# Consolidating and Simplifying



## brad (May 22, 2009)

My stepmother died earlier this year, and the hassles of dealing with her accounts at 12 different institutions motivated me to take a look at my own finances and try to consolidate and simplify.

First step for me is to rebalance and consolidate my investment portfolio. All my investments are for retirement, and most are at TD Waterhouse. When I first moved to Canada in 2002 I started investing in the TD e-series funds, and then in the last few years I started branching out to ETFs. But I still have those e-series funds and my asset allocations are totally out of whack.

I'm basically following the Canadian Couch Potato's Complete Couch Potato portfolio, which looks like this:

Canadian equity	20%
US equity	15%
International equity	15%
Real estate investment trusts	10%	
Real return bonds	10%
Canadian bonds	30%

My current actual allocation looks like this:

Canadian equity	39%
US equity	36%
International equity 11%
Real estate investment trusts	7%	
Real return bonds 4%
Canadian bonds 8%

I also have two GICs at other institutions whose value is worth about 14% of my total portfolio, so the fixed-income portion isn't quite as far off as it looks here.
I'm a dual US-Canadian citizen, so the high percentage of US equity is due to a couple of retirement accounts from former jobs based in the US, in US dollars. I can't do much with those other than shift assets within them (I can't add anything to them). They're all in index funds, one with Vanguard and the other with TIAA-CREF.

Most of my assets are in my three e-Series funds: TDB900, TDB911, and TDB909. The good news is that selling those doesn't cost me anything, so I can sell them all and then effectively rebalance when I buy ETFs to replace them.

I'm 53, so I should probably build up my bond portion, but on the other hand I'm way behind in saving for retirement so I want to stay aggressive and don't mind taking on risk. I don't plan to retire until my early 70s, so I've still got 20 years of working and investment growth potential ahead of me.

TBD900 accounts for all of my Canadian equity, so when I sell that I can easily reduce my Canadian equity exposure. Likewise, TBD911 accounts for all my international equity. For bonds, I was figuring I'd buy VAB. The Couch Potato portfolio has recommended ETFs for each part of the portfolio so I'd probably follow those, although I'm not sure about the international.

Any suggestions for how I should approach this?


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## CanadianCapitalist (Mar 31, 2009)

I would first add up the holdings in all the accounts and accurately calculate the current allocation first. You need to add your GIC holdings to the fixed income portion. As it is, right now your allocations add up to 105%. And the allocations are going to change if you include the GICs in the fixed portion. 

IMO, you need to add emerging markets to your mix. It doesn't make sense to leave out an important part of the world entirely from your asset allocation.


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## brad (May 22, 2009)

CanadianCapitalist said:


> I would first add up the holdings in all the accounts and accurately calculate the current allocation first.


Duh! I actually pulled these from the very useful Google spreadsheet that you created, but as I added new ETFs the range for calculating the percentages wasn't updating automatically. I've fixed that and will add my GICs shortly and repost.


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## brad (May 22, 2009)

Corrected. Here's my current allocation:

Canadian equity:	31%
US equity:	34%
International equity: 9%
Real estate investment trusts	6%	
Fixed income (mix of bonds and GICs): 20%

What would you recommend for emerging markets (both for a percentage and an ETF)?


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## CanadianCapitalist (Mar 31, 2009)

Here's how I'll go about. First, pick your fixed income target. Let's say you want 40% because you want to be more aggressive than the thumb rule of age in bonds would suggest.

Fixed income = 40%. You can split this further. Say cash 5%, aggregate bonds 25%, real return bonds 10%.

Next pick your REIT allocation. I picked 5% but 10% is fine too. There's no right or wrong answer here.

REITs = 10%. 

Assuming you are going to spend your retirement in Canada, next pencil in your allocation to Canadian stocks. 20% is fine.

Canadian stocks = 20%.

The rest you can split according to current world market capitalization.

US stocks = 15%
EAFE stocks = 10%
Emerging markets = 5%

That's pretty much it. Now you can pick products for each. I like VWO for emerging markets.


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## brad (May 22, 2009)

Sounds good, thanks!

The US stocks portion will remain high until I build up the overall portfolio, because all those holdings are based in the US and I can't really do anything with them -- although I suppose I could shift some of those to emerging markets etc.


