# I have enough...now what?



## Retireineurope (Sep 14, 2018)

I am 64 years old. I receive CPP and looking forward to OAS next year.
The BULL market has elevated my portfolio to a level where I no longer need to rely on a risky stock portfolio.
I need to lock in the gains and create a more conservative portfolio.
I sleep at night but I also worry about "what could happen"
But, the only thing I know about investing is buying and selling stocks and stock ETFs.
So, what do I do to create a diversified, income bearing portfolio of the less risky asset classes?


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## Dilbert (Nov 20, 2016)

This sort of thing has been on my mind lately, too. Why not sell everything and stuff the cash into my mattress?
LOL.:tongue:

Or maybe move it into something like VBAL for greater stability.


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## birdman (Feb 12, 2013)

i think it all comes down to risk tolerance for which I have little. I retired at 56 and am now 74 and as I age my tolerance lessens. I currently keep 25% of our investible assets in the market in 100% Cdn blue chip divy stocks heavily weighted to banks, utilities, telcos, etc. The balance of my assets are primarily GIC's Not sure if it is still the case but at one time it was suggested that the % you invest in the market should be around be around 100 minus your age. I like to think we have ample and then some but its always in the back of your mind.


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## agent99 (Sep 11, 2013)

We could do that too. Requiring nest egg last for 20 years would be optimistic but at least a target. CPP/OAS would provide part of what we need as a couple and the survivor would have their share. I think we get something like $36k/yr. Lets say another $50k would provide a couple a decent income. So 20yrsx50k=$1Million, Would need at least a King Sized mattress 

There are probably better choices than a mattress that would at least allow for inflation. 

If the million was invested in GICs or GOC bonds at present, there would be a measure or inflation protection. Bond funds maybe, but there some of your capital can be at risk (given this a short term investment that needs low risk).

Perhaps this is where Real Return Bonds could be considered. I don't own any and I don't think they are that liquid. BMO does have an ETF, but any fund will have an MER that would cut into the already meager yield. I recall that in US they have TIPS. Never owned or looked at these, but they have no doubt been discussed here in past.

The other option, is an annuity for part of the nest egg. https://www.sunlife.ca/ca/Tools+and...alculators/Annuity+Calculator?vgnLocale=en_CA. If you expect to live long enough, this might be better use of the $1million per couple than a low interest GIC? The site lets you look at scenarios. I have trouble just giving a million to an insurance company!


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## agent99 (Sep 11, 2013)

frase said:


> Not sure if it is still the case but at one time it was suggested that the % you invest in the market should be around be around 100 minus your age. I like to think we have ample and then some but its always in the back of your mind.


WE used to see that formula bandied about. There was even a more conservative one before that. Something like 100-age-5 or something like that. We don't see that any more. Using CNN - the ultimate source for good financial guidance, I found this: https://money.cnn.com/retirement/guide/investing_basics.moneymag/index7.htm

Excerpt:


> However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age. That's because if you need to make your money last longer, you'll need the extra growth that stocks can provide.


Maybe the financial planners were losing out on commissions using the old formula


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## Pluto (Sep 12, 2013)

Sounds like your plan is to lower your income and increase your taxes.


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## like_to_retire (Oct 9, 2016)

Pluto said:


> Sounds like your plan is to lower your income and increase your taxes.


Yes, that's generally the result of moving from equities to fixed income, but with that change comes protection of capital. Quite important.

ltr


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## AltaRed (Jun 8, 2009)

Retireineurope said:


> I am 64 years old. I receive CPP and looking forward to OAS next year.
> The BULL market has elevated my portfolio to a level where I no longer need to rely on a risky stock portfolio.
> I need to lock in the gains and create a more conservative portfolio.
> I sleep at night but I also worry about "what could happen"
> ...


Folks have replied with some ideas. My view is that if most of this portfolio is in taxable accounts, sell off one holding each year to mitigate cap gains and marginal tax rates and start a GIC ladder with the proceeds. In 5 years, you will have sold at least 5 equities and have a fully functional GIC ladder in operation. Take the initiative to defer OAS to age 70 IF you think selling off an equity each year might put you in to OAS clawback range. I don't subscribe to Frase's 100-age rule of thumb unless you get really conservative, in which case I don't argue what Frase does, but you might do something like that until you get to a 60/40 equity/fixed income (or even a 50/50 equity/fixed income) split. 

Then use the VPW Table here https://www.finiki.org/wiki/Variable_percentage_withdrawal#VPW_Table to determine the maximum amount you can pull out of your portfolio each year and not run out of money until you are 99 years old. There is clearly a time to be heavily weighted to equities to build your retirement portfolio, and then there is a time to build in some conservatism to avoid roller coaster volatility when one should be enjoying their retirement golfing, travelling, etc. Investors still in the portfolio building phase don't understand this very much, e.g. Pluto's comments for example.

I've been retired almost 14 years now. Been there, done that. Time to enjoy my '70s and beyond.


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## kcowan (Jul 1, 2010)

AltaRed said:


> I've been retired almost 14 years now. Been there, done that. Time to enjoy my '70s and beyond.


Yes and the market performance has been so good that the future is brighter than we would have ever expected! Time to blow that dough! We are dong our best!


