# Couch Potato ETF mix



## spiritwalker2222 (Nov 7, 2017)

Finally switch my RRSP's from mutual funds to ETF's. This is the mix I plan on going with, what are your thoughts? Planning to retire in 17 years.

VCN @ 40%
VUN @ 25%
VXC @ 15%
VSC @ 20%


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## scorpion_ca (Nov 3, 2014)

I would buy ZAG instead of VSC.


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## Spudd (Oct 11, 2011)

VXC is 52% US equity, so you'll have:

40% Canada
32.8% US
7.8% Rest of world
20% Bonds

Is that really what you want? Personally, I would go 25/25/25 Canada/US/rest of world.


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## Butters (Apr 20, 2012)

Couch Potato site uses XAW instead of VXC

I would go less than 30% on Canadian

25% VCN
50% XAW
25% ZAG

This would be more simple. Which is Assertive in the Couch Potato Model
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf


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## jargey3000 (Jan 25, 2011)

sw2: you'll be either totally confused or exasperated by the time you get about 12 replies to this thread...:


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## GreatLaker (Mar 23, 2014)

Good financial and investment management starts well before security selection.

This is a good starting point: http://www.finiki.org/wiki/Getting_started
Then this: http://www.finiki.org/wiki/Portfolio_design_and_construction


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## james4beach (Nov 15, 2012)

scorpion_ca said:


> I would buy ZAG instead of VSC.


I agree. With a 17 year time horizon, there's no reason to go with VSC (short term bonds). You will get a higher return in regular bonds -- ZAG, XBB or VAB.

For an explanation of why regular bond funds are better than short term bonds, even when you suspect interest rates are rising, see
http://canadianmoneyforum.com/showthread.php/118522-Buying-individual-bonds/page8


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## Jimmy (May 19, 2017)

james4beach said:


> I agree. With a 17 year time horizon, there's no reason to go with VSC (short term bonds). You will get a higher return in regular bonds -- ZAG, XBB or VAB.
> 
> For an explanation of why regular bond funds are better than short term bonds, even when you suspect interest rates are rising, see
> http://canadianmoneyforum.com/showthread.php/118522-Buying-individual-bonds/page8


If interest rates are going up in the ST you are better w ST bond fund. The duration on XBB, ZAG is usually ~ 7 yrs. You lose 7% if rates go up 1%. Where in the ST funds, w durations of 2-3 yrs you lose 3% max.

No pt losing 4% in a year if you don't have to. Once rates have gone up it is smarter then to look at the core bond funds.


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## spiritwalker2222 (Nov 7, 2017)

Thanks for the feedback everyone. 

I will reduce my Canadian content to 30% of VCN. 
Remove my US specific content and bump up my VXC content to 50%. I didn't realize VXC had so much US content, my bad for not doing the minimum of digging.
I'm torn on my bond content. I might change from VSC to ZAG. Will have to think about this a bit more. I'll be leaving it at 20%.

So the mix looks like this. 

VCN @ 30%
VSC @ 20%
VXC @ 50%

So I realized that VXC, which has a MER of 0.27% is comprised of 5 ETF's with an MER weighted average of 0.08%. I think I'll change out VXC for the ETF's it's comprised of. Things change to the following.

VCN @ 30%
VSC @ 20%
XUS @ 22%
XEF @ 17%
IEMG @ 6%
IJH @ 2%
IJR @ 2 %

Yes, I know I'm missing 1%. I'll probably bring over $250,000 into the fund right away, so breaking out VXC will save me ~$230.00 a year in MER's minus the 4 additional transaction fees a year @ $10 each (I plan to rebalance once a year).


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## GreatLaker (Mar 23, 2014)

spiritwalker2222 said:


> Thanks for the feedback everyone.
> 
> I will reduce my Canadian content to 30% of VCN.
> Remove my US specific content and bump up my VXC content to 50%. I didn't realize VXC had so much US content, my bad for not doing the minimum of digging.
> ...


Where you say "VCM" do you mean VCN?

IEMG, IJH and IJR are US domiciled iShares ETFs, priced in US$. Do you have US funds to purchase them? If not depending on your broker you may pay very unfavourable currency exchange rates. Or you could use Norbit's Gambert to to convert CAD to USD, but it brings its own set of complexities.

