# All-in-one funds like XTR and VBAL



## digitalatlas (Jun 6, 2015)

Hi,

Are these all-in-one funds a good idea for someone older, retired with a moderate 100k portolio if one values simplicity, capital preservation, and income? There're some slight nuances to both of these (MER, dist frequency, yield), but they seem to have a similar intention of being a one-stop-shop portfolio. Do these seem like a good option? I've looked at ZPR (all Canadian) and I think horizons has something similar, but similar to VBAL, has no history.

VBAL seems much more globally diversified than XTR. I'm mostly talking about these because I have experience with Vanguard and Blackrock, not because they're necessarily better than Horizons, which I've never bought. Just more used to looking at their literature.

Now of course, it's total return that matters, not yield (is what I think someone will say). Would that still be true, anyone have strong feelings about that? If I pick 3 funds for a couch potato, yield may be lower but total return similar? Tax efficiency and such is not that important. Simplicity is kind of important if it doesn't come too expensive, but I'd be managing it for someone else so want simplicity.

Thanks


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## Jimmy (May 19, 2017)

In the registered accounts I think VBAL or even VCON 60% FI/40% equity would be great for someone in retirement. Total return is not effected by the div % really in these types of ETFs. I think they pay 2-3% div. A slight pain if you just want to reinvest teh div but you can set up a DRIP.

One great benefit is they do all the re balancing for you otherwise you would have to own about 6 ETFS and diy. All for a fee of .22% is tough to beat.

If you need more flexibility and want to tweak the asset %s, you could go couch potato 3 ETF s( no foreign bonds, no big deal IMO) , XAW, VCN and ZAG. Fees ~ .07-.17%.

https://cdn.canadiancouchpotato.com/wp-content/uploads/2018/01/CCP-Model-Portfolios-ETFs-2017.pdf


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## AltaRed (Jun 8, 2009)

Firstly, there is no direct comparison at all between ZPR, XTR and VBAL other than they are ETF structures. But yes, with a smallish retirement portfolio of $100-150k, the "one fund" portfolio such as VBAL makes a lot of sense. One gets a global allocation along with re-balancing by the fund manager, all at a low cost of 22 basis points or so. I'd even argue that portfolios of twice that size can benefit from the 'one fund' solution.....albeit I agree with Jimmy that when one gets to $200k or more, a 3 fund portfolio as he has suggested has merit.... especially if one wants to have a different asset allocation than VBAL

My ex has her TFSA in VBAL and my current spouse has 50% of her RRSP in VBAL.....heading towards 100% in VBAL over a few additional years. Set and forget for the most part.


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## hfp75 (Mar 15, 2018)

Horizons has Conservative (HCON) and Balanced (HBAL) - new this year and no history - same as Vanguards all in ones.

Check their allocations though and bear in mind that it is a Total Return Swap that is hedged to CAD. So, more unit growth and less distributions. Might better in a non-registered account vs the Vanguard funds (use these in registered type accts).


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## AltaRed (Jun 8, 2009)

hfp75 said:


> Check their allocations though and bear in mind that it is a Total Return Swap that is hedged to CAD. So, more unit growth and less distributions. Might better in a non-registered account vs the Vanguard funds (use these in registered type accts).


On the surface I agree. However, I don't think there is much PV in the Horizon model (deferred cap gains tax) versus the conventional ETF model (ongoing tax on eligible dividends) on a ~2% yield vehicle. For lower income earners, getting the DTC could actually be positive (negative tax). Personally I don't want my ex-Canada equity allocation hedged (double jeopardy in my opinion) but that is always subject to debate. That is why there are different solutions (products) for the same thing.


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## james4beach (Nov 15, 2012)

I don't think XTR is a good idea. This fund has been problematic ever since its inception. First it was an income trust fund, then after income trusts collapsed, it turned into an income-heavy balanced fund. But in those years it heavily loaded up on junk bonds and paid unsustainably large distributions, resulting in some big distribution cuts. It's just not a good quality balanced fund.

There are indeed some good quality balanced funds out there. Some of them are listed in this thread
https://www.canadianmoneyforum.com/showthread.php/134588-Good-balanced-funds-(one-size-fits-all)

VBAL is promising, but it doesn't have a long track record yet. You could also go with several mutual funds that have nicely diversified portfolios and that have 15+ year track records.


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## digitalatlas (Jun 6, 2015)

thanks for that link james, you gave some interesting suggestions

with the existence of these all-in-one funds, it seems like it's even easier than a couch potato. yes, the MER is quite a ways higher though, I guess that's the key down side? but that makes VBAL pretty interesting i think, as long as the performance is pretty comparable...

is there anything newer that can even be compared with these old funds that have a history of 15 years?

the MER difference isn't huge but it's also not trivial for the relative i'm setting this up for. i mean, 1% is 4 times higher 0.25 and 5 times higher than my own couch potato at 0.2. is that why people still do couch potato instead of just a single all in one, to save on fees? on 100k a difference of 0.75-0.8% is $750-800 bucks, which for a single senior with otherwise modest means and living, i think it's not trivial.

actually i was looking at the BMO monthly income fund, 15 year performance about 5-6%, but the website shows the MER is 1.56....starts getting kind of pricey, unless it does significantly better than a couch potato...i dunno..


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## Beaver101 (Nov 14, 2011)

^


> actually i was looking at the BMO monthly income fund, 15 year performance about 5-6%, but the website shows the MER is 1.56....starts getting kind of pricey, unless it does significantly better than a couch potato...i dunno..


 ... use the D series, MER=1.02% (verified) or as per James4Beach post#2 in his link.


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## AltaRed (Jun 8, 2009)

Everyone has a different view on when MER becomes a choke point. For a passive indexing vehicle, I don't think anyone should be paying more than about 5-10 basis points, although in the case of 'all in one', there is some additional work by the provider and thus the 22-25 basis points. Reasonable in my mind as convenience for the investor. Anything beyond that in my mind is non-competitive.

For actively managed 'all in one' balanced (mutual) funds, the money manager has a crew that needs to be paid and officed. So that is why MER is in the 1% range, but in my opinion, anything more than that is also non-competitive. One major point -- actively managed mutual funds that pay trailer fees to brokerages/advisors is, in my mind, verboten....and all of these kinds of mutual funds will have MERs over 1%. There is no reason to own a mutual fund that pays a trailer to a discount brokerage that is only an 'order taker', i.e. provides no independent advice. 

