Canadian Investor - Comments on my portfolio

[Retire-Canada]

Eh, what's the point of the AA if it's guaranteed to be wrong, though?

For example, let's say:

400k - RRSP - US

100k - TFSA - ROW

300k - unreg - mix Canada, bonds, ROW

If you want 50% US in your AA, in the above you don't really have it. That 400k in the RRSP of US is not worth the same as the 400k outside. This isn't about tax on taking the money out (directly); it's that if you want half of your after-tax pot amount in US, you do not have that in the allocation above.

You are not taking that $400K out of your RRSP on the day your are thinking about this. So the idea it's worth less outside is meaningless. You could decide to totally reshuffle your AA so RoW and Canada is in the RRSP and then a week later switch it back to US in the RRSP.

Additionally like we discussed above if your RRSP is large you are not making any decisions about where to get the money from as you really have to drawdown the RRSP in order to avoid issues with the mandatory WRs at 71. So what's the point of worrying about a theoretical after-tax value of your AA when it's not informing any decisions?

The only part of the argument that makes sense is you need to account for taxes in FIRE planning, but there are simpler ways to do so.

[daverobev]

I think you're missing my point, and I'm sorry I'm not getting it across clearly.

I'm talking about the growth of that money over time.

Let's say the US does better than ROW over time. The RRSP will have grown; but because you lose when you withdraw, your true AA means you will not really have had 50% US across that time.

I can make a really extreme example.

You have a million dollars total, you want 50% US, 500k is in the RRSP. The US does better than everything else - US grows 10%, everything else grows 5% a year.

If you discount the RRSP by your expected 20% tax rate to 400k, you need to have an extra 50k outside the RRSP as US as well (because you're saying you have 500k outside and after tax only 400k inside).

Changing AA after a few years does not rectify the lost growth because you held less US than you wanted. Your AA was not followed.

[max9505672]

Obviously you can't make this perfect, it just isn't possible. But at least, sell ~15% of your total amount of XAW in the TFSA, sell the VAB in the RRSP, buy VTI in the RRSP and ZEA in the TFSA, and then bonds unregistered. The only thing with ZEA IIRC is that it doesn't hold emerging but as I said - not possible to get this perfect.

While RRSP room is less than US exposure desired, 100% of RRSP should be VTI.

Thanks for the advices.

Before I make any changes, I just noticed I am tracking my AA% without considering the USD vs CAD value. So let’s say I have 100k$ VTI in my RRSP, it’s worth +/- 130k$ CAD right? Would that make sense to calculate this way? I guess I have been underestimating my US exposure.

[daverobev]

Obviously you can't make this perfect, it just isn't possible. But at least, sell ~15% of your total amount of XAW in the TFSA, sell the VAB in the RRSP, buy VTI in the RRSP and ZEA in the TFSA, and then bonds unregistered. The only thing with ZEA IIRC is that it doesn't hold emerging but as I said - not possible to get this perfect.

While RRSP room is less than US exposure desired, 100% of RRSP should be VTI.

Thanks for the advices.

Before I make any changes, I just noticed I am tracking my AA% without considering the USD vs CAD value. So let’s say I have 100k$ VTI in my RRSP, it’s worth +/- 130k$ CAD right? Would that make sense to calculate this way? I guess I have been underestimating my US exposure.

Yes, of course you have to convert everything one way or the other - in my spreadsheet I have a cell for currency rates, but I do a line per account - in Questrade you can see 'total value in CAD' so I just take that number.

As I already said you may or may not want to discount the RRSP to account that the amount you will receive when you pull it out will be less. Not sure if that idea gets across though, so you may want to ignore, it isn't going to make that much of a difference.

[max9505672]

Yes, of course you have to convert everything one way or the other - in my spreadsheet I have a cell for currency rates, but I do a line per account - in Questrade you can see 'total value in CAD' so I just take that number.

As I already said you may or may not want to discount the RRSP to account that the amount you will receive when you pull it out will be less. Not sure if that idea gets across though, so you may want to ignore, it isn't going to make that much of a difference.

Nevermind for the first part, this is also what I am doing everytime I re-balance.

Regarding discounting the RRSP is to assume taxes will have to be paid on this amount when I withdraw right? For example, 100k$ is probably worth 80k$ after withdrawing (based on a multitude of variables). I get that. It’s probably also true for unregistered account (taxes on capital gains to be paid later). At this point, I find that this requires too many assumptions and is probably harder to manage. Unless you have a simple way to suggest?