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## james4beach (Nov 15, 2012)

> The BULL market has elevated my portfolio to a level where I no longer need to rely on a risky stock portfolio.
> I need to lock in the gains and create a more conservative portfolio.


As many people above are saying, I think it's a simple answer of changing your asset allocation to be more conservative. Lower % equities and higher % fixed income including GICs.

This can be done gradually over time as AltaRed says, if taxes are a concern. If for some reason capital gains are not a concern then it's even easier to switch.

Going to more conservative allocations does not actually reduce performance as much as you might think. Using my own records for the last 25 years, here are some different allocations and the annual performance of each after Canadian ETF fees

*Stock/Bond ... CAGR*
90/10 ... 8.2% (the most aggressive)
60/40 ... 7.4%
40/60 ... 6.8%
30/70 ... 6.4%
20/80 ... 6.1%

Yes the performance does reduce but really not by that much! Even at 30% equities 70% bonds this is over 6% annual return, definitely enough performance to keep up with inflation and support steady withdrawals.


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## Dilbert (Nov 20, 2016)

Thanks for that, j4b. Very interesting data.


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## agent99 (Sep 11, 2013)

Over past ~16 years, we have lived off our investments plus CPP/OAS. During that time, our portfolio has almost doubled in value despite our draws.

If we converted it to GICs and, using fake example I posted above, $1million would be down to zero in the next approx 12 years. (Using the Sun Life Calculator and assuming the $1million is in our RRIFs) Draw from RRIFs would be $54k pa or from unregistered $84 pa after tax. So smaller amount needed to generate $54k from unregistered (~$650k)

I don't think we will do that although it is a low risk option.


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## agent99 (Sep 11, 2013)

james4beach said:


> *Stock/Bond ... CAGR*
> 90/10 ... 8.2% (the most aggressive)
> 60/40 ... 7.4%
> 40/60 ... 6.8%
> ...


James, CAGR doesn't mean much in a retirement scenario. No way the retiree is re-investing the income. In fact they are spending all of it and a good part of the capital. That 20/80 mix "may" be better than an all GIC portfolio, but the retiree could also quite easily end up broke sooner, before they pass on. 

Those numbers of your are misleading in a retirement scenario.


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## james4beach (Nov 15, 2012)

agent99 said:


> James, CAGR doesn't mean much in a retirement scenario.


This is total return. Isn't it directly tied to the issue of withdrawals? Leaving aside the complication of inflation & sequence of return, if you are going to withdraw say 3% per year (whether it's dividends, interest, whatever) then you'd better see a CAGR over 3% as stated in these kind of figures, where they assume reinvestment of everything.

If the portfolio CAGR is 3% and you are withdrawing at 4% then you are going to reduce your balance over the years.

For example: say the portfolio CAGR is 3% stated as a total return, meaning that "theoretically with dividends invested the total return is 3% CAGR". That's what all of these web site numbers show after all. Let's say you are withdrawing cash from this portfolio at 4%, in whatever form you want to do that. The portfolio itself is growing at 3% assuming reinvestment. That will result in depletion.

The withdrawal is only sustainable if you are withdrawing less than the amount of portfolio total return growth. But someone correct me if I'm wrong.

Another example. Start the portfolio at 500K. That year there's a 3% total return CAGR, so the ending value _with all dividends/interest reinvested_ is 515K. From this portfolio, you can obviously withdraw 15K or 3% and you still have 500K.

15K (3%) is the cash withdrawal that's possible on this 3% CAGR portfolio. You can certainly get some of those dividends throughout the year, timing can vary, but it's the same net effect is it not? For the entire year, you must withdraw at a lower rate than the portfolio CAGR.


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## agent99 (Sep 11, 2013)

james4beach said:


> 15K (3%) is the cash withdrawal that's possible on this 3% CAGR portfolio. You can certainly get some of those dividends throughout the year, timing can vary, but it's the same net effect is it not? For the entire year, you must withdraw at a lower rate than the portfolio CAGR.


To keep it simple, start with a $1000000 all GIC portfolio with yield of 2.5%. Draw $4500/month starting Month 1. Then see how long it will be before portfolio is zero. Do it for all funds in RRIF or all funds in taxable a/c assuming a tax rate of say 35%. That is the kind of thing we are discussing. (Actually, the Sun life site will do this for you!)

If 20% equity is added, risk is added and the result may be better or worse. You can't know that without knowing what the markets will do. It is removing that uncertainty that we are discussing (But not necessarily recommending!) The greater the equity allocation, obviously the greater the risk you take for possible gains. I am sure we all know that.


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## AltaRed (Jun 8, 2009)

agent99 said:


> James, CAGR doesn't mean much in a retirement scenario. No way the retiree is re-investing the income. In fact they are spending all of it and a good part of the capital. That 20/80 mix would be better than an all GIC portfolio, but the retiree could quite easily end up broke before the pass on. THos numbers of your are misleading in a retirement scenario.


That is not correct. CAGR is independent of how much one withdraws. It is only calculated on capital in the portfolio. Obviously if nothing is withdrawn, the portfolio grows. If too much is taken out, the portfolio shrinks. However, that action does not change CAGR itself. How much to withdraw is what the VPW table is about. It says how much a person could withdraw before going broke at age 100. Withdraw less than the numbers in the table, and a person could still have a large portfolio at age 100.


