes to the original setup. Here they are, just for reference:

1. I'll use both VTI and VUN instead of just VUN. We actually have USD income so it makes sense to buy the low-MER USD version where possible.
2. I'll put XEF in the TFSA instead of VSB. This should give us a better return in the long run, especially with short term bond yields so low.
3. I'm going to use ZPR instead of CPD. Canadian rate-reset preferreds are likely oversold and US rates are heading north, so this should hopefully perform better. 

So that leaves us with:

30% VSB - Vanguard Canadian Short-Term Bond Index ETF
10% ZPR - BMO Laddered Preferred Share Index ETF
18% VCN - Vanguard FTSE Canada All Cap Index ETF
18% VUN/VTI - Vanguard U.S. Total Market Index ETF (CAD) / Vanguard Total Stock Market ETF (USD)
15% XEF - iShares Core MSCI EAFE IMI Index ETF
4% XEC - iShares Core MSCI Emerging Markets IMI Index ETF
5% ZRE - BMO Equal Weight REITs

And here's where they would go:
TFSAs - XEF
RESP & RRSPs - ZRE
Taxable accounts - everything else


----------



## thepitchedlink (Feb 17, 2014)

gibor said:


> I prefer Dividend 15 Split like DFN.PR.A


Me too. But I like everything else you've got going


----------



## vi123 (Oct 29, 2015)

thepitchedlink said:


> gibor said:
> 
> 
> > I prefer Dividend 15 Split like DFN.PR.A
> ...


OK so why would you guys go for DFN over CPD or ZPR?


----------



## lonewolf (Jun 12, 2012)

vi123 said:


> Hi everyone. A quick background first. Our current financial advisor has our money in about 30 different securities including ETFs, a couple of unit trusts, some individual preferred shares. There's some duplication and what looks like a lot of unnecessary positions. I'm considering ditching the advisor (and his 0.85% fees), and doing it myself.
> 
> Here are a few examples:
> 1. We own three USD-denominated ETFs to cover the US equity market: SPY, IWM, and IWR. Wouldn't it be easier just to own VUN (Vanguard U.S. Total Market Index ETF), which covers the whole US market? It is CAD-denominated, low-MER, and would be a lot less work at tax time too.
> ...


 Wealthbar or similiar might fit your needs


----------



## My Own Advisor (Sep 24, 2012)

Agreed with Larry, if you already have some USD-denominated ETFs , go with VTI. You don't need more U.S. exposure than that product.

I agree with him to ditch your preferred share products. With preferreds you have bond-like risk and not as much upside as common stocks would.

Keep it simple if you're an indexer: 

CDN = XIC or XIU or VCN
US = VTI
International = VXUS

Sure, if you want to sprinkle in REITs from 5-10% fine. 

As for the bond, your call but I don't need bonds helping younger investors these days. For the next 20-30 years actuaries are thinking real returns on bonds will be <2%. So, you might not even keep up with inflation.


----------



## vi123 (Oct 29, 2015)

lonewolf said:


> Wealthbar or similiar might fit your needs


Still a 0.35% fee. I'm paying 0.85% to an advisor right now and I really want to eliminate any kind of drag like that on the portfolio. I think the robo advisors would just put us in a very similar diversified, low MER portfolio anyway.


----------



## vi123 (Oct 29, 2015)

@ My Own Advisor

> I agree with him to ditch your preferred share products. With preferreds you have bond-like risk and not as much upside as common stocks would?

ZPR offers decent protection against rate increases and adds a little extra diversification. The traditional 60/40 isn't really appropriate with rates so low - that's why I've dropped the bonds to 30% and included the prefs as another (weakly correlated) asset class to bump up the yield.

> As for the bond, your call but I don't need bonds helping younger investors these days. For the next 20-30 years actuaries are thinking real returns on bonds will be <2%. So, you might not even keep up with inflation.

Agreed. But we don't want the volatility of a 100% stock portfolio. VSB has a 2.8 year duration, a good mix of corp and govt debt, and won't be affected too much if rates go up. Would rather have something that pays me a yield than simply holding cash.


----------



## thepitchedlink (Feb 17, 2014)

vi123 said:


> OK so why would you guys go for DFN over CPD or ZPR?