[Le North Dreamer]

Nevermind for the first part, this is also what I am doing every time I re-balance.

Regarding discounting the RRSP is to assume taxes will have to be paid on this amount when I withdraw right? For example, 100k$ is probably worth 80k$ after withdrawing (based on a multitude of variables). I get that. It’s probably also true for unregistered account (taxes on capital gains to be paid later). At this point, I find that this requires too many assumptions and is probably harder to manage. Unless you have a simple way to suggest?

I personally have an expense item called "taxes" in my FIRE budget to factor in the taxes on revenues I am planning to make to cover my FIRE expenses. This allows me to play with the number based on certain assumptions but keeping everything quite simple. Happy to hear any other methods.

[daverobev]

Yes, of course you have to convert everything one way or the other - in my spreadsheet I have a cell for currency rates, but I do a line per account - in Questrade you can see 'total value in CAD' so I just take that number.

As I already said you may or may not want to discount the RRSP to account that the amount you will receive when you pull it out will be less. Not sure if that idea gets across though, so you may want to ignore, it isn't going to make that much of a difference.

Nevermind for the first part, this is also what I am doing everytime I re-balance.

Regarding discounting the RRSP is to assume taxes will have to be paid on this amount when I withdraw right? For example, 100k$ is probably worth 80k$ after withdrawing (based on a multitude of variables). I get that. It’s probably also true for unregistered account (taxes on capital gains to be paid later). At this point, I find that this requires too many assumptions and is probably harder to manage. Unless you have a simple way to suggest?

When I was doing it, for asset allocation purposes, I think I was just putting a flat 10% reduction in the weighting of anything in my RRSP.

I haven't updated my AA lately, partly because I'm no longer living in Canada and the tax shelters I have available are different. My situation is, frankly, a mess of accounts and of no use to anyone!

[max9505672]

Yes, of course you have to convert everything one way or the other - in my spreadsheet I have a cell for currency rates, but I do a line per account - in Questrade you can see 'total value in CAD' so I just take that number.

As I already said you may or may not want to discount the RRSP to account that the amount you will receive when you pull it out will be less. Not sure if that idea gets across though, so you may want to ignore, it isn't going to make that much of a difference.

Nevermind for the first part, this is also what I am doing everytime I re-balance.

Regarding discounting the RRSP is to assume taxes will have to be paid on this amount when I withdraw right? For example, 100k$ is probably worth 80k$ after withdrawing (based on a multitude of variables). I get that. It’s probably also true for unregistered account (taxes on capital gains to be paid later). At this point, I find that this requires too many assumptions and is probably harder to manage. Unless you have a simple way to suggest?

When I was doing it, for asset allocation purposes, I think I was just putting a flat 10% reduction in the weighting of anything in my RRSP.

I haven't updated my AA lately, partly because I'm no longer living in Canada and the tax shelters I have available are different. My situation is, frankly, a mess of accounts and of no use to anyone!

I understand what you are doing and it makes sense. Are you doing the same with your NW?

[daverobev]

Yes, of course you have to convert everything one way or the other - in my spreadsheet I have a cell for currency rates, but I do a line per account - in Questrade you can see 'total value in CAD' so I just take that number.

As I already said you may or may not want to discount the RRSP to account that the amount you will receive when you pull it out will be less. Not sure if that idea gets across though, so you may want to ignore, it isn't going to make that much of a difference.

Nevermind for the first part, this is also what I am doing everytime I re-balance.

Regarding discounting the RRSP is to assume taxes will have to be paid on this amount when I withdraw right? For example, 100k$ is probably worth 80k$ after withdrawing (based on a multitude of variables). I get that. It’s probably also true for unregistered account (taxes on capital gains to be paid later). At this point, I find that this requires too many assumptions and is probably harder to manage. Unless you have a simple way to suggest?

When I was doing it, for asset allocation purposes, I think I was just putting a flat 10% reduction in the weighting of anything in my RRSP.

I haven't updated my AA lately, partly because I'm no longer living in Canada and the tax shelters I have available are different. My situation is, frankly, a mess of accounts and of no use to anyone!

