# Is it time to start investing?



## Jeypic (Sep 22, 2012)

Hey all, I'm a first time investor looking to set up my portfolio. I'm 27 years old, I have a mortgage that I owe about 120,000 on, but due to low interest rates I think I'd like to use my savings to establish my portfolio first. I have 50,000 to invest after my emergencey fund. All of this will be in RRSP's and my tfsa. I'm looking to open up a brokerage account with RBC, I bank there already.. and I've been familiarizing myself with a practice account on there website.

These are the funds I've been looking at investing in:

VCE Vanguard MSCI Canada index - 30%
XUS Ishares S&P 500 index - 15%
XEF Ishares MSCI EAFE IMI Index -15%
XEC Ishares MSCI Emerging Markets IMI 15%
CLF Ishares 1-5 Year Laddered Government Bond Index 15%
VRE Vanguard FTSE Canadian Capped REIT Index 10%

My questions are:
1. With the market looking like its ready for a correction should I be holding off on jumping in? Everything I've read says not to try to time the market.. but its hard to ignore all the doomsayers around right now. Should I be paying off my mortgage instead?
2. How do my fund choices look? With the amount I have to invest is that many funds efficient? I wouldn't mind investing in gold right now.. but I feel like I've already got alot of funds for the amount I'm investing. True? The Ishares equity funds are all relatively new, should I be looking for something more established? 
3. Does that asset allocation look good? I feel like I''ve got a pretty good risk tolerance, but I guess it's pretty well untested too. Does it matter which funds I put in RRSP's as apposed to TFSA with these funds? I was gonna put the international and american equities in the rrsp and everything else in my tfsa..
4. Bonds.. I've heard they arent the best to be buying into right now. Should I be looking at GIC's for that portion of my portfolio?
5. RBC direct investing.. am I ok to stick with them? I would like too, but maybe I should be looking at questtrade instead.

Thanks for reading, appreciate any help!


----------



## Worm (Nov 18, 2012)

There are much smarter people on this board who can probably give advice on your other questions, but personally I'd lower my canadian exposure a little, and go 20% each on VCE, XUS, and XEF.


----------



## LifeInsuranceCanada.com (Aug 20, 2012)

Just a 'FWIW', here's what I set my kids up with (they're not quite a decade younger than you, you both qualify as 'young'). It's easy to understand, easy to do, and I believe it should be very effective:
1) 50% TD index e-fund, 50% bond.
2) regular monthly contributions, split 50-50
3) rebalance one a year or so.



> 1. With the market looking like its ready for a correction should I be holding off on jumping in? Everything I've read says not to try to time the market.. but its hard to ignore all the doomsayers around right now.


You should really re-read your statement. Emotional investing has about a 3 in a 100 chance of beating an index fund.


----------



## mrPPincer (Nov 21, 2011)

I'd be paying down the mortgage first and keeping a small emergency fund in a HISA,
reason being, mortgage payment is a guaranteed return, equity is not.

Unless your mortgage rate is lower than what GICs are paying I can't see why you'd buy them.
As well, GICs are not paying more than the best HISAs right now so there's no incentive to lock up your money unless you think rates will go even lower.

For your emergency fund I would suggest a People's Trust HISA TFSA which is paying 3% interest, the rate being unchanged so far since Feb. 16 2009, and it's CIDC insured.


----------



## Jeypic (Sep 22, 2012)

mrPPincer said:


> I'd be paying down the mortgage first and keeping a small emergency fund in a HISA,
> reason being, mortgage payment is a guaranteed return, equity is not.
> 
> Unless your mortgage rate is lower than what GICs are paying I can't see why you'd buy them.
> ...


I guess I should add that I already have a group rsp plan with work that has 11,000 in it.. I'm currently making over 100,000 a year working in the oil fields and wanted to max out my rrsp while I'm in a higher tax bracket so i can take advantage of the tax return. (They gave me 8 grand back this year, it got me excited for next year) In another year or two I plan on taking a paycut to work back at home. 

Does that change things? Or do you still reccommend me putting it on the house? What about the funds I already have in my rrsp?

