Author Topic: one (investing) question at a time  (Read 73988 times)

GardenFun

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Re: one (investing) question at a time
« Reply #150 on: December 15, 2014, 08:33:17 AM »
Sounds reasonable.

Agree here too, good diversity.

Deborah - I typically think of pension income purely as cash, but replacing bond allocation is interesting - I'm absolutely stealing that line of thinking.  :-)

scrubbyfish

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Re: one (investing) question at a time
« Reply #151 on: December 15, 2014, 09:22:19 AM »
deborah and GardenFun, which approach are you feeling is reasonable, good diversity? The three options that Le Barbu proposed? One of those more than another?

Le Barbu, I'm not sure which allocation percentages you're matching with which fund. We had talked a bit about:

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)

...and then you proposed 40-20-20-20, or 25-25-25-25, or 15-30-30-25 but with the 15 representing bonds, which has me wondering what order to read the other two sets of allocations in.

For inside my 17 year account, I'm inclined toward no bonds, which is what Le Barbu is suggesting, so maybe 33/33/33 between the Canada/US/International equities?

Le Barbu

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Re: one (investing) question at a time
« Reply #152 on: December 15, 2014, 09:57:59 AM »
Sorry about that, always read my % in the following order Bonds-Can stocks-US stocks-Int. stocks (or TDB909, TDB900, TDB902 and TDB911) for now.

That said, "I" would split 35-35-30 in EACH of your 3 different accounts (son's RDSP, scrubby's RDSP and RESP) and put asside 10k or 20k or more in a High Interest Saving Account @ 1%

One could argue holding no bonds is crazy, another could try to "shave" another 300$MER/year with ETF's instead of TD Index Funds (difference between 0.4%MER compared to 0.1%MER over 100k) etc. Seaking for the best, you can miss the good!

As I already told you, I went through that "learning" process of DIY investing 3 years ago and some of the obvious pitfalls for a beginer investor are: trading to much (because you keep making minor changes with no real benefit), don't know how/when to convert CAD to USD for cheap without loosing big$$ (Norbert's-Gambit). And shall I say, analysis-paralysis?

 
« Last Edit: December 15, 2014, 11:03:18 AM by Le Barbu »

scrubbyfish

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Re: one (investing) question at a time
« Reply #153 on: December 15, 2014, 10:26:05 AM »
Excellent! Thanks so much, Le Barbu.

So if you were me, on the 17 year registered account you would go:

Canadian equity 35% TD Canadian Index – e (TDB900)
US equity 35% TD US Index – e (TDB902)
International equity 30% TD International Index – e (TDB911)

Do I have that right?

And yep, I have money in a regular account, so all good for cash/liquid/emergency. Some of that will move into the subsequent investments but this exists, too.

A lovely thing, too, has been that the fancy back-office person they put me with at Waterhouse for one appointment, she is of the same mind as CCP, the gist of things here, and also what you said here:
...another could try to "shave" another 300$MER/year with ETF's instead of TD Index Funds (difference between 0.4%MER compared to 0.1%MER over 100k) etc. Seaking for the best, you can miss the good!

She, too, felt that in my case TD Index Funds were at least as good a choice as the lower-free ETFs, and noted that we need to pay attention not only to "lowest fees" but overall net gain, saying that sometimes an option with slightly higher fees nets more for the investor than the lowest fee option does, which is not at all what we're aiming for!

I've been wanting to grasp all of this stuff -the end picture, but also the details along the way that allow me to get there- for two reasons:

1. I've been working at grasping this stuff for over a year, and I'd like to finish that process, and
2. I really want to drop the money in ONCE. I don't want to drop or move money and then a week later "get around to" learning the next piece and want to move everything again.

This said, the whole thing around ETFs, US withholding taxes, etc, is indeed beyond me at this moment -and I'm not ready to delve into learning about those- and I'm hoping that my new RDSP account will be set up this week, hopefully today or tomorrow. So, I want to work out what I'm doing with this one account so that I'm ready when it is... Moving all the other accounts, if I want to take three more weeks on those, that's fine. This one needs to be done before year end, though.