For what it is worth, for simplicity's sake, my ex and my current spouse (both circa 70 yrs of age) both own VBAL ETF in their TFSA and/or RRSP accounts. I own MAW104 mutual fund in my TFSA. I expect both of these to pretty much perform equally over the long term. Time will tell.


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## agent99 (Sep 11, 2013)

VBAL & MAW104 offer minimal yield. For someone looking for simplicity and income, having to sell off units in ups and downs of market doesn't seem to make sense. 

Objectives were: "100k portolio if one values simplicity, capital preservation, and income?"


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## AltaRed (Jun 8, 2009)

agent99 said:


> VBAL & MAW104 offer minimal yield. For someone looking for simplicity and income, having to sell off units in ups and downs of market doesn't seem to make sense.
> 
> Objectives were: "100k portolio if one values simplicity, capital preservation, and income?"


I suppose the specific need for income (yield? reliable payout?) needs to be better defined. The problem with a number of income funds, including the managed payout solutions flogged by the banks, is the potential for unwanted? return of capital, i.e. is the money manager tapping into the capital in order to maintain, for example, a 4%, 5%, 6% or 7% payout? One needs to look carefully at the primary objectives of the specific fund, i.e. yield variability depending on how the underlying investments deliver? Or a focus on maintaining yield?

This ROC issue (risk?) has been discussed a number of times elsewhere and advisory articles have been written on the subject. Not suggesting this is a particular issue in the bulk of income funds, but the investor needs to be aware. OTOH, someone who is looking to ultimately wind down their holding over 10-15 years may be perfectly happy with surreptitious taps into capital if needed to maintain a fixed payout.


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## digitalatlas (Jun 6, 2015)

yes, thanks for bringing it back to the original objectives, agent99.

the situation is much less sophisticated than what i want for myself. There will be about 100k to invest, leaving up to another 40k in cash (probably not so much, but we'll see) for...i dunno, maybe she wants to visit the old country. otherwise, it's a pretty modest existence from now onto...you know, the end. No further working income, some CPP and OAS in a couple years to supplement, but just trying to set something up that can help generate income. 

Yes, total return is important (I know about ROC and total return vs yield) and i'm totally anal about optimizing my own portfolio, although sometimes i do wonder if that's actually worth the effort too. but i think as much regular income as possible is helpful, because there really is only a very modest amount to live on overall. 

it doesn't matter as much, how much this will grow in say 20 years, who knows what will happen. but at the same time, i don't want to be stupid and totally undercut potentially getting way more from total return than yield...like..to lose out on thousands a year by favouring yield...that's dumb, but with a portfolio of 100k i don't think that's going to be a huge issue, right? what's the difference if one were to chase yield vs total return on a 60/40 or 50/50 balanced portfolio...0.5%? 1%? less? just looking at yield, also seems more convenient. yes, the value will drop before a distribution, so it's a wash with total return, but it's less effort.

now someone could also say, well if monthly income is what you're setting up for, then just draw down the principal. yes, that may happen, it's what the cash is for. but the 100k can hopefully stay untouched for as long as possible, because there may be some big expense that could come up (i don't even know what, but past history leads me to be extra cautious, trust me) that may necessitate eating into the 100k. and like i said, this is it. this is pretty much everything, and aside from gifts here and there, this is probably the third act, the person's not even interested in accumulating more wealth, just to live with one's faith and explore spirituality. so i don't want to hit a scenario of outliving one's money.

to that end, maybe something like BMO monthly income ETF or monthly income D, or similar? they seem pretty heavy on Canada...i'd probably prefer 20/20/20/50 for Cad, US, Int, Bonds....any thoughts? Also, is the active that much better than ETF? their yield performance don't seem that far off...why pay an extra 0.5% MER?


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## AltaRed (Jun 8, 2009)

digitalatlas said:


> to that end, maybe something like BMO monthly income ETF or monthly income D, or similar? they seem pretty heavy on Canada...i'd probably prefer 20/20/20/50 for Cad, US, Int, Bonds....any thoughts? Also, is the active that much better than ETF? their yield performance don't seem that far off...why pay an extra 0.5% MER?


I agree there is no need to pay an extra 0.5% MER but it does pay to look at the multi-year performance of the product itself (quoted performance is net of MER) and if performances are close, that means the manager, historically at least, has been getting value to offset the MER. No promise in the future though.

You need to look at various products yourself to determine the balance of yield wanted to supplement cash flow versus total return. You were given a list of samplings to look at. IOW, is $2k/yr income off $100k needed to supplement current cash flow, or is $5k/yr needed? That is probably the range you will be dealing with. FWIW, I prefer ETFs over mutual funds simply because MERs are less and they are traded on the TSX but some of the mutual fund choices, all actively managed, have pretty good track records. Ultimately, I think you want to pick a relatively conservative product with a balanced allocation to avoid excessive volatility. The rule of thumb is somewhere in the 60/40 equity/fixed allocation to perhaps 50/50 equity fixed. Anything less than 40% equity is not going to have much in the way of Total Return (yield + capital appreciation) and while perhaps good enough, may not be the best for a 30 year retirement.


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## digitalatlas (Jun 6, 2015)

first of all, i made a typo with "20/20/20/50" as this adds to 110 ^^

anyway, yes, will probably want 60/40 for this portfolio. looking at the multi year performance of some of the different active funds suggested such as Mawer and BG, the long term performance seems to be way better than the category average (the market? i haven't looked into it enough).

i've meant to look into the issue of active vs ETF funds, but never really got around to it. but i've always had the question, even though active funds charge more, could their performance justify the fees? i started investing after 2008, so everyone was spooked by the market and there was a big push for ETFs and index funds, low fees, historical performance at least on par with active funds...etc...etc....but is this really true?

i know there're no guarantees in the market. but take Mawer Balanced Fund Class A for example, the MER is 1.09% but it seems to do way better than the category based on 10 year performance (yes, that was 2008...), and even though my balanced couch potato only costs me 0.2%....would it have been wortwhile to get an active fund like Mawer instead?

now, i've done XIRR (yah it's not time weighted, best i can do) and i seem to have done better than the 'category' reported on morningstar, actually, probably similar to what's reported for Mawer...if the XIRR is to be believed (i know, a little apples to oranges here)....but....what i'm saying is, has the push for low cost ETFs perhaps been overemphasized? does it actually do better net of fees, or are the investment companies and banks simply giving the public what it thinks it wants (ETFs)?

from the look of the performance, it seems like something like Mawer may do better than a couch potato with ETFs....or are we still hanging on to "no one beats the market forever, so just buy the market"?