Do you really want to have two ETFs (IJH, IJR) that each only comprise 2% of your portfolio? Consider how much each of those funds (US small-cap and US mid-cap) would have to outperform XUS to make a significant difference to your portfolio. And if you are buying US domiciled funds why not also use IVV instead of XUS for your US large-cap?

The Couch Potato 3-ETF portfolios are simple, elegant and easy to implement, especially for inexperienced investors. If you want to do something different you should really take the time to think through any proposed portfolio so you know exactly what you are getting and don't make mistakes.


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## spiritwalker2222 (Nov 7, 2017)

Thanks for the reply Great laker.

Yes I meant VCN.

Didn't realize some of the funds were traded in the US exchange, in that case I'll leave it VXC.


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## AltaRed (Jun 8, 2009)

spiritwalker2222 said:


> I'm torn on my bond content. I might change from VSC to ZAG. Will have to think about this a bit more. I'll be leaving it at 20%.


Jimmy's point about 'losing 4 percent' ZAG is a bit misleading. What it really means is 2-3 times the volatility of VSC (up/down circa7% instead of circa 2.7% for every percentage point change in bond yield curve). That matters when you might have a near term need to sell some bond ETF units, but it does not matter if you won't be tapping into the bond ETF for decades to come. You are compensated for more 'volatility' or 'risk' with a higher yield. Extra yield compounded over 20 years can mean a lot. If you leave this portfolio alone for 20 years, then as you near the time you might wish to tap into the bond ETF, e.g. retirement, you can sell a bunch of ZAG at an opportune time and buy VSC instead... as an example to reduce the volatility so that you do not run the risk of having to sell 'low' at the wrong time.


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## james4beach (Nov 15, 2012)

Jimmy said:


> If interest rates are going up in the ST you are better w ST bond fund. The duration on XBB, ZAG is usually ~ 7 yrs. You lose 7% if rates go up 1%. Where in the ST funds, w durations of 2-3 yrs you lose 3% max.


That's exactly the argument I was addressing in the thread that is linked here:
http://canadianmoneyforum.com/showthread.php/118522-Buying-individual-bonds/page8

You can not possibly know if bond yields / interest rates are going up... there is no way to predict those. You're probably thinking of the central bank overnight rate, which is loosely coupled.

I showed a direct counter argument, how in the US, the central bank rate has indeed gone up, however 10yr bond yields actually came down. It is impossible to predict where your XBB/ZAG price is going to go, even if you can perfectly forecast the central bank rate -- which you also cannot predict with certainty.



> No pt losing 4% in a year if you don't have to. Once rates have gone up it is smarter then to look at the core bond funds.


Again, I address this in the other thread that I linked to. Here's what it comes down to:

1. central bank overnight rate is different than the bond yields (interest rates)
2. it's impossible to predict interest rates, either one of the above
3. you can't time the bond market any more than you can time the stock market
4. you get a higher rate of return the farther down the yield curve you go, unless the yield curve is inverted
5. therefore XBB will practically always have a higher return over the long term than XSB

So if you're talking about 15 or 20 year time horizons, you will get a higher return in XBB. Even if there is a high likelihood that the Bank of Canada will "raise rates"... which I'll remind you, is not 100% certainty.


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## Jimmy (May 19, 2017)

Interest rates are 1% at historic lows. You don't have to be clairvoyant to know they are going up. They will likely rise another 1 % over 2018 as most forecasts suggest and in keeping w the US fed rates.

So a prudent strategy is go ST for another year, avoid some losses then go long. If you look at ytm there also isn't a huge difference btw LT bond funds and ST so the risk isn't worth it now IMO


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## james4beach (Nov 15, 2012)

You keep saying "interest rates" ... which rates do you mean exactly? The bond market has a yield curve with many rates. There's the overnight rate, 3 month rate, 6 month rate, 1 year rates, 2 year rates, 10 year rates, 30 year rates, etc.

It sounds like your statements are about the Fed overnight rate. In the US, the overnight rate went up 1.13% over the span of 4 years -- exactly the "rise" you're describing. At the same time the 10 year treasury rate stayed about flat.