Le Barbu

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Re: one (investing) question at a time
« Reply #154 on: December 15, 2014, 11:00:03 AM »

So if you were me, on the 17 year registered account you would go:

Canadian equity 35% TD Canadian Index – e (TDB900)
US equity 35% TD US Index – e (TDB902)
International equity 30% TD International Index – e (TDB911)

Do I have that right? Yep!


But don't forget that I'm not You so, You are the one who take the final decision and have to be comfortable with this plan. With a split like this, the new money (your contribution + gov. contribution) should be about enough to "buy" the lagging fund in order to rebalance. The decisions will be minimal (and boring!) because the mondial economy is more and more linked together. I usualy buy/rebalance twice/year with lump sums because I got the discipline to do so. In the meantime, cash is set asside in a saving account.
« Last Edit: December 15, 2014, 11:05:51 AM by Le Barbu »

scrubbyfish

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Re: one (investing) question at a time
« Reply #155 on: December 15, 2014, 11:34:58 AM »
Yep! But don't forget that I'm not You so, You are the one who take the final decision and have to be comfortable with this plan.

I totally hear this, yes. My situation is unique -with advantages and disadvantages- and I do understand that whatever I decide for me (and my son) needs to be my own best assessment of what's most right for us. It's also why I push with certain topics, and seek clarification until I'm truly understanding any given piece, because advisors generally can't/won't think past typical lifestyles. So, I need to be the one to recognize the oddities in my life and my son's life and factor those in, and keep bringing those into any discussion so that we end up with a plan that's truly relevant to US.

Again, thanks!

deborah

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Re: one (investing) question at a time
« Reply #156 on: December 15, 2014, 02:57:18 PM »
Le Barbu knows the Canadian situation, so I would go with his suggestions. Australia is different as far as stocks are concerned - we don't have the easy access to the US market you have, and we have different imperatives for our market, so I don't have any idea of the Can/US/International split that you should be doing.

But, as he says, you are different.

Le Barbu

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Re: one (investing) question at a time
« Reply #157 on: December 15, 2014, 03:05:59 PM »
Le Barbu knows the Canadian situation, so I would go with his suggestions. Australia is different as far as stocks are concerned - we don't have the easy access to the US market you have, and we have different imperatives for our market, so I don't have any idea of the Can/US/International split that you should be doing.

But, as he says, you are different.

What is the "typical" A.A. for the equity portion of an Antralian's portfolio then? I would have think about 35% Australia, 35% US and 30% Int. just like Canadian but looks like I'm wrong...

scrubbyfish

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Re: one (investing) question at a time
« Reply #158 on: December 15, 2014, 03:13:39 PM »
Le Barbu knows the Canadian situation, so I would go with his suggestions.

Awesome. That's what I'm doing, because that's what I think is awesome. I wanted a bit more in US equities, because Canada's stocks struggle to keep pace. But I wanted some in Canada's equities because I like Canada's policies for stability. And I want some in foreign because that's part of my overall diversification plan.

Also of note: The first draft of my Investment Policy Statement that I posted to my journal a couple of weeks back has been absolutely overhauled, thanks to this thread! It actually makes sense to me now! I know some of my plan! And, awesomely, I get to take it to TD tomorrow, where I get a free appointment -per investment level- with a fancy direct investing person. One document with all my knowledge so far for her to peruse before we chat.

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Re: one (investing) question at a time
« Reply #159 on: December 15, 2014, 03:20:33 PM »
Question #17: Annual Lump Sum - Dump it all in or do dollar cost averaging??

I know that generally, MMM/CCP types recommend investing a lump sum at once -getting the most amount of money into the market as early as possible, period- and applying dollar cost averaging only to the smaller amounts trickling in to our accounts after that. Yes?

This question is in that vein, but has a variation.