I understand what you are doing and it makes sense. Are you doing the same with your NW?

Naw - I'm kind've at the point that I've done enough, I think. I've done what I can to optimise, and I'm not on the salary -> saving part of the journey now. Plus it's all such a mess - of accounts, countries, etc. I'll get to state pension age all things being equal, and once I'm there it's all good anyway.

[max9505672]

Naw - I'm kind've at the point that I've done enough, I think. I've done what I can to optimise, and I'm not on the salary -> saving part of the journey now. Plus it's all such a mess - of accounts, countries, etc. I'll get to state pension age all things being equal, and once I'm there it's all good anyway.

Thanks for the input, it has been very helpful.

I’ll update once I am done with another round of updates on my funds/accounts.

[chicklets123]

Can someone comment on my account please. I have some funds elsewhere with portfolio managers but new money I want to manage.

Currently It is:

VFV-60%
XUU-5%
ARKK-25%
Penny/Bitcoin/other-10%

Do I need VEE?

Thank you


Sent from my iPhone using Tapatalk

[max9505672]

As I sometimes feel a little insecure, about my investments, especially with the amounts invested getting bigger, I have decided to contact a fee based financial advisor to have a second opinion on my current investments:

Here's my current AA:





Here is the answer I received:

Your current target asset allocation is high on the US side, but within reasonable bounds.  It should be achievable within normal bounds of variation.

In the margin account, ZDB is not a tax efficient holding.  Unless the funds are intended to join those intended for property acquisition, it is suggested that these units be liquidated and the proceeds reinvested in ZPR (yield 4.77%, taxed as dividends) or ZWC (yield 7.2%, tax advantaged).  This will generate a capital loss which can be applied against gains elsewhere.

It is suggested that having an RRSP entirely devoted to the US market offers somewhat elevated risk through lack of diversification.  It is suggested that future contributions to this plan be placed in ZPR (yield 2.98%) until about 10% of the holdings are in fixed income, and then in ZPAY (yield 6.07%) until a further 10% is in that security.  The latter does also have some limited holdings in US equity, but relies on options trading for most of its income. 

With respect to the TFSA, the holding XAW has produced significant gains, but has a yield of about 1.35%.  It is unclear how long the other holding has been in this account, but it has produced relatively small gains, and offers only a moderate dividend at 2.51%.  It is suggested that the ETFs ZHY (yield 5.48%) and ZFH (yield 4.51%) be added to the portfolio to allow a greater cash flow into the account.  It is not explicitly suggested that any existing holdings be sold, but rather that new contributions (including dividends from the present holdings) be redirected into these other areas until at least 20% of the total holdings are in this area. 

• I am confused why this advisor insists more on yield % vs total return / growth?
• Margin account: Why is ZDB not tax efficient vs the 2 proposed ETFs?
• RRSP: He mentions that it would be ideal to diversify the RRSP that is currently exclusively VTI (USD) and suggest adding up to 10% ZPR and 10% ZPAY. How is that not ideal as the total AA is what I thought mathers.

[Lews Therin]

1. He is bonkers. Unless you are aiming for dividend only because you are in the negative tax brackets, you are right, yied is not as important as growth.

2. Taxes on interest from bonds is higher than taxes on capital gains or eligeable dividends.

3. Different investment mentality, also valid choices. There are many different opinions, and having fixed income from preferred shares can ensure a more stable growth. Your investment strategy is fine though.

More details below.

RRSP: diversification per account type is unnecessary on the long term, but if you want to have small extra gains, you could add that 10% bonds, so you can re-balance. (RRSP is the best place to have your bonds too)

Whoops, checked the image after writing. RRSP: doing great. I think it might be more optimal to switch your bonds that are in margin out to RRSP, unless it's held as a sort of emergency fund for easy access. (Interest income is non-optimal)
In other words, capital gains and eligeable dividends are less taxed than interest income from bonds.

-note, not yet a financial planner, but at your level, you already have a 95% solution.

Check the taxation brackets for your income level, and for your margin account, figure out if you want dividend, or capital gains.

Note that if the financial planner is not well versed in FIRE, he might be giving your normal person advice for your outlier situation.

