# I have two ETF's, need a third and a fourth..



## favelle75 (Feb 6, 2013)

Just started investing in January, all within my TFSA with Questrade. Currently have BCE, CLC, and ZUT/ZDV for ETF's. Currently on the hunt for another couple of ETF's (free buys with QT), but unsure what my next play would be without having too much overlap with existing positions. Was look at XIU and maybe a REIT?


----------



## Cal (Jun 17, 2009)

Are these all to be held in your TFSA? Do you have any other plans, RRSP, a non registered account or a work plan with any other holdings?


----------



## james4beach (Nov 15, 2012)

favelle75 said:


> Just started investing in January, all within my TFSA with Questrade. Currently have BCE, CLC, and ZUT/ZDV for ETF's. Currently on the hunt for another couple of ETF's (free buys with QT), but unsure what my next play would be without having too much overlap with existing positions. Was look at XIU and maybe a REIT?


You said you just started investing in January. Does that mean that prior to this, you did not have any stock positions? If that's the case I'm concerned that you're suddenly buying into too many things all at once.

If you're just starting up a stock/ETF portfolio, I suggest _scaling into_ your positions over a longer period like 1-2 years. This reduces the risk that you are just buying into a stock market peak. So when I suggest ETFs below, I do NOT mean "go buy this now". I mean, add this to your list, continue researching it and watching it, and maybe add positions over the next couple years. Don't get too hung up on free buys. It's far better to pay $10 for a good product than $0 for a product you don't need or want.

I think a *TSX index* should be a core part of your portfolio. That means either XIU (TSX 60) or ZCN (TSX Composite). After MER is taken into account, XIU yields 2.8% and ZCN yields 3.0% Either one of these is good for a long-term holding, but they have slightly different sector weightings. Check your overall sector weightings across your 3 ETFs.

The ZUT & ZDV you already hold are pretty good funds too. Beware though. ZUT holds some utilities that are having trouble making their distributions. More distribution cuts are likely in ZUT, which will both lower its share price, and reduce its yield. Similar warning for ZDV that holds some very high payout stocks, that can't maintain those high distributions. ZDV has quite a few high-risk stocks. Personally, I think that dividend reductions are a near certainty for both ZUT & ZDV and some price declines too, especially in ZDV.

Final notes, always use limit orders, always read the last annual and semi-annual financial statement before buying any ETF or stock. If nothing else it will help you learn how ETFs are structured and exactly what's in them. Also disclosure, I think the market is going lower from here and I recommend GICs over stocks. Also GICs are a more effective use of your TFSA since interest income is fully taxed, whereas stocks get beneficial treatment of dividends and capital gains in non-registered.


----------



## audio (Apr 19, 2013)

*Buy slowly and diversify*

Ditto to everything james4beach said about buying slowly now that equities appear to be reaching the top of their range. Also, consider diversifying outside Canada. Look at VFV or ZSP for the U.S., or the new iShares XEF for international. BTW XDV and XIU have quite a bit of overlap.


----------



## Sherlock (Apr 18, 2010)

You have 2 good ETFs. ZDV is a Canadian dividend ETF which provides some dividend income and some appreciation, and ZUT is a Canadian utilities ETF which provides high income. In addition to this, you need exposure to markets outside Canada. I predict the S&P 500 is gonna grow much more than the TSX in 2013 just as it did in 2012.

I would add:
An American index ETF such as ZSP or maybe an American dividend income ETF such as ZDY
An emerging markets ETF such as ZEM

Also a REIT ETF such as ZRE would be good and provide great income, no portfolio should be without REITs.

I've suggested BMO's ETFs here because that was what you started with, but iShares or Claymore or Vanguard ETFs are just as good assuming you can also buy them without commission through Questrade.


----------



## james4beach (Nov 15, 2012)

I'll agree with Sherlock that some American exposure could be good (assuming again that you don't already have mutual funds elsewhere... if you do, look at your total allocations)

So quick answer: get a TSX index, and a broad American ETF (I suggest the S&P 500 using IVV in US$). If you hold both the TSX Index and S&P 500 you've got the core investments that form the backbone of anyone's portfolio.