Every year for the first few years, when I put $3500 into the RDSP, the government will put in $10,500. I like to put my $3500 in at the start of each year, receiving the govt's shortly after. The alternative is to put [3500/12=] $292/mo in. I think the government would put, essentially, it's $875/mo in then too. This approach -dollar cost averaging- has the advantage of buying more with less when the market is down. But overall, which approach wins in the situation of lump sums received annually? I guess this could also apply to a person's Christmas bonus at work or annual commission payments, for example, to generalize it a bit more.

Off the bat, I'm guessing it's best treated as a "lump sum every January" rather than with DCA applied. But something in my brain is making me wonder if "a lump sum every single year" is actually best treated by DCA.

What are your guys' thoughts?

deborah

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Re: one (investing) question at a time
« Reply #160 on: December 15, 2014, 04:13:47 PM »
Le Barbu knows the Canadian situation, so I would go with his suggestions. Australia is different as far as stocks are concerned - we don't have the easy access to the US market you have, and we have different imperatives for our market, so I don't have any idea of the Can/US/International split that you should be doing.

But, as he says, you are different.

What is the "typical" A.A. for the equity portion of an Australian's portfolio then? I would have think about 35% Australia, 35% US and 30% Int. just like Canadian but looks like I'm wrong...
You asked a very difficult question, so I have been hunting around for an answer. Most Australians' portfolios are in the superannuation system (for example an average 60 - 64 year old in 2011 had $19,858 in cash, $10,663 in investments and $183,254 in superannuation). Superannuation is a tax haven that you cannot access until you are over 55 and retired, and your employer automatically puts in at least 9.5% of your salary (unless you have a very low salary). You don't have to put anything in, but you can put in up to a total of $30,000 (including the amount the employer puts in) before tax, so it is quite a good lurk - especially if you have a high income.

Initially, most of the superannuation went into Australian shares and bonds. There is some diversity, but looking at current funds, it looks like about 60% Australian shares, 40% international (including US) shares in most options (there are always other things as well, so I am just doing comparison in my head). So it is very different to the Canadian split.

Add: I have just looked at Vanguard which says the current split (not what is recommended) is 75%AUS/25%INT
« Last Edit: December 15, 2014, 04:36:33 PM by deborah »

deborah

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Re: one (investing) question at a time
« Reply #161 on: December 15, 2014, 04:22:53 PM »
Dump it all in in January - or whenever you think is best. Over the years, I have noticed that every year certain months seem to be higher or lower, so I would automatically dump it all in during a normally low month toward the beginning of the year - January is often low here (probably because everyone is on holidays). This is timing to a certain extent, but having it all in for the full year means it has the rest of the year to grow.

MDM

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Re: one (investing) question at a time
« Reply #162 on: December 15, 2014, 05:26:45 PM »
Question #17: Annual Lump Sum - Dump it all in or do dollar cost averaging??

Dump it all in.  This has a good explanation why: http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work

seattlecyclone

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Re: one (investing) question at a time
« Reply #163 on: December 15, 2014, 05:58:21 PM »
Dump it all in. If the market is going up, the best thing to do is invest all your money right now. If the market is going down, the best thing to do is wait for the bottom and invest all your money then. This should be pretty obvious: buy low, sell high.

Of course you don't know what will happen in the markets tomorrow. That's what makes dollar-cost averaging seem like such a good idea: by investing a little at a time you're going to do better than "lump sum right now" in a falling market and you're going to do better than "lump sum later" in a rising market. You're hedging your bets by doing this.

However, the key logical flaw in dollar-cost averaging is that it assumes the two possibilities (market going up and market going down) are equally likely. They're not! The market goes up a lot more often than it goes down. To maximize your returns in the long term, you should always invest new money as soon as possible. Sometimes you'll get unlucky, but in the long run you'll do the best by just assuming the market will go up tomorrow and planning your transactions accordingly.

scrubbyfish

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Re: one (investing) question at a time
« Reply #164 on: December 15, 2014, 05:59:53 PM »
Excellent! Thank you, deborah, MDM, and seattlecyclone!