[MustacheAndaHalf]

In case you didn't know about it, there's a "Canada Discussion" forum (which has changed from a tax discussion to general discussion relevant to Canada):
https://forum.mrmoneymustache.com/canada-tax-discussion/

That said, Canada's public companies, by market cap, are 2.8% of the world's total.  So your 20% allocation is about 7x higher than Vanguard Total World (VT) uses.  The top holding of MSCI Canada index is Royal Bank of Canada with a $157 billion market cap.  You buying or selling shares won't hurt that bank at all.  Do you have reasons why you should hold 20% Canada allocation rather than a lower allocation, say 10%?

According to etfdb, public US stocks are 55% of the world total by market cap.  If you have a little bit over half of your stock allocation in US equities, that's probably fine.  But up near 2/3rds or more, consider reducing the allocation.

[techwiz]

As I sometimes feel a little insecure, about my investments, especially with the amounts invested getting bigger, I have decided to contact a fee based financial advisor to have a second opinion on my current investments:

Here's my current AA:





Here is the answer I received:

Your current target asset allocation is high on the US side, but within reasonable bounds.  It should be achievable within normal bounds of variation.

In the margin account, ZDB is not a tax efficient holding.  Unless the funds are intended to join those intended for property acquisition, it is suggested that these units be liquidated and the proceeds reinvested in ZPR (yield 4.77%, taxed as dividends) or ZWC (yield 7.2%, tax advantaged).  This will generate a capital loss which can be applied against gains elsewhere.

It is suggested that having an RRSP entirely devoted to the US market offers somewhat elevated risk through lack of diversification.  It is suggested that future contributions to this plan be placed in ZPR (yield 2.98%) until about 10% of the holdings are in fixed income, and then in ZPAY (yield 6.07%) until a further 10% is in that security.  The latter does also have some limited holdings in US equity, but relies on options trading for most of its income. 

With respect to the TFSA, the holding XAW has produced significant gains, but has a yield of about 1.35%.  It is unclear how long the other holding has been in this account, but it has produced relatively small gains, and offers only a moderate dividend at 2.51%.  It is suggested that the ETFs ZHY (yield 5.48%) and ZFH (yield 4.51%) be added to the portfolio to allow a greater cash flow into the account.  It is not explicitly suggested that any existing holdings be sold, but rather that new contributions (including dividends from the present holdings) be redirected into these other areas until at least 20% of the total holdings are in this area. 

• I am confused why this advisor insists more on yield % vs total return / growth?
• Margin account: Why is ZDB not tax efficient vs the 2 proposed ETFs?
• RRSP: He mentions that it would be ideal to diversify the RRSP that is currently exclusively VTI (USD) and suggest adding up to 10% ZPR and 10% ZPAY. How is that not ideal as the total AA is what I thought mathers.

I would suggest asking the advisor for more context. I personally would trust both Lews Therin and MustacheAndaHalf insights more than this advisor, by looking at his recommendations I would guess the advisor was from BMO Nesbitt Burns. 

[Lews Therin]

Am I blushing?

[max9505672]

In case you didn't know about it, there's a "Canada Discussion" forum (which has changed from a tax discussion to general discussion relevant to Canada):
https://forum.mrmoneymustache.com/canada-tax-discussion/

Thanks!

That said, Canada's public companies, by market cap, are 2.8% of the world's total.  So your 20% allocation is about 7x higher than Vanguard Total World (VT) uses.  The top holding of MSCI Canada index is Royal Bank of Canada with a $157 billion market cap.  You buying or selling shares won't hurt that bank at all.  Do you have reasons why you should hold 20% Canada allocation rather than a lower allocation, say 10%?

One reason is that some Canadian ETFs (such a VCN.to) are preferably taxed in Canada. Not sure if it justified having some much CAN vs the total market cap though.

To be honest, when determining my AA, I've mostly watched what other Canadians on this forum were doing and most on them had a significant amount in CAN.

Even some of the canadian ''all in'' ETF such as Vanguard's VGRO have a significant % of their AA in CAN:

U.S. Total Market Index ETF   33.89%
FTSE Canada All Cap Index ETF   24.77%
FTSE Developed All Cap ex North America Index ETF   15.31%
Canadian Aggregate Bond Index ETF   12.01%
FTSE Emerging Markets All Cap Index ETF   5.72%
Global ex-U.S. Aggregate Bond Index ETF (CAD-hedged)   4.50%
U.S. Aggregate Bond Index ETF (CAD-hedged)   3.80%