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## CanadianCapitalist (Mar 31, 2009)

Are you allowed to switch to any Vanguard fund? If so, it will be wonderful. All Vanguard ETFs have equivalent mutual funds. You can simply pick the equivalents of VTI, VEA and VWO and if you want to get fancy maybe slice and dice by including value funds and small cap funds.


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## brad (May 22, 2009)

Okay, but remember I was talking about "simplifying." ;-)

Also my entire US portfolio is not very large -- currently worth only about $60K, which also reveals that my entire portfolio is woefully small for someone my age. I'm trying to make up for lost time.


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## Sampson (Apr 3, 2009)

VT to help simplify?

Vanguard Total World Stock ETF. It shows diversification among regions as:

NA:51%
EAFE:35%
Emerging: 13.5%
Other: 0.5%


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## Sampson (Apr 3, 2009)

If I recall correctly brad, don't you have access to very good/healthy pension plans? You may want to maintain a higher than average allocation to equities.


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## brad (May 22, 2009)

Nope, no pension plan whatsoever. 

Thanks for the tip on VT, that sounds promising.


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## brad (May 22, 2009)

Actually VT doesn't look so good for me after all, in part because of the relatively high MER but also because it adds even more exposure to US stocks, which are already quite heavy in my portfolio.

So I'm going to go for VEA and VWO instead. However, because my only experience to date with the "international" component of my portfolio has been through the TD e-Series fund, I have a naive question that I can't seem to find a clear answer to anywhere: Since VEA and VWO are traded in US dollars on US exchanges, how is the currency conversion handled? I don't have a US dollar account in my RRSP. This is one of those issues I haven't really taken time to learn about because I didn't have to. 

The only ETFs I've bought so far are Canadian. Do I need to do anything different to buy VEA and VWO?


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## CanadianCapitalist (Mar 31, 2009)

brad said:


> Okay, but remember I was talking about "simplifying." ;-)


It depends on what is meant by "simplifying". For me, it is cutting down the # of accounts as much as possible; not cutting down on the holdings within an account. Can you buy other Vanguard mutual fund within your current account or do you have to open a new one?


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## CanadianCapitalist (Mar 31, 2009)

brad said:


> Since VEA and VWO are traded in US dollars on US exchanges, how is the currency conversion handled? I don't have a US dollar account in my RRSP. This is one of those issues I haven't really taken time to learn about because I didn't have to.
> 
> The only ETFs I've bought so far are Canadian. Do I need to do anything different to buy VEA and VWO?


Who is your current broker brad? If you buy VEA and VWO in a RRSP account, the broker will convert CAD into USD at a retail rate which will be around 1.5% or lower. If I were you, I would learn to implement a Norbert Gambit. Check out threads on that topic right here.


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## brad (May 22, 2009)

CanadianCapitalist said:


> Who is your current broker brad? If you buy VEA and VWO in a RRSP account, the broker will convert CAD into USD at a retail rate which will be around 1.5% or lower. If I were you, I would learn to implement a Norbert Gambit. Check out threads on that topic right here.


I'm with TDW. I've been learning about the gambit for other reasons (I'll be getting an inheritance cheque in USD once we finish settling my stepmother's estate), but my understanding is that it's a little riskier in a registered account. I suppose I could set up non-registered accounts for gambiting and then transfer to my RRSP, but here's one other reason I want to keep things simple: because I'm a dual US-Canadian citizen, I have to fill out a report every year listing every single account I own and its highest value during the year. It takes me a few hours to fill out that report each year (mainly because I have to go back through my records to find the highest value), and the more accounts I have the longer it takes.

Since I have a US-based retirement account with Vanguard, maybe for now I can keep all my USD investments in there and not bother buying anything through TDW. Eventually, though, those allocations will decline as I grow my investments, because I can't add any more money to my US Vanguard account now that I live in Canada. It's a 401(k) plan through my employer and they (and I) had to stop making contributions once I moved up here.


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## brad (May 22, 2009)

CanadianCapitalist said:


> It depends on what is meant by "simplifying". For me, it is cutting down the # of accounts as much as possible; not cutting down on the holdings within an account. Can you buy other Vanguard mutual fund within your current account or do you have to open a new one?


