Author Topic: one (investing) question at a time  (Read 73994 times)

deborah

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Re: one (investing) question at a time
« Reply #100 on: December 10, 2014, 01:53:37 PM »
A sector is a grouping of similar investments - any grouping - for instance the S&P 500 is the 500 biggest companies in the US. The TSX composite is a group of TSX listed companies. You have a bonds sector. Because different types of stocks behave differently, there are sectors for those groups - Banks, mining companies, medical companies... This is because these groups of shares act differently to one another - when coal or iron ore is expensive, the mining companies are worth more, but the other sectors may not be.

An index is how a sector is going up and down over time. Let us have a small sector - the scrubbyfish (SF) sector that has 2 companies in it A and B. They both start at $1 per share - and A has 100 shares and B has 300 shares. The index is $1 this month, as all the shares are valued at $1. A month later A is $2 and B is still $1 - so the index is now ($2 x 100 + $1 x 300)/400 = $1.25 ...

Your initial graphs were of the S&P 500 and the TSX indexes.

Some funds, like Vanguard, are set up to try to do exactly the same over time as the index does - go up and down - to "track the index". To track the index funds need either to have proportional numbers of every share in the sector or to do some cleaver things to mimic the sector. A fund will also have some overhead for its staff and costs, so although it will track the index, it should always be slightly lower than the index.

Le Barbu

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Re: one (investing) question at a time
« Reply #101 on: December 10, 2014, 02:05:10 PM »
Index is a "picture" of the stock market of a country (or a sector, or any other speciality like dividends etc). The biggest co (share x share value) is 1st, second is 2nd and so on. It's different from managed funds where the manager can decide to buy more from co. #5 than co. #3

Tracking an Index, is an automated (computer) process that make your fund or ETF to get almost exactly the same holdings $% than the "tracked" Index

On the long run, TSX S&P 500 or foreign countries will return about the same, especialy since the entire world is trading more and more. Even if TSX is "lagging" S&P 500 for any reason in the future, it makes you subject to the CAD/USD (currency) changes. You are in Canada, and probably spend with CAD, so...make sense to hold some canadian stocks.

Usualy, anything from 70% to 20% in a Canadian portfolio is ok. It is recommended to hold 50%-30% (including stocks+bonds*)

*btw, if you decide to hold some bonds, be sure to hold your own country bonds !

MDM

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Re: one (investing) question at a time
« Reply #102 on: December 10, 2014, 03:55:58 PM »
Does this match the sense of those of you on here?

Question 10: What does it mean to "track an index"? What is an index, and what is it to track one?
Haven't looked at TSX so can't help you there - but it seems you have answered that yourself.

Speaking of google...entering 'what is a stock index' takes one to http://en.wikipedia.org/wiki/Stock_market_index which has:
Quote
A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

An index is a mathematical construct, so it may not be invested in directly. But many mutual funds and exchange-traded funds attempt to "track" an index (see index fund), and those funds that do not may be judged against those that do.

An interesting historical perspective that happens to tie into the "tracking" question is http://www.vanguard.com/bogle_site/lib/sp19970401.html.  In there one finds
Quote
The Early Development of the First Index Fund: 1977–1982

We had hoped to immediately invest in all of the stocks in the S&P 500 Index in their exact proportions. However, given our limited assets and the transaction costs that would have been involved in buying all 500 stocks, the initial portfolio included just 280 stocks—the 200 largest stocks (representing almost 80% of the weight of the Index) plus 80 stocks selected by various optimization models to match the profile of the remaining 220 stocks in the Index, using industry groups, market capitalizations, price/earnings ratios, and the like.

In this context the word "track" means "follow" or "replicate" or "represent".

scrubbyfish

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Re: one (investing) question at a time
« Reply #103 on: December 11, 2014, 02:11:37 PM »
We did it!!!

I was invited to meet one-on-one with a special person at Waterhouse. I don't know why they let me do that, but it was wonderful! She is passionate about low-fee, direct investing. She happened to be experienced with our federal and provincial government disability programs -very rare in the banking world!- as well as with direct investing. While she talked, I would sometimes feel a panic coming up but then I realized, "No, wait, I know this language! I can understand her! I couldn't understand them five days ago, and now I can!" A few times I needed to check in and get clarification, but that was fine.

Several times I would feel confused, then remember we'd covered it here, and I could feel my eyes physically move to the right and my brain latch on to a visual of a relevant post here, like a screenshot. In my brain, I "read" the post again, and continued on with her :)

She got me, and I understood her language as she explained how my strange situation intersects with their options.

She gave me homework, for learning how to invest via Waterhouse (online video course, each spurt only 1-3 minutes).

There are specific variables in my situation that need special navigating, but as a result of this thread, I was able to speak with her productively, and more of a plan is shaping up.

The other amazing thing is that when I saw my investments down (I have to see them regularly right now, because we're moving everything around), I was upset for a few seconds, but then my understanding about investing kicked in, and I was totally good. That is, I'm not panicking about a loss this past month because I know it has little-to-no relevance to my actual longterm plan or needs.

THANKS, YOU GUYS!!!!!!!!!!!!!!!!!!!

I'm sure more questions are coming, but for now, I wanted to give this happy and grateful report about the effect of this thread so far.

Le Barbu

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Re: one (investing) question at a time
« Reply #104 on: December 11, 2014, 02:26:45 PM »
Glad for you scrubbyfish !

You made a big leap today

Now, looks like you're on your way to "transfer" your assets to Waterhouse, remember the TD index funds I told you about, they are the best option before switching to ETFs and will be available to you with no fees to buy or sell.