Ha,ha. I honestly can't remember my reasoning for taking the DFN over the others!!! Let's hash it out and see if it was the right choice!!


----------



## larry81 (Nov 22, 2010)

Your portfolio is perfect but again, i suggest you simply ditch the preferred share (and avoid any kind of market timing). Here is some food for thought:

https://www.bogleheads.org/wiki/Preferred_stock#Role_in_a_portfolio
http://canadiancouchpotato.com/2015/03/17/does-your-portfolio-need-preferred-shares/
http://canadiancouchpotato.com/2015/03/12/the-role-of-preferred-shares/
http://canadiancouchpotato.com/2015/03/23/are-preferred-share-indexers-dumb-money/
https://www.pwlcapital.com/pwl/medi...es-In-Your-Portfolio_Hyperlinked.pdf?ext=.pdf

Good luck !


----------



## vi123 (Oct 29, 2015)

larry81 said:


> Your portfolio is perfect but again, i suggest you simply ditch the preferred share (and avoid any kind of market timing). Here is some food for thought:
> 
> https://www.bogleheads.org/wiki/Preferred_stock#Role_in_a_portfolio
> http://canadiancouchpotato.com/2015/03/17/does-your-portfolio-need-preferred-shares/
> ...


Thanks Larry I appreciate your reply. I have read all those articles at some point. The PWL white paper makes several recommendations re preferred shares (hold in non reg account, keep below 15% of portfolio etc) and the plan I'm following fits with their recommendations.

I guess the main positives I see are tax efficiency, diversification and yield.

As for market timing - I completely agree!


----------



## larry81 (Nov 22, 2010)

vi123 said:


> I guess the main positives I see are tax efficiency, diversification and yield.
> 
> As for market timing - I completely agree!


If you need yield, holding preferred-shares is a good way to achieve this. I am sure you have your reasons but don't you think its strange to go after yield with pref-shares and at the same time looking to add a swap-based bonds ETF like HBB ?

I actually don't have this yield appetite so i cant relate  I want more deferred capital gains and the least distributions possible.


----------



## vi123 (Oct 29, 2015)

larry81 said:


> If you need yield, holding preferred-shares is a good way to achieve this. I am sure you have your reasons but don't you think its strange to go after yield with pref-shares and at the same time looking to add a swap-based bonds ETF like HBB ?
> 
> I actually don't have this yield appetite so i cant relate  I want more deferred capital gains and the least distributions possible.


You're quite right, we don't need any distributions at all from this portfolio. Still, a decent yield is never a bad thing. If there was a swap-based pref etf, I'd be all over it 

Dividends from ZPR might not be quite as tax efficient as capital gains on HBB, but there's not that much in it. Either way you're not having to give that much back to the tax man. And we get the benefit of the extra diversification.


----------



## leeder (Jan 28, 2012)

Hi vi123, I agree with larry81 and My Own Advisor in that I don't think you need the preferred shares based on the information you provided in your original post. Couple thoughts:

1) In your original post, you state that you and your wife are in your 30s and have moderate risk tolerance. At your and your wife's age, you probably want to aim for more capital appreciation prospects than income from distributions. This is confirmed in your last post, in which you state you don't need any distributions at all from this portfolio. In addition, with the current low interest environment, the likelihood of key interest rate decreasing further is lower than the opposite. Mind you, CMF members have predicted that early this year as well, and BoC still ended dropping key interest rate. However, if the rate were to increase, the value of preferred shares (and long term bonds) will drop. The upside to preferred shares just isn't there in the current environment. For a moderate risk tolerant couple, that's something you should consider.

2) While preferred shares products are more tax efficient, allocating it into your taxable account still means you will be taxed on the distributions. Don't let the tax man get an extra dime if you can avoid it!

3) If you are looking for downside protection that are not named bonds, consider alternative investments. For example, IGT (iShares Gold Trust, trading on TSX)/GLD (SPDR Gold Trust, trading on the US exchange) are ETFs that track the hard asset price of the gold bullion and do not hold common stocks. I personally would not hold a significant percentage of gold in your portfolio (I'm not a gold bug and don't own any of these ETFs, but 5-10% would be a reasonable allocation). Another good ETF that I like more than gold ETFs is ZGI (BMO Global Infrastructure Index).

Food for thought...