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## cainvest (May 1, 2013)

agent99 said:


> To keep it simple, start with a $1000000 all GIC portfolio with yield of 2.5%. Draw $4500/month starting Month 1. Then see how long it will be before portfolio is zero. Do it for all funds in RRIF or all funds in taxable a/c assuming a tax rate of say 35%. That is the kind of thing we are discussing. (Actually, the Sun life site will do this for you!)


Did a quick estimation of $1M, 50k/yr (+3% inflation increase/yr), 2.5% GIC gain and it almost lasted 20 years.

Add: No CPP/OAS included in this


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## AltaRed (Jun 8, 2009)

agent99 said:


> To keep it simple, start with a $1000000 all GIC portfolio with yield of 2.5%. Draw $4500/month starting Month 1. Then see how long it will be before portfolio is zero. Do it for all funds in RRIF or all funds in taxable a/c assuming a tax rate of say 35%. That is the kind of thing we are discussing. (Actually, the Sun life site will do this for you!)


No one is going to withdraw $54k (5.4% SWR) from a $1M GIC portfolio. The VPW table doesn't remotely suggest that, and doesn't even have a 0/100 equity/fixed income allocation. You really are missing the point of a proper portfolio.

P.S. Tax rate doesn't enter into the withdrawal. Taxes are part of one's cash flow spend (output), not input.


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## james4beach (Nov 15, 2012)

agent99 said:


> That 20/80 mix would be better than an all GIC portfolio, but the retiree could quite easily end up broke before the pass on. THos numbers of your are misleading in a retirement scenario.


I think the main complication comes from sequence of return risk and inflation, not the issue you're talking about.

Let's ignore inflation to begin with.

Examine 20% stocks 80% government bonds. 20/80 using this Portfolio Visualizer starting with $500,000 in the year 2000 shows 5.95% CAGR. This is just an average over the years. Can the retiree therefore withdraw at 4% = $20,000 a year? The answer should be yes, since 4% is less than 5.95% growth.

This Portfolio Visualizer does indeed confirm that with $20,000 (4%) withdrawn in this 20/80 portfolio the balance still rises over time! Starting with $500,000 they end at $879,737. Here's the link: https://www.portfoliovisualizer.com...n1_1=20&asset2=TreasuryNotes&allocation2_1=80

Now let's make this a bit more realistic with inflation. That 20/80 portfolio has an inflation adjusted real CAGR of 3.73%. That suggests that -- again ignoring sequence of return risk -- *you should be able to make inflation adjusted withdrawals at nearly 3.7%*.

We can test that using the same tool. $500,000 to start with. Let's make the initial withdrawal 3.7% = $18,500. This withdrawal amount will rise each year with inflation.

Running this back test shows that nominally, the $500,000 still rises to $808,000 over time. But once this is inflation adjusted, the portfolio value actually ends right around the starting value. Here's the link to this scenario
https://www.portfoliovisualizer.com...n1_1=20&asset2=TreasuryNotes&allocation2_1=80

I've also attached the image of the inflation adjusted portfolio value.

What this is showing is that a 20/80 extremely conservative portfolio, with 5.95% nominal CAGR and 3.73% real CAGR, has supported a 3.7% inflation-adjusted withdrawal rate. As I would expect, one seems to be able to withdraw pretty close to the CAGR rate of the portfolio at least for this exact time period shown.


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## agent99 (Sep 11, 2013)

cainvest said:


> Did a quick estimation of $1M, 50k/yr (+3% inflation increase/yr), 2.5% GIC gain and it almost lasted 20 years.
> 
> Add: No CPP/OAS included in this


Need to say whether money was in registered or unregistered.

Same comment applies to James.

We save in our RRSPs and RRIFs for retirement, most of us at least. 

Too bad Steve Salter is no longer here. Some still use his program.


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## cainvest (May 1, 2013)

agent99 said:


> Need to say whether money was in registered or unregistered.


It was just a quick estimate, I believe my default setting was 70% tagged as taxable income.

As mentioned, almost nobody would do $50k/yr on $1M in GICs unless your life span was really in question or you had others to take care of your financial needs.


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## james4beach (Nov 15, 2012)

The OP had asked how to go to a more conservative portfolio that's income bearing. The answer, in my view, is to use a conservative asset allocation and then simply withdraw whatever is needed at a sensible rate, such as 3% withdrawal.

An easy way to do this would be using the VCNS fund. This is 40% stocks, 60% bonds and well diversified. If you put the money into VCNS it will already pay out some cash distributions. Then you would look at the variable withdrawal tables as AltaRed mentioned, see how much more you are "allowed" to take out in excess of the cash distributions, and sell some VCNS units accordingly.

Contrary to popular belief, selling units of VCNS does not necessarily deplete capital. As long as your total cash withdrawal for the year is within the guidelines of SWR or variable withdrawal guidelines, it makes no difference whether this comes in the form of interest payments, dividends, or selling shares.

