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Kal Torak posted:Personally, there's no way I would have 40% of my portfolio in bonds right now. It would be somewhere in the 5-10% range. But that's just me. Yeah, for the record, I agree entirely. My non-equity portfolio is split between bonds, 'high-interest' savings, and preferred shares*. * I guess there's some nuance in how one should view these, but I think of them risk-wise, as being midway between equities and bonds.
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Mar 26, 2014 15:18
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No guarantee that interest rates will go up. Avoiding bonds is timing the market. Don't try to time the market by going all equities.
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Mar 26, 2014 16:00
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Is 40% overkill in any case or do people agree that's a reasonable bond %? That's the only thing that's stuck out at me from the CCP portfolios.
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Mar 26, 2014 16:10
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cowofwar posted:No guarantee that interest rates will go up. Avoiding bonds is timing the market. Don't try to time the market by going all equities. This is simplistic and reductive of the argument being made here and elsewhere. No one is saying "go all equities", the argument is "given that interest rates at essentially sitting at their minima, and given bond yield/price inversion, one might want to consider other instruments for the 'safe' portion of their portfolio". Vehementi posted:Is 40% overkill in any case or do people agree that's a reasonable bond %? That's the only thing that's stuck out at me from the CCP portfolios. It depends on your age and time horizon, mostly. Anyone in their 20s investing for decades out would probably be better off with a 90/10 or 80/20 split. In the former case, I might just go the full 10% bonds, but in the latter, it might be wise to do 10% bonds + 10% GIC laddering or high-interest savings.
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Mar 26, 2014 16:17
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Fair enough, I was actually considering dropping down to 20-25% after I gave it some thought last night. Also, after doing some reading on foreign withholding tax, I'm thinking about doing something like this instead: —RRSP— US equity 25% VTI - Vanguard Total Stock Market International equity 25% VEA - Vanguard FTSE Developed Markets —TFSA— Canadian equity 25% XIC - iShares S&P/TSX Capped Composite Index Canadian bonds 25% CAB - High Quality Canadian Bond Index http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/ http://canadiancouchpotato.com/2014/02/20/the-true-cost-of-foreign-withholding-taxes/ http://canadiancouchpotato.com/2012/09/20/foreign-withholding-tax-which-fund-goes-where/ http://canadiancouchpotato.com/2013/10/30/making-smarter-asset-location-decisions/ Because I'm in a lower tax bracket, I had originally planned to dump everything in my TFSA until it's maxed out, and then start contributing to my RRSP, but now I might just follow the above advice so I don't run into rebalancing issues in a few years. Any thoughts? EDIT: I'll have to think more about the fixed-income asset allocation... 10% bonds and 10% or 5% laddered GICs sounds interesting. Grouco fucked around with this message at 16:51 on Mar 26, 2014 |
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Mar 26, 2014 16:35
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This might generate some disagreement, but I'm not big on contributing to an RRSP unless you have a relatively high marginal rate (though I suppose you could contribute and save the deduction for later). These two posts are instructive: http://www.michaeljamesonmoney.com/2014/03/cra-your-rrsp-partners-whether-you-want.html http://www.michaeljamesonmoney.com/2014/03/debunking-rrsp-myths-with-pictures.html Basically - when you contribute to an RRSP, you're giving the CRA a 'stake' in your portfolio in exchange for a tax discount. Your marginal rates now and at withdrawal determine whether or not you got a good deal on the exchange.
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Mar 26, 2014 16:53
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Interesting. My available TFSA contribution room is 31k, and my RRSP available contribution room is ~13k. I'll only be starting with ~6k to invest, and then 500-1500 contributed each month. 98% of my income is taxed at 15%, and I do have about 30k in student tax credits carried forward. Does it seem like going 100% into the TFSA might be the best bet for now, even if I do catch some tax drag from the withholding tax on dividends? I just wanted to avoid rebalancing into different accounts down the road for tax efficiency, but contributing to the RRSP right now might be even more tax inefficient!