And again I'll caution to not just throw all this money into the market at once, because you may be just buying in at a 13-year peak.


----------



## sags (May 15, 2010)

James4beach............

My wife is inheriting some money soon............and she has no interest in stocks.

She is going to put about $50,000 into a laddered GIC.........but I wonder about a couple of things.

1) Should she put it into a new RRSP or TFSA? She collects HOOPP, OAS, and CPP, but still works p/t and earned 20,000 employment income last year, on top of her pensions. We wonder if we should use RRSP to reduce her taxes now.......while she is still working and has the option...........but realize she will be taxed again later on, so I wonder about the wisdom of taking money that isn't taxable and making it taxable.

2) Is 5 years optimum for laddering?

Thanks in advance for any reply.............


----------



## james4beach (Nov 15, 2012)

sags said:


> She is going to put about $50,000 into a laddered GIC.........but I wonder about a couple of things.
> 
> 1) Should she put it into a new RRSP or TFSA? She collects HOOPP, OAS, and CPP,


I'm sorry, I don't know anything about those various government programs and how that would affect her. Could you please open a new thread with your question, so others can see it and pitch in?


----------



## favelle75 (Feb 6, 2013)

Cal said:


> Are these all to be held in your TFSA? Do you have any other plans, RRSP, a non registered account or a work plan with any other holdings?


Hey Cal, thanks. No, they don't have to be within the TFSA its just that by Dec. 31st of this year, all my stock investments will be at or under $20K (I also have $5K in an ING Direct TFSA Streetwise fund), so I don't see investing outside of it until its maxed out. After that, I'll look at other avenues.


----------



## favelle75 (Feb 6, 2013)

james4beach said:


> You said you just started investing in January. Does that mean that prior to this, you did not have any stock positions? If that's the case I'm concerned that you're suddenly buying into too many things all at once.
> 
> If you're just starting up a stock/ETF portfolio, I suggest _scaling into_ your positions over a longer period like 1-2 years. This reduces the risk that you are just buying into a stock market peak. So when I suggest ETFs below, I do NOT mean "go buy this now". I mean, add this to your list, continue researching it and watching it, and maybe add positions over the next couple years. Don't get too hung up on free buys. It's far better to pay $10 for a good product than $0 for a product you don't need or want.
> 
> ...


Thanks James. Yeah no, prior to this, I not only had zero stock holdings, but zero SAVINGS. Wedding and a house took care of all of that. Just getting back on track now. Got addicted to compound interest calculators on my phone over Xmas and that started the ball rolling. Mid 30's, knew I had to do something. Goal is retirement by 55.

ZCN is a good suggestion...I hadn't thought of a total index position. Smart. I would do GIC's, but the returns are so friggin' low. Seems I'd just be fighting inflation the whole time. 2% return, 1.5% inflation equals 0.5% return...that's just not worth it. I could take that $20K and invest in a lemonade stand and make more than 0.5%.


----------



## favelle75 (Feb 6, 2013)

Sherlock said:


> You have 2 good ETFs. ZDV is a Canadian dividend ETF which provides some dividend income and some appreciation, and ZUT is a Canadian utilities ETF which provides high income. In addition to this, you need exposure to markets outside Canada. I predict the S&P 500 is gonna grow much more than the TSX in 2013 just as it did in 2012.
> 
> I would add:
> An American index ETF such as ZSP or maybe an American dividend income ETF such as ZDY
> ...


Thanks Sherlock. With the American or foreign ETF's, do I have to change my currency? Or is it all still in CDN? Also, with a REIT, is that sector going to tank? Sure the yield is good, but the RE market has to be due for a bust soon, even a mini one... Or do REITs mostly deal with commercial RE?


----------



## My Own Advisor (Sep 24, 2012)

Just posted some info. of CDN dividend ETFs. I purposely left out Powershares Dividend ETF and a couple of others, don't like the mix of others.

http://www.myownadvisor.ca/2013/04/top-canadian-dividend-etfs-for-your-portfolio/

@farvelle75, did you say you own XIU? If not, that's a great ETF.


