Author Topic: 23 y.o. Thoughts on my asset allocation? (Canada)  (Read 2139 times)

adwasy

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23 y.o. Thoughts on my asset allocation? (Canada)
« on: October 19, 2016, 03:33:44 PM »
Hello all! Long time lurker first time poster.

As I stated above, I'm 23 y.o, Canadian, and hoping some more experienced investors can check out my current plan and offer opinions/advice. Up until September I had been doing extensive stock picking and thought I was doing quite well. Then I compared myself to the YTD returns of the TSX and found... I was within .1% of the index. That was a wake-up call to me to stop wasting my time and change strategies. Anyhow.

Current allocation goal*:

XST - 10%
VCN - 25%
VRE - 10%
VUN - 25%
VIU - 25%
Speculative stock picking - 5% (when I get to a 100k portfolio anyway, I do find it fun/rewarding)

Essentially the Canadian Couch Potato guide with consumer staples and reits mixed in. I'll admit, I have them in as more of a gut check against the massive weighting of the Canadian economy in finance and resources rather than for any mathematical/scientific reason. Of course, the sector specifics have a higher MER but I'll live with the tradeoff.

All my buys are for a 25+ year timespan.

Thoughts?



*I say goal as I am still waiting to sell two last stocks.


human

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #1 on: October 19, 2016, 06:13:09 PM »
Well the predominant wisdom is pick an allocation and stay with it for along time. REITs are always popular but I personally don't have any. Not sure about all Canadian commodities, XST only has 11 holdings. I'd be tempted to drop that and add it to VUN.

For what it's worth I started out with equal portions of VCN, VUN and VDU in the first few months of investing.

I now have VXC (85%) and VCN (15%) only (but I kept old positions of VDU and VCN), I lose on withholding and the expense ratio could be lower but it's a lot simpler. I promise I'm sticking with this.

Nothing wrong with 5 funds it's just that one has only 11 companies, and 45% of that fund is loblaws and alimentation couche tard. In essence 5% of all your allocation are in 2 Canadian food companies. But then again 10% of VXC is apple . . .

EDIT to add - I too was a little worried about being too heavily weighted on Canadian companies but that's why I upped US and International. At the time VCN was doing poorly so I was a little worried about recency bias. I wanted to go 5% VCN simply because that's Canadian share of global markets and I didn't want home bias. Split between recency bias and home bias I settled on 15% VCN and I will stick with it(!)

« Last Edit: October 19, 2016, 06:16:51 PM by human »

Saskatchewstachian

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #2 on: October 20, 2016, 08:15:03 AM »
I think it looks decent overall, maybe a little heavily weighted towards Canada. I have to say that I was unfamiliar with XST but would echo the sentiments of human.

My only worry with the VRE is that the new mortgage rules coming into effect both by the government around stress testing and the 15% tax on foreign buyers in Vancouver I don't have a lot of faith in any capital appreciation of real estate in the major centers. Personally I don't carry any but if you are using it to downplay the financial and energy sectors in the Canadian market then it's ok.

Also, the Canadian market is only a small piece of the international pie so I would recommend more international (VXC).

Lastly, great to see other young canucks (<=25yrs) on the forum!
« Last Edit: October 20, 2016, 08:17:59 AM by Saskatchewstachian »

adwasy

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #3 on: October 20, 2016, 08:44:45 AM »
Thanks for the thorough replies! Happy to be here!

To expand a bit, the REIT would be my slice of real estate investing. I don't intend on buying a house or rental property in this country any time soon so I wouldn't otherwise be exposed to real estate.

I like your thought on dropping XST and adding VUN, or even better, VDC. I still like having a consumer staple position. Oil can crash and the banks can blow up etc etc but people still need to go to the grocery store. I'd have to figure out how to pull Norbert's gambit first.

I couldn't do the VXC/VCN split as I'd be up at night thinking about (the small!) losses to a withholding tax in my TFSA/RRSP. Maybe this is something I move into when I have a large enough taxable account to make that allocation happen :)

I don't think I could get my home bias down to 15%! I like investing in Canada as I have a better idea of the state of affairs here. However, I can see the wisdom in reducing my position from 45% to 30%... maybe take 5% off of each Canadian ETF and add 10 into VIU and 5 into VUN?

Should I stop caring about the VIU/VUN split and go VXC? I read somewhere (I have no source, please do not flay me) that the international world historically to under performs the U.S so I made that split.

Edit: The way VXC is structured, it has 50% U.S weighting. I will simplify and buy VXC.