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Mar 26, 2014 17:09
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Lexicon posted:Bonds admittedly confuse me, but I believe it doesn't matter so long as a bond (fund) is held for its longest duration and in a tax-sheltered account. I can't get the link to open but here's what I expect it to be getting at. If you buy a bond and hold it through maturity, you will get the return or yield to maturity that the bond priced in when you bought it. So, if corporate 5-year BBB bonds are today pricing in a 5% YTM, you will get that 5% YTM buy buying the bond at whatever price today, clipping coupons, and getting principal repayment at maturity. What this doesn't address is that as interest rates rise and fall, the bond price will move. Rising rates mean declining bond prices. Thus, if you are expecting a market correction in interest rates in a horizon shorter than your investment horizon, you can optimize returns by rebalancing away from bonds and then buying them back once rates have adjusted. Consider this example (numbers are made up and not priced right but are broadly indicative of what would happen): You own a bond with a 5-year remaining maturity, 5% coupon, 5% prevailing rates for comparable bonds = $1,000 price for the bond One year from now, prevailing interest rates are expected to rise to 10%. This means the bond would be re-priced to the present value of the remaining (4 years of) coupon payments plus final principal payment. Something less than $1,000. You can use a web bond pricing calc to get the number. If you sell your bonds today, get $1,000 and invest it conservatively in a GIC at 2% and reinvest in bonds when they're trading at 10% yields you will end up ahead. Your total return is then the weighted average of the returns over the 5 years. 5% per year in the hold scenario vs about an 8% return if you time it. Normally timing is dumb for regular investors but as I said, there's literally no other direction rates can go currently and it's just a matter of time until they correct. This depends somewhat on whether you subscribe to the theory that the housing bubble exists or not, and whether it will have a soft landing or not. A bad burst could stick rates in the basement for a long time, but could also increase default rates so is tougher to predict whether you'd be better to hold or sell now in that outcome.
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Mar 26, 2014 17:22
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In your position I'd focus on the TFSA. I don't even have an RRSP myself (though my corporation's bank account serves a similar role).
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Mar 26, 2014 17:22
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Kalenn Istarion posted:I can't get the link to open but here's what I expect it to be getting at. If you buy a bond and hold it through maturity, you will get the return or yield to maturity that the bond priced in when you bought it. So, if corporate 5-year BBB bonds are today pricing in a 5% YTM, you will get that 5% YTM buy buying the bond at whatever price today, clipping coupons, and getting principal repayment at maturity. What this doesn't address is that as interest rates rise and fall, the bond price will move. Rising rates mean declining bond prices. Thus, if you are expecting a market correction in interest rates in a horizon shorter than your investment horizon, you can optimize returns by rebalancing away from bonds and then buying them back once rates have adjusted. Consider this example (numbers are made up and not priced right but are broadly indicative of what would happen): This is helpful. I think I'll try and build an actual numerical example to convince myself further of the logic.
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Mar 26, 2014 17:25
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Grouco posted:Interesting. My available TFSA contribution room is 31k, and my RRSP available contribution room is ~13k. I'll only be starting with ~6k to invest, and then 500-1500 contributed each month. Rule of thumb: If you expect your income tax to be higher in the future, put money into the TFSA. (The growth won't be taxed in your future higher bracket) If you expect your income tax to be lower in the future, put money into your RRSP. (Avoid paying high tax now)
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Mar 26, 2014 17:35
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Mantle posted:Rule of thumb: Yea, that's what I thought. I guess the effect on foreign withholding is something I'll deal with once my TFSA is maxed.
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Mar 26, 2014 17:43
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Lexicon posted:This is helpful. I think I'll try and build an actual numerical example to convince myself further of the logic. To be clear, I'm not advocating to get out of bonds entirely, just that 40% seems excessive given where rates are right now. I currently have something like 10% relative to my long-term allocation of 20.
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Mar 26, 2014 17:43
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Grouco posted:Yea, that's what I thought. I guess the effect on foreign withholding is something I'll deal with once my TFSA is maxed. Foreign withholding is quite minor honestly. It's a fart in the wind relative to a poor decision on RRSP participation.