We can definetly feel your happiness through this last post and btw, feel helpful

Have a good evening !

deborah

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Re: one (investing) question at a time
« Reply #105 on: December 11, 2014, 02:54:10 PM »
Awwh - no more questions! I was really enjoying your questions. They made me think about things, and put my understanding in order. Thanks for the opportunity!

GardenFun

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Re: one (investing) question at a time
« Reply #106 on: December 11, 2014, 04:25:50 PM »
Awwh - no more questions! I was really enjoying your questions. They made me think about things, and put my understanding in order. Thanks for the opportunity!

Same here.  Good luck and remember this thread if you ever have more questions!

scrubbyfish

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Re: one (investing) question at a time
« Reply #107 on: December 11, 2014, 05:37:04 PM »
No,wait! There WILL be more questions. First we have to happydance the progress so far, then my brain will form a new question :)

MDM

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Re: one (investing) question at a time
« Reply #108 on: December 11, 2014, 05:40:23 PM »
Congratulations on progress to date and best wishes for more to come!

arebelspy

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Re: one (investing) question at a time
« Reply #109 on: December 11, 2014, 05:58:04 PM »
Alright, I guess the thread's over, scrubbyfish is working on writing her book on investing now that she's an expert.

I'll go ahead and lock the thread.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

scrubbyfish

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Re: one (investing) question at a time
« Reply #110 on: December 12, 2014, 09:31:35 AM »
Alright, happydance is over folks, back to work...

(Actually, the happydance is not over, but I do have a new question.)

Question #11: Do we increase bonds according to how soon we're withdrawing the investment?

I've been reading some more of the YNAB course linked to here. It referred to retirement and retirement investment (401K in US, RRSP for me in Canada). This reminded me of an article by Suze Orman, who says we should have our age in bonds. So, if I'm 43, I would have 43% of my portfolio in bonds, and 57% in stocks.

I just realized that Suze Orman was probably referring specifically to conventional retirement planning, that this age-rule only applies to retirement-at-age-65. So, the advice is not "age in bonds", really, it's "decrease stocks (risk) and increase bonds the closer you get to the the time of the investment's use".

Is that correct/rational in MMM land?

So, if I have an Registered Education Savings Plan, and intend for my son to use that in 8 years, I may well want more in bonds.

But if the Registered Disability Savings Plan must, per government agreement, remain untouched for basically 30 years, it doesn't matter my age or my son's age, it matters that this will sit untouched for 30 years.

Age is not the relevant factor; retirement age is not the relevant factor; how many or few years that the investment will sit is the only relevant factor.

So, if I'm pulling out the RESP in 8 years, I'm going to consider more bonds, to ensure there is at least what I put in in 2022. i.e., I don't want to invest 90% in stocks now, get to 2022, find out that stocks are down 50%, and have too little for my son's education at the time the money is needed (and withdrawal is permitted).

But with RDSPs sitting for 30 years, I might have much more of that in stocks until we're, say, 15 years from withdrawal date (to be very safe).

Do I have this right??

Le Barbu

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Re: one (investing) question at a time
« Reply #111 on: December 12, 2014, 09:46:49 AM »
You do have this right.

Remember, one of the main reason you put your savings into RDSP and RESP is to get the goverment match.

step 1 - save
step 2 - invest in a tax sheltered account AND get the gov match
step 3 - choose an appropriate A.A. for you (time frame, expected return, peace of mind)
step 4 - stick to the plan unless new facts happens to make some needs for adjustments

Fallenour

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Re: one (investing) question at a time
« Reply #112 on: December 12, 2014, 11:05:29 AM »
Damn scrubbyfish, that 2.3% MER is unacceptable, transfer to someone with a lower MER.

That extra hit will hurt you a lot over time. Your CAGR, and thus your ending balance, over a 20 year period is going to be substantially different.

scrubbyfish

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Re: one (investing) question at a time
« Reply #113 on: December 12, 2014, 11:12:52 AM »
Damn scrubbyfish, that 2.3% MER is unacceptable, transfer to someone with a lower MER.

Yes :)   That's exactly what this thread is all about. Getting out of that garbage and into some solid, smart options. I'm on my way!

I will end up somewhere on this page: http://canadiancouchpotato.com/model-portfolios/
...but first I have some more learning to do, so that I can even understand all of that page.
I'm getting there, and am hopeful that I'm just 1-2 weeks now from having everything moved.

Le Barbu

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Re: one (investing) question at a time
« Reply #114 on: December 12, 2014, 11:40:03 AM »
In line with your post #110, here is an exemple of a nice portfolio with TD Waterhouse

RDSP : 35% TDB900, 35% TDB902 and 30% TDB911

RESP : 40% TDB909, 20% TDB900, 20% TDB902 and 20% TDB911

Easy to set, easy to manage, no transaction fees, low MER, diversified

Don't forget to open an Hight Interest Saving Account and stash in between 5k and 10k (average)

GardenFun

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Re: one (investing) question at a time
« Reply #115 on: December 12, 2014, 02:05:08 PM »
Question #11: Do we increase bonds according to how soon we're withdrawing the investment?

I just realized that Suze Orman was probably referring specifically to conventional retirement planning, that this age-rule only applies to retirement-at-age-65. So, the advice is not "age in bonds", really, it's "decrease stocks (risk) and increase bonds the closer you get to the the time of the investment's use".

So, if I have an Registered Education Savings Plan, and intend for my son to use that in 8 years, I may well want more in bonds.

But if the Registered Disability Savings Plan must, per government agreement, remain untouched for basically 30 years, it doesn't matter my age or my son's age, it matters that this will sit untouched for 30 years.

Age is not the relevant factor; retirement age is not the relevant factor; how many or few years that the investment will sit is the only relevant factor.