As the US overnight rate went up 1.13%,
SHV (ultra short term bonds) was up +0.98% total return
BSV (short term bonds) was up +4.86%
AGG (regular bonds like XBB) were up +12.44%

Someone who tried exactly the same thing you're describing missed out on that +12.44% gain. What they got wrong is that a rising overnight Fed rate does not automatically translate to interest rates at the 10 year part of the curve. What you described did not work well for an American investor.


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## AltaRed (Jun 8, 2009)

Agree with J4B on this one. While there is some correlation between the Fed overnight rate and the bond yield curve, an increase in the Fed overnight rate could well just flatten the bond yield curve, and actually COULD cause the 10 year and long term bond yield to go down, not up. Reason: A belief that increases in short term rates help keep a lid on long term inflation and thus less need for higher long term rates. 

Bond yields are what the market perceives is needed for a particular bond maturity, not what the Fed says it is. The bond ETF one picks should be more dependent on when one thinks they will want to sell it. If 5 years out, pick short term. If 20 years out, pick mid-term. Indeed, the sweet spot in recent times has generally been in the 7-8 year bond yield, the duration of the likes of XBB, VAB, etc.


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## james4beach (Nov 15, 2012)

There's also the issue that bond funds like XBB actually do well if interest rates rise _gradually_. Again look at the US. The 10 year treasury yield five years ago was 1.6% and today is 2.3%, obviously there has been an increase in interest rates. In relative terms, that's a BIG rise in interest rates.

How has AGG done? Annual return has been 1.9% in those five years, nearly double the return of short term bonds (BSV returned 1.1% annually) and way higher than cash.

There are only a couple, rare situations in which a bond fund like XBB will do worse than short term bonds or cash: either with very rapidly rising interest rates, and/or an inverted yield curve. Avoiding XBB and instead hiding out in short term bonds is like making a strong bet on a relatively rare bond market situation.


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## My Own Advisor (Sep 24, 2012)

Hard to go wrong with most low-cost Vanguard products. With a long time horizon, I think few to no bonds is a consideration.

Then you're left with a two-fund portfolio. Say, 50% VCN + 50% VXC. Keep a healthy cash wedge/buffer. Simple.

Don't want to own VXC? Consider VYM or VTI + VXUS inside your USD $ RRSP.


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## Jimmy (May 19, 2017)

james4beach said:


> You keep saying "interest rates" ... which rates do you mean exactly? The bond market has a yield curve with many rates. There's the overnight rate, 3 month rate, 6 month rate, 1 year rates, 2 year rates, 10 year rates, 30 year rates, etc.
> 
> It sounds like your statements are about the Fed overnight rate. In the US, the overnight rate went up 1.13% over the span of 4 years -- exactly the "rise" you're describing. At the same time the 10 year treasury rate stayed about flat.
> 
> ...


The main interest rates everyone references are the BOC overnight rate and the Federal Reserve overnight rate. Why are you talking about 4 yrs? I am talking about the last 6 months. BOC interest rates went up 2x or .5% and many bond fund returns are near 0 this year. If you don't want that again next year , buy a ST bond fund. Then after it looks like they are finished w the rate hikes go long.

Or if you want to lose 7% next year, but don't mind as you are going to hold for 20 yrs buy XBB


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## james4beach (Nov 15, 2012)

Jimmy said:


> Why are you talking about 4 yrs? I am talking about the last 6 months. Interest rates went up 2x or .5% and many bond fund returns are near 0 this year. If you don't want that again next year , buy a ST bond fund. Then after it looks like they are finsihed w the rate hikes go long.
> 
> Or if you want to lose 7% next year, buy XBB


My 'last 4 year' example is a direct counter example to what you described as an obvious/inevitable outcome. I showed you that despite the US overnight rate going way up, that medium term bonds _outperformed_ short term bonds. You said that the opposite would happen. So I showed you that your logic is wrong.

If you're so certain that XBB is falling 7% next year, do you think you're the only person who would see this? Institutions are trading billions of $ a day in the Canadian bond market. They don't want a 7% loss any more than you do.

Bond market prices already reflect the things you describe. All this information is known to everyone -- and others have more accurate predictions of what you're trying to predict. I don't see the point of the market timing you're trying to do.