----------



## scorpion_ca (Nov 3, 2014)

vi123 said:


> The PWL white paper makes several recommendations re preferred shares (hold in non reg account, keep below 15% of portfolio etc) and the plan I'm following fits with their recommendations.
> 
> I guess the main positives I see are tax efficiency, diversification and yield.
> 
> As for market timing - I completely agree!


I was thinking like you at the beginning of this year and purchased 1,000 shares of ZPR @ $13. The dividend yield is around 5% but I lost around $2,500 as of today though I have received dividend around $460 so far. I don't have plan to sell it and I am not much worried about this loss but I learned a lesson. I would buy more ZRE or VCN instead of ZPR/CPD.


----------



## vi123 (Oct 29, 2015)

scorpion_ca said:


> I was thinking like you at the beginning of this year and purchased 1,000 shares of ZPR @ $13. The dividend yield is around 5% but I lost around $2,500 as of today though I have received dividend around $460 so far. I don't have plan to sell it and I am not much worried about this loss but I learned a lesson. I would buy more ZRE or VCN instead of ZPR/CPD.


Sorry to hear that. Not a good year to own prefs!


----------



## vi123 (Oct 29, 2015)

leeder said:


> Hi vi123, I agree with larry81 and My Own Advisor in that I don't think you need the preferred shares based on the information you provided in your original post. Couple thoughts:
> 
> 1) In your original post, you state that you and your wife are in your 30s and have moderate risk tolerance. At your and your wife's age, you probably want to aim for more capital appreciation prospects than income from distributions. This is confirmed in your last post, in which you state you don't need any distributions at all from this portfolio. In addition, with the current low interest environment, the likelihood of key interest rate decreasing further is lower than the opposite. Mind you, CMF members have predicted that early this year as well, and BoC still ended dropping key interest rate. However, if the rate were to increase, the value of preferred shares (and long term bonds) will drop. The upside to preferred shares just isn't there in the current environment. For a moderate risk tolerant couple, that's something you should consider.
> 
> ...


Thanks Leeder. To be honest I'm coming round to your (and the other guys') way of thinking. Its annoying that we've owned prefs for the past couple of years, and that they've underperformed so badly during that time. But a disciplined investor wouldn't let that affect his/her thinking re asset allocation in the future. And we do want to avoid taking any more taxable distributions than we really have to. I'm going to have a think about it and perhaps update the portfolio on this thread.


----------



## gibor365 (Apr 1, 2011)

scorpion_ca said:


> I was thinking like you at the beginning of this year and purchased 1,000 shares of ZPR @ $13. The dividend yield is around 5% but I lost around $2,500 as of today though I have received dividend around $460 so far. I don't have plan to sell it and I am not much worried about this loss but I learned a lesson. I would buy more ZRE or VCN instead of ZPR/CPD.


Also ZPR constantly reducing distributions.... this why I prefer DFN.PR.A Dividend Split who has 1 year range 10.08 - 10.39, never reduced distributions and has yield 5+%


----------



## larry81 (Nov 22, 2010)

vi123 said:


> Thanks Leeder. To be honest I'm coming round to your (and the other guys') way of thinking. Its annoying that we've owned prefs for the past couple of years, and that they've underperformed so badly during that time. But a disciplined investor wouldn't let that affect his/her thinking re asset allocation in the future. And we do want to avoid taking any more taxable distributions than we really have to. I'm going to have a think about it and perhaps update the portfolio on this thread.


Seem like you will be able to claim a capital loss on your taxes return.


----------



## vi123 (Oct 29, 2015)

larry81 said:


> Seem like you will be able to claim a capital loss on your taxes return.


Well.. it will balance out some other gains. Its actually not a bad time for us to make changes to our portfolio, with prefs lower and stocks being off the highs too.


----------



## vi123 (Oct 29, 2015)

@ Larry81 (or anyone else!)

Any thoughts on using HTB.U as part of your fixed income holdings? It has a lower swap fee than HBB, they have similar duration, and and the US 10yr note looks to be yielding about 60bps higher. 

A large part of our existing investments are in USD so we wouldn't have any FX costs. 

Instead of investing 30% of the portfolio in HBB, I'm wondering if we should do 20% HBB, 10% HTB.