As Le Barbu said, you are correct.  In regards to the RESP, some people may go more aggressive on it because if the stock market happens to be on a downward trend when their child starts school, they may have the option to pay for the first 1-2 years from a different source, then pay for the remaining years out of the RESP.

In the U.S. version of RESP's (called 529 plans), the person chooses the particular funds to cash in for college.  So if you have 40% in bonds and stocks happen to be down the first year, you can pull all the first year of school money from the bond portion of the 529.  It gives time for the stock portion to climb back the next year. 

My own DS is currently 11 years from college-age.  His 529 account is 100% in stocks.  Once he gets into high school (4 years to college), I will re-evaluate our financial situation and determine whether to move part of that money into bonds, or keep it all in stocks. 

scrubbyfish

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Re: one (investing) question at a time
« Reply #116 on: December 13, 2014, 08:49:16 AM »
Thanks, you guys!! Very, very, very helpful. It's coming together...

Again, it's neat and amazing to be able to grasp some degree of beginners' articles, the CCP model portfolios page, etc.

Question #12: What is the remaining "risk" of stocks?

I'm starting to believe that the "risk" of stocks is not what I had imagined all these years.
That is, it's not, "If you put your money in stocks, you might gain lots but you might lose everything."
That would be true if I were picking individual stocks, and putting all my eggs into a handful of baskets. But in a well-diversified portfolio, which almost any Fund will offer -because each will have shares in hundreds of different companies across a fair number of sectors and even a few countries, exchanges, and indexes- we virtually eliminate that risk. Yes?

So, if our portfolio is truly well-diversified, the only remaining "risk" is in timing. That is, the "risk" is that stocks might happen to be down when we want to withdraw the money. But if we move into stable options -whatever actually seems stable to us at the time, because even bonds are not 100%- a few years before it's needed, or if we can access other funds and simply wait some more -up to several more years if necessary- that issue is resolved, too. Yes?

Is there any other "risk" involved in stocks?

Heckler

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Re: one (investing) question at a time
« Reply #117 on: December 13, 2014, 09:23:27 AM »
Sorry scrubby but I haven't graduated from bond class yet.


1.  How does an ETF bond fund like VAB work then?  I have 44 "tester" shares that I was expecting a $3 December dividend from.   I signed up for DRIP but the value is too low for a share so I was expecting cash to pop up in my account.   Nada. 


Heckler, have a closer look to your account, VAB should pay dividend on dec. 3th IF you hold the shares before nov. 26th (ex. dividend date).

I guess they write the little cheques last.  A few bucks finally showed up today but oddly after I questioned where it was. Cheers!

MDM

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Re: one (investing) question at a time
« Reply #118 on: December 13, 2014, 09:31:41 AM »
Question #12: What is the remaining "risk" of stocks?
Yes, that's correct.  In fact, take out the sentences ending with "?" and you have a good explanation to give to someone less experienced than you. :)

The main unknown is the definition of "few" and "several" in the phrases "a few years before it's needed" and "simply wait some more -up to several more years if necessary."

scrubbyfish

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Re: one (investing) question at a time
« Reply #119 on: December 13, 2014, 09:49:51 AM »
Yes, that's correct.  In fact, take out the sentences ending with "?" and you have a good explanation to give to someone less experienced than you. :)

Cool!

The main unknown is the definition of "few" and "several" in the phrases "a few years before it's needed" and "simply wait some more -up to several more years if necessary."

In my mind, I'm really using "few" and "several" to mean "three, maybe four, but maybe five".
Are you saying, MDM, that none of us can know what those "few/several" might need to translate to in real life? i.e. That "how long" these preparation or wait periods will vary depending on our overall finances, how long stocks stay down, etc.

MDM

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Re: one (investing) question at a time
« Reply #120 on: December 13, 2014, 10:16:44 AM »
In my mind, I'm really using "few" and "several" to mean "three, maybe four, but maybe five".
Are you saying, MDM, that none of us can know what those "few/several" might need to translate to in real life? i.e. That "how long" these preparation or wait periods will vary depending on our overall finances, how long stocks stay down, etc.
Yes, primarily the highlighted phrase.  E.g., see the table below from http://usatoday30.usatoday.com/money/perfi/stocks/2011-06-08-stocks-long-term-investing_n.htm (I've seen graphical presentations of similar information but couldn't find any quickly).  The point is that it has happened and could again happen for stocks to take a long time to recover.  As long as people understand and plan for that possibility, all is well.  Not planning, and/or panicking and "selling low," can cause problems.


Dodge

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Re: one (investing) question at a time
« Reply #121 on: December 13, 2014, 10:20:48 AM »
Thanks, you guys!! Very, very, very helpful. It's coming together...

Again, it's neat and amazing to be able to grasp some degree of beginners' articles, the CCP model portfolios page, etc.

Question #12: What is the remaining "risk" of stocks?

I'm starting to believe that the "risk" of stocks is not what I had imagined all these years.
That is, it's not, "If you put your money in stocks, you might gain lots but you might lose everything."
That would be true if I were picking individual stocks, and putting all my eggs into a handful of baskets. But in a well-diversified portfolio, which almost any Fund will offer -because each will have shares in hundreds of different companies across a fair number of sectors and even a few countries, exchanges, and indexes- we virtually eliminate that risk. Yes?

So, if our portfolio is truly well-diversified, the only remaining "risk" is in timing. That is, the "risk" is that stocks might happen to be down when we want to withdraw the money. But if we move into stable options -whatever actually seems stable to us at the time, because even bonds are not 100%- a few years before it's needed, or if we can access other funds and simply wait some more -up to several more years if necessary- that issue is resolved, too. Yes?

Is there any other "risk" involved in stocks?