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## Jimmy (May 19, 2017)

james4beach said:


> My 'last 4 year' example is a direct counter example to what you described as an obvious/inevitable outcome. I showed you that despite the US overnight rate going way up, that medium term bonds _outperformed_ short term bonds. You said that the opposite would happen. So I showed you that your logic is wrong.
> 
> If you're so certain that XBB is falling 7% next year, do you think you're the only person who would see this? Institutions are trading billions of $ a day in the Canadian bond market. They don't want a 7% loss any more than you do.
> 
> Bond market prices already reflect the things you describe. All this information is known to everyone -- and others have more accurate predictions of what you're trying to predict. I don't see the point of the market timing you're trying to do.


I said LT bonds fall in price more at the 'time' of interest rate increases than ST bonds. You are the only one talking about a 4 yr period. Institutions also know how duration works. If the duration is 7 yrs a bond price will fall 7% w a 1% increase in interest rates. If the duration is 3, it falls 3%.

So it is up to you if you want to lose more when interest rates rise next year. I don't and will wait until interest rates rise then buy more XBB. But I see your pt and if you are investing for 20 yrs you may not care about a one year loss


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## AltaRed (Jun 8, 2009)

Jimmy said:


> I said LT bonds fall in price more at the 'time' of interest rate increases than ST bonds. You are the only one talking about a 4 yr period. Institutions also know how duration works. If the duration is 7 yrs a bond price will fall 7% w a 1% increase in interest rates. If the duration is 3, it falls 3%.
> 
> So it is up to you if you want to lose more when interest rates rise next year. I don't and will wait until interest rates rise then buy more XBB. But I see your pt and if you are investing for 20 yrs you may not care about a one year loss


You are missing the point. I agree with your math on a straight up basis, but the bond yield curve does not change uniformly. You could have a 1 percent change in Fed overnight rates, but a mere 10bp change in the aggregate bond yield curve for the 1-10 year period. The 10 year bond yield may have actually gone the other direction.

IOW, the ST interest rate may have changed 1 percent such that the ST bond ETF duration of 3 years would have changed 3 pecent change in ST bond market price, while the MT aggregate bond yield curve may not have changed at all. A MT bond ETF with a duration of 7 years thus would not change in market price at all. You simply cannot use the math the way your have articulated it.


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## zylon (Oct 27, 2010)

-- deleted -- 

Never mind; found my answer elsewhere.


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## Jimmy (May 19, 2017)

AltaRed said:


> You are missing the point. I agree with your math on a straight up basis, but the bond yield curve does not change uniformly. You could have a 1 percent change in Fed overnight rates, but a mere 10bp change in the aggregate bond yield curve for the 1-10 year period. The 10 year bond yield may have actually gone the other direction.
> 
> IOW, the ST interest rate may have changed 1 percent such that the ST bond ETF duration of 3 years would have changed 3 pecent change in ST bond market price, while the MT aggregate bond yield curve may not have changed at all. A MT bond ETF with a duration of 7 years thus would not change in market price at all. You simply cannot use the math the way your have articulated it.


Not talking about the yield curve or yields at all. The price of a bond will fall 7% if the duration is 7 yrs w a 1% rise in interest rates plain and simple.


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## AltaRed (Jun 8, 2009)

That could easily be misinterpreted from the OP's point of view of which bond ETF to hold and why. For a long term buy and hold portfolio, the longer duration wins, despite increased volatility along the way.


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## spiritwalker2222 (Nov 7, 2017)

I noticed that the Canadian couch potato portfolio is recommending XAW for foreign content. It looks to be pretty much the same as VXC, but with a slightly lower MER. I'll probably change over to XAW (haven't bought anything yet, still need to transfer the funds).


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## AltaRed (Jun 8, 2009)

There are a few nuances to XAW vs VXC. 

A: The MER is lower and that is likely for 2 reasons: 1) Blackrock has pegged XAW as part of its Core offerings (aka robo-advisor like) and probably wants to keep these rock bottom, and 2) it may be that the fees paid to the index provider MSCI are lower than ones Vanguard pays for FTSE index use.

B: As CCP says, XAW holds a Cdn domiciled version of its International developed markets (I am guessing XEF without looking) and that eliminates some foreign withholding taxes that would be lost by holding the US domiciled version.