Not a bad starting point, anyway


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## agent99 (Sep 11, 2013)

cainvest said:


> It was just a quick estimate, I believe my default setting was 70% tagged as taxable income.
> 
> As mentioned, almost nobody would do $50k/yr on $1M in GICs unless your life span was really in question or you had others to take care of your financial needs.


I don't think that 'Almost Nobody' is correct. Even with a 2.5% yield for $1million in GICs, a $50k pa plus 2% inflation pa before tax draw would last for 22years. No reason not to do that if you have enough, are old enough and that time frame suits you. Better than drawing same amount from under the mattress as mentioned earlier 

For even more income, they might look at an annuity. Of course, if they added a little equity as James suggested, preferably dividend aristocrats , that could also boost income or allow funds to last longer. But over short period, equities could also be a drag if they need to be sold.

Just thinking. If nest egg was $2million, you could draw $50k pa and not deplete capital. Nice and simple - just sit back and collect the interest. Can't imaging doddery retirees fooling with all those acronyms others have suggested  (VPWs, CAGRs, VCNSs, SWRs....  )


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## james4beach (Nov 15, 2012)

Can't believe I'm in a thread recommending more equities than agent99. What one earth is going on?

agent99 could we be experiencing cosmic effects of this unidentified radio signal just detected from a distant galaxy?

Quick note for the OP... I also want a conservative portfolio which can supply me with income to live off, and I'm at 30% equities. I do have a large GIC ladder as well.


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## agent99 (Sep 11, 2013)

james4beach said:


> Can't believe I'm in a thread recommending more equities than agent99. What one earth is going on?
> 
> agent99 could we be experiencing cosmic effects of this unidentified radio signal just detected from a distant galaxy?
> 
> Quick note for the OP... I also want a conservative portfolio which can supply me with income to live off, and I'm at 30% equities. I do have a large GIC ladder as well.


Could be, but more likely caused by my cottage fever - I had surgery a while back and only have been out of house to go to hospital/clinic!

By the way - had to look up that VCNS. Looks to me like that could really hurt if held in a recession. Only 1.4% yield with risk of loss of value vs 2.5% yield with no risk of loss of capital for GICs. 

No doubt some equity/GIC ratio would be best, but I would choose a dividend aristocrat type fund that may lose value, but will maintain cash flow.


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## cainvest (May 1, 2013)

agent99 said:


> I don't think that 'Almost Nobody' is correct. Even with a 2.5% yield for $1million in GICs, a $50k pa plus 2% inflation pa before tax draw would last for 22years. No reason not to do that if you have enough, are old enough and that time frame suits you.


The OP is 64 so 22 years is cutting it pretty close to the averages age wise. Also, that's assuming inflation and GIC rates would stay in check over that time period.


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## AltaRed (Jun 8, 2009)

You can't compare a fund with equity/fixed income with a GIC. Even you know better than that Agent99.

Off-topic, but VCNS will likely be what I move to in our RESP (from MAW104 currently) when our granddaughter gets to about 15, then it will either be VCIP (20/80 equity/fixed income) or a GIC ladder.

I think VCNS or VCIP would be an excellent choice for senior seniors as well. Having a bit of equity made a difference in my mother's portfolio..... She was about 25/75 equity/fixed income (GIC) in her 80's moving to 15/85 by the time she was 90, and there it remained until she passed at almost 96. By the time someone is 90, they ain't spending much of anything (possible health costs for critical care notwithstanding).


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## james4beach (Nov 15, 2012)

[ Hope the recovery is going OK agent99. This is a rough time of year to go through medical stuff. Remember to stay very well hydrated and take your vitamins! I take 2000 IU daily vitamin D, with 500 mg C on time release, and constantly drink water (tea) all day. ]


Generally I do think XBAL, VCNS, etc are probably pretty good solutions for many people's needs.

But I do actually share a slight concern about holding an all-in-one asset allocation fund like VBAL or VCNS during a severe downturn. We had a debate about the math of this in this earlier, extremely interesting thread which looked at asset allocation withdrawals in bad years: https://www.canadianmoneyforum.com/showthread.php/138014-Withdrawing-from-60-40-in-down-years

The math of the above ^ thread remains one of the most shocking things I've stumbled into in recent years but it does appear to show the amazing advantages of disciplined asset allocation.

I believe there was some consensus in that earlier discussion that asset allocation approaches can work great during downturns, but probably more so where the *allocation is broken apart into distinct fixed income vs stock holdings*, as opposed to lumped into a single fund like VBAL or VCNS. That suggests that an investor is better off with distinct bond fund and/or GICs, separated from their stock holdings. On the other hand, an investor who separates these might not be brave enough to do the necessarily rebalancing... which then makes XBAL / VCNS / etc perhaps more appealing again.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I believe there was some consensus in that earlier discussion that asset allocation approaches can work great during downturns, but probably more so where the *allocation is broken apart into distinct fixed income vs stock holdings*, as opposed to lumped into a single fund like VBAL or VCNS. That suggests that an investor is better off with distinct bond fund and/or GICs, separated from their stock holdings.


That assumes one is willing to work with, for example VEQT and VAB, and draw on VAB when VEQT is down. We will have another 10-12 years of historical performance before we need to make a decision in the RESP.

