# Portfolio for RRSP (Restricted to ML Funds)



## arc (May 19, 2012)

*Building the Portfolio for RRSP*

Hi y'all, I am in some real need of help picking out some funds (restricted to the attached ones from my employer) for my RRSP. I am a balanced/aggressive investor in my mid 30s but looking at the selection I am not quite sure of what to do. I've been using the sharpe ratio but that would suggest that I should go 80% US Index and 20% Global which seems to be too much risk

-I think my biggest concern is that with RRSP I can't tax capital loss so I am not sure what to do.











-There's so many international funds, any ideas on those?


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## OhGreatGuru (May 24, 2009)

I don't know how you arrive at 80/20 US & Global.

Assuming you don't have a company pension, conventional rule of thumb for your age would be 35% Fixed Income, 65% equity. Taking into consideration CPP, your claimed risk tolerance, and the current poor returns on fixed income, you might lower the Fixed income to 25-30%. If you have company pension you could go even lower.

For the Fixed Income - the PH&N Bond Fund 25%-35% overall

Equity: 65%-75%, split equally between Cdn and Global.

CDN Equity: the Beutal Goodman Fund has a 5-star rating by Morningstar. It's style is tilted towards Large-Cap - Value.

For Global, the Blackrock ACWI ex-Canada Index. It is an index fund; ~ 50% US & 50% International.


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## Beaver101 (Nov 14, 2011)

^ Just saw this ... I agree with OGG's allocation for a 35 year old and the picks. 

You may want to run the Risk Tolerance questionnaire offered by the plan administrator (Manulife) to check how aggressive you want your portfolio to be.


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## arc (May 19, 2012)

Thank you OhGreatGuru and Beaver. I noticed that with the global/international funds there were so many choices. What should I be looking for in picking those funds? Or should I steer clear with the EU and China situation atm?


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## Beaver101 (Nov 14, 2011)

I'll let OGG advise on the global/international fund picks since I'm not a fan of either.


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## OhGreatGuru (May 24, 2009)

"International" funds are invested in Non-North American markets. "Global" funds include North America, and are usually split 50/50 north AMerican/International.

I recommended the particular Blackrock Global Ex-Canada Index because:
a) It is an index fund, which is the cheapest way to invest in broadly diversified markets. MER's for managed foreign funds tend to be even higher than those for managed CDN equity funds;
b) it covers both US and international, so you don't need a US fund;
c) "ex-Canada" means it excludes Canada, which you cover instead by buying a Canadian equity fund - this allows you to easily adjust your asset allocation between Canadian and foreign markets.

Having said all that, my suggested allocation to global equity is conventional wisdom for a long-term investor. I personally think the performance of global markets is overrated when you adjust for the Canadian dollar; and for the fact that most RRSP contributors are planning to spend their retirement years in Canada. But I did not wish to foist my personal pet peeve on you.

An aggressive investor with a 20+ years time horizon shouldn't be worried about current market conditions in China/EU. If you are, then you are not an aggressive investor and should re-examine the answers you gave on the Plan's Risk Tolerance questionnaire, as Beaver101 suggests. If you find you're not as risk tolerant as you thought, then drop the Global Fund and substitute US Index and Blackrock International Index in proportions you feel comfortable with.


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## GreatLaker (Mar 23, 2014)

arc said:


> I noticed that with the global/international funds there were so many choices. What should I be looking for in picking those funds? Or should I steer clear with the EU and China situation atm?


Building on what other posters said. If you are investing for the long term ignore issues like EU and China, market turmoil often creates opportunity

If you want a one fund auto-pilot solution, pick a target date fund date that is close to when you may retire. 

If you dont want a target date fund, then you need to decide on an asset allocation. First choose how much fixed income based on your age and risk tolerance, then decide how to split up equity into Canada, US and global regions. A typical allocation could include 40% fixed income, then split up the equity into 20% Canada, 20% US and 20% international. That's kind of a default allocation for a global investor with a moderate risk tolerance.

As far as the international/global funds, it's not easy to choose based on the fund name, but I can make some educated guesses. Does the plan sponsor provide any more detailed fund descriptions or list of country breakdown? You can also try Googling the fund name.

From an investing perspective, Global is a broader definition than International. Global usually includes all regions of the world, whereas International usually excludes the investor's own country or region.

For example, the Manulife Blackrock International Equity Index Fund will include global developed market countries, but exclude Canada, US and emerging markets. Manulife Blackrock ACWI ex-Canada Index Fund should include USA, global developed and emerging markets, but exclude Canada. (ACWI = All Country World Index)

Also notice that Global and International each have 2 funds, one that has the word index in the name, and one that does not, indicating an actively managed fund, hence the higher MERs. There is a lot of research that shows low fee indexing will beat actively managed funds over the long term, but there are always a few actively managed funds that perform well, so it depends on whether you prefer active management or indexing.

So you could choose a fixed income fund, a Canadian equity fund, the US equity fund and one International equity fund. Or for more simplicity, choose a fixed income fund, a Canadian equity fund, and one global equity fund (which will also include US and emerging markets)

But please before deciding, think about your own risk tolerance and asset allocation. Check if there is more detail available on the funds, especially the geographic allocation, since I have made some assumptions based on the fund names. Basically you want to ensure you have broad geographic diversification in your equities across Canada, USA and Rest of World.


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## arc (May 19, 2012)

Thanks guys much appreciated!! I noticed that for the international equity: the managed fund appeared to have consistently outperformend the index fund. I am courious as to whether it would be worthwhile to go pay the higher MER for the Manulife MFS International Equity Fund (8681) rather than the BlackRock index fund? Or am I mis-reading the chart?


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## GreatLaker (Mar 23, 2014)

You are not misreading the chart. But it is a question that you won't be able to answer for another 5 or 10 years. 

Mutual fund performance reports always include a disclaimer like "Mutual funds are not guaranteed. Values can change frequently and past performance is not indicative of future performance."

[sarcasm]They should also include a further disclaimer like "your advisor is likely recommending funds with very high recent performance results, hoping you will think those results will be repeated forever. In reality, these funds will likely suffer mean reversion and in the future be mediocre at best"[/sarcasm]

Active management says that if you pick good investment managers or funds, they can outperform the market because they have more skill than regular/mediocre/poor investment managers or funds. Indexing says that it is futile trying to predict future performance based on past performance, and that active management's costs outweigh its benefits, therefore over the long term it will underperform.

The Arithmetic of Active Management is a theoretical discussion of why active management's costs mean it cannot outperform indexing over the long term.

SPIVA Canada Scorecard analyzes actual active fund performance vs. benchmarks and demonstrates that over 3 and 5 year periods only a small % of actively managed funds outperform their benchmarks.

Reading the above will help you evaluate if you want the index fund or the actively managed fund.


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