Thanks for your advice on the gic's. I guess they dont make much sense when I look at it that way. Bonds don't really either at the premium they're at right now.. 

I was planning on putting my emergency fund into a HISA.. but hadn't really looked much further then what RBC is offering. They definately arent offering 3% though!


----------



## none (Jan 15, 2013)

Jeypic said:


> I guess I should add that I already have a group rsp plan with work that has 11,000 in it.. I'm currently making over 100,000 a year working in the oil fields and wanted to max out my rrsp while I'm in a higher tax bracket so i can take advantage of the tax return. (They gave me 8 grand back this year, it got me excited for next year) In another year or two I plan on taking a paycut to work back at home.
> 
> Does that change things? Or do you still reccommend me putting it on the house? What about the funds I already have in my rrsp?
> 
> ...


Once your RRSP is maxed out and you and your partners TFSAs are maxed out put the rest on the mortgage.


----------



## lonewolf (Jun 12, 2012)

I dont think it is the time to start investing in anything other then paying off the mortgage & doing the research to get a better understanding of how to proceed with your investing. Maybe some insurance if needed or an an emergency fund in a TFSA to hedge but to speculate I dont think so. If investing would make a difference how you spend your money then if you just paid down the mortgage then consider it. Sometime if people do both pay mortgage & invest they spend less. I think a better approach is to spend less & only pay off mortgage. If after research you might you find it more practical to do both then you might be right.


----------



## mrPPincer (Nov 21, 2011)

Jeypic said:


> Does that change things? Or do you still reccommend me putting it on the house? What about the funds I already have in my rrsp?


Yes that does change things 
I was assuming that because you are young your high income years would be ahead of you, but since you are in your high income years now I think it's definitely a good idea to max out the RRSP now.


----------



## Oldroe (Sep 18, 2009)

This is a good place to max rrsp and put tax return on mortgage.

100k think you would be in 46% tax bracket 

You put 10k in rrsp and get $4600 tax return. So it's now worth $14600.00

You put $4600 on your mortgage and you save the interest.

To work this out get a Canadian mortgage calculator that shows principle and interest. Say you are weekly and have made 60 payments go to this spot and take $4600 off principle and then add up the interest saved.

So $14600 + interest save is like having cake and eating it to.


----------



## none (Jan 15, 2013)

Oldroe said:


> This is a good place to max rrsp and put tax return on mortgage.
> 
> 100k think you would be in 46% tax bracket
> 
> ...


RRSP contributions don't magically make money - that 14600 is taxed down to $10,000. It's not that simple.

Diversification is a good idea. Even though you are guaranteed a return on your mortgage that return sucks is comparison to some potential gains.


----------



## Jeypic (Sep 22, 2012)

Oldroe said:


> This is a good place to max rrsp and put tax return on mortgage.
> 
> 100k think you would be in 46% tax bracket
> 
> ...


This is why I wanted to be maxing out my contributions now.. I'll have to find a mortgage calculator and play around with it, thanks for the tip! 

So as it stands I have my tax free savings account maxed with 25,500. My RRSP has 11,000. I haven't picked up my tax return yet, because I've got a couple more weeks in camp to go, so I'm not sure of my contribution room for my rrsp's, but I will have roughly $40,000 sitting in a savings account that I can allocate between rrsp's, my mortgage and a hisa emergency fund. To keep things simple lets say I throw 15k of that into my rrsp's that'll give me roughly 25k in rrsp's, 25 in tfsa and 25 that I can split between mortgage and emergency fund. 

So I guess back to my original question, that 50k in my rrsp's and tfsa.. Should I start investing it in index etf's?


----------



## Oldroe (Sep 18, 2009)

None guess you can't figure it out the op needs to put the correct #'s for their situation .

The fact is you take $1 turn it into $1.46 then add your mortgage savings plus your original $1 is still making you money (hopefully).

This is a win very very little risk.

I also like your game but only if we get a correction. Investing over mortgage pay down, in a market that is sliding sideways is slippery slope.


----------



## james4beach (Nov 15, 2012)

To the OP, consider this when making your decision.