It sounds like you have a firm grasp of all the factors.  But be careful not to underestimate the risk of withdrawing money out of fear.  I know more than a few people who sold everything at the 2008/2009 market bottom, because their TV scared them into it.  You have to be willing to stay the course.

Le Barbu

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Re: one (investing) question at a time
« Reply #122 on: December 13, 2014, 10:21:44 AM »
Scrubby, nice Avatar!

Answer to #12 is yes

Risk in stock is exactly what you describe

For a well diversified CCP-like stok portfolio, risk just mean "random up & down"

If you invest in 5,000 to 10,000 different co. all around the world, just hope thousands of CEO keep competing each others and hundreds of thousands peoples go to work for a living

If this fail, well, you better be badass to get through!

Dodge

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Re: one (investing) question at a time
« Reply #123 on: December 13, 2014, 10:23:41 AM »
In my mind, I'm really using "few" and "several" to mean "three, maybe four, but maybe five".
Are you saying, MDM, that none of us can know what those "few/several" might need to translate to in real life? i.e. That "how long" these preparation or wait periods will vary depending on our overall finances, how long stocks stay down, etc.
Yes, primarily the highlighted phrase.  E.g., see the table below from http://usatoday30.usatoday.com/money/perfi/stocks/2011-06-08-stocks-long-term-investing_n.htm (I've seen graphical presentations of similar information but couldn't find any quickly).  The point is that it has happened and could again happen for stocks to take a long time to recover.  As long as people understand and plan for that possibility, all is well.  Not planning, and/or panicking and "selling low," can cause problems.



Yup, I usually go with this:



http://www.mrmoneymustache.com/2011/06/06/dude-wheres-my-7-investment-return/

Le Barbu

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Re: one (investing) question at a time
« Reply #124 on: December 13, 2014, 10:24:15 AM »
Scrubby, nice Avatar!

Answer to #12 is yes

Risk in stock is exactly what you describe

For a well diversified CCP-like stock portfolio, risk just mean "random ups & downs"

If you invest in 5,000 to 10,000 different co. all around the world, just hope thousands of CEO keep competing each others and hundreds of thousands peoples go to work for a living

If this fail, well, you better be badass to get through!

scrubbyfish

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Re: one (investing) question at a time
« Reply #125 on: December 13, 2014, 08:25:00 PM »
Thanks!!

Hopefully this week my own RDSP account will be available for me to make my first deposit to, and ideally I will make that before January 1st, so I think I should plan for that right away.

Question #13: Adult's Registered Disability Savings Plan- Determining Allocations

Handily, the government provides an example of someone very close to my age/situation:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/pmnts/xmpl-eng.html

-if I were younger, the formula would be very different, but I am starting this at age 43
-the RDSP receives government contributions for up to 20 years, but up to age 49 at the latest
-the latest I can make my own contributions to is age 59
-to get the most benefit, one must not touch it for 10 years after the government's final contribution (age 49), so I wouldn't touch it before age 59
-withdrawals must start at age 60
-so, in my unusual case, this account will have no withdrawals for only 17 years
-at age 60, a formula will determine an annual amount of withdrawal based on the account's fair market value at that point, so ideally the account is at its highest point then, but is at least at a helpful amount
-the payment is made annually til death
-if I die early, the government takes back all its contributions and the market value of the account is given to my kid
-there are other legal variables under which the government is permitted to close the account early, ditto above
-however, we still benefit by being able to "grow" the value from the government's contributions in the meantime

Okay.

-the data posted today indicates that the market can suck for up to 15 years, but in the past it has not sucked for longer than that
-based on data of the past 25 years, if I wanted to be very "safe" I would need a "safe allocation" in place by age 45
-for the first several years, optimal contribution is $3500
-I will have savings outside of the account to be able to make those
-if I were much younger, I could reasonably have up to 100% in stocks for the first number of years
-I'm not younger, so allocations need to reflect withdrawals starting in 17 years

Am I on track so far?
« Last Edit: December 14, 2014, 03:10:18 PM by scrubbyfish »

deborah

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Re: one (investing) question at a time
« Reply #126 on: December 13, 2014, 09:13:16 PM »
The way I am reading this is that government contributions (grants and/or bonds) are only added until the person reaches 49 (not 59).

You receive as much as you will get if you put in $1,500 each year - the government will pay you a CDSG grant of $3,500 if you put in that amount (3 x $500 + 2 x $1,000). I assume you earn less than $87,123.

You could also receive $1,000 per year bond if you earn less than $25,356, this goes down progressively until you earn $43,561.

So, the max the government will put in each year is $4,500.

This is awful to read and I can't find some of the information needed. Scrubbyfish you are amazing to have got this much from it.


Dodge

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Re: one (investing) question at a time
« Reply #127 on: December 13, 2014, 09:56:44 PM »

Thanks!!

Hopefully this week my own RDSP account will be available for me to make my first deposit to, and ideally I will make that before January 1st, so I think I should plan for that right away.

Question #13: Adult's Registered Disability Savings Plan- Determining Allocations

Handily, the government provides an example of someone very close to my age/situation:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/pmnts/xmpl-eng.html

-if I were younger, the formula would be very different, but I am starting this at age 43
-the RDSP receives government contributions for up to 20 years, but latest is age 59
-to get the most benefit, one must normally not touch it for 10 years after the government's final contribution, which in my case would be age 69
-however, withdrawals must start at age 60
-so, in my unusual case, this account will have no withdrawals for only 17 years
-at age 60, a formula will determine an annual amount of withdrawal based on the account's fair market value at that point, so ideally the account is at its highest point then, but is at least at a helpful amount
-the payment is made annually til death
-if I die early, the government takes back all its contributions and the market value of the account is given to my kid
-there are other legal variables under which the government is permitted to close the account early, ditto above
-however, we still benefit by being able to "grow" the value from the government's contributions in the meantime

Okay.