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## AltaRed (Jun 8, 2009)

digitalatlas said:


> from the look of the performance, it seems like something like Mawer may do better than a couch potato with ETFs....or are we still hanging on to "no one beats the market forever, so just buy the market"?


That is the question. Can Mawer continue to outperform, or at least outperform enough to cover the MER of 1% and match the market? In aggregate, the sum of investment vehicles cannot beat the market less fees. This is Math 10. Some may beat the market for a period of time, perhaps even a long period of time, but that cannot be assured long term. Is Mawer one of them? Many products under perform and some so badly, they are quietly folded into other products and we get 'survival bias'. 

As mentioned above, Mawer has a better chance with a 1% MER. So might some of its nearest competitors such as Beutal Goodman, Leith Wheeler, etc. I wouldn't give funds with a 2.5% MER much hope at all.

That said, none of these balanced products have a significant yield. What are you looking for?


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## digitalatlas (Jun 6, 2015)

AltaRed, thanks for all your helpful replies, and not patronizing at all despite your obvious wealth of knowledge and experience.

Yes, yield is still somewhat higher up in priority, but then I looked at the performance of some of these active funds and got seduced, and figured....what's an extra few clicks of the keyboard to sell for cash flow when it nets you, potentially an extra couple thousand bucks? but yes, i must sound like i'm going back and forth, and i am  as you can tell, i'm not the type to walk into a store and buy what's on the shelf, i'm a researcher, but it can be time consuming and at some point i've had enough and i'll just pick the best one i can.

as i am managing it for someone else, i do need some convenience afforded by just dealing with yield. so yes, i still favour yield. so the BMO fund (active or ETF) or similar, probably is going to win out in the end. but another dollar is another dollar. so i'll have to figure out where the balance is.. and as you say, who knows if these guys will continue to outperform? 1% isn't too bad... i guess...if they keep doing well.

i remember in 08 when i started investing after finishing my masters degree and started working...some manulife rep came to talk to us about the company RRSP matching program, but you had to buy the ML funds. and she tried to shrug off to us that the MER for most funds was only 2.5%, up to 3.5% for global equity, that's not very much, is it? everyone in the room (including me) didn't know much better so we all just nodded like she knew what she was talking about. i started learning about investing right around that time and needless to say, i pulled every cent out of there when i left the company, even though they offered to let me keep their funds, to make the transition easier for ME....ha!


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## agent99 (Sep 11, 2013)

I was thinking that if this was my MIL (no longer with is  ), I think I might buy $20k each of 3,4 & 5 yr GICs and put the other $40k into a HIS fund like BMO's AAT770. This way, you would have no risk on capital, earn about 3% on the GICs and about 1.35% on the cash in HIS. Then after a year, buy another 5yr GIC and another the following year. Maybe earn on average about 3.5% (who knows where rates will be). This assumes the other $40k will stay in cash and allow for travel etc. 

Markets could very well tank. So this is safer.

Another suggestion, would be to forget ETFs and MFs and buy some blue chip top ten dividend payers currently yielding in 4% range. Even if markets tank, the dividends should be secure. 

Yet another suggestion would be to buy a handful of blue chip preferreds paying in the range of 5-5.5% and not worry about their value dropping as rates increase. There might be a drop in capital, but cash flow ill be good and can be re-invested if not used.


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## AltaRed (Jun 8, 2009)

The OP is looking for convenience so I'd say the individual stock and/or preferred ideas are out. They take management and oversight. I would go to ETF equivalents to get enough equity diversification. The other question is the age of this 'older' person. Equity component should depend somewhat on age.

Example: My bro and I managed our mother's accounts from the time she was about 74 (when Dad died) until she passed away at age 96. We collapsed everything Dad had and structured her portfolio into a a 5 year GIC ladder (about 50%), 10% HISA (ISA) equivalent to provide liquidity between GIC maturities, and 40% RBC dividend mutual fund series D (bro was too adverse to a dividend ETF). Her accounts were with RBC DI. By the time she died she was 75% GIC ladder, 10% ISA and 15% dividend mutual fund. We were never going to be less than 15% equity had she lived another 10 years, and that was both for inflation protection and to juice return just a bit to stay on track with inflation on an after tax basis.

I would not go 100% fixed income, especially if this individual is under 80-85, since there is no way to stay ahead of inflation after tax. Too many years left to have the capital eroded significantly by inflation. I'll leave it at that.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I'll leave it at that.


I don't agree with you. 
FI option is 100% safe and what I would do in same situation.
OP said tax was not an issue (low bracket no doubt)
The others are no more complex than owning three etfs. 
Sounds like you and your brother chose a more complex plan. 

But I will leave it at that too.


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## AltaRed (Jun 8, 2009)

agent99 said:


> I don't agree with you.
> FI option is 100% safe and what I would do in same situation.


Regardless of age?


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## My Own Advisor (Sep 24, 2012)

There is a case to be made to actually increase your equity exposure as you get older.
https://www.theglobeandmail.com/glo...mb-shouldnt-be-carved-in-stone/article623643/

To the OP, I think the VBAL fund is a great set-and-forget product for any registered account as long as that's what you intend to do - leave it alone. Doesn't matter if that's $100k or even $500k. A solid fund of funds. 
https://www.vanguardcanada.ca/indiv.../etf/portId=9578/assetCode=balanced/?overview

Ultimately any financial product or stocks you choose will depend on your goals and why you want to own it or them. Some growth, some fixed income, some capital to draw down, not worry about re-balancing, want low fees, etc. If those are the goals, hard to go wrong. If you want income from your $100k, a totally different product or products would be needed.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Regardless of age?


Age not given, but this was. Act III.



> now someone could also say, well if monthly income is what you're setting up for, then just draw down the principal. yes, that may happen, it's what the cash is for. *but the 100k can hopefully stay untouched for as long as possible,* because there may be some big expense that could come up (i don't even know what, but *past history leads me to be extra cautious*, trust me) that may necessitate eating into the 100k. and like i said, this is it. *this is pretty much everything, and aside from gifts here and there, this is probably the third act*,* the person's not even interested in accumulating more wealth*, just to live with one's faith and explore spirituality. so i don't want to hit a scenario of outliving one's money.