If stocks decline for a prolonged period, then your home will also likely decline in value.

So having a mortgage on your property while simultaneously investing in stocks can hit you with a double whammy: your investments can lose money, your home can lose value, and you still have the mortgage. In that situation you would be much worse off than if you had simply worked on paying your mortgage.


----------



## investordude (Dec 14, 2012)

james4beach said:


> To the OP, consider this when making your decision.
> 
> If stocks decline for a prolonged period, then your home will also likely decline in value.
> 
> So having a mortgage on your property while simultaneously investing in stocks can hit you with a double whammy: your investments can lose money, your home can lose value, and you still have the mortgage. In that situation you would be much worse off than if you had simply worked on paying your mortgage.


But, having all of your money tied to one asset isn't smart either. That's why diversifying is key...spreading your money around so you can minimize the risk if your house or stocks lose value.


----------



## mrPPincer (Nov 21, 2011)

investordude said:


> But, having all of your money tied to one asset isn't smart either. That's why diversifying is key...spreading your money around so you can minimize the risk if your house or stocks lose value.


Isn't that actually a good reason to pay down the mortgage faster?
The debt is there whether RE goes up or down in value, so that risk is already absorbed and decreases proportionately as the mortgage is paid down
and the sooner OP pays it down, the less leveraged he'll be into the non-RE equity he does have as well.


----------



## none (Jan 15, 2013)

mrPPincer said:


> Isn't that actually a good reason to pay down the mortgage faster?
> The debt is there whether RE goes up or down in value, so that risk is already absorbed and decreases proportionately as the mortgage is paid down
> and the sooner OP pays it down, the less leveraged he'll be into the non-RE equity he does have as well.


Risk goes both ways: Risk of losing money and risk of missing out on stock market gains. If you take it to an extreme it becomes more clear: If your mortgage was 0.01% would you pay off your mortgage or would you invest the money? Obviously you would pay zero on your mortgage (indeed it would be less than inflation!) and instead put all your money in the market.

The decision lies on the spread of your mortgage rate and expected gains. This spread may not be huge and therefore just putting money on the mortgage can be a good idea. However, if if you have tax sheltered accounts that are not maxed out (particularly a TFSA) and are paying <3% on your mortgage I think investing money instead of paying off the mortgage is a better plan.


----------



## mrPPincer (Nov 21, 2011)

Jeypic said:


> So I guess back to my original question, that 50k in my rrsp's and tfsa.. Should I start investing it in index etf's?


A lot of people like the lowest MER index etfs but I wouldn't disregard the TD e-series mutual funds.
They are free to trade and have decently low MER's, lower than a lot of the Canadian-traded ETFs.

The way I do it is I buy ETFs in one-time lump sum purchases, most were $20K or so, and keep the rest (about a third of my equity atm) in the e-series for rebalancing to my target allocations.
That keeps both trading costs and MERs combined to a minimum.


----------



## investordude (Dec 14, 2012)

mrPPincer said:


> Isn't that actually a good reason to pay down the mortgage faster?
> The debt is there whether RE goes up or down in value, so that risk is already absorbed and decreases proportionately as the mortgage is paid down
> and the sooner OP pays it down, the less leveraged he'll be into the non-RE equity he does have as well.


Not to me its not..if it costs 2-3% to pay that debt, and you can earn an avg 8-9% on your overall portfolio, i think that would be smarter....if the bank is giving you time to pay down the debt at very low rate, why not use that extra money to invest?


----------



## MRT (Apr 8, 2013)

edited longwinded post...

I wonder if many people consider all the additional risks associated with investing vs. paying down known debt, and comparing after-tax returns for each, when weighing their decision. From my own experience with clients, so many would just look at their debt's interest rate %, and compare it to an estimate or average historical return %, without considering much (if anything) else.


----------



## james4beach (Nov 15, 2012)

mrPPincer said:


> Isn't that actually a good reason to pay down the mortgage faster?
> The debt is there whether RE goes up or down in value, so that risk is already absorbed and decreases proportionately as the mortgage is paid down


I agree with this. Having real estate with a mortgage means you have a massive leveraged investment... you are heavily concentrated in a single asset.

