Author Topic: Allocation Advice [CAN]  (Read 1782 times)

tardis

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Allocation Advice [CAN]
« on: March 21, 2018, 06:35:01 PM »
I am in the process of weaning myself off of a financial advisory company that was “inherited” along with a fairly significant set of mutual funds.  I have been working on getting to the point where I am comfortable self-managing that quantity of money and as someone who learns best by speaking to a person face to face it has been helpful to have someone there to hold my hand as I get started.  I am finally comfortable investing with “my” personal money a la Canadian Couch Potato+Questrade so I am now willing to starting to change the mutual funds to self-directed ETFs.   The advisor has given an allocation he suggests  vs. CCP and would like to see what the you guys think.  So looking at only equities:

Canadian Couch Potato:
33% VCN (all Canada)
66% XAW (all except Canada) which is roughly
                54% all US (~36% total)
                34% all intl. (~22% total)
                13% emerging (~9% total)

Advisor:
25% VCN (all Canada)
25% XUU (all US)
33% XEF (all intl.)
17% XEC (emerging)

 
So more heavily weighted to international/emerging, and lighter on Canada/US.  To me it looks more diversified in that there is less weight on any one national economy, but there may be some reasoning against this I don’t know…?  CCP is more straightforward/efficient to keep balanced, but as I am in the accumulation stage it’s also pretty easy to balance in an ongoing basis via contributions.

avrex

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Re: Allocation Advice [CAN]
« Reply #1 on: March 22, 2018, 07:46:38 AM »
You've nailed it!

Low Cost.  The most important thing is that you've kept your expense fees to a minimum.

I don't think you can wrong with either of those allocations as they are very both lost cost.  Total MER 0.16% and MER 0.14% respectively.  Good-bye high-fee mutual funds.  lol.

If I had to pick, I'm quite comfortable with the second ETF portfolio.  The higher percentage in emerging and international versus a reduced holding in Can and US is fine with me.  Demographic trends suggest that economic growth in emerging/international markets will be higher than developed markets such as Can/US for the coming decades.

But, you can't go wrong with either of these allocations.

tardis

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Re: Allocation Advice [CAN]
« Reply #2 on: March 22, 2018, 09:11:22 AM »
Thank you @avrex !  I really appreciate you taking the time.

I also found an article by the CCP guy which explains more of his reasoning and it sounded like keeping anywhere between 20-40% in Canadian was best.

RichMoose

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Re: Allocation Advice [CAN]
« Reply #3 on: March 22, 2018, 09:32:35 AM »
I think it's a question of how complex you want to be and how you will be able to emotionally handle movements in the market. Over long periods of time, the simple two ETF portfolio will perform nearly identical to the four ETF portfolio. I believe it was Meb Faber who did extensive research on various passive portfolio allocations and found the differences to be very minimal. The bigger issue in performance was fees and the 0.02% difference here is nil.

Financial advisors love more components because they like complexity and elements of active management. For example, if they are value oriented (like many are) they might tilt more to International and Emerging because the US is very pricey at the moment. But ask them five years from now and they might suggest higher allocations to the US and Canada. Do you want to actively manage index ETFs with a value tilt? If so, go with the more complex one.

Freedomin5

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Re: Allocation Advice [CAN]
« Reply #4 on: March 23, 2018, 04:11:31 AM »
I also think either one is fine. We are in the accumulation phase as well, and to be perfectly honest, I'm planning to invest more outside of Canada and less within Canada. VCN's performance hasn't been too spectacular in the last two years (when I first started investing), whereas VUN and VXC has exploded.

Obviously, past performance cannot be considered a predictor of future performance...etc etc etc

tardis

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Re: Allocation Advice [CAN]
« Reply #5 on: March 23, 2018, 09:29:08 AM »
Thank you @Mr. Rich Moose and @Freedomin5 for your thoughts.  I feel like Canada is probably one of the more stable options out there, even if performance is not spectacular, plus exchange rates etc, so I see why having at least a certain amount at home is important.  I will look into Meb Faber's work since that sounds interesting.  :)

Tyler

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Re: Allocation Advice [CAN]
« Reply #6 on: March 23, 2018, 11:47:33 AM »
Looking at the Heat Maps for both portfolios, I honestly don't see a huge difference.  Because of that, I would put the most priority on whichever option has the lowest costs (both in expense ratios and taxes). 





BTW, you can customize this for yourself or play with a bunch of different charts (all with Canadian options) here:  https://portfoliocharts.com/calculators/.  And you may also find the Canadian Portfolios section helpful.  (I really need to add the CCP portfolio to the list!)

frugledoc

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Re: Allocation Advice [CAN]
« Reply #7 on: March 23, 2018, 02:03:07 PM »
What is the reasoning behind overweighting canadian equities in the porfolios?

Canada makes up <5% of global markets so 25% is hugely overweight and canadian equities are pretty undiversified (commodities/banks).


tardis

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Re: Allocation Advice [CAN]
« Reply #8 on: March 23, 2018, 02:13:06 PM »
Oh, very neat @Tyler !  I will have fun playing with that.  Thanks for doing the initial test.

@frugledoc : check out the link I posted earlier.  I had the same question.

beee

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Re: Allocation Advice [CAN]
« Reply #9 on: April 09, 2018, 04:26:18 PM »
I have 20/80 VCN/XAW.
Taxable: only VCN for now.
RRSP/TFSA: XAW/VCN mix.

daverobev

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Re: Allocation Advice [CAN]
« Reply #10 on: April 09, 2018, 06:43:21 PM »
What is the reasoning behind overweighting canadian equities in the porfolios?

Canada makes up <5% of global markets so 25% is hugely overweight and canadian equities are pretty undiversified (commodities/banks).

Totally agreed.

@OP: Have you thought about VGRO or VBAL, depending on your fixed income needs? You can then literally just buy that one thing. They, unfortunately, have a hefty Canadian weighting, but hey.

Where is the money to be - TFSA, RRSP, unregistered? Are you bothered with tax efficiency inside your registered accounts? If so I'd avoid XAW there.

My 'if I started from scratch now' would be RRSP: 100% VTI, which is a US$ ETF (US index); TFSA: 100% ZEA (developed ex-North America); unreg: everything else to make my allocations work.

beee

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Re: Allocation Advice [CAN]
« Reply #11 on: April 10, 2018, 12:01:48 PM »
What is the reasoning behind overweighting canadian equities in the porfolios?

Canada makes up <5% of global markets so 25% is hugely overweight and canadian equities are pretty undiversified (commodities/banks).

No currency risk, cheaper costs, better tax treatment.