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## AltaRed (Jun 8, 2009)

I realize the person is retired, but what one does at 70 for asset allocation could/should be quite different than what one does at 85. In any event, the OP has not disclosed age so it is a moot point.


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## james4beach (Nov 15, 2012)

digitalatlas said:


> with the existence of these all-in-one funds, it seems like it's even easier than a couch potato. yes, the MER is quite a ways higher though, I guess that's the key down side? but that makes VBAL pretty interesting i think, as long as the performance is pretty comparable...


Yes, the all-in-one funds _are_ easier than doing a couch potato with separate ETFs. They may even outperform despite the higher MER. For example, if a couch potato'er fails to regularly rebalance, and leaves uninvested cash (suffering from cash drag), or deviates from the ideal plan by making ad hoc allocation changes, they could easily do worse than a mutual fund.

VBAL is quite new and hasn't even been around for a full year. It's possible this could turn out to be an excellent performer, perhaps doing exactly what the good mutual funds are doing, with a much lower MER. It's promising. However the performance remains to be seen. It's likely, but not certain, that VBAL will do as well as the ETF couch potato portfolios.

The mutual funds can be attractive for other reasons. Many of them allow very small incremental purchases (as low as $50) which you can't do with ETFs. In practice, this can make them good for investing smaller dollar amounts, or for regular investment contributions where ETF trade fees would be prohibitive.



Beaver101 said:


> ^ ... use the D series, MER=1.02% (verified) or as per James4Beach post#2 in his link.


Yes.

BMO Monthly Income, Series D with 1.02% MER -- code GGF31148
BMO Monthly Income, Series A with 1.57% MER -- code BMO148

They hold the same investments, but the difference is in the MER. The Series D has 0.55% less MER and will reliably have 0.55% better annual performance versus Series A. If you look at the long term performance for Series A, you'll see it has returned 5.92% annually over 15 years. Series D has not existed for that long, but if it had, it would have returned 5.92 + 0.55 = 6.47% annually over 15 years.

My parents hold MAW104, and I hold a bit of GGF31148


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## james4beach (Nov 15, 2012)

AltaRed said:


> Anything less than 40% equity is not going to have much in the way of Total Return (yield + capital appreciation) and while perhaps good enough, may not be the best for a 30 year retirement.


Even a mix of 30% XIU and 70% XBB had over 5.7% annual return over 15 years ... and that's not even considering the higher performance gained from US exposure, which easily pushed the return over 6%. With inflation barely around 2%-3%, that's a very solid *3% to 4% real return* with only 30% equities.

I also think 50/50 is an excellent generic asset allocation.

People disagree with me on this, but I'd argue that even low equity allocations provide decent returns over the long term. I also think it's important to consider that lower equity allocations result in less volatile portfolio that steadily gains value even when the stock market is doing terribly. This helps people stay invested because they don't freak out and sell... in fact, they may barely feel the pain of a stock market crash.


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## agent99 (Sep 11, 2013)

With equity markets at all time highs, I just hope the OP keeps the money out of the equity markets. The funds discussed have yields lower than GICs and at this stage in the equity market cycle, there is likely a bigger chance of capital losses than gains. Don't expect historical returns on those balanced funds over the short to mid term.


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## AltaRed (Jun 8, 2009)

agent99 said:


> With equity markets at all time highs, I just hope the OP keeps the money out of the equity markets. The funds discussed have yields lower than GICs and at this stage in the equity market cycle, there is likely a bigger chance of capital losses than gains. Don't expect historical returns on those balanced funds over the short to mid term.


I agree forward returns will not be the same as historically. J4B's example (post #25) contains an unprecedented significant bull market in bonds...and that is gone. It may take a generation (or never) to get another "sustained" bull market exceeding 5-10 yeas in bonds. Similarly with equity but less so since there is room yet to move in several markets, e.g. Canada, Europe, Emerging Markets. It is mostly the USA that is in nosebleed territory.

That said, and not wanting to re-open the disagreement between you and I, the OP needs to decide on the balance desired between income (yield), capital stability, and capital growth to stay even with inflation. It depends quite a bit on this individual's age, e.g. 10-15 years left vs 25-30 years left and whether $2k or $4k/yr is needed from the $100k. 

The OP has been jumping around quite a bit in posts so far in terms of what is the desired output...with perhaps too much focus on MER in particular. Gotta get the desired outputs prioritized first.


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## james4beach (Nov 15, 2012)

AltaRed said:


> I agree forward returns will not be the same as historically. J4B's example (post #25) contains an unprecedented significant bull market in bonds...and that is gone. It may take a generation (or never) to get another "sustained" bull market exceeding 5-10 yeas in bonds. Similarly with equity


Right, it seems unlikely that we will continue to have an amazing simultaneous bull market in both stocks and bonds. Investment conditions for the last 35 years have been quite optimal for a "balanced fund" investor, which explains why they are so incredibly popular today. But nobody knows -- it cannot be predicted. Nobody can time the stock market or the bond market.

At the end of the day, the OP must decide on their asset allocation. It's the critical question, and MER or individual fund selection is a lesser issue.

Regarding bonds though, there is an unjustified fear of bond allocations out there. Bond (funds) are a very different beast from stock investments. When experts talk about the end of the bond market bull, they mean that they think bond yields will move higher over the years. While it's true that this keeps individual bond prices depressed, it actually is not a bad thing for bond *funds* as the funds now benefit from higher interest rates. The bond funds continue to provide a positive return and more importantly, are still far less volatile and far more stable than stock investments. In fact, a long term bond investor... for example an XBB investor with 20-30 year time horizon, should be cheering on a bear market in bonds, and higher yields. They will benefit from it.

At the end of the day, both stocks and bond funds (or GIC portfolios) are solid long term investments. One cannot time markets, so the investor simply needs to decide on an asset allocation that's right for them, considering performance/risk/stability/personal taste.


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## AltaRed (Jun 8, 2009)

Another curve ball to throw at the OP (and for challenge from y'all too). Based on another conversation elsewhere..... FIE ETF, originally discussed here https://www.canadianmoneyforum.com/showthread.php/17986-The-ETF-FIE-(iShares)?highlight=fie has had a constant distribution yield of 4 cents/month since inception circa 2010 and what appears to be an unsustainable yield. 