The above are all nuances though and I would not incur cap gains in a non-reg account just for slightly lower MERs. Five or 10 years from now, there could be even better versions of ETFs. C'est la vie. Example: I hold XWD in my non-reg account and it has a 'horrendous' MER of about 0.45% or so. But my market value is twice what I paid years ago and I'd be a fool to crystallize those cap gains before I need too.


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## Jimmy (May 19, 2017)

AltaRed said:


> That could easily be misinterpreted from the OP's point of view of which bond ETF to hold and why. For a long term buy and hold portfolio, the longer duration wins, despite increased volatility along the way.


Yes but in the ST the ST wins and many are recommending ST bond ETFs for that reason so it us up to him. He even suggested the ST fund. It would be smarter and better to go ST for 1 yr, then LT w XBB or if he wants more couch potato just go XBB right away. Either is good.


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## james4beach (Nov 15, 2012)

I understand the logic, but I also think it's contrary to the couch potato idea. Are you going to keep switching between XSB and XBB in the future, trying to trade around interest rates? When interest rates start plunging later on, will you then go to the 30 year end of the curve (XLB or XGB) for maximum effect?

My personal opinion -- it's not even possible to speculate on interest rates in that way, and even if you could (which I doubt) it's too active a strategy for a couch potato. This is more like tactical asset allocation. The mutual fund managers try to do it, and usually fail at it.


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## Ihatetaxes (May 5, 2010)

james4beach said:


> I understand the logic, but I also think it's contrary to the couch potato idea. Are you going to keep switching between XSB and XBB in the future, trying to trade around interest rates? When interest rates start plunging later on, will you then go to the 30 year end of the curve (XLB or XGB) for maximum effect?
> 
> My personal opinion -- it's not even possible to speculate on interest rates in that way, and even if you could (which I doubt) it's too active a strategy for a couch potato. This is more like tactical asset allocation. The mutual fund managers try to do it, and usually fail at it.


Had read a few things maybe 18 months ago recommending short term bonds for CCP portfolios for the next few years and therefore hold XSB (currently 16.5% of total portfolio). Would my XIRR YTD be much different than the 12% it was at 14 days ago? Not sure, doubt it and couldn't care much less. Is it an active strategy? Not really as I have no plans to go longer term for several years.


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## james4beach (Nov 15, 2012)

Ihatetaxes said:


> Had read a few things maybe 18 months ago recommending short term bonds for CCP portfolios for the next few years and therefore hold XSB (currently 16.5% of total portfolio).


I understand that this advice is very common, I just think the crowd is wrong. People have been endorsing "hiding out" in short term bonds since about 2009 ... so far that's 8 years of being wrong. Look at the returns since then and you'll see the opportunity cost for yourself.

It also troubles me that people acknowledge that you can't time the stock market, but think it's possible to time the bond market.


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## AltaRed (Jun 8, 2009)

I think that whatever one chooses to do, the point is to be consistent longer term. More money is lost hopping around than 'staying the course'. I'd suggest one simply look at the cumulative and annual performance returns of XSB and XBB over the last 10 years, with paticular attention to the last 5 years, to make up one's mind. No amount of discussion here can substitute for looking at the data for oneself.

https://www.blackrock.com/ca/indivi.../ishares-canadian-short-term-bond-index-etf#/
https://www.blackrock.com/ca/indivi...93/ishares-canadian-universe-bond-index-etf#/

Toggle between average annual and calendar returns for perspective.


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## GreatLaker (Mar 23, 2014)

james4beach said:


> I understand that this advice is very common, I just think the crowd is wrong. People have been endorsing "hiding out" in short term bonds since about 2009 ... so far that's 8 years of being wrong. Look at the returns since then and you'll see the opportunity cost for yourself.
> 
> It also troubles me that people acknowledge that you can't time the stock market, but think it's possible to time the bond market.


Well said J4B.

At one time I had all XBB. Then I switched to short term fixed income (VSB) because back in 2012 _everybody _knew rates were going up. Then I had a custom mix of VAB, VSB and VSC trying to get a target duration and % corporate bonds. Plus I had a GIC ladder.