I don't know why everyone looks at real estate like some kind of special asset class.

What if you bought $400k of Loblaws stock, using $120k of margin debt ... that's a very leveraged position. How is real estate any different? Lots of exposure to a single thing, and with leverage to boot.


----------



## Sampson (Apr 3, 2009)

mrPPincer said:


> Isn't that actually a good reason to pay down the mortgage faster?


No.

If you believe that the historical out performance equities has had over real estate will continue into the future when considering 25+ year time horizons, then it is more prudent to maximize your investments into equities early in your lifetime. This is the basis of lifecycle investing and all the supporting research using extended periods and looking at the comparative returns of leveraging into equities over rolling periods.

Using the evidence from this research, one should leverage into equities early. This can be done by effectively reducing mortgage payments to a minimum and using cash (new cash flow, or previously saved assets) to buy equities and NOT pay down your mortgage.


----------



## donald (Apr 18, 2011)

I don't think that is a fair comparison(house vs stock)The five basic needs-air/food/water/shelter/companionship.Houses are hard assets(you can touch/feel ect.....create experiences/memories/emotions/part of a community ect ect.
At least with a house a banker will look favorable on it...........even though there is risk in real estate,there is more in holding a single stock imo.You can't sleep ''inside'' your paper stock.


----------



## Jeypic (Sep 22, 2012)

james4beach said:


> To the OP, consider this when making your decision.
> 
> If stocks decline for a prolonged period, then your home will also likely decline in value.
> 
> So having a mortgage on your property while simultaneously investing in stocks can hit you with a double whammy: your investments can lose money, your home can lose value, and you still have the mortgage. In that situation you would be much worse off than if you had simply worked on paying your mortgage.


I agree that I'm taking on more risk by investing before paying off my mortgage, but I kind of feel like the potential reward is worth it. I' could be compounding interest from a younger age. Also investing in my rrsp's in my current tax bracket is going to give me a guaranteed 46% back. Money that is in my RRSP's cant be used on my house at this point anyways, so does it make sense to have it just sitting there?



mrPPincer said:


> A lot of people like the lowest MER index etfs but I wouldn't disregard the TD e-series mutual funds.
> They are free to trade and have decently low MER's, lower than a lot of the Canadian-traded ETFs.
> 
> The way I do it is I buy ETFs in one-time lump sum purchases, most were $20K or so, and keep the rest (about a third of my equity atm) in the e-series for rebalancing to my target allocations.
> That keeps both trading costs and MERs combined to a minimum.


My plan is to make lump sum purchases.. I only want to invest what can be protected in my tfsa and rrsp's for now. Each year I contribute more to my rrsp's and tfsa I'll rebalance and add to these investments. This is part of the reason I want to deal in ETF's. (the other being low mer). 

I assume you mean that you invest monthly into the e-series funds?

With an amount like $50,000.. Could it be efficient for me to own 6 different ETF's, as long as I only trade once a year?


----------



## james4beach (Nov 15, 2012)

Sampson said:


> If you believe that the historical out performance equities has had over real estate will continue into the future when considering 25+ year time horizons, then it is more prudent to maximize your investments into equities early in your lifetime
> . . .
> 
> Using the evidence from this research, one should leverage into equities early. This can be done by effectively reducing mortgage payments to a minimum and using cash (new cash flow, or previously saved assets) to buy equities and NOT pay down your mortgage.


Let me get this straight Sampson. Canada & US annual GDP growth is barely 2% ... more like 1.5% annual growth rate.

Real estate has been going up at something like 5% a year

And you expect stocks to go up at an even faster rate, I presume something above 5% ?

Does that make sense to you considering that GDP is only rising at 1.5% ? I don't see real estate or stocks sustaining any higher rate of return than GDP, but that's my opinion.


----------



## Sampson (Apr 3, 2009)

james4beach said:


> Let me get this straight Sampson. Canada & US annual GDP growth is barely 2% ... more like 1.5% annual growth rate.
> 
> Real estate has been going up at something like 5% a year
> 
> ...