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Mar 26, 2014 17:49
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Kalenn Istarion posted:To be clear, I'm not advocating to get out of bonds entirely, just that 40% seems excessive given where rates are right now. I currently have something like 10% relative to my long-term allocation of 20. Exactly where I'm at. I meant more just as an academic exercise in better understanding bonds.
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Mar 26, 2014 17:50
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Lexicon posted:Basically - when you contribute to an RRSP, you're giving the CRA a 'stake' in your portfolio in exchange for a tax discount. Your marginal rates now and at withdrawal determine whether or not you got a good deal on the exchange. The most common advice you'll hear from banks et.al is that you need to start saving and saving young. They want you to use an RRSP for this. For reasons Lexicon has posted, this is not always optimal when you are young, in fact, I would argue that unless you come out of school earning 100k+ 100% of the time it is best to use your TFSA when you are young and not earning enough to be at the highest marginal tax rate. I followed this strategy and built up a lot (six figures) of RRSP contribution room as it carries over year to year. Now that I am earning at the highest marginal rate, I am very aggressive about putting big contributions into my RRSP yearly, because it is so drat efficient and generates a big return. If I had used that contribution room when I was younger, it would have been much less efficient. Of course, the TFSA is only $5500 a year, so I would recommend keeping the rest of your investment savings in a standard investment account until your tax bracket justifies transitioning to RRSP. Again, with a low marginal rate, any tax you pay on dividends/cap gains will be negligible. Saltin fucked around with this message at 18:23 on Mar 26, 2014 |
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Mar 26, 2014 18:20
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Saltin posted:The most common advice you'll hear from banks et.al is that you need to start saving and saving young. They want you to use an RRSP for this. For reasons Lexicon has posted, this is not always optimal when you are young, in fact, I would argue that unless you come out of school earning 100k+ 100% of the time it is best to use your TFSA when you are young and not earning enough to be at the highest marginal tax rate. I followed this strategy and built up a lot (six figures) of RRSP contribution room as it carries over year to year. Now that I am earning at the highest marginal rate, I am very aggressive about putting 20-30k into my RRSP yearly, because it is so drat efficient and generates a big return. If I had used that contribution room when I was younger, it would have been much less efficient. Of course, the TFSA is only $5500 a year, so I would recommend keeping the rest of your investment savings in a standard investment account until your tax bracket justifies transitioning to RRSP. Again, with a low marginal rate, any tax you pay on dividends/cap gains will be negligible. Couldn't have put it better myself.
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Mar 26, 2014 18:23
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Saltin posted:Now that I am earning at the highest marginal rate, I am very aggressive about putting big contributions into my RRSP yearly, because it is so drat efficient and generates a big return. A big return is bad. If you're going to contribute to RRSPs anyways, how about filling out a T1213 and getting immediate growth from your RRSP contributions instead of waiting until tax time? http://www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html
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Mar 26, 2014 18:48
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Mantle posted:A big return is bad. If you're going to contribute to RRSPs anyways, how about filling out a T1213 and getting immediate growth from your RRSP contributions instead of waiting until tax time? Sorry, I was speaking figuratively. I am aware of the time value of money and have been using reduction of tax at source for a long time now : ). It is a good piece of information for people though, it is surprising how many people are not aware it is possible. Saltin fucked around with this message at 19:03 on Mar 26, 2014 |
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Mar 26, 2014 18:57
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The points of bonds isn't their return. Your distribution should be based on risk tolerance and advocating a single % bonds based on return or interest rates is missing the point.
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Mar 27, 2014 02:53
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cowofwar posted:The points of bonds isn't their return. Your distribution should be based on risk tolerance and advocating a single % bonds based on return or interest rates is missing the point. Respectfully, this makes no sense.
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Mar 27, 2014 03:36
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I agree. The more I learn about RRSPs, the less I like using them before maxing out my TFSA at this stage of my life. 1. You have to maintain a future liabilities sheet with RRSPs-- remember you have to pay SOME tax on that million bucks in there at age 65, whereas your TFSA is what you see is what you get. 2. At age 71 there are forced minimum withdrawals from your RRSP (RRIF), which increase as you age. CRA won't let you hide the money in there forever and sip it out one basic personal amount at a time. These forced withdrawals will probably push your marginal brackets up higher than you want.