----------



## leeder (Jan 28, 2012)

@ vi123: Don't overthink your portfolio. You should keep it simple when possible. The difference between HBB and HTB.U is likely insignificant in terms of performance. On the other hand, to buy the ETFs, you'll incur trading commissions, unless you're with Questrade.


----------



## My Own Advisor (Sep 24, 2012)

leeder said:


> @ vi123: Don't overthink your portfolio. You should keep it simple when possible.


+1


----------



## vi123 (Oct 29, 2015)

Yes, you're right, we should keep it simple.

Here's the portfolio I'm leaning towards now, after some awesome advice on this thread. It looks pretty similar to larry81's, and it sounds like we're in a similar position (i.e. most investments in taxable accounts).

HBB: 30%
VCN: 20%
VTI: 22%
VXUS: 22%
ZRE: 6%

So what's the best way to allocate this between accounts? Here are the sizes of our registered accounts, relative to overall portfolio size. In total, we can put 13% of our portfolio in tax-sheltered accounts:

TFSA: 5%
RRSP: 4%
RESP: 4%

There are two stocks that should obviously go in the taxable accounts - HBB (because it doesn't pay distributions) and VCN (because Canadian dividends are relatively tax-efficient). Maybe ZRE should go in a taxable account too, because its distributions seem to be mostly ROC and capital gains.

That leaves VTI and VXUS. I'm thinking to put some VTI in the RRSP because we then don't need to pay the US withholding tax. And maybe we should put VTI in the TFSA and RRSP too - we would have to pay the withholding tax there, but it has a lower dividend yield than VXUS and should be a high growth asset.

So, my final thought is we should just pack as much VTI into our tax-sheltered accounts as we can. Any thoughts?


----------



## leeder (Jan 28, 2012)

Why don't you set your ZRE allocation to 5% and increase VCN to 21%? Then, you can fit your total allocation of ZRE into your TFSA. 1% difference is not the end of the world, after all. You're absolutely correct with HBB to put into your taxable account, as it does not pay distributions. The rest of it is up to you, but I would suggest that you try to minimize any trading commissions (depending on the brokerage you're with).

Another consideration is changing VCN to HXT. Then, you really won't have distributions to contend with for two products.


----------



## vi123 (Oct 29, 2015)

leeder said:


> Why don't you set your ZRE allocation to 5% and increase VCN to 21%? Then, you can fit your total allocation of ZRE into your TFSA. 1% difference is not the end of the world, after all. You're absolutely correct with HBB to put into your taxable account, as it does not pay distributions. The rest of it is up to you, but I would suggest that you try to minimize any trading commissions (depending on the brokerage you're with).
> 
> Another consideration is changing VCN to HXT. Then, you really won't have distributions to contend with for two products.


Thanks for the feedback. I set VCN a little lower because VXUS includes some Canadian exposure already. But you're right, changing the numbers by 1% or 2% won't make a whole lot of difference.

The problem with HXT is that it just covers the large caps. And VCN is fairly tax-efficient already, so I'm not too worried about including that in my taxable accounts.

Question - Why do you think that ZRE would be a better bet for a TFSA than VTI? The distributions from ZRE are partially capital gains and ROC. I understand that putting VTI in there won't help me with the 15% withholding tax, but surely the higher, tax-free growth from VTI will win in the end vs ZRE.


----------



## leeder (Jan 28, 2012)

ZRE's distribution consists of capital gains distribution (which, I believe, you will get a T3 for), other income (treated as regular income), return of capital (lowers your adjusted cost base). Every year, all three components of the distribution is included. In essence, you will be paying taxes on both capital gains and regular income annually.

The higher growth in VTI you talk about is mainly from capital appreciation. The taxable capital gain is triggered when you decide to realize the gains (if any), which is done by selling the ETF. VTI's distribution historically has been dividend income (no ROC, no capital gains distribution), which is treated as regular foreign income from our standpoint. Furthermore, the distribution is quite a bit lower than what ZRE distributes, which means you likely would pay less.

Hopefully that answers your question. There are probably situations where it is better to hold ZRE in a taxable account, but I think most times, it is better you hold it in your a non-taxable account.