Let me get this right James.

You believe a dollar invested now, will be worth less in 30 years from now. What was the GDP in 1929? How much would a dollar invested in 1928 be worth in 1953?

Also, from your comment, I get the impression you are suggesting real estate returns will outpace equity returns going forward. That real estate will give returns well above inflation over the long term?


----------



## james4beach (Nov 15, 2012)

Sampson said:


> Let me get this right James.
> 
> You believe a dollar invested now, will be worth less in 30 years from now. What was the GDP in 1929? How much would a dollar invested in 1928 be worth in 1953?


What I'm saying is that in a low or no growth environment (which is what we have currently with 1% to 2% annual GDP growth), I don't expect stocks to return much. The USA of the 1920s, or indeed any time up to 2000, is not a valid comparison -- those were very very high growth times.

A valid comparison would be to compare us to Japan starting around 1990, when their GDP growth slowed to sub 2% and has pretty much stayed there since. And their stock market hasn't gone up in about 20 to 30 years.



> Also, from your comment, I get the impression you are suggesting real estate returns will outpace equity returns going forward. That real estate will give returns well above inflation over the long term?


I didn't say they'll outpace. I think all of these returns will be around nil... stocks and real estate. I was challenging the notion that real estate will grow far beyond GDP, and stocks will grow far beyond real estate. In my opinion, I don't think any of these are going to grow much going forward as we've entered a near zero growth environment and ZIRP


----------



## Sampson (Apr 3, 2009)

@ james,

So the issue is this for the OP.

You suggest there will be a double whammy, since the value of the house will decline if the broad equity markets decline. You are selling a picture that the equity markets cannot go up, even in periods longer then 20 years. So the best bet really would actually be: do not invest, and do not own real estate.

There is and has never been strong correlation amongst a countries GDP growth and the return of its underlying stock market. What was the GDP growth of the US during 2009-2012 and what was the return on the S&P500. What has been the return of BRIC nations during over the past 3 years (poor), and the GDP growth rate (>7.7% each year in China).

You always portray only downside risks associated with investing into equities, however, there are real opportunity costs and risks for taking a mortgage paydown-centric solution. Any mortgage prepayments made during 2009-today would actually have been a sub-optimal strategy compared to using those dollars to invest in a diversified equities and bond portfolio.

I know you often like to use Japan as THE example of things to come, but there is a simple solution. diversification, which the OPs portfolio would provide. Unless you believe the entire World and all stock markets across the globe are destined for 0 growth over 25+ years?


----------



## none (Jan 15, 2013)

If you are going to use Japan equities as a loser you need to look at RE prices. I'd rather have my cash making close to zero in equities than taking a bath on leveraged money in the japan real estate market.


----------



## Sampson (Apr 3, 2009)

@ none, it doesn't always have to break down to a "owning a house is foolish" discussion.

It isn't very practical for someone to diversify their exposure to real estate among different countries, but your chart is perfect support for my argument to invest in equities at the same time as making mortgage payments.

Housing may or may not plummet. If you hold different asset classes (equities, cash, bonds, precious metals, real estate) and also diversify across multiple regions (easier done with equities than real estate), then I would argue that this is the ONLY way to reduce your risk to downfalls.

I suppose if you think that all asset classes across all regions will fall precipitously, well, then there isn't much you can do about that. If this is the case, the most prudent move would be to spend all your money now so it doesn't decrease in value and the goods and entertainment your derive from spending is at least positive.


----------



## none (Jan 15, 2013)

Sampson said:


> @ none, it doesn't always have to break down to a "owning a house is foolish" discussion.
> 
> It isn't very practical for someone to diversify their exposure to real estate among different countries, but your chart is perfect support for my argument to invest in equities at the same time as making mortgage payments.
> 
> ...


I totally agree with you. I just wanted to supply the plot to show that IF using Japan as an example of why investing in equities is risky and putting money in housing is better - it's actually a better example of why not to.

Being invested in a variety of non-correlated assets ios critical for risk management - one still needs to ensure that those assets are properly valued.


----------



## peterk (May 16, 2010)

Interesting chart, none.


