# simple portfolio



## rinoscar (Jan 26, 2010)

Trying to create a portfolio with only a few ETF's for my RRSP. Although I like the couch potato portfolio; 25%bonds, 25%Cnd, 25%US and 25%Internat. I find the asset allocation does not suit me. I am more of a 60stock and 40bonds being at 40years old it makes sense, well at least to me!

Instead of buying 3 ETF's for each region of the world, wouldn't it make more sense just to own vanguards world stock(VT)? And for the bond I have XSB(ishares short bond). I am also thinking of buying a high yield bond fund, read somewhere that it has a very low correlation with other bond etf. 

Do you think this portfolio is a strong base to work from? And what other etf would you add, but only ones with low correlation.

Thank you


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## andrewf (Mar 1, 2010)

You could certainly do that. Note that Canada is only or 3 or 4% weight in the global equity ETF, so if you want to increase your exposure to Canadian equity you could toss in some XIU or XIC.

I wouldn't recommend making high yield more than 10% of your portfolio.


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## MoneyGal (Apr 24, 2009)

You could just do Vanguard's Total Stock Market (VTI/NYSE) and FTSE All-World Ex-U.S. (VEU/NYSE) for your equity exposure.


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## slacker (Mar 8, 2010)

I recommend overweighting Canadian Equities. Currently, Canadian Equity is only less than 4% of VT. I personally have 40% of my equity portion allocated to Canadian. I'm 30. Seeing the wild fluctuations of foreign exchange rates in the last week, I can see why one may want to avoid that volatility.

I'm not sure how tax efficient it is to hold Canadian Equities in a USD ETF.


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## OhGreatGuru (May 24, 2009)

The conventional recommendation is at least equal weighting between Canada/US/International stocks (if not overweight Canadian). As others have noted you won't get that with a single global ETF.


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## humble_pie (Jun 7, 2009)

didn't Harold Crump use to drop in here - when he wasn't marauding in libraries to heckle derek foster - Harold would drop in here & announce that all these global multinational funds never perform zip over periods of decades ...

my take is that every big canadian corporation is already a well-diversified multinational. Potash, agrium, barrick, snc-lavalin, bombardier, cameco, cn rail, encana, goldcorp, bmo, royal bnk, td, you name it, half or more of their business is outside canada. Plus they analyze their own sovereign risk, they insure their own enterprises, and they hedge their own currencies. All probably better than some deskbound-in-toronto geek fund manager.


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## andrewf (Mar 1, 2010)

humble_pie said:


> didn't Harold Crump use to drop in here - when he wasn't marauding in libraries to heckle derek foster - Harold would drop in here & announce that all these global multinational funds never perform zip over periods of decades ...
> 
> my take is that every big canadian corporation is already a well-diversified multinational. Potash, agrium, barrick, snc-lavalin, bombardier, cameco, cn rail, encana, goldcorp, bmo, royal bnk, td, you name it, half or more of their business is outside canada. Plus they analyze their own sovereign risk, they insure their own enterprises, and they hedge their own currencies. All probably better than some deskbound-in-toronto geek fund manager.


But the TSX is almost completely devoid of some sectors, like biotech/pharma. To get that exposure you need to invest in foreign equities. I don't think there is anything wrong, in principle, with just owning VT as your equity exposure. I'm not sure it's a given that you should be overweight Canadian equities.


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## Armi (Feb 23, 2010)

Why does everyone suggest having some exposure to US Equities? I don't see them doing very good long term, if you really want a passive portfolio.

A Chinese Index ETF + Canadian ETF should be sufficient for long term investing. Canada is very resource heavy and as the world needs Energy (ie. China), they'll buy from Canada and therefore boost Canada's economy. China is going to be out the US soon, i'd rather not be patriotic and just go where the money is going to go. With all the manufacturing jobs in China and their explosive growth, why not invest in China?


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## andrewf (Mar 1, 2010)

Many US stocks do most of their business outside the US. That is, they are global firms, not US firms. US firms benefit from higher regulatory standards than you might see in China.

Not to mention, putting all your eggs in the China basket sounds like a recipe for getting wiped out. Just because China is growing rapidly does not make high equity returns a foregone conclusion. Be cautious, and don't naively bet the farm on one 'story'.


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## Soils4Peace (Mar 14, 2010)

Rinoscar...