----------



## james4beach (Nov 15, 2012)

favelle75 said:


> Yeah no, prior to this, I not only had zero stock holdings, but zero SAVINGS. Wedding and a house took care of all of that. Just getting back on track now


So then with these investments, am I correct in understanding your overall exposures (everywhere) will be 100% in stocks... that is, no cash/GIC savings on the side?



favelle75 said:


> ZCN is a good suggestion...I hadn't thought of a total index position. Smart. I would do GIC's, *but the returns are so friggin' low*. Seems I'd just be fighting inflation the whole time. 2% return, 1.5% inflation equals 0.5% return...that's just not worth it.


Just a friendly reminder that returns from stocks could be *much lower* than the GICs too. The question isn't return, it's "risk adjusted return". When you get into stocks, remember that in a worst case scenario your investment could drop by 50% as it has happened a couple times now in the last 13 years. And stock indexes don't necessarily recover from crashes.

There are many scenarios, and we just lived through a long stretch like this, where staying in cash & GICs actually exceeds stock market returns. What happens in the future is anyone's guess, but don't forget the past.


----------



## favelle75 (Feb 6, 2013)

james4beach said:


> So then with these investments, am I correct in understanding your overall exposures (everywhere) will be 100% in stocks... that is, no cash/GIC savings on the side?


No, I have about 20% in savings/GIC (10% in CIBC TFSA at 1.8% and 10% in ING Direct GIC-TFSA at 2.5%). The rest, ~80% is in stocks.



james4beach said:


> Just a friendly reminder that returns from stocks could be *much lower* than the GICs too. The question isn't return, it's "risk adjusted return". When you get into stocks, remember that in a worst case scenario your investment could drop by 50% as it has happened a couple times now in the last 13 years. And stock indexes don't necessarily recover from crashes.
> 
> There are many scenarios, and we just lived through a long stretch like this, where staying in cash & GICs actually exceeds stock market returns. What happens in the future is anyone's guess, but don't forget the past.


I agree, there is risk. But over the long term (20+ years), what is the risk of Bell going bankrupt? What is the risk of XIU not beating inflation?


----------



## james4beach (Nov 15, 2012)

favelle75 said:


> I agree, there is risk. But over the long term (20+ years), what is the risk of Bell going bankrupt? What is the risk of XIU not beating inflation?


Bell has a significant chance of going bankrupt over a long period like that. Just in 2007, they were 'junk' rated and their bonds crashed due to taking on massive debt in an aggressive restructuring attempt. I don't know why you have so much confidence that they'll be a solvent, successful company long term.

XIU has a pretty good chance of beating inflation long term. Then again, if we have deflation, you may still get a negative XIU return which is still "beating" inflation


----------



## nakedput (Jan 2, 2013)

Bell has been around since the early 1900's, I'm going to be columbo right now and say the odds are that they will still be around in 20 years.


----------



## favelle75 (Feb 6, 2013)

Yeah, I don't see Bell going under. Or, I should say, I see there being less chance of Bell going under as there is of my GIC not keeping up with inflation.


----------



## james4beach (Nov 15, 2012)

nakedput said:


> Bell has been around since the early 1900's, I'm going to be columbo right now and say the odds are that they will still be around in 20 years.


To nakedput and favelle75, what are the reasons you believe Bell will still be around in 20 years? I'm curious to hear your reasons.


----------



## HaroldCrump (Jun 10, 2009)

If such a situation does come to pass that Bell Enterprises is about to go bankrupt, I'd bet the federal govt. will bail them out.
Common shareholders may lose most of their equity, but the preferred shareholders and the bondholders will probably be made whole almost 100% via the bailout.

Given the way things are these days, any organization that employs hundreds of thousands of Canadians, and whose shares and bonds are core holdings among all the large institutions (_esp. govt. pension funds_), will almost certainly be bailed out using tax payer dollars.


----------



## andrewf (Mar 1, 2010)

I'm not so sure about a government bailout of Bell. They could go into bankruptcy protection and restructure while continuing to operate.

More to the point: if Bell went bankrupt because it lost billions and billions of dollars, then the taxpayer would have to assume that the support would have to be ongoing. Banks were 'bailed out' because they were not liquid, not because they were necessarily insolvent. The automakers had a similar problem with liquidity. They could not restructure in the midst of frozen credit markets. In normal conditions, the automakers could have gone through an orderly bankruptcy without collapsing.