P.S. As of now, the plan is spouse will be exclusively VBAL by the time she is circa 77. We could do a VEQT/GIC ladder split as well. Time will tell.


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## james4beach (Nov 15, 2012)

Right, for what I wrote to work, the person has to be willing to work with the distinct pieces of the asset allocation and that means taking some tough actions. I'm even concerned for myself; would I have been willing to liquidate my valuable bonds and gold during the depths of 2008? Very hard in real life.

This is why those all in one funds (balanced fund or VCNS) may still be superior. Sure they will not ultra-optimize the withdrawal, but they *will* maintain asset allocation and rebalancing discipline.

Taking one's withdrawals out of a balanced fund or VCNS may in fact be the "best" option for most people.


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## agent99 (Sep 11, 2013)

cainvest said:


> The OP is 64 so 22 years is cutting it pretty close to the averages age wise. Also, that's assuming inflation and GIC rates would stay in check over that time period.


OP is 64, Dilbert we don't know, and I am 80. We all showed interest in this idea.

What I said was:


> Even with a 2.5% yield for $1million in GICs, a $50k pa plus 2% inflation pa before tax draw would last for 22years. No reason not to do that _if you have enough, are old enough and that time frame suits you_.


 Not aimed at OP, more at myself.


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## cainvest (May 1, 2013)

agent99 said:


> OP is 64, Dilbert we don't know, and I am 80. We all showed interest in this idea.
> 
> What I said was: Not aimed at OP, more at myself.


Understood, my comments were focused on the OP's age.

Back to the OP's situation, I think a semi-conservative all in one fund could be the right idea.


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## agent99 (Sep 11, 2013)

james4beach said:


> Taking one's withdrawals out of a balanced fund or VCNS may in fact be the "best" option for most people.


One thing I was thinking about over dinner was, For an ultra safe forget about it portfolio. 
- Fixed income (mix of GIC ladder, RRBonds or a fund that captures these like ZRR?) in registered accounts. 
- In taxable account, a few blue chip perpetual/rate-reset preferreds (or ETF, but I don't like them much) plus a Dividend growth ETF. (ZDV & others)
- Slot foreign Dividend growth etf into either if desired. 

Ratios would depend on room available and some classes may have to be in both reg & unreg. 

GICs and RRBs should maintain inflation adjusted capital value and provide some cash flow. 
Pfds will fluctuate in value but will provide high yield and dividend cash flow. 
Dividend Growth fund will fluctuate with overall market, but maintain dividend cash flow.

If these were in say 50/15/35 ratio the portfolio might yield something like 3.25% and be relatively safe vs interest rates and market fluctuations. Draw not much more than that and capital is preserved.

cainvest suggested:


> Back to the OP's situation, I think a semi-conservative all in one fund could be the right idea.


Certainly a possibility. But I would add a fair amount of GIC in registereds as a safeguard against crashing markets.


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## Pluto (Sep 12, 2013)

agent99 said:


> Over past ~16 years, we have lived off our investments plus CPP/OAS. During that time, our portfolio has almost doubled in value despite our draws.
> 
> If we converted it to GICs and, using fake example I posted above, $1million would be down to zero in the next approx 12 years. (Using the Sun Life Calculator and assuming the $1million is in our RRIFs) Draw from RRIFs would be $54k pa or from unregistered $84 pa after tax. So smaller amount needed to generate $54k from unregistered (~$650k)
> 
> I don't think we will do that although it is a low risk option.


To me, the way you do it is the conservative plan. fixed income is the risky plan.


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## lonewolf :) (Sep 13, 2016)

It would not surprise me if countries start replacing their currency with crypto currency for each country so they have power over the currency i.e., no more working for cash under the table to avoid tax. Right now they are letting people get used to crypto by not shutting it down. The future could get tricky to not lose your nest egg when/if it happens.


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## cainvest (May 1, 2013)

agent99 said:


> One thing I was thinking about over dinner was, For an ultra safe forget about it portfolio.
> - Fixed income (mix of GIC ladder, RRBonds or a fund that captures these like ZRR?) in registered accounts.
> - In taxable account, a few blue chip perpetual/rate-reset preferreds (or ETF, but I don't like them much) plus a Dividend growth ETF. (ZDV & others)
> - Slot foreign Dividend growth etf into either if desired.
> ...


Agreed, adding in a GIC ladder would be a good idea.


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## james4beach (Nov 15, 2012)

cainvest said:


> Agreed, adding in a GIC ladder would be a good idea.


One of the things I've learned through 20 years of investing is that a well-filled-in GIC ladder is never a bad idea. You get an overall rate of return that's pretty good for fixed income (as good as a bond fund) but with no volatility, and a reasonable amount of liquidity if you space them tight.

And with modern discount brokerages you can get some nicely competitive rates for GICs, from many issuers, all in one place.

In all these years I have never looked at a GIC in my ladder and said to myself: "I wish I hadn't bought that! what a huge mistake!"


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## Northof60 (Nov 22, 2010)

I want to start a GIC ladders in a couple of accounts, but am dealing with BMO investorline and a 1 year GIC is 1.45% and 5 year is 2.0%. Not much of a ladder..lol. I guess I need to shop around, but what is the best one can expect for rates (at approx 5K per GIC)??