----------



## vi123 (Oct 29, 2015)

leeder said:


> ZRE's distribution consists of capital gains distribution (which, I believe, you will get a T3 for), other income (treated as regular income), return of capital (lowers your adjusted cost base). Every year, all three components of the distribution is included. In essence, you will be paying taxes on both capital gains and regular income annually.
> 
> The higher growth in VTI you talk about is mainly from capital appreciation. The taxable capital gain is triggered when you decide to realize the gains (if any), which is done by selling the ETF. VTI's distribution historically has been dividend income (no ROC, no capital gains distribution), which is treated as regular foreign income from our standpoint. Furthermore, the distribution is quite a bit lower than what ZRE distributes, which means you likely would pay less.
> 
> Hopefully that answers your question. There are probably situations where it is better to hold ZRE in a taxable account, but I think most times, it is better you hold it in your a non-taxable account.


Thanks, I appreciate that. 

One other advantage that you didn't mention is less tax legwork to deal with at the end of the year. If I'm going with a 5 security portfolio, putting all of ZRE inside the TFSA would make things even easier. Which is what it's all about!


----------



## larry81 (Nov 22, 2010)

vi123 said:


> Yes, you're right, we should keep it simple.
> 
> Here's the portfolio I'm leaning towards now, after some awesome advice on this thread. It looks pretty similar to larry81's, and it sounds like we're in a similar position (i.e. most investments in taxable accounts).
> 
> ...


1. What a terrific portfolio, simply and ultra low-cost, oddly similar to Justing Bender very own portolio (and mine!):

http://www.theglobeandmail.com/glob...nely-tuned-passive-portfolio/article14843986/

2. Big red flag, RESP should be treated separately from your portfolio since they have specific withdrawal schedule and you need to adjust your asset allocation accordingly, see here:

http://www.moneysense.ca/columns/taking-risk-in-an-resp
http://www.pwlcapital.com/pwl/media...nvestment-Strategies_Hyperlinked.pdf?ext=.pdf

3. Absolutely avoid ZRE in taxable, distributions are a nightmare to track. They belong in TFSA/RRSP.

4. Regarding the suggested asset allocation:

HBB: 30%
VCN: 20%
VTI: 22%
VXUS: 22%
ZRE: 6%

Nothing really wrong here but having a target allocation with classes correspond 22% and 6% of your total assets is kind of weird. If possible, try to make things a little rounder for more simplicity but remember that you know your risk tolerance much better than i do !

5. VTI or VXUS in RRSP is equivalent, you will recover the US withholding tax with both ETF.

http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/


----------



## larry81 (Nov 22, 2010)

vi123 said:


> @ Larry81 (or anyone else!)
> 
> Any thoughts on using HTB.U as part of your fixed income holdings? It has a lower swap fee than HBB, they have similar duration, and and the US 10yr note looks to be yielding about 60bps higher.
> 
> ...


I suggest you simply avoid US bonds, your bonds are your safety net, hold the whole basket (diversified index), hold short term (<10y) and hold local (canadian) !

There good arguments to hold global bonds in very large portfolio but unless you are dealing with 2-3-4 millions, don't bother. In fact, 3-4-5 ETF is all you will ever need (even with 10M$+ !)


----------



## larry81 (Nov 22, 2010)

As you probably saw in my signature, my portfolio and my situation are very similar to your. My non-registered account is 95% of my total portfolio, here is my AA for reference:

VXUS - 25% - Taxable
VTI - 25% - Taxable
VCE - 25% - Taxable
HBB - 20% - Taxable
ZRE - 5% - TFSA/RRSP

Portfolio weighted-average MER: 0.13%

Cant go wrong with any variation of this !


----------



## vi123 (Oct 29, 2015)

larry81 said:


> 1. What a terrific portfolio, simply and ultra low-cost, oddly similar to Justing Bender very own portolio (and mine!):
> 
> http://www.theglobeandmail.com/glob...nely-tuned-passive-portfolio/article14843986/


Thanks, I hadn't seen that before. Have read some of his blog in the past though.



larry81 said:


> 2. Big red flag, RESP should be treated separately from your portfolio since they have specific withdrawal schedule and you need to adjust your asset allocation accordingly, see here:
> 
> http://www.moneysense.ca/columns/taking-risk-in-an-resp
> http://www.pwlcapital.com/pwl/media...nvestment-Strategies_Hyperlinked.pdf?ext=.pdf


I think I disagree with this. We are going to have enough funds to cover our kids' education, no matter what. So the RESP becomes just another tax-advantaged part of the larger portfolio. What will likely happen is this: When kid A starts university, we will withdraw $X from the RESP. That will leave us with $X extra to contribute to our taxable accounts that year. So in effect, we will be making a tax-free transfer from our RESP to our taxable accounts. That will happen each year of his studies. Looking at it that way, there effectively is no RESP withdrawal schedule to worry about.