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Mar 27, 2014 03:48
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Mantle posted:1. You have to maintain a future liabilities sheet with RRSPs-- remember you have to pay SOME tax on that million bucks in there at age 65, whereas your TFSA is what you see is what you get. I'm not advocating that everyone go out and contribute to an RRSP, but you seem to be only focusing on the negatives. For most people, they are in a LOWER tax bracket when they are retired so forced withdrawals are not necessarily a negative thing. And for most people, they are relying on that money to live and pay expenses...that's why they saved money via an RRSP in the first place. And to your first point, sure, you have to pay tax eventually on the money invested in your RRSP. But let's not ignore the fact you get a tax deduction now so as long as your marginal rate is higher or at least close to what it will be in your retirement years, who cares about the tax you will have to pay. It's not like you aren't paying tax on the money you contribute to a TFSA, it's just been paid already. And again, for the average Canadian, your effective tax rate will be lower when you are ready to withdraw. For those who are not self-employed, or who will not have a DB pension, or who will not have a huge windfall of cash at some point in the future, RRSP's make a tonne of sense.
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Mar 27, 2014 03:56
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Blackrock cut the fees on a bunch of their ETFs. XIC is down to 0.05% MER. http://www.moneysense.ca/invest/etfs/ishares-kicks-off-next-phase-of-etf-price-war
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Mar 27, 2014 06:27
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There has been some discussion here regarding credit cards. Rewards Canada has named their top rewards cards for 2014: http://rewardscanada.ca/topcc2014/?...paign=115058348
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Mar 28, 2014 15:52
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Kal Torak posted:There has been some discussion here regarding credit cards. Rewards Canada has named their top rewards cards for 2014: I'm surprised the MBNA SmartCash World doesn't even feature there. I'm really happy with it.
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Mar 28, 2014 16:04
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I was getting a little confused working my way through all the ETF options, so I made a quick little cheat sheet with what seems to be the best choices: After making this, I'll probably go VCN, VUN, XEF, and CAB, though I'm still not 100% on how I should handle my fixed income allocation.
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Mar 28, 2014 21:25
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You might consider CPD and XRE on top of traditional equities and bonds - I like them both a lot.
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Mar 28, 2014 21:29
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So you guys were right about Ukraine restricting money transfers out of the country. We found a way to get around it though. You can still do it but only between immediate family memebers and in limited amounts per day. So my mother in law is going to spend the next couple weeks going to the bank every day transfering money from my grandma to her then to my wife. Right now we just have a credit union account and to do a wire it has to go through like a half dozen banks. Is this going to horribly eat away at the money? Should we go open a Bank account to make this easier/cheaper?
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Mar 28, 2014 21:32
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Lexicon posted:You might consider CPD and XRE on top of traditional equities and bonds - I like them both a lot. What exactly are preferred shares? I definitely plan on using REITs as part of my non-equity allocation, though probably once my portfolio is a bit larger. My 'rebalancing' will be in the form of new, bi-weekly or monthly contributions, so I can just divert new funds from bonds to REITs.
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Mar 28, 2014 21:39
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Baronjutter posted:So you guys were right about Ukraine restricting money transfers out of the country. We found a way to get around it though. You can still do it but only between immediate family memebers and in limited amounts per day. So my mother in law is going to spend the next couple weeks going to the bank every day transfering money from my grandma to her then to my wife. A bank with a presence in Ukraine, or in Europe anyway, might make things somewhat easier. On the other hand, a brand new account suddenly receiving regular sums of money from the Ukraine wired through multiple banks might raise some red flags at the AML department, but if you can document the provenance of the money... Hopefully it wouldn't be much of a problem.
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Mar 28, 2014 21:41
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Go into your bank branch and tell them what's going on. They may be able to pre-flag your account or whatever. It certainly can't hurt to be seen as being transparent, and they might be able to suggest a cheaper alternative. Remember, if you have money, the bank loves you and wants to help.