-the data posted today indicates that the market can suck for up to 15 years, but in the past it has not sucked for longer than that
-based on data of the past 25 years, if I wanted to be very "safe" I would need a "safe allocation" in place by age 45
-for the first several years, optimal contribution is $3500
-I will have savings outside of the account to be able to make those
-if I were much younger, I could reasonably have up to 100% in stocks for the first number of years
-I'm not younger, so allocations need to reflect withdrawals starting in 17 years

Am I on track so far?

One important thing to realize, while the charts showing "worst 10 year return on record" are accurate, they might by give the full picture. I'm not sure if you've watched the Boglehead video series yet:

http://www.bogleheads.org/wiki/Video:Bogleheads_investment_philosophy

But here's a fun chart from one of the first videos, showing how often you'd have lost money over all the previous 10 year periods:



Despite this, however, I don't think 100% stocks (or 100% of anything really) is a good plan for anyone of any age. You'll see some differing opinions here on that though :) Really there is no wrong answer on that, it all comes down to your Ability, Willingness, and Need, to take risk. I just think people tend to underestimate their Ability, and overestimate their Need.

scrubbyfish

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Re: one (investing) question at a time
« Reply #128 on: December 13, 2014, 10:00:27 PM »
deborah, yes, the RDSP stuff is trippy. It's very new, so most banks, humans, etc, can't make heads or tails of it. I believe the government is still working out some of its FAQs, too.

You are correct that the govt will only match and otherwise contribute until I turn 49 (I'll correct that), and about the match amounts, and about my income level ($12000* in 2013).

However, there is one additional factor: The government also allows "catch up years". So, until I'm all caught up, I can put in $3500/yr and the government will put in $10,500 (can't remember if that's before or after the $1000 bond, but no matter). I will absolutely be maximizing that. A lot of variables for this account, and I can't keep it all straight, but suffice it to say I'll be putting in $3500/yr for at least a few years and, when the catch-up years are complete, I will go down to the $1500/yr.

I believe I've completed the catch-up years for my son's (started a few years ago), but that account will be discussed later :)

*I said $10000 somewhere on the forum recently, but when I perused my tax forms, I found an adjustment form that said the higher number.

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Re: one (investing) question at a time
« Reply #129 on: December 13, 2014, 10:09:29 PM »
Thanks, Dodge! I haven't looked at the Bogleheads resources yet. Thanks for that chart. Very interesting! (I found it fascinating, too, to note the ups and downs of my parents' life in it.)

I just think people tend to underestimate their Ability, and overestimate their Need.

Can you tell me more about this, please? Their ability to...save? hold tight when stocks plummet? And need... for level of wealth to sustain a decent life? Or?

Dodge

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Re: one (investing) question at a time
« Reply #130 on: December 13, 2014, 10:12:31 PM »

Thanks, Dodge! I haven't looked at the Bogleheads resources yet. Thanks for that chart. Very interesting! (I found it fascinating, too, to note the ups and downs of my parents' life in it.)

I just think people tend to underestimate their Ability, and overestimate their Need.

Can you tell me more about this, please? Their ability to...save? hold tight when stocks plummet? And need... for level of wealth to sustain a decent life? Or?

Their ability to take risk. Yes, to hold tight when stocks plummet.

Their need to take risk. If they can meet their goals just as easily with a less risky portfolio, for example.

Sounds like you got it :)

scrubbyfish

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Re: one (investing) question at a time
« Reply #131 on: December 13, 2014, 10:15:58 PM »
Excellent! Thanks, Dodge.

scrubbyfish

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Re: one (investing) question at a time
« Reply #132 on: December 14, 2014, 12:34:37 AM »
Question #14: Do we allocate per account, or for total assets?

Not sure how to put this...

Following are examples only, not my real numbers!

Let's say I have $100,000 in total, and I need to access parts of that at different points:

$20,000 of it I need in 5 years.
$40,000 of it I need in 20 years.
$40,000 of it I need in 30 years.

Because some account-types rock for govt contributions, I want to maximize those. As a result:

$30,000 of it will go into one Registered account.
$40,000 will go into another Registered account.
$30,000 has no "home" determined yet, but will go into a non-registered account.

Do I look at my entire amount -$100,000- and determine a stocks/bond split for that entire amount, then divvy everything up accordingly? i.e., "I want more growth potential, and some sense of comfort, so I'm going to divvy that whole amount 60/40, so ensure $60000 of my money is in stocks and $40000 is in bonds, and never mind about how that allocation is reflected inside each account." (I don't think this is what we do, but checking.)

Or do I look at when I will access a given account, and allocate accordingly? i.e., In this case, I might say:
For the amount -or account- I'm going to access in 20 years, I'll allocate 75/25 stocks/bonds.
For the amount -or account- I'm going to access in 5 years, I'll allocate 30/70 stocks/bonds.
And so on, such that I don't end up with the 60/40 split on the total, but rather different splits per account (and random-sounding percentages when it's all totaled up).
I think this is what we do.

In other words, is a risk/comfort allocation applied to the whole amount available, or is a different allocation determined depending on which account type, when that account will be used, and for what? (I so far think it's the latter.)

deborah

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Re: one (investing) question at a time
« Reply #133 on: December 14, 2014, 12:58:31 AM »
The following is general advice. It depends upon how much risk you want to have.

Stocks are not supposed to be accessed very soon - most investment advice says that you should expect to be in stocks for at least 7 years (because they go up and down so much - this is called volatility), so your $20,000 in 5 years probably should be in something that has a more-or-less guaranteed return - like a high interest bank account - not shares or bonds. However, if you are happy with the risks, you could invest this differently.