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## cainvest (May 1, 2013)

Northof60 said:


> I want to start a GIC ladders in a couple of accounts, but am dealing with BMO investorline and a 1 year GIC is 1.45% and 5 year is 2.0%. Not much of a ladder..lol. I guess I need to shop around, but what is the best one can expect for rates (at approx 5K per GIC)??


Check out post #2 in this thread
https://www.canadianmoneyforum.com/showthread.php/139894-GIC-ladders


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## Dilbert (Nov 20, 2016)

agent99 said:


> OP is 64, Dilbert we don't know, and I am 80. We all showed interest in this idea.
> 
> What I said was: Not aimed at OP, more at myself.


I’m close to the OP at 63 years young.


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## agent99 (Sep 11, 2013)

Northof60 said:


> I want to start a GIC ladders in a couple of accounts, but am dealing with BMO investorline and a 1 year GIC is 1.45% and 5 year is 2.0%. Not much of a ladder..lol. I guess I need to shop around, but what is the best one can expect for rates (at approx 5K per GIC)??


Those BMOIL numbers are not what I see. They have 2.2% for 1 yr to 2.44% for 5yr. With rates so close, it seems like not a bad time to buy a complete 5yr ladder at one time.

BTW, I bought a 1yr from BMOIL just the other day - 2.25%.


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## AltaRed (Jun 8, 2009)

I suspect Northof60 is not looking through the list of 1 yr offerings. Looking right now, VanCity 1 year is 2.25%, and Concentra Bank 5 year is 2.46%


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## james4beach (Nov 15, 2012)

One thing to consider (as a possibility) that these 2% rates could turn out become the deal of the decade. Rates could keep going lower, to the point that 0% becomes the norm for cash again and fixed income at maybe 1%. Anyone buying 5 year GICs today at 2.2% would be laughing, earning much more than cash will.

It's possible, especially if there's a recession. Nobody can predict the future, which is why it's best to stick to 5 year GIC purchases once the ladder is up and running.


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## agent99 (Sep 11, 2013)

james4beach said:


> One thing to consider (as a possibility) that these 2% rates could turn out become the deal of the decade. Rates could keep going lower, to the point that 0% becomes the norm for cash again and fixed income at maybe 1%. Anyone buying 5 year GICs today at 2.2% would be laughing, earning much more than cash will.
> 
> It's possible, especially if there's a recession. Nobody can predict the future, which is why it's best to stick to 5 year GIC purchases once the ladder is up and running.


James, if you need something to study, how about comparing a GIC ladder with Real Return Bonds? Both will most likely preserve capital. But won't do much more.

These links provide a start for those not familiar with RRBs. 
https://nesbittburns.bmo.com/getimage.asp?content_id=70056
https://www.finiki.org/wiki/Real_Return_Bonds
https://www.tsinetwork.ca/daily-adv...-bonds-and-how-they-compare-to-regular-bonds/

Excerpt from that last link:


> Are bonds good investments for a diversified portfolio?
> 
> We feel that real-return bonds, like regular bonds, mainly ensure that you’ll earn a low return on your investment. We continue to recommend that you invest only a small part of your portfolio, if any, in bonds and fixed-income investments.
> 
> Instead, focus your investing on building a diversified portfolio of well-established companies with a long history of paying dividends. We recommend a number of these types of stocks in our newsletters.


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## Northof60 (Nov 22, 2010)

agent99 said:


> Those BMOIL numbers are not what I see. They have 2.2% for 1 yr to 2.44% for 5yr. With rates so close, it seems like not a bad time to buy a complete 5yr ladder at one time.
> 
> BTW, I bought a 1yr from BMOIL just the other day - 2.25%.


thx agent99, altared and JamesBeach. I was looking at the GIC rates off the main BMO GIC page. Once I signed into investorline I saw the list of available GICs from 1 year to 5yrs, along with the higher BMO rates.. Thanks folks.. sorry for the thread semi-derail.....


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## agent99 (Sep 11, 2013)

I have always had a 5-6 yr fixed income ladder in our RRIFs. Mostly corporate bonds plus a few 3+%GICs. Pickings lately for corporate bonds have been thin so have been looking at alternatives.

I was browsing through BMO's ETF offerings (boy they have a lot!). One of them is ZLC. These are long investment grade corporate bonds. Large number, so well diversified. Seldom see any of these offered on BMOIL. This fund has a 4% distribution. $10k invested in 2010 would have doubled by 2010 if distributions were re-invested. Going forward, it coul bd edifferent of course, but this looks like it may be a place to deploy funds from my maturing bonds. 

https://www.bmo.com/gam/ca/advisor/...ce#fundUrl=/fundProfile/ZLC#price&performance


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## james4beach (Nov 15, 2012)

I don't own any corporate bonds. I just don't feel the love for long term corporates. So much risk, with only a tiny spread versus government. I have often thought about buying XSH for short term corporates though.

XSH has 2.34% weighted average yield to maturity with a very small 0.10% fee. The total return since inception is 2.65% CAGR which is about what GICs would have provided... maybe actually a bit more.

Plus, unlike the GIC ladder, XSH is totally liquid. A decent option, I think, and I would buy it except I have somewhat of a hang-up about buying ETFs and tracking them non-registered. The GIC is so much easier for tax handling.