At some point I came to my senses and I now take the approach of matching my fixed income duration to my need for funds. Being retired I may have a short term need for cash to cover my expenses, but there's also a component I would not plan to access unless there is a massive 1970s style long term bear market that uses up my short term fixed income.

So half my FI is in 5-year GIC ladders (duration ~2.5 year... I'm to lazy to do the math) and half in VAB (duration 7.5 years). Could I do better by guessing interest rate movements? Maybe, maybe not. Could I get by with 100% stocks by focusing on income and dividends? Probably, but what if there is a major recession that causes dividends to be cut, or another 1970s stagflation?

It helps me to think that HISAs/cash are for liquidity, bonds are for stability and stocks are for growth (I think I should give credit to AltaRed for that thought). I don't need to chase a bit more interest or second guess interest rate movements to meet my goals so I don't.


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## james4beach (Nov 15, 2012)

I've made these mistakes too, hopping around in the bond space thinking I can outsmart the bond market. Today marks the 10 year anniversary of the original ETF portfolio I put together for a big family account. I'm going to paste an analysis and self critique, but I already know that the biggest mistake I had was leaving too much cash and short term bonds lying around. This was mostly due to trying to "outsmart" the bond market.



AltaRed said:


> I think that whatever one chooses to do, the point is to be consistent longer term. More money is lost hopping around than 'staying the course'.


I absolutely agree.


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## john.cray (Dec 7, 2016)

An interesting discussion around short vs long term bond ETFs. I've been there and still am myself. A couple of points I wanted to mention, hopefully bringing some value to the discussion:

1. If you take a close look at the recommended funds from Dan at http://canadiancouchpotato.com/recommended-funds/ you will notice that the recommended bond ETF from iShares is actually XQB and not XBB. Not that there's anything wrong with XBB but just an observation.

2. For what it's worth, I have a 1 year old mix of the following 3 ETFs: VAB, ZCS and CLF. My total return for this period (capital gain + interest) for each of those ETFs respectively is: -0.56%, 0.72% and -0.21%. The reason why I added ZCS and CLF was to reduce the average duration of VAB a little bit and to increase my corporate bonds exposure. A year later I think it's not really worth the trouble to keep all three of them and I intend to substitute them all with XQB and achieve the same.

I like XQB instead of XBB for the following reasons:
* Higher minimal credit rating: A vs BBB in XBB
* Slightly shorter duration: 6.54 years vs 7.41 years
* Higher corporate bonds exposure (40% vs 30%)
* Lastly, traded completely free in iTrade as part of the 50 ETFs that you can buy/sell for free if you are their customer

Cons that I see:
* Slightly higher management fee: 0.12% vs 0.09% of XBB
* Slightly lower ytm: 2.23% vs 2.39%

It might be a compromise between XBB and XSB, it is for me.

Cheers,
JC


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## Butters (Apr 20, 2012)

AltaRed said:


> There are a few nuances to XAW vs VXC.
> 
> A: The MER is lower and that is likely for 2 reasons: 1) Blackrock has pegged XAW as part of its Core offerings (aka robo-advisor like) and probably wants to keep these rock bottom, and 2) it may be that the fees paid to the index provider MSCI are lower than ones Vanguard pays for FTSE index use.
> 
> ...


He hasn't bought yet, but you're right the difference between them are peanuts.




So Couch Potato is the simplest way. It seems like you're decision is going to follow it very closely which is good.
I'd probably stick with the 3 ETF super simple portfolio and worry about other things.



BUT just to give you some more food for thought, Dan who made the couch potato works with a guy called Justin, who made his own blog website
http://www.canadianportfoliomanagerblog.com/model-etf-portfolios/

He has
XAW broken into the 3 respective ETF's that will save you roughly $100 on a $50,000 investment annually.

He also has some USD funds for RRSP


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## spiritwalker2222 (Nov 7, 2017)

Yup, I haven't bought yet. Still waiting for the money to transfer over. I've decided to go with the following mix.

VCN 30%
XAW 50%
ZAG 20%

Should save me over $2,000 a year in MER fees that I currently pay to Sunlife. I'll have a similar(ish) mix, but less Canada content and more world exposure.

@ SheaButters, if I was to break up XAW I would have to buy etf's in US funds. I don't want the hassle and expense of converting CDN into US funds.