Your $80,000 for 20 years and 30 years can be in whatever allocation you have decided - 60% stock/40% bonds.

It doesn't matter which accounts these are in, as you are a low income earner, and aren't taxed much. But if you were earning a high income, and were taxed a lot, registered accounts are better for the types of investments that get taxed more.

In Australia, you get taxed on the dividends your shares earn, so people might put the shares that earn more dividends into registered types of accounts, and the ones that earn less dividends into non-registered accounts. Different countries tax investments in different ways, so this would be Canada specific.

scrubbyfish

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Re: one (investing) question at a time
« Reply #134 on: December 14, 2014, 10:04:32 AM »
So, we DO allocate per account/time needed, not apply one split across our entire savings. Is that correct?

Le Barbu

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Re: one (investing) question at a time
« Reply #135 on: December 14, 2014, 10:30:23 AM »
Here what make that "splitting" exercise tricky.

My own example: RRSP will be there for another 20 years but is the most suitable place to hold bonds. Taxable account is where I hold my safety net but interests are fully taxed (38% in my case). To minimize taxes, Canadian stocks would be the best (+/-10% tax) but stocks are not that great for à safety net. I ended making an overall A.A. spreedsheet. I do like gov. match and hate paying taxes.

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Re: one (investing) question at a time
« Reply #136 on: December 14, 2014, 10:57:20 AM »
So, we DO allocate per account/time needed, not apply one split across our entire savings. Is that correct?

My advice is similar to Deborah's.  It is a three-step process:

Step 1:  How much money do I need to access within the next 3-5 years?  This money should be in stable investments (Money Markets, CD's, Short-Term Bonds).  In your example, the answer is $20,000.

Step 2:  How much money do I need to access within the next 5-10 years?  This money should be in investments that can take a little additional risk (Balanced Funds, Intermediate-Terms Bonds).  In your example, the answer sounds to be zero. 

Step 3:  What money do I need 10+ years out?  This is the money you can invest in U.S./Canadian/International Stocks, REIT's - balanced funds would also be a good choice based on risk tolerance.  In your example, the answer is $80,000.

Now how you look at the $80,000 is important.  Say you want to do a 60/40 stock/bond split.  Both funds of $40,000 do not have to contain a 60/40 split. 
- The first $40,000 could be 100% stocks.
- The second $40,000 could be $8,000 stocks / $32,000 bonds.  (Modified, had a brain freeze the first time).
- Total allocation is still 60/40. 

In your case, taxes are not a factor so I would use fund choices (primarily their expense ratios) to determine the best fund options in each $40,000 group, then select the combination that achieves the stock/bond ratio you desire. 

« Last Edit: December 14, 2014, 12:28:18 PM by GardenFun »

scrubbyfish

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Re: one (investing) question at a time
« Reply #137 on: December 14, 2014, 11:15:21 AM »
So, Le Barbu, YOUR situation would look something like the following?
  • you are taxed at a high-ish rate
  • your only tax-free account options are RRSP and TFSA
  • everything else will be held in taxable accounts
  • per your age, your RRSP is longer term (no withdrawals for 20 years), so you COULD have a higher allocation of stocks there (i.e., 20 years gives the market long enough to cycle through its fluctuations and likely end up at a higher amount than what you started with, and there is time to rebalance it in the years preceding withdrawal)
  • however, returns on bonds ("fixed income") are taxed at a higher rate than returns on stocks are, thus you fill your RRSP and TFSA with ALL the bonds you want
  • IF there is still room in your RRSP and TFSA after you have as much in bonds as you want, you would have stocks inside those too
  • but otherwise, all stocks are in non-registered accounts
  • thus, you might have an RRSP of 100% bonds, a TFSA of 82% bonds/18% stocks, and a non-registered account in which 100% of holdings is stocks

Although I am using example percentages, is that the gist of how your allocations would be determined throughout the various accounts?

Oh, GardenFun is getting in on it, so I will check that out, too...

scrubbyfish

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Re: one (investing) question at a time
« Reply #138 on: December 14, 2014, 12:10:22 PM »
GardenFun: Interesting!! So, now I understand that it's neither one nor the other! It's a hybrid. But it all starts with "what do you need when". Okay. (Now I see why articles/courses on investing say we need to define our goals. If I'm investing to make a downpayment in 5 years, I do one thing. If I'm investing only for retirement-at-65, I do another. If I'm doing both, I do yet another. Hmmm...)

Question #15: How do we invest for contingencies?

I know that $43000 will be in my son's RDSP, because it already is and that stays untouched.
I know that $15000 will be in his RESP, ditto above.
I know that $15000 (over the next few years) will be in my RDSP, because that's smart.
An RRSP is a hindrance in my case, as is a TFSA.

The remaining money I am lost about, in terms of goals/intention.
My priorities with it are:
$10,000 for day-to-day life (chequing account), then
$30,000 safely available for the next several years of RDSP and RESP contributions. The government matches are better than any stock returns.

Amounts beyond that, I don't know, because:
I MIGHT want to buy a house in 3 years or 10 years.
I MIGHT face some big autism emergency and need to access any amount of the remaining money for that.
I MIGHT want to fund another project.

How does one invest for total unknowns? I can see that this is where we might be tempted just to have it in a bank account until we know. However, I tend to "not know" for decades at a time. And when I did buy a house, I came up with the idea only three months before I did it. Or a project idea will come and I'll fund it over the subsequent six months. That is, I don't feel able to realistically say, "I will want to buy a house in 15 years." Or, "I will want to fund a project in 2020." My life is far more variable than that. So, I want to build for the long term, but also be able to take an opportunity when it comes. How is that handled in investment land?

deborah

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Re: one (investing) question at a time
« Reply #139 on: December 14, 2014, 12:24:59 PM »
How do you invest for contingencies?