The basic info is here https://www.blackrock.com/ca/indivi...ishares-canadian-financial-monthly-income-etf and note the whopping MER and distribution yield exceeding 6%. Now there is no way that can happen with the bulk of the ETF in common stocks and preferreds, and the REIT component cannot overcome that itself..... so that means there is lots of ROC. Some good ROC from REITs but some of the ROC must be return of investor's own capital. That ROC component is shown here https://www.blackrock.com/ca/individual/en/literature/annual-mrfp/mrfp-fie-en-ca.pdf and note the NAV has remained relatively constant.....to date... in a bull market. That has to mean some return of investor's own capital.

How long can this ETF survive this kind of performance without a significant reduction in NAV? Depends on the continuation of the bull market I imagine. That said, IF the OP doesn't care that much about capital preservation, and/or this senior is very senior with perhaps a 10-15 year time horizon, this senior will have enjoyed perhaps $6k/yr in income for a number of years before the original $100k in capital goes off the rails. Or the distribution gets slashed to perhaps 50% of current numbers.

The point of me bringing this up is the OP does need to decide on what is important. There are many ways to 'execute' the plan with a product(s) once the objectives and boundary conditions are established.


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## Beaver101 (Nov 14, 2011)

^


> The point of me bringing this up is the OP does need to decide on what is important. There are many ways to 'execute' the plan with a product(s) once the objectives and boundary conditions are established.


 ... agree. So it sounds to me FIE is an acceptable vehicle (and similar ones) if one plans to leave a big fat zero for its heirs or the government.


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## AltaRed (Jun 8, 2009)

More on the subject https://www.theglobeandmail.com/glo...fs-yield-too-good-to-be-true/article32373227/ From Dirty Harry... Do you feel lucky?....Well, do ya?


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## Eclectic12 (Oct 20, 2010)

The FIE ETF documents look strange to me.

Comparing the detailed documents categories for distributions of "dividends", "capital gains" and "RoC" against the annual breakdown listed results in discrepancies.

2017 ... detailed document has dividends of 23 cents, CG at 12 cents and RoC of 13 cents. The annual breakdown has eligible dividends 23.1 cents with nothing else (i.e. no RoC listed).
2016 ... dividends are 18 cents, CG zero and RoC of 30 cents. Annual breakdown lists eligible dividends 23.9 cents, CG zero and RoC of 24.0 cents.
2015 ... dividends 17 cents, CG zero and RoC of 31 cents. Annual breakdown lists eligible dividends 22.5 cents, CG 8.5 cents and RoC of 16.7 cents.
2014 ... dividends 18 cents, CG zero and RoC of 30 cents. Annual breakdown lists eligible dividends 23.0 cents, CG zero and RoC of 24.9 cents.


The charts in the detailed document for Year-by-Year returns has the common units starting April 16th, 2010 while the advisor class units go back to 2008.


Just on that alone I personally would look for alternatives.


Cheers


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## AltaRed (Jun 8, 2009)

I agree. It is an especially niche product to serve a limited need.


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## agent99 (Sep 11, 2013)

AltaRed said:


> More on the subject https://www.theglobeandmail.com/glo...fs-yield-too-good-to-be-true/article32373227/ From Dirty Harry... Do you feel lucky?....Well, do ya?


A fund like that might not be that bad if held in a TFSA. 

In the example given, the fund lost $0.45 over 6.5 yrs if bought at $7.10 in 2010. Average loss of about 1% pa. But it also paid out about 7% pa. So net gain of 6% pa. Not that bad.....

Of course that is just one set of data. Might be better or worse over different periods. The price of FIE today is $7.49 for a capital gain of $0.39 over 8 years. So holders would have got about 7.7% if distributions had stayed at 7%. ( I think they stayed at 0.48/yr). The value of the fund has had ups and downs, but has not steadily gone down as the article suggested it might: http://cart.morningstar.ca/Quicktakes/stock/chart.aspx?t=FIE&region=CAN&culture=en-CA 

$10k invested at end of 2010 would now be worth $18k (7.9% total return) Not bad! Question is why? Maybe new money coming in or maybe they use leverage? Or??? Interested to know.

Sometimes conventional wisdom doesn't seem to apply when it comes to TFSAs.


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## AltaRed (Jun 8, 2009)

Plus the bigger issue for the OP is that this fund is primarily in equities, both common and preferred, plus corporate bonds. This fund would take a significant NAV hit in a bear market and the fund manager will either have to continue to sell underlying securities to keep the distribution going, or cut the distribution to avoid real damage to the underlying capital. This thing has not experienced a bear market. Is "relative" capital preservation important? Only the OP can tell us.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Plus the bigger issue for the OP is that this fund is primarily in equities, both common and preferred, plus corporate bonds.


I wasn't suggesting the OP buy this! Just that it might not be as bad as the G&M article suggested if it was used in a TFSA.


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## AltaRed (Jun 8, 2009)

I know you were not doing so. My comments were meant to inform the OP on the risks.

Even in a TFSA, it has risk of premature death if in a bear market underlying securities are sold to meet distributions. Like a SWR withdrawal gone amok.


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## Beaver101 (Nov 14, 2011)

AltaRed said:


> More on the subject https://www.theglobeandmail.com/glo...fs-yield-too-good-to-be-true/article32373227/ From Dirty Harry... Do you feel lucky?....Well, do ya?


 ... ya, alot more than this one FEN:NYSE, for e.g. with a Yield 10.20% , Annual dividend 2.32 and in USD!!!! Imagine that, an energy fund that's paying more than 10% and in US$ too! Go ahead and make my day. Too bad, it's a closed-end fund.

On a serious note, haven't the preferreds in FIE gone for a wringing already in the past couple years so what's with it not having experienced bear poo? Moreover, there're plenty of bank equities in there that Canadian investors ever so love.


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## AltaRed (Jun 8, 2009)

The prefs themselves wouldn't necessarily have to be sold during their 'bad' years. The fund manager could have sold other constituents to fund the distribution. But notice from a 5 year chart that FIE dipped to under $6 during the Pref pricing crisis in late 2015/early 2016 as one would expect. They recovered for the most part of course through much of 2016/2017. FIE behaved as one would expect.

Added: There is a lot of turnover in this ETF, approaching 40% sometimes. This is really an actively managed mutual fund in an ETF wrapper. Hence the steep MER as well.