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## GreatLaker (Mar 23, 2014)

You can split XAW into Canadian domiciled ETFs. You have to decide if the slight savings and more flexibility in asset mix is worth the additional transactions and effort to track and manage.

These combinations are similar to XAW & VXC:
iShares: XUU, XEF, XEC
Vanguard: VUN, VIU, VEE


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## Butters (Apr 20, 2012)

Spirit, I think you're making a great choice. 

When are you starting? I will be curious to follow your story


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## spiritwalker2222 (Nov 7, 2017)

OK, it took a while but I finally got my mutual funds transferred over to my brokerage account. And bought the follow ETF's.

VCN 30%
XAW 50%
ZAG 20%

But I think I may have made a mistake. I split the money I had into the percent's above as best I could, leaving $13 cash in the account. I'm use to having mutual funds where the MER's are paid for buy selling an appropriate amount of the mutual funds. It just dawned on me that I probably should have cash in my account to cover the MER fees. Is that correct? When are the fees collected?

Thank you


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## like_to_retire (Oct 9, 2016)

spiritwalker2222 said:


> OK, it took a while but I finally got my mutual funds transferred over to my brokerage account. And bought the follow ETF's.
> 
> VCN 30%
> XAW 50%
> ...


You don't pay the fees directly. They're deducted by the company and are reflected in the NAV every day.

You will have a new problem though. The ETF's will throw off cash once in a while (every quarter, for example), and the cash will build up in your account, and you'll want to get it invested, but there's a trading commission every time you buy more shares in an ETF. You'll need to build up enough cash, usually invested in an internal HISA until the commission isn't an onerous percentage.

ltr


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## spiritwalker2222 (Nov 7, 2017)

I see. I was planning on contributing/rebalancing once a year. But depending on how much money is added to the account I might have to rethink my approach.


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## spiritwalker2222 (Nov 7, 2017)

My account is with TD brokerage, so my best bet would probably be to buy their e series mutual funds as needed and then sell them when I rebalance.


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## AltaRed (Jun 8, 2009)

spiritwalker2222 said:


> I see. I was planning on contributing/rebalancing once a year. But depending on how much money is added to the account I might have to rethink my approach.


Don't sweat the small stuff. Let the distribution cash accumulate until you have new money to go with it. If the average yield of your ETFs is 2%, you simply accumulate 2% of your portfolio in 'stranded cash' in your portfolio at the end of every 12 months while awaiting more funds for investment. Waiting to re-invest distributions once a year won't move the needle on your portfolio returns. Besides, it does not make accounting (book keeping) sense to make small purchases.


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## like_to_retire (Oct 9, 2016)

spiritwalker2222 said:


> I see. I was planning on contributing/rebalancing once a year. But depending on how much money is added to the account I might have to rethink my approach.


You can just go to every web site of the ETF's and see how much and when they distribute their income (and its tax characteristics, i.e., dividend, income, ROC, etc). For example, with VCN you would go to Vanguard and see that it distributes every quarter $0.188565 per share every Jan/Mar/Sept/Dec, totaling cash about 2.25%.

ltr


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## OnlyMyOpinion (Sep 1, 2013)

Spiritwalker,
I don't think you mentioned your future intentions for contributing to this RRSP? You did mention a 17yr timeline. 
If you are planning to contribute to this RRSP every year then you can rebalance (at least in in large part) with those funds. 
Personal choice - but I would just DRIP the distributions back into each fund and then rebalance the resultant percentages once a year with my RRSP contribution.
In any event, make sure your account is setup as you want - either distributions to cash or reinvested.


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## spiritwalker2222 (Nov 7, 2017)

My plan is to continue my automated payroll withdrawals to buy Sunlife mutual funds throughout the year. That amount will be (at it's current rate) $16,800 a year plus gains or less losses. I will rebalance at that time.

It looks like XAW is eligible for DRIP. Can I set that up with TD Webbroker?


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## Spudd (Oct 11, 2011)

spiritwalker2222 said:


> It looks like XAW is eligible for DRIP. Can I set that up with TD Webbroker?


You can either do it just for XAW or you can just tell TD you want the whole RRSP to be set up to DRIP whatever investments you have in there. That's probably easier and would let anything DRIP that's able to, even if you change your mind later to different ETF's.