The same way you invest for things you need in the "up to 5 year" period. You might want the money tomorrow, so you don't want volatility.

However, you might look at your life so far and say "how much contingency do I really use?" If you are in your 40s, you probably have a good idea of what you have done (or wanted to do) in the past, and how much money that would need. Put that amount of money in stable investments (Money Markets, CD's, Short-Term Bonds), and the rest in the longer term types of investments. That way you can choose which investments to use when you actually need the money.

scrubbyfish

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Re: one (investing) question at a time
« Reply #140 on: December 14, 2014, 01:04:54 PM »
EXCELLENT, deborah. Got it.

Something I know about myself is that:
I am super happy renting, and far prefer it to owning.
The variables that would trigger me to own, especially in BC, are far-fetched.
If I had a partner that wanted to own, the financial picture would include theirs, thus be a whole new calculation/plan anyway.
An alternative to cash payment for a house is a low-interest mortgage; cash is not my only option*.
So, I need to release the idea of having, say, $200,000 "at the ready" in case I feel like owning one day.
Okay.

Projects: I aim for projects of under $10,000 that pay for themselves within six months. (This is also a way I contribute to major causes, thus fulfills my desire to help/donate/etc.)

Vehicle: I will buy a new one in about 8 years.

Any other money should be left for my old age (long term), and to go to kid and donations upon my death (long term).

So, that means I need:
  • $0 available for a home ownership that I never seem to get around to wanting
  • $10,000 in chequing account, investing any surplus every month
  • $10,000 short term for projects (Money Markets, CD's, Short-Term Bonds)
  • $40,000 short term for contributions to RDSP/RESP (Money Markets, CD's, Short-Term Bonds)
  • $20,000 medium term for vehicle (Balanced Funds, Intermediate-Terms Bonds)
  • the rest longterm (stocks or stocks and bonds in RDSPs, RESP, and non-registered account)
So far so good?

* This may or may not actually be true. Exploring this more here: http://forum.mrmoneymustache.com/ask-a-mustachian/canada-mortgage-against-investments/
« Last Edit: December 14, 2014, 02:52:11 PM by scrubbyfish »

deborah

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Re: one (investing) question at a time
« Reply #141 on: December 14, 2014, 02:46:39 PM »
You might also want to think about what happens if Little Fish leaves home in 10 years or less. Do you have some things you would want to do at that point that might require your finances to be set up differently? Since you are going to all this work of financial planning, you might as well include this possibility (although it might be rather remote).

scrubbyfish

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Re: one (investing) question at a time
« Reply #142 on: December 14, 2014, 02:53:46 PM »
I anticipate him leaving home between age 16-20, so all this planning assumes that. Though if for some reason he needs to stay home, this accommodates that, too.

scrubbyfish

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Re: one (investing) question at a time
« Reply #143 on: December 14, 2014, 03:08:52 PM »
Question #16: How would YOU allocate this 17 year investment?

We're all different, of course. Regardless (or therefore), I'd like to hear whatever views, what you personally would do or advise in this situation. I will not hold you responsible for the decisions I ultimately make, and the outcomes of those :)

This closely relates to Question #13 (http://forum.mrmoneymustache.com/investor-alley/one-%28investing%29-question-at-a-time/msg483007/#msg483007), but is more specific.

I don't "need" the money to become any given number by a certain point. I'll have additional investments and income sources; I will not be depending on this entirely. But obviously, the higher it gets the better. However, a lifetime annual withdrawal amount will be permanently set in 17 years -not before, not after- so ideally the investment is decent at that precisely point.

So, what would your division of stocks/bonds/anything else be now?
When would you adjust that, and to what?

Again, I'll be using one of the options listed here: http://canadiancouchpotato.com/model-portfolios/, though not necessarily in a 60/40 stocks/bonds split.

deborah

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Re: one (investing) question at a time
« Reply #144 on: December 14, 2014, 03:37:14 PM »
I am different to you. I would not see myself living without owning a house (I NEED a fruit and vegetable garden). Because I own my own house, and it is in Australia, this means I have quite a chunk of my investments in property - so I don't need any extra property investments. I also have a very small pension, so I don't need money in bonds. As a result, I have 90% shares, 5% bonds and 5% cash.

I have always been told that you should diversify into property, bonds and shares - so I am diversified. As we have previously discussed, stocks and bonds tend to go up and down at different times. So does property. Most people have more property exposure than they should - and I think that is why property isn't mentioned in a lot of the stuff around. But I don't know much about it.

Property can be shares in property companies (although here  - and probably everywhere - a lot some types of property shares went belly up in the GFC, and are still almost worthless) rather than your own property - for instance if Arebelspy decided to sell shares in his property portfolio. I've stayed clear of this part of the market.

If I was allocating my own 17 year investment and had no other money, I would put it 90% shares 10% bonds, and look into the property sector and see whether there were any good options there. But, I have had shares for decades, so I am rather gung-ho about them. I also need less than 10% of the income my investments make each year, so I won't care if another GFC comes and they lose 50% of their value - or even more, so I am finding it difficult to put myself in your position.
« Last Edit: December 14, 2014, 04:08:19 PM by deborah »

Le Barbu

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Re: one (investing) question at a time
« Reply #145 on: December 14, 2014, 04:24:29 PM »
So, Le Barbu, YOUR situation would look something like the following?
  • you are taxed at a high-ish rate
  • your only tax-free account options are RRSP and TFSA
  • everything else will be held in taxable accounts
  • per your age, your RRSP is longer term (no withdrawals for 20 years), so you COULD have a higher allocation of stocks there (i.e., 20 years gives the market long enough to cycle through its fluctuations and likely end up at a higher amount than what you started with, and there is time to rebalance it in the years preceding withdrawal)
  • however, returns on bonds ("fixed income") are taxed at a higher rate than returns on stocks are, thus you fill your RRSP and TFSA with ALL the bonds you want
  • IF there is still room in your RRSP and TFSA after you have as much in bonds as you want, you would have stocks inside those too
  • but otherwise, all stocks are in non-registered accounts
  • thus, you might have an RRSP of 100% bonds, a TFSA of 82% bonds/18% stocks, and a non-registered account in which 100% of holdings is stocks

Although I am using example percentages, is that the gist of how your allocations would be determined throughout the various accounts?


