Author Topic: How would you class this portfolio allocation?  (Read 1973 times)

Fortuna

  • 5 O'Clock Shadow
  • *
  • Posts: 45
How would you class this portfolio allocation?
« on: May 27, 2017, 10:07:19 AM »
Looking for some opinions and feed back on my portfolio allocation:

US Equity Index - VUN - 20%
CND Equity Index - VCN - 20%
International Equity Index - VDU - 20%
CND Bond Index - VAB - 20%
High Yield Bond Fund or Index - 10%
REIT Index ETF - ZRE-  5%
Preferred Share Index - ZPR- 5%

I am about 1 year from FIRE and want to set my allocation around 65/35 Stock/Bond in terms of a risk tolerance.  But as I am close to starting to draw from the portfolio I would like the passive income to be a little higher to make cash flow easier.  Hence the reason for the REIT and Preferred Shares.  Opinions differ if these investments serve the purpose of fixed income or not.

Plus the returns on bond ETFs are low and could be impacted by rising interest rates (but we have been saying that for years!) I have held the PH&N High Yield Bond for years, it has had good returns, no big drops and is a low risk for a high yield fund.

So how would you consider this type of portfolio from a stocks vs bonds risk perspective? I want to make the portfolio as simple as possible but still would like to see about 2.5-3% in dividends and interest.  On that I can tighten the belt and ride out any crashes or recessions.

PizzaSteve

  • Pencil Stache
  • ****
  • Posts: 501
Re: How would you class this portfolio allocation?
« Reply #1 on: May 27, 2017, 10:59:27 AM »
Seems ok to me, though International % seems high.  Im not a huge fan of preferreds as the income source, vs a dividend stock index or more bonds.  Preferred have a higher risk level and more correlation with stocks, so they lose some of the returns volatility reduction benefits more bonds bring.

I might increase canada and US % to 25% and decrease international to 10% and drop the preferred index.  The stock funds will yield some dividends you can spend. I prefer to think of reits and preferreds as dividend focused stocks, not as bond substitutes.
« Last Edit: May 27, 2017, 11:04:15 AM by PizzaSteve »

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Age: 59
  • Location: Redmond, WA
    • Evergreen Small Business
Re: How would you class this portfolio allocation?
« Reply #2 on: May 27, 2017, 11:07:15 AM »
I think your asset allocation is probably essentially 80% stocks... I.e., those high yield bonds and those preferred shares probably don't do what bonds are supposed to do...which is anchor your portfolio in a downturn.

Fortuna

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: How would you class this portfolio allocation?
« Reply #3 on: May 27, 2017, 05:37:50 PM »
I think your asset allocation is probably essentially 80% stocks... I.e., those high yield bonds and those preferred shares probably don't do what bonds are supposed to do...which is anchor your portfolio in a downturn.

I tend to agree on the Preferreds the Bond Fund I use has only had one down year (-3%) and in 2008 it returned 1.8%,  it is not a junk bond fund just all corporate - so I feel at worse I am 70/30.

Fortuna

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: How would you class this portfolio allocation?
« Reply #4 on: May 27, 2017, 05:44:16 PM »
Seems ok to me, though International % seems high.  Im not a huge fan of preferreds as the income source, vs a dividend stock index or more bonds.  Preferred have a higher risk level and more correlation with stocks, so they lose some of the returns volatility reduction benefits more bonds bring.

I might increase canada and US % to 25% and decrease international to 10% and drop the preferred index.  The stock funds will yield some dividends you can spend. I prefer to think of reits and preferreds as dividend focused stocks, not as bond substitutes.

Thanks for the feedback.  I should have also said I am in Canada if that was not given away by the portfolio.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1389
Re: How would you class this portfolio allocation?
« Reply #5 on: May 27, 2017, 09:10:38 PM »
I think your asset allocation is probably essentially 80% stocks... I.e., those high yield bonds and those preferred shares probably don't do what bonds are supposed to do...which is anchor your portfolio in a downturn.

I tend to agree on the Preferreds the Bond Fund I use has only had one down year (-3%) and in 2008 it returned 1.8%,  it is not a junk bond fund just all corporate - so I feel at worse I am 70/30.

Good to know that they are safer bonds, any bond fund that was up in '08 is fairly conservative. I would classify it as "Investment Grade Corp bonds" when you are describing it in the future to avoid confusion.  ;-)

Junk bonds = high yield bonds = below investment grade bonds. They all mean the same thing.

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: How would you class this portfolio allocation?
« Reply #6 on: May 29, 2017, 07:28:10 PM »
Looks pretty good to me.

Do you have a cash cushion, or a few years of expenses tucked in a short-term bond index? It can provide big benefits when reducing portfolio drawdowns in bad years.

Fortuna

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: How would you class this portfolio allocation?
« Reply #7 on: May 31, 2017, 09:07:26 PM »
Looks pretty good to me.

Do you have a cash cushion, or a few years of expenses tucked in a short-term bond index? It can provide big benefits when reducing portfolio drawdowns in bad years.

Sort of, I have about a years worth in cash which I call my emergency fund.  But don't really need one anymore (or do I?) also I have two insurance policies that have a cash value. Something my parents started long ago.  So I can fund another years expenses with those.  Then there is the 20% of bonds I have some of that is a short term bond fund.

So I am working on building a cash bucket system with those.