Anyway, to set it up you just have to phone in and ask.


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## spiritwalker2222 (Nov 7, 2017)

Spudd said:


> You can either do it just for XAW or you can just tell TD you want the whole RRSP to be set up to DRIP whatever investments you have in there. That's probably easier and would let anything DRIP that's able to, even if you change your mind later to different ETF's.
> 
> Anyway, to set it up you just have to phone in and ask.


Thanks for the recommendation. I've setup a DRIP with my account.


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## spiritwalker2222 (Nov 7, 2017)

Thread update. About a year ago I started using some USD ETF's, my current mix is as shown.

VCN 25%
ZAG 5%
AGG 10%
ITOT 32%
IEFA 21%
IEMG 7%

I plan to drop down my Canadian equity to 20% and mostly bumping up my US content.
VCN 20%
ZAG 3%
AGG 10%
ITOT 38%
IEFA 22%
IEMG 7%

The reason I have bonds in CDN and USD is that I would like to be able to use those bonds to buy into the market if they take a big dive. And don't want to wait to transfer funds to USD or CDN. I doubt I will use this strategy, but I had done that once in the past during the 2008 financial crisis. It worked very well for me as I had move a good portion of my portfolio into a money market just prior to the crash and bought back into equities about 2/3rd's of the way down. But upon further analysis of what I did and why I did it, I realized it was just dumb luck in me believing in some articles when I did.


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## Investor87 (Dec 1, 2020)

spiritwalker2222 said:


> Thread update. About a year ago I started using some USD ETF's, my current mix is as shown.
> 
> VCN 25%
> ZAG 5%
> ...


Your asset mix is quite similar to mine. One question though: why do you use US listed ETFs?I use Cdn listed USD denominated ETF to maintain exposure to USD, like ZSP.U instead of ITOT. IF over 100k, it saves me the T1135 paperwork.


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## Money172375 (Jun 29, 2018)

Investor87 said:


> Your asset mix is quite similar to mine. One question though: why do you use US listed ETFs?I use Cdn listed USD denominated ETF to maintain exposure to USD, like ZSP.U instead of ITOT. IF over 100k, it saves me the T1135 paperwork.


Just so I’m clear. I hold some Canadian companies (Brookfield, magna, etc) that are journaled to my US account at TDDI. I assume I don’t need to fill out a T1135 as these are Canadian firms?


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## Investor87 (Dec 1, 2020)

Money172375 said:


> Just so I’m clear. I hold some Canadian companies (Brookfield, magna, etc) that are journaled to my US account at TDDI. I assume I don’t need to fill out a T1135 as these are Canadian firms?


According to TaxTips.ca - T1135 Foreign Income Verification Statement :

*Canadian Companies Traded on Foreign Stock Exchanges*
There are many Canadian companies traded on foreign stock exchanges. Make sure you don't include these as foreign investments (specified foreign property). Just because an investment is held in a US$ brokerage account doesn't mean that it is a foreign investment. For instance, some people may want to hold Barrick Gold or Thomson Reuters in a US$ broker account because their dividends are paid in US$, although they are traded on the Toronto Stock Exchange (TSX) and are Canadian corporations. They are not foreign investments.
However, shares of a Canadian corporation which are held in a brokerage account outside of Canada *are* considered specified foreign property.


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## spiritwalker2222 (Nov 7, 2017)

Investor87 said:


> Your asset mix is quite similar to mine. One question though: why do you use US listed ETFs?I use Cdn listed USD denominated ETF to maintain exposure to USD, like ZSP.U instead of ITOT. IF over 100k, it saves me the T1135 paperwork.


My US listed ETF's are in my RRSP, so I don't need to do a T1135. The US ETF's typically have a lower MER for an equivalent product and there is a "tax drag" with the Canadian version of the ETF's. I read a good article on it a while back and wish I could remember where it is as I would not do it justice trying to explain it. I did a quick search and found some info about it on the Canadian couch potato website, but it didn't explain it as well. Maybe someone more knowledgeable on this matter can chime in for me.


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## spiritwalker2222 (Nov 7, 2017)

OK, I couldn't let this go. Here is a youtube video.


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