I can definitely buy other funds within my plan, so that's not a problem, so it's true that I'm not adding accounts. I'd like to keep the holdings to a manageable number but I'm comfortable adding a few more than I have now.


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## Sampson (Apr 3, 2009)

Perhaps you can bite the bullet and simplify by holding only certain products in each account.

Convert all your TD holdings into CAD equity and real-return and conventional bond index funds, REITs (4 holdings), then use only your American Vanguard account for your VTI, VEA and VWO exposure.

7 holdings in total, spread over 2 accounts. your GICs could be held at either account.


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## brad (May 22, 2009)

Thanks, that's exactly the conclusion I was reaching myself. This works for now, but over time my asset allocation will slip out of balance as I invest more and more money in my TD holdings and my portfolio grows in value. Eventually the US and international exposure will fall below my targets, because I am dealing with a fixed pool of money in my US Vanguard account, so over time those percentages of my portfolio will decline. On the other hand, over time I should also be working to increase the percentage of my portfolio that's in fixed income, so it might all work out.


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## humble_pie (Jun 7, 2009)

brad said:


> I'm with TDW. I've been learning about the gambit for other reasons but my understanding is that it's a little riskier in a registered account.



actually, the opposite is true. At tdw, gambitting is easiest in rrsp. Investor does not need any contact with any licensed representative. He can carry out the 2 gambit trades within the rrsp, one right after the other, both online, each for the low 9.99 online commission.

you might have to bite the bullet & open the US side of your non-registered tdw account after all. When you receive your USD cheque, deposit it into this non-reg'd account & buy US money market fund with the funds. 

next, make a contribution-in-kind of the US MMF holding into the rrsp. There will be no swap fee for this. Just be sure that you have rrsp contribution room for a contribution of this size.

presto you US dollars are now inside the rrsp, waiting for you to gambit them into canadian dollars if you wish.

here is a link to a nearby active thread which discusses currency gambitting in a tdw rrsp:

http://canadianmoneyforum.com/showthread.php/12522-Nortbert-Gambit-in-TD-Waterhouse-RRSP/page3


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## GoldStone (Mar 6, 2011)

brad said:


> So I'm going to go for VEA and VWO instead.


Have you looked at VXUS?

http://canadiancouchpotato.com/2011/02/07/under-the-hood-vanguard-total-international-stock-vxus/

One caveat about that article: VXUS MER has come down to 0.18%. It's still a bit more expensive than a blend of VEA and VWO.

You do get some value for paying higher MER:
- one stop shopping
- exposure to small caps


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## brad (May 22, 2009)

humble_pie said:


> actually, the opposite is true. At tdw, gambitting is easiest in rrsp.


Brilliant, thank you so much. This is great news and I will go ahead and open a US account.


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## brad (May 22, 2009)

humble_pie said:


> you might have to bite the bullet & open the US side of your non-registered tdw account after all. When you receive your USD cheque, deposit it into this non-reg'd account & buy US money market fund with the funds.


Question: Since every penny of the USD inheritance cheque will be used for my RRSP (I have more than enough contribution room), is it possible for me to open a USD account _within_ my RRSP and deposit it there? And then simply use those funds to buy USD-listed ETFs? Then I wouldn't even have to bother gambitting -- I'd just use that as my pool of money for buying ETFs that trade in US dollars.


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## humble_pie (Jun 7, 2009)

brad said:


> Question: Since every penny of the USD inheritance cheque will be used for my RRSP (I have more than enough contribution room), is it possible for me to open a USD account _within_ my RRSP and deposit it there? And then simply use those funds to buy USD-listed ETFs? Then I wouldn't even have to bother gambitting -- I'd just use that as my pool of money for buying ETFs that trade in US dollars.


i thought the answer would be No & i did just check w em & the official answer is No. The rrsp can't accept a USD cash or cheque deposit.

the rep reiterated what we've discussed. Make sure the USD side of non-registered account is open. I think it probably does exist, although it's never been used, but you'd have to phone them to verify. While on this phone call, also enrol the rrsp in what tdw calls rrsp USD auto-washing. 

then deposit the cheque into non-reg'd USD account. Buy USD MMF. Make a contribution in kind of this MMF holding into the rrsp.

& that's how we get
the house
that Jack built.


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## brad (May 22, 2009)

Thank you once again!


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