----------



## doctrine (Sep 30, 2011)

Japan is a great example of why valuation matters. If I can't buy a house at 3 times my income, I shouldn't as long as I can rent affordably. Likewise, I shouldn't buy stocks at a P/E of 50; 15 or less is much more reasonable and if I can't find any, then I'll hold cash.


----------



## none (Jan 15, 2013)

doctrine said:


> Japan is a great example of why valuation matters. If I can't buy a house at 3 times my income, I shouldn't as long as I can rent affordably. Likewise, I shouldn't buy stocks at a P/E of 50; 15 or less is much more reasonable and if I can't find any, then I'll hold cash.


Yup. To quote Nate Silver's book: "The Signal and the Noise" in the second chapter about the US housing crash while talking to Paul Krugman:

_" Paul Krugman, the Nobel Prize– winning economist, wrote of the bubble and its inevitable end in August 2005. “This was baked into the system,” Krugman later told me. “The housing crash was not a black swan. The housing crash was the elephant in the room.”"_

Referring to this article: http://www.nytimes.com/2005/08/08/opinion/08krugman.html?_r=0


----------



## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> Does that make sense to you considering that GDP is only rising at 1.5% ? I don't see real estate or stocks sustaining any higher rate of return than GDP, but that's my opinion.


Why not? It is earnings growth that is linked to GDP growth and earnings growth explains only one portion of total stock market returns. The other two factors are dividend yield and changes in valuation. The US market has a dividend yield of 2 percent. Plug in your assumption of earnings growth (1.5 percent) and no changes in valuation (because valuations appear to be normal these days) and you get about a 3.5 percent real return from stocks. That's not too bad compared to bonds. If you are pessimistic you could assume that valuations will fall from here and arrive at your estimate.

The reason why Japanese stock returns in the post 1989 period have been so poor is simply high starting valuations. Same for US stocks in the post 2000 period even though earnings have grown, falling valuations have dragged down returns.


----------



## mrPPincer (Nov 21, 2011)

Jeypic said:


> My plan is to make lump sum purchases.. I only want to invest what can be protected in my tfsa and rrsp's for now. Each year I contribute more to my rrsp's and tfsa I'll rebalance and add to these investments. This is part of the reason I want to deal in ETF's. (the other being low mer).
> 
> I assume you mean that you invest monthly into the e-series funds?
> 
> With an amount like $50,000.. Could it be efficient for me to own 6 different ETF's, as long as I only trade once a year?


I use the e-series to rebalance to my target allocations (including the fixed income HISA allocation) regularly, probably too often, by buying and selling, but my situation is different than yours.
I'm semi-retired and have the time (and the discipline to stick to my chosen allocations and not get distracted by market noise), and I'm only adding $5,500 new money per year.
You can easily rebalance by only adding your annual contributions and frequency of rebalancing is open to debate as to the benefits how often.

As to your choice of etfs there are some good reasons why the e-series are better for you imho.

VCE could be ok for an annual purchase if it's a large enough sum, but I'd still use TDB900 to build up the Canadian equity to the point where you have enough to make it worthwhlie to move it over.

For the Ishares international equity etfs, there's a couple of problems due to the fact that they each hold an underlying US-based etf.
This means that they will all be hit with a 15% US dividend withholding tax that, when held inside an RRSP or TFSA, will be unrecoverable.*
*(There are already lengthy discussions and no lack of confusion about how this works, so in an attempt to keep it out of this thread here is a link to a simplified breakdown-> http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/ )

Assuming lets say a 2% dividend, that would be an added 0.30% annual cost on top of their MERs, which makes them more costly than the e-series international funds, (which hold the international stocks directly and are therefore not subject to the unrecoverable US withholding tax), and that's even before you add on the trading costs, which don't apply to the e-series.

Unfortunately the e-series doesn't have an EM index fund, so the way I do it is I hold VWO directly (not the Vanguard Canada version VEE which holds the underlying VWO) in my RSP and keep EM at my allocation by having a small portion of it in the CIBC emerging market fund through PCF (for the small PCF mer rebate).