----------



## HaroldCrump (Jun 10, 2009)

It's going to involve a govt. bailout in some shape or form.
Anything that wipes out the prefs. and the bonds will not be allowed.
Mass lay offs will also not be allowed.

The other two stooges (Rogers and Telus) do not have enough market cap to buy out even half of Bell Enterprises.
And our telecom laws/CRTC will not allow a foreign buyer to swoop in and take out the pieces of Bell.

Of course, nothing is certain in such matters, but all I am saying is that if such a situation does come to pass, chances are very high that there will be a bailout in some form.
If not an outright bailout, then perhaps a GM-style bailout (part equity, part debt).
Or a federal guarantee of the debt until the restructuring is resolved.
BCE has over $13B in debt and over $3B in preferred issues, most of it long term debt (10+ years) and most of it held by large institutions, incl. govt. pension funds.

I think it's a safe bet they will be bailed out.

If that does come to pass, sell the commons and buy a combination of their perpetual prefs. and long dated bonds below par.


----------



## andrewf (Mar 1, 2010)

The government might provide bridge financing during a restructuring. BCE should have enough cash flow that bankruptcy protection would be sufficient to keep it viable.

And yes, bondholders should be burned by a bankruptcy. That's sorta the point. Otherwise, we might as well nationalize BCE now.

And once it becomes apparent that BCE was going to go bankrupt, I imagine the common shares would be down 90%. You make it sound a bit too easy to "just" sell the common shares and buy the prefs. You will already have taken your haircut.


----------



## HaroldCrump (Jun 10, 2009)

andrewf said:


> BCE should have enough cash flow that bankruptcy protection would be sufficient to keep it viable.


We can't say that, though.
Depends on the circumstances and the reasons for the bankruptcy.
Bankruptcy can't be for some mysterious reason - there has to be a significant drop in cash flows and working capital.



> And yes, bondholders should be burned by a bankruptcy. That's sorta the point.


That's the part I don't think will happen.
I don't think the bondholders will be burnt at all.
I think the pref. holders won't be burnt either, or at least not much.

The specific structure of this hypothetical bailout deal is hard to predict, since it seems such a remote possibly right now.
It could be a GM-style equity + debt deal.
Or an open ended LOC deal with favorable terms.
I can even see a quasi-nationalization by the major pension funds that already hold large pieces of Bell Enterprises (both debt and equity), such as the OTPP, etc.



> You make it sound a bit too easy to "just" sell the common shares and buy the prefs. You will already have taken your haircut.


Sorry, I meant sell short (if you don't have a long position currently).
I wouldn't buy their common shares at these levels.


----------



## andrewf (Mar 1, 2010)

As I recall, GM and Chrysler's bond holders did take a haircut. The banks bond holders did not. I don't think BCE is systemically important enough to rescue in the way the banks were rescued (even though I don't believe the banks should have been bailed out the way they were).


----------



## favelle75 (Feb 6, 2013)

andrewf said:


> The government might provide bridge financing during a restructuring. BCE should have enough cash flow that bankruptcy protection would be sufficient to keep it viable.
> 
> And yes, bondholders should be burned by a bankruptcy. That's sorta the point. Otherwise, we might as well nationalize BCE now.
> 
> And once it becomes apparent that BCE was going to go bankrupt, I imagine the common shares would be down 90%. You make it sound a bit too easy to "just" sell the common shares and buy the prefs. You will already have taken your haircut.


But within that 20 years, remember, you are still taking in those 4% dividends. Bell is up over $3/share since I bought it, plus one quarter of dividend payouts. A GIC for 5 years would barely match that return in just 3 months.


----------



## james4beach (Nov 15, 2012)

Thanks for the replies. For what it's worth, remember that in the American bank bailouts the preferred shares got wiped out. Preferred shares are still equity, and if a company has no equity or negative equity after losses it's very hard to keep equity shares positive.

This is just my perspective, but I don't use "too big to fail" as a guideline for investments. What is TBTF changes unpredictably, depending on the government, the courts, and the mood of the voters. Not a good basis for investment imo


----------