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Mar 28, 2014 22:11
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Grouco posted:I was getting a little confused working my way through all the ETF options, so I made a quick little cheat sheet with what seems to be the best choices: Small correction - XEC net assets are 83 mil (as per Google finance). Just for clarity - the reason to opt for a holding with higher net assests is for security / liquidity? Pieces fucked around with this message at 22:31 on Mar 28, 2014 |
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Mar 28, 2014 22:29
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Grouco posted:What exactly are preferred shares? I definitely plan on using REITs as part of my non-equity allocation, though probably once my portfolio is a bit larger. My 'rebalancing' will be in the form of new, bi-weekly or monthly contributions, so I can just divert new funds from bonds to REITs. They are an odd beast - basically they are halfway between a particular corporation's equity and its bond. They are technically equity (clue is in the name: preferred share) but they throw off dividends in a manner more approaching a bond. They are higher up the pecking order than common stock for both receipt of dividends and claim on assets in the event of a liquidation. Wikipedia has a fairly good primer: http://en.wikipedia.org/wiki/Preferred_stock They tend to be financial sector in nature, so I wouldn't hold a huge percentage of them, but they are quite a nice thing to hold in a Canadian non-registered account as they are relatively stable, value-wise, and they give off 5-7% of highly tax-efficient dividends. I've got about 10% my portfolio in each of CPD and XRE, and have for years.
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Mar 28, 2014 23:00
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Pieces posted:Small correction - XEC net assets are 83 mil (as per Google finance). Odd, http://ca.ishares.com/product_info/fund/overview/XEC.htm says 36 mil.
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Mar 28, 2014 23:11
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Grouco posted:Odd, http://ca.ishares.com/product_info/fund/overview/XEC.htm says 36 mil. You're probably correct, I was just going off the google finance market cap (which I think is just a simple calculation of share price * number of shares).
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Mar 28, 2014 23:25
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As for the value of net assets, I'm not too sure since I'm no expert, but I'm sure liquidity, bid/ask spread, etc. plays a part. I was doing some reading on XIC, and it looks like they're now able to hold derivatives and other non-stock holdings, so I figured VCN was a better bet. I picked VUN over VFV and XUS because I want a large exposure to US equities. XEF over VDU for more exposure, and a lower MER, and if I ever get into emerging markets I'll pick XEC for the same reasons.
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Mar 28, 2014 23:30
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All else being equal, I tend to favour Vanguard. They are very much the Amazon of the mutual-fund houses: no bullshit and an institutional focus on as good a deal as possible for the consumer. They are different types of firms, but I think of them as the anti-Investor's Group.
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Mar 29, 2014 00:16
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Stupid question. Many Canadian banks have posted rates for super short term GICs, like under a year to maturity. With laughably low interest rates. Like RBC is offering 0.35% for 30-59 days for example, 0.75% for 180 to 364 days. Other institutions have similar rates. Who the heck is buying these GICs instead of just putting their money in some sort of "high interest" savings account? Just people that are totally insane, or what? I'm kinda expecting people to reply that buying GICs in general isn't exactly that smart but I at least understand what kind of thinking leads people to buy 1+ year GICs with money they want to treat extremely conservatively. However these really short term GICs paying <1% seem to me like they would never ever be a better choice than just a savings deposit account. Am I missing something or do the banks just offer these for people that feel like providing the bank with practically a charitable donation?
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Mar 30, 2014 03:52
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It's not a stupid question. I've often wondered the same thing. It's pretty clear that an unguaranteed 1.25% (e.g. ING) is far superior to a guaranteed 0.35%. I guess like most things in banking/investing: the majority of the customers are unsophisticated and make for easy profits. This is a country where Investor's Group thrives, after all, against all possible rational self-interest. Edit: just realized that I really do slag IG a lot - I have nothing against them in particular - I'm just a bit offended that it's possible to make any money at all running such a firm.
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Mar 30, 2014 04:00
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