The problem with holding the US based ETFs directly comes when you want to rebalance, for small amounts it's 
not worth my trouble to do a Norbert's Gambit, 
but for you, doing a large lump sum contribution annually, I think it could definitely be worthwhile to do one NG per year and buy the cheaper Vanguard ETFs instead of the Canadian-based Ishares ones.

Some points to ponder.
btw, sorry it took this long, I didn't get over to the iShares Canada site to look at the holdings and MERs of your picks until today.


----------



## mrPPincer (Nov 21, 2011)

One thing I forgot to mention, if I had to choose a Canadian REIT ETF, it would be VRE, but I don't see a reason to pay the MER for such a small basket.
Why not buy one REIT the first year, enough more shares to DRIP a full share of it the second year, or a second REIT, and so on? 
If you're making multiple purchases anyway, you might as well pay no MERs on the Canadian side imho.

If you do choose to put a portion of your REIT allocation into US$ REITs you might look into VNQ; it holds 121 REITs for an MER of only 0.10%, well worth the cost to me.


----------



## Jeypic (Sep 22, 2012)

mrPPincer thank you for your reply. I had a misunderstanding about foreign taxes in rrsp's, thanks for clearing that up for me. I had briefly heard of norberts gambit, but figured I could avoid it with the funds I chose. Which I guess I would of, but at a cost I wasnt aware of... I'll have to research it. 

Your points regarding the REIT's makes sense too.

With your advice, Im now thinking of doing something like this:

VCE 40%
VTI 20%
VXUS 25%
VNQ 15%

Allocating VCE in my tfsa, with the rest in my rrsp's. 



mrPPincer said:


> As to your choice of etfs there are some good reasons why the e-series are better for you imho.
> 
> VCE could be ok for an annual purchase if it's a large enough sum, but I'd still use TDB900 to build up the Canadian equity to the point where you have enough to make it worthwhlie to move it over.


The main reason Im still apposed to using the e-series funds is because I already have a group rsp setup with work through great west life. Since I have to use it anyways, I think it makes more sense for me to build my ETF contributions with the funds in there for the time being.. What is a large enough sum to make a purchase worthwhile?


----------



## GoldStone (Mar 6, 2011)

I don't like 40% VCE. It's poorly diversified. 3 top sectors (financials, energy, materials) have a whopping 78% weight.


----------



## mrPPincer (Nov 21, 2011)

It's close to the sector breakdown of the TSX, I agree the diversification isn't great, but it's a good representation of the Canadian stock market at a low cost with a 0.11% MER.

http://www.standardandpoors.com/ser...lobwhere=1244140159928&blobheadervalue3=UTF-8


----------



## mrPPincer (Nov 21, 2011)

Jeypic said:


> What is a large enough sum to make a purchase worthwhile?


That depends on the individual investor, but it's all about keeping the costs that you can control to a minimum.
For a purchase of $20K and a trading fee of $10 it amounts to a cost of 0.05% off the top, but for a 2K purchase it's a cost of half a percent.

Example, my reit allocation is 10%, with about two thirds of it in VNQ; the two smallest purchases I made were 170 shares of DI.UN for $1800 and 235 shares of REI.UN for $6300, but they were both one-time purchases that now continue to drip a new share each month with no additional trading costs until I sell in the distant future if ever.

About your going from 10% CDN reits to instead 15% US reits, I don't know if that's a little high, others might have an opinion.

15% into VNQ might actually be a good way to go for a single one-time purchase, and then years down the road, when your reits are down below 10% due to contributions into the other sectors, maybe purchase an individual Canadian reit at that point to rebalance.


----------



## My Own Advisor (Sep 24, 2012)

Agree with GoldStone.

Top-10 VCE holdings:

Top 10 holdings
As of close 31-03-2013
Rank	Holdings
1	Royal Bank of Canada
2	Toronto-Dominion Bank
3	Bank of Nova Scotia
4	Suncor Energy Inc.
5	Bank of Montreal
6	Canadian National Railway Co.
7	Canadian Natural Resources Ltd.
8	Enbridge Inc.
9	Potash Corp. of Saskatchewan Inc.
10	TransCanada Corp.
Top 10 approximately equals 42.3% of net assets

Why not just own most of these companies outright? The MER for VCE is attractive though.