« Last Edit: October 20, 2016, 09:51:27 AM by Oobleck »

Kaspian

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #4 on: October 20, 2016, 09:44:35 AM »
Justin Bender, one of the main CCP guys (and actually works with CCP), likes to overweigh Canadian too.  He makes the case for it here:  https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/Blog/Justin-Bender/September-2016/Ask-Bender-Why-do-you-overweight-Canadian-stocks-en

Mine's 20%--mainly because that's what I decided when I started and wrote my Personal Policy.  ...And we all know what happens when people tinker with their portfolios later instead of just letting it run its course.  I'm keeping it where it i!  :D

adwasy

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #5 on: October 20, 2016, 10:21:42 AM »
Great link, thanks.

Let's consider this thread me laying down my personal policy :)
Here's where I am at:

VCN - 20%
XST - 10%
VRE - 10%
VXC - 60%

I took out my speculative 5%, I want to consider that fun money and don't want to assign a % to it. That's something I won't start until I have a six figure portfolio anyway. I dropped my VCN by 5% and rolled it into the VXC. I don't think I'd be comfortable allocating more than 60% in foreign investments that I don't quite understand.



human

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #6 on: October 20, 2016, 03:27:30 PM »
Starting at 23 is damn great by the way I've started much later in life.

Because you are so young I assume you are leaving out bonds on purpose, is that the case? I'm 15 years older and don't have any right now but just thought I'd raise it.


Saskatchewstachian

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #7 on: October 20, 2016, 04:11:16 PM »
Great link, thanks.

Let's consider this thread me laying down my personal policy :)
Here's where I am at:

VCN - 20%
XST - 10%
VRE - 10%
VXC - 60%

I took out my speculative 5%, I want to consider that fun money and don't want to assign a % to it. That's something I won't start until I have a six figure portfolio anyway. I dropped my VCN by 5% and rolled it into the VXC. I don't think I'd be comfortable allocating more than 60% in foreign investments that I don't quite understand.

I like the updated mix, I use:

25% Canadian (VCN)
75% International (VUN, VXC and company shares)

Personally I need some of the VUN to keep my american exposure since I get a great deal on company shares (100% return after 3 years) which skews my international (non american) exposure. And also currently own a house so that is more than enough RE exposure for me.

Given your reasons above I think the weighting you have is a great mix to get a bit of everything and it makes sense to you which is also key.

kork

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #8 on: October 20, 2016, 07:29:44 PM »
How are you planning to break them up between RRSP's, TFSA's and unregistered?

There's different tax rules for Canadian vs. non Canadian dividends that are paid via ETF (or dividend paying funds).

adwasy

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #9 on: October 21, 2016, 08:26:09 AM »
Thanks Human :) The early retirement community really lit a fire in me to save/invest. I was always frugal but more so cause I hated getting ripped off, not because I had a goal or lifestyle in mind. You are correct about the bonds.

Yeah Saskatchewan, if you are getting a deal on company shares (100% in 3 yrs !!!) then I'd keep rolling with that too. No such luck for me. I agree about the house compared to reits. I don't quite understand holding both, it seems too overexposed to one asset class to me?

Kork, I plan to keep VCN/XST/VRE in my TFSA and RRSP and VXC in my unregistered account. Everything with a drip turned on. My understanding is that this will let me claim back my foreign withholding tax on the international dividends. I believe I'm interpreting how that works correctly?  https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf




GreatLaker

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Re: 23 y.o. Thoughts on my asset allocation? (Canada)
« Reply #10 on: October 21, 2016, 01:03:25 PM »
Great link, thanks.

Let's consider this thread me laying down my personal policy :)
Here's where I am at:

VCN - 20%
XST - 10%
VRE - 10%
VXC - 60%

I took out my speculative 5%, I want to consider that fun money and don't want to assign a % to it. That's something I won't start until I have a six figure portfolio anyway. I dropped my VCN by 5% and rolled it into the VXC. I don't think I'd be comfortable allocating more than 60% in foreign investments that I don't quite understand.
Just a quick note that VCN already has a market weighted allocation to REITS. Take a look at the holdings for VCN. You will see RioCan, Brookfield, H&R etc. Adding REITs if you have VCN is not really diversification to REITS, it is concentrating your portfolio to REITS. Small point, but FYI. I used to own ZRE, but the MER of broadly based ETFs like VCN and XIC dropped significantly over the last 5 years, while the MER of sector ETFs like REITs stayed the same, so I find it hard to believe that a REIT ETF could overcome that significant MER handicap.

This is a good paper by Vanguard Canada on the benefits and risks of home country bias:
https://www.vanguardcanada.ca/documents/global-equities-tlor.pdf