1) I would add my voice to overweighting Canadian stocks with a Canadian ETF. Canada just seems to be in better shape than many developed markets. e.g. _XIC, XIU or ZCN _
2) Consider putting part of your equity position into a real estate or REIT ETF. e.g. _CGR, XRE, VNQ_


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## Armi (Feb 23, 2010)

andrewf said:


> Many US stocks do most of their business outside the US. That is, they are global firms, not US firms. US firms benefit from higher regulatory standards than you might see in China.
> 
> Not to mention, putting all your eggs in the China basket sounds like a recipe for getting wiped out. Just because China is growing rapidly does not make high equity returns a foregone conclusion. Be cautious, and don't naively bet the farm on one 'story'.


I'm aware that most companies do their business outside the US. However, with that said, the US is the biggest market for these companies. China is catching up while US is on its way down, why invest in something that is getting worse? 

If China is so bad, a Pacific ETF filled with Taiwan, China, Hong Kong, Korea, Japan would be very good too or if you can find one with Singapore involved that'd be the best. These nations have money and thats where people will go. You don't go to a debtor nation.

I believe Roger's quote:



> _In the ’20s and ’30s, there was a huge move from the U.K. to the U.S., exacerbated by financial crisis, and the same thing is happening now. The world is moving from the West to the East and, again, it’s exacerbated by a financial crisis._


All the big investors have all been advocating China as well, Warren Buffett, Jim Rogers, Garth Turner... just to name a few. Aside from the Chinese housing bubble that I can maybe see happening, China doesn't seem like a high risk place to invest. Its growing economically faster than others.


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## Sampson (Apr 3, 2009)

Armi said:


> I'm aware that most companies do their business outside the US. However, with that said, the US is the biggest market for these companies. China is catching up while US is on its way down, why invest in something that is getting worse?


I don't believe this is true at all (re: US companies earning the majority of revenues from within the US).

*MCD* - < 40% revenues from North America - largest growth markets Asia and Latin America.
*MMM* - ~70% revenues from outside US - largest growth markets Asia and Latin America.
*KO* - ~75% revenues outside US - largest growth markets Asia and Latin America.

None of these are resource stocks. China and the rest of the world need a lot more than just resources.

While I personally do invests in China, I'm always hesitant due to the opaque nature of the government and the amount of control they exert over many companies.

Significant risks to China not only include the potential housing bubble, but all that manufacturing capacity produces products for markets outside of China. Eventually demand for their products internally will probably outpace demand for Chinese products abroad, but we certainly aren't there yet.


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## greenmoney (Mar 23, 2010)

I see iShares now has XCH (China index fund). anyone have any experience with this one? Seems like it could be an easy way to get some Chinese exposure


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## rinoscar (Jan 26, 2010)

andrewf said:


> I wouldn't recommend making high yield more than 10% of your portfolio.


I was thinking more like 5% of my overall portfolio. 



MoneyGal said:


> You could just do Vanguard's Total Stock Market (VTI/NYSE) and FTSE All-World Ex-U.S. (VEU/NYSE) for your equity exposure.


Right now I hold those 2 ETF's and since I am a buy and hold investor, have the least possible etf's will reduce overall fees when time to balance.



slacker said:


> I recommend overweighting Canadian Equities. Currently, Canadian Equity is only less than 4% of VT. I personally have 40% of my equity portion allocated to Canadian. I'm 30. Seeing the wild fluctuations of foreign exchange rates in the last week, I can see why one may want to avoid that volatility.
> 
> I'm not sure how tax efficient it is to hold Canadian Equities in a USD ETF.


Doesn't the VT mirror the world market, so if canada is at 4% of global market shouldn't the etf be at 4%? and if say the US would fall to one day 15%of the world market then the etf's weighting of the US market would fall to 15%?



OhGreatGuru said:


> The conventional recommendation is at least equal weighting between Canada/US/International stocks (if not overweight Canadian). As others have noted you won't get that with a single global ETF.


True, but I never did like having 50% of my portfolio invested in only 2 countries.



andrewf said:


> But the TSX is almost completely devoid of some sectors, like biotech/pharma. To get that exposure you need to invest in foreign equities. I don't think there is anything wrong, in principle, with just owning VT as your equity exposure. I'm not sure it's a given that you should be overweight Canadian equities.


