# XIU vs. XIC vs. VCE



## jgood76 (Apr 3, 2009)

In January I'm going to put $20k into each of my wife's and my TFSA. Currently all our savings (approx. $193K) are in RRSPs, and after I add these funds we will have the following asset allocation:

30% CDN - currently $18k in XIU within RRSP plus $40,000 to be added to TFSA's
25% US - $63k in VTI
25% INT - $63k in VXUS
10% REITS - $25k in XRE
10% BONDS - $25k in XCB

Reasoning for the bond % being so low, and all in corporate, is that I have a defined-benefit pension at work, currently worth approx. $250,000. The majority of the RRSP mentioned above are my wife's. Feel free to comment on whether I should have any bonds, and if so, if I should have corporate or just go with XBB or something else.

When calculating the percentage I have in each asset class, I discount the amounts in my RRSP by an estimated future 30% tax rate. 
CDN = $18k in RRSP * .7 + $40k in TFSA = $53k
Total assets = $193k in RRSP * .7 + $40k in TFSA = $175k
$53k / $175k = 30%

My question is, do you think I should use XIU, XIC or VCE for my Canadian content.

XIU - 0.17 MER, huge trading volumes, 60 stocks
XIC - 0.26 MER, low trading volumes, 256 stocks
VCE - 0.10 MER, low trading volumes, 101 stocks

I'm leaning towards VCE, due to the low MER, and the fact that I'm a fan of Vanguard in general. I'm just not sure how concerned I should be about the lower trading volume and net assets as compared to XIU. Also, I'm not sure if I sure be all the concerned about the differences in the indexes that each ETF follows.

On a side note, I'm not a big fan of paying iShares 0.58% to own 13 REITS, but I don't think $25k is enough for me to diversify properly by buying individual REITS, unless I was just to buy RIOCAN.


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## MoneyGal (Apr 24, 2009)

If you have a DB pension, and you intend to take it as a DB pension, I wouldn't add any bonds to your portfolio. I can give you a big math-y rationale if you like, or you can read this paper:

http://www.ifid.ca/pdf_workingpapers/Spending_Retirement_Vulcan_14MAR2010.pdf

Main insight from the paper:

_The optimal initial portfolio withdrawal rate (PWR) which the so-called “planning literature” has claimed should be an exogenous percentage of one’s retirement nest egg actually depends quite critically on both the consumer’s risk aversion – where risk is longevity and not just market returns –* as well as any pre-existing pension annuity income*. 

For example, if we assume that the ongoing real (after-inflation) investment return of a portfolio is 2.5% per annum, then for individuals who are highly risk-averse the optimal initial PWR can be as low as 3%, and for individuals who are less risk-averse it can be as high as 7%. *The same applies to the existence of pension annuity income. The greater the amount of pre-existing pensions (for example Social Security) the greater the initial PWR, all else being equal.* _

(Bold added, and the paper - reasonably heavy on calculations though - provides the detail.)


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## MoneyGal (Apr 24, 2009)

Whoops. That quoted part doesn't really make my point. The generic point is that the DB pension acts like fixed income in your portfolio, meaning you can skew the rest of your capital towards riskier assets.


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## CanadianCapitalist (Mar 31, 2009)

Isn't it simpler to just deduct future pension income from total future expenses and then come up with a saving strategy to address any shortfall? If there is a shortfall, then simply build a traditional portfolio taking into account one's willingness and ability to take risk.


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## MoneyGal (Apr 24, 2009)

You could. But that is an income-generation strategy, and I from what the OP wrote I assumed he's interested in an accumulation/investment strategy. (Or: I could say, that focusses entirely on retirement income, versus accumulation of a nest egg.)


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## jgood76 (Apr 3, 2009)

Thanks for the quick replies.

MoneyGal - similar to your thought process, I am basically treating the DB pension as fixed income, and is the reason I have only 10% of our other investments (RRSP, TFSA) in bonds, and the bonds I have chosen are corporate. I have debated getting rid of the 10% allocation to bonds though.

We are in the accumulation phase, with my wife and I both being 35 years old, and likely to work another 20 years.


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## Cal (Jun 17, 2009)

XIU - 0.17 MER, huge trading volumes, 60 stocks

Those are the bulk of the TSX, and good liquidity.


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## dubmac (Jan 9, 2011)

MoneyGal said:


> If you have a DB pension, and you intend to take it as a DB pension, I wouldn't add any bonds to your portfolio. I can give you a big math-y rationale if you like, or you can read this paper:
> 
> .)


What if you have a DC pension (not a DB one)?


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## MrMatt (Dec 21, 2011)

*DC*



dubmac said:


> What if you have a DC pension (not a DB one)?


It matters what investments you hold in your DC plan.
Conceptually a DC pension can be thought of like a locked RRSP


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