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## agent99 (Sep 11, 2013)

james4beach said:


> I don't own any corporate bonds. I just don't feel the love for long term corporates. So much risk, with only a tiny spread versus government


Given that I only have about 30 corporate bonds, there is I suppose some risk of one of them defaulting. The spread is not exactly tiny. At least 50% higher yield, so not just reading water as with GICs at current yields. 

With ZLC, they have about 274 bonds, all investment grade Canadian companies. Yield is about 4% - almost double that of GICs. Moringstar rate it as low risk/high return for category. https://www.morningstar.ca/ca/report/etf/portfolio.aspx?t=0P0000N5JR&lang=en-CA

Looks like my kind of fund


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## james4beach (Nov 15, 2012)

ZLC? I could never do it. This is an average 22 years to maturity which is very long exposure. It's already volatile to begin with, but now you're adding credit risk to it.

The portfolio yield to maturity is 3.3% which yes, is high, but good 5 year GICs can be found at around 2.4%. *This is only 0.9% more yield than ultra safe GICs*. If we were talking about safe bonds at 3.3% that's one thing but these are notably more risky than GICs.

The combination of poor credit quality plus long duration gives pretty high risk.

This portfolio has nothing in AAA and AA, has 57% A rated and 41% BBB. These are not very good quality bonds. For comparison sake, here's the credit quality of XBB
38% AAA
36% AA
14% A
11% BBB

I think that shows you just how much riskier ZLC is. Nearly half the fund in BBB! And absolutely nothing at higher A grades.

For something like that I would want to see several percent higher than GICs, not just 0.9% spread!


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## AltaRed (Jun 8, 2009)

Agree that ZLC is too much risk for not much incremental YTM. 41% BBB of long duration is almost speculative.


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## agent99 (Sep 11, 2013)

james4beach said:


> The combination of poor credit quality plus long duration gives pretty high risk.


By your book 50% BBB and 50% A is a poor credit risk. But that is not the case for others including Morningstar. If you want to have a real return, you have to accept some risk. If you want to just tread water, then sure, buy 2% GIcs.

The main risk I see with ZLC, is that of increasing interest rates. But if as you suggested earlier, the current 2% GIC rates could be the deal of the century, I guess we shouldn't worry about rates going up


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## james4beach (Nov 15, 2012)

ZLC also behaves like the stock market. As you can see through this link, the following behaves almost identically to ZLC both in return and risk
70% XIU, 30% XBB

Do you know what that means? It's almost a mistake to think of this as fixed income. It moves like equities... and buying ZLC will complicate the picture of what you own in what category (equity vs bonds).

Junk bonds have the same quirk; they act a lot like stocks. Equity vs fixed income isn't a black and white thing, but rather like a spectrum. At one end is pure fixed income, government bonds and high grade stuff. But as you go towards junk, lower grade corps and long maturities, the behaviour shifts towards equities.

Notice for example if ZLC is equivalent to 70% XIU and 30% XBB that means it's actually like a very aggressive balanced fund, 70/30, more aggressive than I would actually own!

Though it may be called a "bond fund", this is a more aggressive investment than XBAL and almost as aggressive as VGRO.


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## AltaRed (Jun 8, 2009)

Think one has to concede fixed income is return OF capital, not return ON capital. Just not practical to get real returns in the world of low interest rates. If you are going to consider this, at least consider moving down duration to ZCM.


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## agent99 (Sep 11, 2013)

james4beach said:


> ZLC also behaves like the stock market.


James, are you not surprised that a bond fund would do almost as well as a mix of bonds and equities? Even if you entered XBB instead of ZLC, it would follow a similar pattern, although because of shorter maturity, it would not do as well. In the period you looked at, interest offered on new bond issues gradually reduced and therefore the value of existing long bonds went up. This was the ideal scenario for such a fund. 

Owning the actual bonds to maturity, as I have, did not benefit from this (except along the way on paper). But of course I did not have interest rate risk. I just collected the interest and my capital remained intact. It is a problem with all bond funds - they are susceptible to variables that are outside our control. Their main advantage, is that they are liquid and have a large number of holdings, that reduce default risk.

That Portfolio Analyzer is a useful tool. I just registered for it. Just be careful not to use it to try and prove a point 

I did a comparison of ZAG(same as XBB), ZCM, ZLC . Other than the higher yield for the longer maturity levels, they all follow a similar path that probably reflects lower interest rates on new issues. Presumably all will react in same way, but to different degrees going forward. Correct me if I am wrong about that.

Cant get PA results to link. James can you tell me how?


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## AltaRed (Jun 8, 2009)

Think about what the forward yield curve will look like versus that in the rear view mirror.


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## james4beach (Nov 15, 2012)

agent99 said:


> Cant get PA results to link. James can you tell me how?


Once you generate a result page, scroll down to the table that says Portfolio Analysis Results. Beside this, I see three links: Link, PDF, Excel. Clicking Link will generate a link that can pull up those results.


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## agent99 (Sep 11, 2013)

james4beach said:


> Once you generate a result page, scroll down to the table that says Portfolio Analysis Results. Beside this, I see three links: Link, PDF, Excel. Clicking Link will generate a link that can pull up those results.