I agree, there are alot of sector that you can't be exposed with CND markets.


SOIL4PEACE....If owing a CND etf or the VT aren't most of those REIT stocks included in them?


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## Armi (Feb 23, 2010)

Sampson said:


> I don't believe this is true at all (re: US companies earning the majority of revenues from within the US).
> 
> *MCD* - < 40% revenues from North America - largest growth markets Asia and Latin America.
> *MMM* - ~70% revenues from outside US - largest growth markets Asia and Latin America.
> ...


No i meant the overall US market vs the overall China market. US is bigger in size.



Sampson said:


> While I personally do invests in China, I'm always hesitant due to the opaque nature of the government and the amount of control they exert over many companies.
> 
> Significant risks to China not only include the potential housing bubble, but all that manufacturing capacity produces products for markets outside of China. Eventually demand for their products internally will probably outpace demand for Chinese products abroad, but we certainly aren't there yet.


Exactly, when we aren't there yet, lets earn it until we get close.


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## Sampson (Apr 3, 2009)

Armi said:


> Exactly, when we aren't there yet, lets earn it until we get close.


No no... my point is the China is now dependent on the world for their exports, their internal economy and demand for products is not self-sustaining. Therefore, if the US economy goes (and currently is bad), China will be bad.


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## Armi (Feb 23, 2010)

Sampson said:


> No no... my point is the China is now dependent on the world for their exports, their internal economy and demand for products is not self-sustaining. Therefore, if the US economy goes (and currently is bad), China will be bad.


Definitely however the China market is quickly catching up to the US market. The whole point of investing in China is for their growth, its going to be much greater than the US.


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## Soils4Peace (Mar 14, 2010)

rinoscar said:


> SOIL4PEACE....If owing a CND etf or the VT aren't most of those REIT stocks included in them?


The low MER all market ETFs will tend to be dominated by large caps. Canada's largest REIT is a mid cap - REI.UN at about $4.6B market cap. ZCN and XIU are large cap only and contain no REITs. XIC contains 222 stocks including 0.34% REI.UN and possibly lower percentages of other REITs. 

I guess there are two ways to go. You can _minimize costs_ by going with all market funds with mainly large caps and the larger market sectors. _Or_ you can _manage risk _by augmenting market sectors with lower correlation or with a preferred level of risk compared to the overall market. But REIT funds or other sector funds will have higher MERs.


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## Sampson (Apr 3, 2009)

Armi said:


> However the China market is quickly catching up to the US market.


Evidence? Speculation and projecting growth in China is one thing, but to suggest a portfolio lacking the benefits of diversification need to be supported?


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## rinoscar (Jan 26, 2010)

Armi said:


> Definitely however the China market is quickly catching up to the US market. The whole point of investing in China is for their growth, its going to be much greater than the US.


Doesn't this remind anyone of the tech bubble??? Humm, correct me if I am wrong, but doesn't everyone invest in stocks for their growth? So why, would I place my cash in China and CND only??

DON'T FORGET WHAT THIS THREAD IS ABOUT..SIMPLE PORTFOLIO THAT IS WELL DIVERSIFIED. sorry for yelling, but it is getting alittle off topic!



Soils4Peace said:


> The low MER all market ETFs will tend to be dominated by large caps. Canada's largest REIT is a mid cap - REI.UN at about $4.6B market cap. ZCN and XIU are large cap only and contain no REITs. XIC contains 222 stocks including 0.34% REI.UN and possibly lower percentages of other REITs.
> 
> I guess there are two ways to go. You can _minimize costs_ by going with all market funds with mainly large caps and the larger market sectors. _Or_ you can _manage risk _by augmenting market sectors with lower correlation or with a preferred level of risk compared to the overall market. But REIT funds or other sector funds will have higher MERs.


Would you go with a CND reit etf or one that covers many countries and I am assuming that since it is a sector etf, it should represent about minimum 5% to a max of 10%?


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## Armi (Feb 23, 2010)

rinoscar said:


> Doesn't this remind anyone of the tech bubble??? Humm, correct me if I am wrong, but doesn't everyone invest in stocks for their growth? So why, would I place my cash in China and CND only??
> 
> DON'T FORGET WHAT THIS THREAD IS ABOUT..SIMPLE PORTFOLIO THAT IS WELL DIVERSIFIED. sorry for yelling, but it is getting alittle off topic!