If we followed the advice to gradually increase your bond allocation each year, we would end up with almost 100% bonds in the RESP when the kids start university. That just seems like completely wrong for our situation.



larry81 said:


> 4. Regarding the suggested asset allocation:
> 
> HBB: 30%
> VCN: 20%
> ...


I think I'm actually going to go with 20% VCN, 22% VTi, 23% VXUS. Once you account for the 6.4% Canadian exposure in VXUS, that more or less equalizes the Cdn/US/Intl equity exposure. And dropping the ZRE to 5% will fit it neatly inside the TFSAs.


----------



## vi123 (Oct 29, 2015)

larry81 said:


> As you probably saw in my signature, my portfolio and my situation are very similar to your. My non-registered account is 95% of my total portfolio, here is my AA for reference:
> 
> VXUS - 25% - Taxable
> VTI - 25% - Taxable
> ...


0.16% if you include the HBB swap fee!


----------



## larry81 (Nov 22, 2010)

vi123 said:


> 0.16% if you include the HBB swap fee!


Already factored in but while not mentioned, i also have two individual (municipal) bonds at 0%


----------



## larry81 (Nov 22, 2010)

vi123 said:


> I think I disagree with this. We are going to have enough funds to cover our kids' education, no matter what. So the RESP becomes just another tax-advantaged part of the larger portfolio. What will likely happen is this: When kid A starts university, we will withdraw $X from the RESP. That will leave us with $X extra to contribute to our taxable accounts that year. So in effect, we will be making a tax-free transfer from our RESP to our taxable accounts. That will happen each year of his studies. Looking at it that way, there effectively is no RESP withdrawal schedule to worry about.
> 
> If we followed the advice to gradually increase your bond allocation each year, we would end up with almost 100% bonds in the RESP when the kids start university. That just seems like completely wrong for our situation.


The fact that you have enough to cover your kid education is irrelevant here. In your situation the RESP mechanic is simply a future gift from the tax man to you. With the current withdrawal rules for self-directed RESP, you could have a 100k RESP account and withdraw it clean in 2-3 years almost tax-free once your kid start university. But you sure don't want to sell your RESP asset in the middle of a market crash, hence the recommendation to treat it as a distinct entity, separated from your global portfolio with his own asset allocation.

i strongly suggest this book by a fellow Canadian:
http://www.amazon.ca/The-RESP-Book-Registered-Education/dp/0986648906


----------



## larry81 (Nov 22, 2010)

vi123, i cant pass this opportunity to also recommend you start using portfolioslicer to track your future portfolio!

http://portfolioslicer.com

This recommendation also apply to all forum members and anonymous lurkers


----------



## vi123 (Oct 29, 2015)

*Re the RESP issue: *
Selling RESP assets in a market crash would not concern me, as we would subsequently be using extra funds in our taxable accounts to buy stocks at cheaper prices. 
I suppose the downside would be that those new securities would have a lower cost base, leading to a larger capital gains hit at some point. But that would be far in the future. 
I still think that we should just optimize our entire portfolio, including the RESP, based on a long term time horizon.

*Re Portfolio Slicer:*
I use a macbook so unfortunately it won't work for me! There seem to be some Google Docs versions out there so I'll give them a try.


----------



## larry81 (Nov 22, 2010)

> Horizons ETFs Management (Canada) Inc. ("Horizons ETFs") is pleased to announce that the Horizons S&P/TSX 60TM Index ETF ("HXT") reached its fifth anniversary this month. To celebrate this achievement, effective October 1, 2015, Horizons ETFs will be increasing the rebate on the annual management fee of HXT to four basis points (0.04%) so that the effective annual management fee on HXT will be reduced to three basis points (0.03%), again making it the lowest cost investment fund in Canada. With this new rebate, HXT also becomes the lowest cost Canadian equity ETF in the world.


wow !!!


----------