You're pretty close indeed!

In fact, since I am Mustachian, I just dont feel the need to hold any bonds, so my taxed account hold Canadian stocks and the sheltered ones (RRSP, RESP & TFSA) are filed with US and Int. stocks. Final AA 35%can, 35%US,30% int

Le Barbu

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Re: one (investing) question at a time
« Reply #146 on: December 14, 2014, 05:26:42 PM »
Question #16: How would YOU allocate this 17 year investment?

So, what would your division of stocks/bonds/anything else be now?
When would you adjust that, and to what?

Again, I'll be using one of the options listed here: http://canadiancouchpotato.com/model-portfolios/, though not necessarily in a 60/40 stocks/bonds split.

What about this, son's RDSP 25-25-25-25% split with funds of CCP (Global #2, TDB) same for RESP and your RDSP. Then, open a High Int. Saving Account and fill this one to 20k. Since your tax rate is near zero, it's ok. Your final split will be close to 40-20-20-20...

Personaly, I would be more agressive but I realy think it is pretty good plan for you for now. Kinda 9/10 compared to most investors.
« Last Edit: December 14, 2014, 05:28:47 PM by Le Barbu »

scrubbyfish

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Re: one (investing) question at a time
« Reply #147 on: December 14, 2014, 05:47:01 PM »
What about this, son's RDSP 25-25-25-25% split with funds of CCP (Global #2, TDB) same for RESP and your RDSP. Then, open a High Int. Saving Account and fill this one to 20k. Since your tax rate is near zero, it's ok. Your final split will be close to 40-20-20-20...

Personaly, I would be more agressive but I realy think it is pretty good plan for you for now. Kinda 9/10 compared to most investors.

Not quite able to ponder the whole shebang yet -my brain stops if I'm looking at more than it's immediately up for. At first glance, it seems odd to me to allocate an 8-year account, a 17-year account, and a 30-year account all exactly the same. (I once won $5000 asking a question like that. Maybe today again?)

BUT... In terms of just my 17 year Registered account, that needs to land in a nice place at exactly the 17 year point, you're saying you would go with:

Canadian equity 25% TD Canadian Index – e (TDB900)
US equity 25% TD US Index – e (TDB902)
International equity 25% TD International Index – e (TDB911)
Canadian bonds 25% TD Canadian Bond Index – e (TDB909)

...thus, 75/25 stocks/bonds within that particular (17 year, Registered) account. Is that right?

deborah: All things considered (needing relatively little to live on, adding to my savings daily, bonds having some risk too, life experience to date), I'm actually comfortable going closer to 90/10 stocks/bonds for the longterm accounts. I would flip this around as I got closer to the withdrawal determination date, but for up to 7 years, I would be comfortable going this high, unless someone figures that's crazy?

Le Barbu

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Re: one (investing) question at a time
« Reply #148 on: December 14, 2014, 06:10:36 PM »
What about this, son's RDSP 25-25-25-25% split with funds of CCP (Global #2, TDB) same for RESP and your RDSP. Then, open a High Int. Saving Account and fill this one to 20k. Since your tax rate is near zero, it's ok. Your final split will be close to 40-20-20-20...

Personaly, I would be more agressive but I realy think it is pretty good plan for you for now. Kinda 9/10 compared to most investors.

Not quite able to ponder the whole shebang yet -my brain stops if I'm looking at more than it's immediately up for. At first glance, it seems odd to me to allocate an 8-year account, a 17-year account, and a 30-year account all exactly the same. (I once won $5000 asking a question like that. Maybe today again?)

BUT... In terms of just my 17 year Registered account, that needs to land in a nice place at exactly the 17 year point, you're saying you would go with:

Canadian equity 25% TD Canadian Index – e (TDB900)
US equity 25% TD US Index – e (TDB902)
International equity 25% TD International Index – e (TDB911)
Canadian bonds 25% TD Canadian Bond Index – e (TDB909)

...thus, 75/25 stocks/bonds within that particular (17 year, Registered) account. Is that right?

deborah: All things considered (needing relatively little to live on, adding to my savings daily, bonds having some risk too, life experience to date), I'm actually comfortable going closer to 90/10 stocks/bonds for the longterm accounts. I would flip this around as I got closer to the withdrawal determination date, but for up to 7 years, I would be comfortable going this high, unless someone figures that's crazy?

Not crazy at all. Here is the way I figure this. I invest 100% in stocks for the long term and keep enough liquidity to meet all my short-term goals, including safety net and being abble to invest in order to maximise the government benefits (match). So, no mid-term for me!

There is no magic AA split. 40-20-20-20 is good, 25-25-25-25 also, 15-30-30-25 is more agressive but still defendable, as long as the 15% fixed assets are outside registered accounts to be available anytime.
« Last Edit: December 14, 2014, 06:13:14 PM by Le Barbu »

deborah

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Re: one (investing) question at a time
« Reply #149 on: December 14, 2014, 07:29:03 PM »
Sounds reasonable.