----------



## GoldStone (Mar 6, 2011)

mrPPincer said:


> It's close to the sector breakdown of the TSX, I agree the diversification isn't great, but it's a good representation of the Canadian stock market at a low cost with a 0.11% MER.


VCE is okay. I don't like 40% allocation to Canada.

Canadian market is poorly diversified. 40% allocation is a big bet on 3 sectors. 2 of the 3 sectors (energy and materials) are highly correlated and highly cyclical.


----------



## Squash500 (May 16, 2009)

My Own Advisor said:


> Agree with GoldStone.
> 
> Top-10 VCE holdings:
> 
> ...


It's very expensive to own all those companies outright unless you have a Million dollars in investable assets---LOL. Buying 50 shares of one company and 100 shares (of another company) just doesn't make sense IMHO.


----------



## Squash500 (May 16, 2009)

GoldStone said:


> VCE is okay. I don't like 40% allocation to Canada.
> 
> Canadian market is poorly diversified. 40% allocation is a big bet on 3 sectors. 2 of the 3 sectors (energy and materials) are highly correlated and highly cyclical.


 The international markets are highly cyclical as well. Don't forget it's just in the last two years that the US markets have done anything and totally outperformed the Canadian market. For the 10years (inclusive) before that you would have been much better off investing in the Canadian markets.


----------



## Squash500 (May 16, 2009)

GoldStone said:


> VCE is okay. I don't like 40% allocation to Canada.
> 
> Canadian market is poorly diversified. 40% allocation is a big bet on 3 sectors. 2 of the 3 sectors (energy and materials) are highly correlated and highly cyclical.


I thought that VCE was 100% Canadian companies?


----------



## GoldStone (Mar 6, 2011)

Squash500 said:


> I thought that VCE was 100% Canadian companies?


The OP is eyeing 40% allocation to VCE in his portfolio.


----------



## GoldStone (Mar 6, 2011)

Squash500 said:


> The international markets are highly cyclical as well. Don't forget it's just in the last two years that the US markets have done anything and totally outperformed the Canadian market. For the 10years (inclusive) before that you would have been much better off investing in the Canadian markets.


US and International markets are better diversified across sectors. Canadian market is really very narrow. Financials, energy, materials. Not much else.


----------



## Cal (Jun 17, 2009)

OP - how long ago did you buy your home.

You mention that you will be moving back home in a year or so....just curious why you would have bought if you weren't planning on staying out there too long.


----------



## Squash500 (May 16, 2009)

GoldStone said:


> The OP is eyeing 40% allocation to VCE in his portfolio.


 Sorry my mistake.


----------



## Jeypic (Sep 22, 2012)

Cal said:


> OP - how long ago did you buy your home.
> 
> You mention that you will be moving back home in a year or so....just curious why you would have bought if you weren't planning on staying out there too long.


Well, I wont be moving back home.. I'm hoping to find work back home once this job is finished up. I still live there 1 week out of every 3 right now. I bought my place two years ago, and I feel like I've stayed out here too long already lol. (6 years) I had alot of money sitting around at the time for a down payment, and figured I'd rather pay myself then somebody else for rent. My mortgage payments right now are probably cheaper then if I were to try and rent the same place, and I'll still easily be able to make payments with a wage cut.


----------



## Jeypic (Sep 22, 2012)

goldstone, you make a good point.. what if i switched to something like zcn instead of vce at 40%? It holds more stocks.. but I guess they are still mostly weighted in the top 3 sectors. My problem right now is that 40% of my investments will be in my tfsa and 60% in my RRSP. I could always rebalance more into foreign equities in future years when I have more money in my RRSP.


----------



## GoldStone (Mar 6, 2011)

Jeypic said:


> what if i switched to something like zcn instead of vce at 40%? It holds more stocks.. but I guess they are still mostly weighted in the top 3 sectors.


You guessed right. ZCN is not much better than VCE. 73% in the top three sectors.


----------