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## agent99 (Sep 11, 2013)

I once owned FIE in my RRIF, but due to some of the concerns expressed above about excessive ROC and the tax on RIF withdrawals, I sold it. 

Looking at it now, I can see a possible place for it in my TFSA. No concern about ACBs or taxes of any kind. Record to date shows that unit value has been at least been maintained and even grown a bit. Total return since inception 7.73% and 9.42% over past 5 yrs. The active management must be working? Current yield 6.39%. Hasn't been through a major market crash, but given holdings, would it do any worse than other financial etfs?

Holdings of fund are mainly financials, so perhaps some risk there. But then this wouldn't be a major holding - just part of financials allocation.

Banks59.34
Insurance17.49
Real Estate6.09
Energy5.51
Utilities4.03
Diversified Financials3.57
Telecommunications1.61
Transportation0.64
Autos & Components0.52
Food & Staples Retailing0.35

Can someone tell me what other mainly financial Canadian etf/MF/other would be preferable in a TFSA and would pay close to same distribution?


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## AltaRed (Jun 8, 2009)

agent99 said:


> Can someone tell me what other mainly financial Canadian etf/MF/other would be preferable in a TFSA and would pay close to same distribution?


I can't think of one because I have no interest in 'income' funds per se. I am more interested in total return whether in a registered account or not. XDIV is an alternative that comes to mind which is about 55% financials I think but it is a mix of yield plus capital appreciation. But relatively new and no 5-10 year track record yet.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I can't think of one because I have no interest in 'income' funds per se. I am more interested in total return whether in a registered account or not. XDIV is an alternative that comes to mind which is about 55% financials I think but it is a mix of yield plus capital appreciation. But relatively new and no 5-10 year track record yet.


I am mainly interested in Total Return too (in TFSA). 

Problem I see with funds that pay low distribution and that rely on growth of stock value to achieve Total Return, is that they will not do well over short term when markets retract. 

One thing about having ROC boost distribution as in FIE, is that you get the ROC now! So you get the good Total Return month by month and when you see markets turning down, you can opt out any time you want, instead of waiting a long time for stocks to recover. (I did that with income trusts and sold off as values started to drop.)


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## AltaRed (Jun 8, 2009)

I agree higher yield products are not as volatile as others and there is a place for them in the portfolio, especially for seniors in withdrawal mode.


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## james4beach (Nov 15, 2012)

FIE, wow, looks like a soup of misc financial sector instruments. Overall, it's too complex, too messy, and too vague -- not a good ETF. If you like FIE generally speaking, you might as well buy XFN instead because that's basically what you're getting and XFN has a lower MER.

The ROC, dividends, whatever are all just sleight of hand. The yield on FIE does not make it less volatile than XFN. You can graph the two side by side and you'll see they correlate nearly perfectly.


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## agent99 (Sep 11, 2013)

james4beach said:


> The ROC, dividends, whatever are all just sleight of hand. .


sleight of hand eh? 

Oh well,....


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## james4beach (Nov 15, 2012)

agent99 said:


> sleight of hand eh?
> 
> Oh well,....


I mean that those mechanisms can produce a high yield that attracts investors, but the yield is somewhat of a distraction from the core aspect of the investment. You're basically getting XFN at the end of the day with a higher MER. The yield doesn't add anything to the performance, doesn't reduce the risk, and doesn't diversify any better than XFN.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I mean that those mechanisms can produce a high yield that attracts investors, but the yield is somewhat of a distraction from the core aspect of the investment. You're basically getting XFN at the end of the day with a higher MER. The yield doesn't add anything to the performance, doesn't reduce the risk, and doesn't diversify any better than XFN.


I'd pick XFN too but it has only half the yield, but obviously capital appreciation potential that FIE does not. FIE appears to be an ETF solution to the high cost Managed Payout solutions marketed by the big bank asset managers, e.g. the RBC ones http://funds.rbcgam.com/investment-solutions/portfolio-solutions/rbc-managed-payout-solutions.html and http://funds.rbcgam.com/pdf/distributions/mps-2018-distribution-rates.pdf and http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf581_e.pdf for the 5% version. Had to dig really deep to find MER of these things. Slimy b**tards!


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## james4beach (Nov 15, 2012)

I think the FIE yield only looks sustainable because the financial sector has been performing incredibly well. If the sector enters a bear market, these distributions will reduce.

It seems to me that a more straightforward way to do this is to own XFN and regularly sell shares to generate cash. How is FIE better? Is it really worth paying 0.32% more MER and adding complexity to the holdings, purely for the benefit of automatic cash distributions instead of selling shares?


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## digitalatlas (Jun 6, 2015)

Lots of interesting reading here. FIE is a little too exotic for what I'm doing here. So a little more detail, age 61, so could be a longish horizon but who knows. 

I'm probably going to end up with 60/40 or 50/50 equity/bonds. I'd prefer something like 20/20/20 Cad/US/Int for equities, or something thereabouts.

After thinking about it, I think a decent yield (i mean, it seems there's really no big variation from about 3-4%) from some reliable companies is probably more important. VBAL looks like a nice simple buy and hold, but doesn't distribute much. Total return sounds good in theory, and I'd want that personally as I have up to 3 decades before retirement and I'm perfectly able bodied to work and hustle. But if there's a market contraction, I'd want this account to keep paying out somewhat reliably.

MAW104 looks like it's performed well, but low distributions and who know what will happen in the future. The only thing that's guaranteed is the MER. BMO Monthly Income D seems good, though I feel like I'd want more allocation to international stocks and less on Canada....

Maybe a simple 3 fund couch potato might be worthwhile...but that doesn't necessarily distribute very well. I guess then I'd just have to manage selling the bonds for cash flow in case the stocks retract....much of this may end up being in an unregistered account, so I'd like to minimize tracking ACB and stuff too....I know it's not that hard to keep track of, but nothing's as easy as not having to track it (or just doing one fund).

what about CBD? not as much US as I'd like, but...


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## james4beach (Nov 15, 2012)

digitalatlas said:


> Total return sounds good in theory, and I'd want that personally as I have up to 3 decades before retirement and I'm perfectly able bodied to work and hustle. But if there's a market contraction, I'd want this account to keep paying out somewhat reliably.