I tried that - But where does the link go? Didn't seem to be on clipboard?

I just tried right clicking and emailing the link - then copy & paste:

https://www.portfoliovisualizer.com...ation2_2=100&symbol3=ZAG.TO&allocation3_3=100

That worked, so I guess that is one way to do it.

ZLC shows greater volatilty. But ZCM and ZAG are not much different. So ZCM might be a compromise, but all will be affected if rates rise going forward.


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## james4beach (Nov 15, 2012)

agent99 said:


> I tried that - But where does the link go? Didn't seem to be on clipboard?


Ah, I see. I think there are two ways to do this.

One is to point the mouse to the Link and right-click, Copy Link.

The other option is to click that Link. The page will refresh but the URL bar in the browser now has the entire link. So you can select that link from the URL bar and copy it to the clipboard.


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## AltaRed (Jun 8, 2009)

agent99 said:


> ZLC shows greater volatilty. But ZCM and ZAG are not much different. So ZCM might be a compromise, but all will be affected if rates rise going forward.


Very true, but the point is there is no free lunch. Which is more important for you in your fixed income? Return with volatility, or less return for less volatility? If you call on your fixed income in times of crisis, then I'd suggest less volatility is better. It all depends on its purpose in the portfolio.


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## agent99 (Sep 11, 2013)

agent99 said:


> WE used to see that formula bandied about. There was even a more conservative one before that. Something like 100-age-5 or something like that. We don't see that any more. Using CNN - the ultimate source for good financial guidance, I found this: https://money.cnn.com/retirement/guide/investing_basics.moneymag/index7.htm


Just happened to see this on Morningstar. Myth Busted!

https://www.morningstar.ca/ca/news/196451/money-mythbuster-100-minus-age-=-equity.aspx


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## agent99 (Sep 11, 2013)

I have spent some time comparing various bond ETFs. Ended up just confirming what I decided a long time ago - I don't like any of them, especially in our current low interest environment. 

Most of them would have a zero or negative total return if interest rates were to increase by 1% over next 2 years. Real returns would be negative. Does it make sense to make zero or lower real return on 40-60% of our portfolio?

I looked at laddered corporate etfs. That is more or less what my DIY bond fund is. With those, on some the MER reduced yield back to not much above what 5yr GICs are paying. This one "might" work as our ladder bonds mature, but there has been no volume on BMOIL since Jan 3rd.: https://www.rbcgam.com/en/ca/products/etfs/RMBO/detail

Even if return of capital is your reason to hold fixed income , I don't see any bond funds that will do that with any degree of certainty. They all have large interest rate risk. 

Some don't like to think of them as Fixed Income, but other than GICs, only other way I see of preserving capital, is to use split preferreds. There it is the fund manager that we need to rate, rather than the fund's portfolio. Markets have to crash a long way before value of the preferred splits are impacted to any great extent. 

Basically not getting anywhere with simplifying my fixed income  I actually bought a 1yr GIC the other day! Just a $5k 2.25% position in TFSA to help balance ladder.


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## Mechanic (Oct 29, 2013)

I'm having a tough time fathoming the GIC ladder. I guess the ones I have aren't that good because they are only 1 day ones. Fairly costly to move from 1 day to 1,2,3 or more years. Maybe tomorrow if the 1 day rates drop ?


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## AltaRed (Jun 8, 2009)

Mechanic said:


> I'm having a tough time fathoming the GIC ladder. I guess the ones I have aren't that good because they are only 1 day ones. Fairly costly to move from 1 day to 1,2,3 or more years. Maybe tomorrow if the 1 day rates drop ?


Then it is too late because the various GIC rates would have dropped too. You can't stay on one bandwagon and hop to another without suffering an interest rate drop. If the BoC reduced its short term interest rates 50bp this week, chances are your HISA rate would drop 50bp the very next day...or within a few days. So would the GIC rates that you may now long for. The rest of us get to keep the higher GIC rates until those GICs mature.

Play the HISA game to your heart's content. You and many others are only 'winning' so far because BoC has not been dropping short term interest rates. FWIW, I keep a significant part of my FI (cash reserve) in a 2.3% HISA but I know this is merely dumb luck so far and it may not be there tomorrow.


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## Eder (Feb 16, 2011)

AltaRed said:


> . The rest of us get to keep the *higher *GIC rates until those GICs mature.


Or lower.
Thats why fixed income is so risky these days.


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## AltaRed (Jun 8, 2009)

The point was that if short term rates go down from a BoC rate change, HISA rates go down and new GIC rates go down too. But those of us with locked in GICs already get to keep those rates until the GICs mature. Of course, it could go the other way too and have the opposite effect.

What I think some people forget is that a fully operational 5 year GIC ladder always has the 'then' 5 year interest rate on all GICs. That GIC expiring in one year is actually a 5 year GIC bought 4 years ago at the then 5 year interest rate. So even if GICs are maturing every year, every one carries the 5 year interest rate in effect at the time the GIC was bought. It doesn't feel good in an era of rising interest rates , but it feels good in both an environment of decreasing interest rates and steady interest rates. IOW, two thirds of the time.


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