Economic growth. We're staying on topic 

If your uncomfortable with investing in China, an Asian ETF would work as well. I'm a believer in what will earn $$ not so much diversification.


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## bean438 (Jul 18, 2009)

As mentioned companies like KO, MCD, WMT, PG are all invested in china.
Lots of people way smarter than me work for those companies. I leave the china investing to them, and tag along for the ride.

During my nice ride I collect a growing stream of income.


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## rinoscar (Jan 26, 2010)

Armi said:


> Economic growth. We're staying on topic
> 
> If your uncomfortable with investing in China, an Asian ETF would work as well. I'm a believer in what will earn $$ not so much diversification.


I am trying to build a portfolio with only ETF's, with as little as possible of em' in it. So I was thinking of owing 4 maybe 5tops so far I have

1-XSB(short bond)
2-VT( vanguard total world)
I am going to get a high yield bond etf and most probably a REIT etf. 

VT is already invested in China. I think there would be a high correlation to the VT. 

I am not seeking the next hot thing, I don't speculate and I avoid individual stocks. you are right that you can make alot of money if timed well, but that too is a risky game.


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## rinoscar (Jan 26, 2010)

Since I have a US etf, what would a good and easy way to edge against the US $$.


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## Soils4Peace (Mar 14, 2010)

rinoscar said:


> Would you go with a CND reit etf or one that covers many countries and I am assuming that since it is a sector etf, it should represent about minimum 5% to a max of 10%?


I would go with the Canadian REIT ETF, but that is just my preference and not a recommendation. I like Canada and mid caps. The ETF you choose should have good prospects but have low correlation to your other holdings. 

Also when you look at your portfolio as a whole and take hedging into account, consider what proportion is C$ or hedged thereto. My preference is to be >50% Canadian. 

Yes, recommendations I have seen are generally in the range of 5 to 10% of total. You don't want to be over 10% in a real estate ETF because you will also have more of the same stocks in your all market ETFs.



rinoscar said:


> Since I have a US etf, what would a good and easy way to edge against the US $$.


Easy, but not sure if it is a good idea or not: You can hedge against the US$ by borrowing US$. Then repay later when the US$ drops vs the C$. 

I hold a lot of Canadian domiciled ETFs with US stocks that are hedged to C$. At some point when I believe the C$ has finished its rise, I will want to sell them and switch to their Vanguard equivalents.


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## Armi (Feb 23, 2010)

rinoscar said:


> I am trying to build a portfolio with only ETF's, with as little as possible of em' in it. So I was thinking of owing 4 maybe 5tops so far I have
> 
> 1-XSB(short bond)
> 2-VT( vanguard total world)
> ...


Are you assuming i'm speculating 

Anyway, i'm here to give you advice. Why are you investing in bonds? Interest rates are rising


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## andrewf (Mar 1, 2010)

rinoscar said:


> Since I have a US etf, what would a good and easy way to edge against the US $$.


Keep in mind that VT is not necessarily all USD currency risk. Since it holds firms in many countries, you're exposed to currency risk in all of them (euros, yen, rubles, kroner, AUSD, etc.). I would not bother hedging, since you're diversified among currencies and currency hedging is a drag on overall returns (on average).


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## rinoscar (Jan 26, 2010)

Armi said:


> Are you assuming i'm speculating
> 
> Anyway, i'm here to give you advice. Why are you investing in bonds? Interest rates are rising



No, I am saying that you are chasing returns. listen i understand you are trying to help and i thank you for that, but your way of investing doesn't fit mine. 

I am holding short term bonds because they fit in my overall portfolio. I was never an advocate for a 100% stock portfolio and short term bonds offer less risk than long term bonds, that is what I read.


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## rinoscar (Jan 26, 2010)

andrewf said:


> Keep in mind that VT is not necessarily all USD currency risk. Since it holds firms in many countries, you're exposed to currency risk in all of them (euros, yen, rubles, kroner, AUSD, etc.). I would not bother hedging, since you're diversified among currencies and currency hedging is a drag on overall returns (on average).



true, I forgot the it is not all in US$, so with all those different currencie they are actually hedge against themsleves, well kind of!


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