scrubbyfish

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Re: one (investing) question at a time
« Reply #165 on: December 18, 2014, 01:09:01 PM »
It felt too cumbersome to muddy this thread with, so I've posted a more complex question here:
http://forum.mrmoneymustache.com/investor-alley/canada-us-listed-etfs-%28withholding-taxes-currency-exchange-fees%29/

If any of you are willing to explore that one, I will welcome you there!

scrubbyfish

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Re: one (investing) question at a time
« Reply #166 on: December 20, 2014, 11:48:27 AM »
For anyone who'd been following this thread (which may well resume at any given point) in order to learn at the level I've been needing to learn, I wanted to tell you: I've so far explored two resources for beginners. The YNAB pdf linked to by samuck, and now the book Millionaire Teacher by Andrew Hallam. Have been loving the YNAB course, and have just started the latter, which says in its introduction:

Quote
Many of the terms used by the financial authors were as decipherable as Egyptian hieroglyphics to my colleagues. Too many financial writers don't seem to realize much of what they write flies over the head of the average person. [...] I shared my work with dozens of non-financially minded people who were keen to learn about investing. They provided feedback about what they understood and what they didn't, so I could make necessary changes to either explain financial jargon or avoid using it.

So, this book sounds wildly promising to me!

Bonus for me: It seems the author hails from Canada (Vancouver Island), so he may even speak to some of the Canadian investing nuances. At the book's writing, though, he is living in Singapore and teaching at an American international school, so perhaps he'll have most of us covered :)

Shooter_D

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Re: one (investing) question at a time
« Reply #167 on: December 20, 2014, 11:54:07 AM »
Glad you're liking it so far Scrubbyfish! It is a good jumping off point for ETF investing and the author does indeed cover a few different perspectives including Canadian, US and expat. He is also a fan of frugality!


Sent from my iPhone using Tapatalk

scrubbyfish

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Re: one (investing) question at a time
« Reply #168 on: January 13, 2015, 11:22:07 AM »
I approach the moment of actually allocating!

Because I have a disability Trust, TD Direct Investing is not an option for my non-registered amounts, and an advisor must be involved. The advisor is limited in what she can support. In light of these factors, and my desire to go with Canadian Couch Potato models in the accounts I have direct control in (i.e., the Registered ones), the following is what she suggests.

Does anything in the following raise a red flag/concern in anyone here?

Non-registered funds


35% into RBF556         RBC Canadian Index

35% into TDB661        TD US Index

30% into NBC839        National Bank International Index

Registered Accounts

Canadian Equity                35% - VCN  Vanguard FTSE Canada All Cap

US Equity                             35% - VTI  Vanguard  Total Stock Market

International Equity        20% - VXUS Vanguard Total International Stock

Real Estate                          10% - BMO Equal Weight REITs

Le Barbu

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Re: one (investing) question at a time
« Reply #169 on: January 13, 2015, 11:36:58 AM »
I approach the moment of actually allocating!

Because I have a disability Trust, TD Direct Investing is not an option for my non-registered amounts, and an advisor must be involved. The advisor is limited in what she can support. In light of these factors, and my desire to go with Canadian Couch Potato models in the accounts I have direct control in (i.e., the Registered ones), the following is what she suggests.

Does anything in the following raise a red flag/concern in anyone here?

Non-registered funds

35% into RBF556         RBC Canadian Index

35% into TDB661        TD US Index

30% into NBC839        National Bank International Index

Registered Accounts

Canadian Equity                35% - VCN  Vanguard FTSE Canada All Cap

US Equity                             35% - VTI  Vanguard  Total Stock Market

International Equity        20% - VXUS Vanguard Total International Stock

Real Estate                          10% - BMO Equal Weight REITs

Glad to know you are back and ready to move!