No matter which choice you make here, you'll be investing on a total return basis and relying on the same theory. If there's a serious market contraction, these distribution-heavy funds can reduce their distributions. The part they never tell you in the pitch for these products like XTR/FIE is that *their high distributions are contingent on strong equity performance*.

So whether you go with a solid balanced fund like MAW104/etc and sell shares, an income-heavy mutual fund, or a packaged exotic fund, you are still exposed to the performance of equity markets and still exposed to stock weakness. There's no escaping it.

On the balance of things, if you really want a fund that generates distributions, the BMO Monthly Income D may work for you. The reason these monthly income funds hold heavy Canadian allocations is that Canadian stocks have higher dividends than US/intl. This fund's 33% Canada vs 24% foreign is not a massive skew towards Canada. The fund yields 3.5%. More importantly, you're not making any compromises on sector allocations or exoticness just in the pursuit of high yield.

But again, remember that any of these funds can reduce distributions in an ugly bear market.


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## digitalatlas (Jun 6, 2015)

Thanks, James. I hold about 30% Canada myself, but I have a much higher equity allocation. That's a good point you bring up about US/Intl paying lower dividends, probably why it's weighted lower. I'm just wary about not having as much of the rest of the world, cause there's a big world out there outside of Canada. Maybe I could hold 2 funds.....with something that's ex-Canada or something just to balance it out a little...yes..will reduce yield

I think everyone has to always remember that if you're in equity markets, you're subject to equity performance. That's not lost on me either. But I'm hoping that with strong dividend payers, there will be at least another (however small) layer of insulation, that will help to reduce the volatility of the portfolio. There may be times, which I can't predict, but wouldn't be surprised by, when she might need a lump sum and I might need to sell something, so I want to limit volatility where possible. I hope no one posts that I should just go full GIC/bonds...cause there needs to be a balance of everything.


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## james4beach (Nov 15, 2012)

If you want some strong dividend payers without departing too much from couch potato ETF'ing, you might want to look at these potential substitutes for the usual couch potato ETFs:

CDZ for Canada has good quality holdings in a diverse portfolio, yields over 4%
VYM for US also has a great portfolio, over 3% yield

The appeal of these funds is that they have long track records and long term total returns similar to the benchmark indexes, so you wouldn't be doing anything too strange to your portfolio. In other words, if you substituted them into the usual couch potato ETF mix, you probably wouldn't be compromising the general construction, but you would boost the yield. The cost would be slightly higher MER.

Example: 30% CDZ, 30% VYM, 40% XBB --> yields 3.0% to 3.3% ignoring tax effects

Plus you could make some tax modifications, such as holding ZDB instead of XBB in the non-registered account.


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## agent99 (Sep 11, 2013)

james4beach said:


> The reason these monthly income funds hold heavy Canadian allocations is that Canadian stocks have higher dividends than US/intl.


They do??? I have bought adrs of major Intl companies just because of their high dividends. 

Presently own Unilever (5% when purchased, now 3.2% because of higher stock price), BT Group (British Telecom - 7.4%), Royal Dutch Shell (5.6%). I have about $100k in these three. Would like to add others, but need to do some research. Open to good ideas!
(Some others: BP:NYSE 5.76%, BHP Billiton 5.6%, Glaxo Smith Kline 5.35%, National GRid 5.86%, Rio Tinto 6.62% and more)

You do have to be aware of withholding taxes from home country on some foreign ADRs, but these UK stocks have none. Like US and other foreign stocks, TFSA is not the place to hold them.


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## digitalatlas (Jun 6, 2015)

I guess I might just have to hold more than 1 fund, also to keep the MER down. I mean, it may not seem like much to many people but if I can cut the MER from 1% even down to 0.5%, that's $500 per year on 100k, which is not trivial for her situation.

I looked into CDZ too...that's a maybe. Vanguard has one too but it's 60% financials. I probably will stay away from VYM because it's listed on NYSE and I'd need to buy USD, and then convert back after distributions. She has no real need for USD other than perhaps if she goes out of North America briefly for a visit, but then I could just buy some cash for that, plus...I wouldn't want her holding a bunch of USD cash anyway. I find these days it's pretty convenient, not too expensive, and much more convenient to go overseas without too much cash.

This leaves out international out of NA, then I'm back to several funds. Can't avoid it it seems. These fund operators know they got us too, that's why they price things the way they do, eh? I'm thinking of a dream world here, but it'd be nice if there was a single fund that allocated perfectly, cost a few bp, and held thousands of companies diversified across industries... =D


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## AltaRed (Jun 8, 2009)

CDZ has a lot of energy, so it depends on what poison you prefer. XDIV is an alternative with 0.1% MER but it only has a one year history and is heavy in financials. It is hard to get yield/income without being skewed to something.


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## james4beach (Nov 15, 2012)

AltaRed said:


> CDZ has a lot of energy, so it depends on what poison you prefer. XDIV is an alternative with 0.1% MER but it only has a one year history and is heavy in financials. It is hard to get yield/income without being skewed to something.


Interesting that CDZ has so much energy now. This wasn't always the case. Even if you go with XDIV or another one of these, who knows what kind of sector concentration you might end up with in the future. I've warmed up to CDZ over the years, but the high MER still bothers me.

Another thought, while we're brainstorming, is to use something like my 5-Pack allocation for your Canadian allocation. This is explicitly designed with equal sector weights to avoid concentration in energy/financials. I would not endorse doing this unless you try it out for a while on a smaller scale to make sure you're comfortable with individual stocks (it's not for everyone). The current 5 pack yields 3.5% and there is no MER to pay.

Myself, I use the 5-Pack for nearly my entire Canadian allocation, instead of an ETF. If one followed the approach presented in my thread, the 1 year performance to 2018-09-04 is +12.1% which is significantly better than the TSX index ETF. I designed it for total return and sector balance, but it happens to contain some of the best dividend stocks too.


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## AltaRed (Jun 8, 2009)

Except I believe the OP wants to keep it simple with a 1 fund or 3 fund portfolio. I'd not suggest straying from those original goals.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Except I believe the OP wants to keep it simple with a 1 fund or 3 fund portfolio. I'd not suggest straying from those original goals.


OK, good point. Yes, stick to some kind of ETF or mutual fund... perfectly fine to do that.

Seems like there are a few viable options anyway.


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## digitalatlas (Jun 6, 2015)

I don't know if I'm reading the performance history correctly on Morningstar. Just as an example, if I compare VCN to CDZ starting 2013 when VCN started, both look very similar. If i compare CDZ to VCN starting 2009 when CDZ started, it looks like growth of CDZ is much higher than VCN. Is this just because CDZ starts in 2009 (with 10k) and VCN starts later in 2013 (with 10k)? If you look at the returns by year, they're much more similar.

It's too bad I can't specify the duration of the comparison on Morningstar. What do you all use? I used to look at Google Finance but it sucks now, so I sometimes use Yahoo Finance.

If the ETF performance is to be believed, as reported by the bank (etc.), the dividend funds tend to have a lower total return than total market (not unexpected), and could be by a couple %. And when comparing CDZ to VCN, CDZ actually looks more volatile than VCN based on annual returns. It continues to pay its monthly dividends, yeah, but this looks like it's being paid for by it's lower 1, 3, 5 year returns. I thought it would have been less volatile, but maybe it only seems less volatile because they keep paying you dividends, but the overall return is lower (again, in principle, not unexpected). Plus the higher MER.

So now I'm back to, maybe I should just throw everything into VBAL, and target a certain withdrawal rate every year, and just sell off enough to hit that rate, and also keep enough in cash to avoid selling for 1 or 2 years, in case of a (short) downturn. VBAL almost has the precise allocation I would try to recreate with 3-5 ETFs....sigh. 

it's looking like it'll distribute just under 2%. and selling 1 fund is probably easier than 3-5 to maintain balance. so it has no history, the underlying ETFs have a longer history. can't do more tax efficient stuff with interest...but...i guess that is what it is....


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## james4beach (Nov 15, 2012)

The good news digitalatlas is you're now getting into "you probably can't go wrong" territory, meaning that these are minor points. But here are my thoughts anyway:

CDZ performance won't exactly equal VCN or XIC. Annual performances can be different, but having watched this for several years, and looking at the longest term data available, I'd say their performances are quite similar on average. A reasonably diverse basket of Canadian dividend stocks is expected to perform about the same (not much more or less) as the TSX Composite index. For example CDZ 10 year return is above the benchmark. 5 year return below by a similar amount. There are no assurances of course. In the most recent couple of years, dividend stocks have done worse than the benchmark.

Regarding VBAL, this is a very new fund. It hasn't even been around for a full year. If you're talking about a significant amount of money, I'd be inclined to wait on VBAL. It's great in theory, but theory and practice can be quite different. Personally I'd be more comfortable with one of the established long term balanced funds -- there are several that have shown excellent performance and 1% MER or less. Others will disagree with me on this point but I think it's better to go with one of these tried and true mutual funds that have 15 or even 20 years of history.

Yes, VBAL's underlying ETFs have more history, but the big question is how the fund manager (the overall fund) maintains its allocations. It probably won't be horrible either way, but it's not a sure thing. The manager has to act sensibly. They have to avoid stuffing the fund full of junky assets (which is what XTR did). They have to avoid the human/business temptation to chase recent years returns and shift their allocations, which is enormously difficult challenge that even the best managers face. It's not at all certain that VBAL managers can do this right. They also have to stay viable and grow their asset base, otherwise the fund may have to shut down. It's only $200 million in assets, versus several billion $ in those other balanced mutual funds.



digitalatlas said:


> VBAL almost has the precise allocation I would try to recreate with 3-5 ETFs....sigh.


They do today, but it's impossible to know what their geographic allocation will be in a year, 5 or 10.

I don't have the credentials to give you advice, but from what I understand of your situation, I think the best/simplest options are either (A) do a couch potato ETF portfolio and sell shares as needed, (B) use a balanced mutual fund with high enough yield, or (C) use a balanced mutual fund and sell off shares as needed.

*Notes/Idea 1*: If your couch potato portfolio is 3 funds (CDZ, XAW, ZDB) ... efficient for non-registered ... your CDZ will spin off enough dividends that you won't have to sell any shares. This then means you will only have to sell from 2 sources, which doesn't sound so difficult. Overall MER is less than a third of a mutual fund's. And just a little bit of work, once a year, balancing between 3 ETFs.

*Notes 2*: Mawer also has a Tax Effective Balanced (MAW105) that is appropriate for non-registered accounts.


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## AltaRed (Jun 8, 2009)

james4beach said:


> Yes, VBAL's underlying ETFs have more history, but the big question is how the fund manager (the overall fund) maintains its allocations. It probably won't be horrible either way, but it's not a sure thing. The manager has to act sensibly. They have to avoid stuffing the fund full of junky assets (which is what XTR did). They have to avoid the human/business temptation to chase recent years returns and shift their allocations, which is enormously difficult challenge that even the best managers face. It's not at all certain that VBAL managers can do this right. They also have to stay viable and grow their asset base, otherwise the fund may have to shut down. It's only $200 million in assets, versus several billion $ in those other balanced mutual funds.


I agree we don't know how the fund manager will allocate within each of the equity and fixed income components. I'll suggest it will be perhaps no better or no worse than any of the globally balanced funds. Only time will tell but you are denigrating it way too much. They underlying components are other Vanguard ETFs which have history and staying power in their own right.... so perhaps stop the nonsense about junky assets. Stay objective. The fund just started circa Feb 1 this year and now has a market cap of about $250 million per TMX Money. That is a pretty good following in about 6 months. That all said, the OP may feel more comfortable with one of the established products


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## james4beach (Nov 15, 2012)

My point with VBAL is the underlying funds aren't the "magic" and it doesn't really matter that they are good index funds. Rather, the "magic" is the allocation decision-making, long term management consistency, and implementation. Other mutual funds have demonstrated decades of that, but VBAL hasn't demonstrated any of it yet.

Big professional firms like Vanguard do not necessarily pull off good portfolio management. iShares XTR was once a good little balanced fund that looked a lot like VBAL. But it turned out to be a failure in management consistency and execution. Why would you automatically assume VBAL would be better?


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## AltaRed (Jun 8, 2009)

XTR was a failure from the beginning due to its business model containing imploding ponzi schemes (income trusts) and its need to re-identify itself. Blackrock's mistake was in not dissolving it. There is no comparison between VBAL and XTR and you know it. 

I expect VBAL to follow the Mawer model of 'fund of funds' with the specific exception of staying in its 60/40 mandate. That said, I agree with you that it is time that will tell and if one is not comfortable with the short track record, there are many alternatives.


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