Look what I bolded in your post, it may not be usefull to get all of this. It may hurt (tax) and complicate (total number of holdings)

Depending of the ammount involved (suppose the final result is about the same, I would suggest a simpler and more tax efficient solution:

Non-registered funds

100% into RBF556         RBC Canadian Index

Registered Accounts (RDSPs)

US Equity                             70% - VTI  Vanguard  Total Stock Market

International Equity        30% - VXUS Vanguard Total International Stock

Registered Accounts (TFSAs)

Real Estate                          100% - BMO Equal Weight REITs

If you give the total amount of EACH account, I can help you ending with a total balance of about 30%Canadian stock, 30% US stock, 25% int. stock, 15% Canadian Real Estate (thats what I think you got but in a different way)
« Last Edit: January 13, 2015, 11:41:47 AM by Le Barbu »

scrubbyfish

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Re: one (investing) question at a time
« Reply #170 on: January 13, 2015, 12:15:18 PM »
Thanks, Le Barbu!

I don't earn enough to pay taxes, and I'm not permitted to hold a TFSA.

Le Barbu

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Re: one (investing) question at a time
« Reply #171 on: January 13, 2015, 12:33:46 PM »
Thanks, Le Barbu!

I don't earn enough to pay taxes, and I'm not permitted to hold a TFSA.

Sorry Scrubby, I forgot those details.

What about that then?

Non-registered funds

100% into RBF563         RBC Canadian Bonds

or even better

100% into High Interest Saving Acount @ 1% (because you pay no taxes, its 1% net to you, safety net purpose, insure you to be able to "match" the Government subsidy for RDSPs every and each year etc.

Registered Accounts

Canadian Equity                30% - VCN  Vanguard FTSE Canada All Cap

US Equity                             30% - VTI  Vanguard  Total Stock Market

International Equity        25% - VXUS Vanguard Total International Stock

Real Estate                          15% - BMO Equal Weight REITs (I already owned ZRE but MER are pretty high and I would just increase the previous 3 ETFs to 35%-35%-30% and skip that unless you are almost a millionaire...

smilla

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Re: one (investing) question at a time
« Reply #172 on: January 13, 2015, 01:02:52 PM »
Scrubbyfish, my understanding is that VTI and VXUS are US-listed funds which would mean you have exchange rates on top of actual commissions to pay.  You may want to substitute the 2 for the Canadian-listed versions, namely VUN for VTI and maybe a 50/50 VDU & VEE for VXUS (or just VDU).

https://www.vanguardcanada.ca/individual/etfs/etfs.htm 

IIRC Le Barbu is skilled at Norbert's Gambit and so uses US-listed funds but he also has a huge stash and a good deal more experience.  You can always switch to US-listed funds in a few years when you are more comfortable with self-directed investing.

scrubbyfish

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Re: one (investing) question at a time
« Reply #173 on: January 13, 2015, 01:16:34 PM »
Thank you, Le Barbu and smilla!

My brain started popping. I:
  • calculated what the percentages come to in real numbers
  • remembered to look up each fund and locate its MER
  • calculated the MER on the real number
  • determined that those would total $925/yr for the non-registered accounts
  • remembered the two-fold purpose of the Trust, and calculated the difference between the potential gain of the Trust and $925/yr in fee
The two-fold purpose of the Trust is to
(a) make myself eligible for $6000/yr in cash if my life were to go to shit again, and
(b) protect my son's disability money from scammy business people, as I've encountered in the past.

So, I think I see where the Planner is coming from. I've emailed her to check if I'm understanding things correctly, and whether there are CAD and Int'l funds she's permitted to use that have MERs lower than .67% and .72%.

My other option is to put the non-Registered amount into eSeries or ETFs for now, and move them back to the Trust only if I end up needing the Trust. There's a risk in that, so I need to consider if that's a risk I'd want to take to save $925/yr.

(I can't believe I can think like this now!! Ha!)

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Re: one (investing) question at a time
« Reply #174 on: January 13, 2015, 01:16:56 PM »
Scrubbyfish, my understanding is that VTI and VXUS are US-listed funds which would mean you have exchange rates on top of actual commissions to pay.  You may want to substitute the 2 for the Canadian-listed versions, namely VUN for VTI and maybe a 50/50 VDU & VEF for VXUS (or just VDU).

https://www.vanguardcanada.ca/individual/etfs/etfs.htm 

IIRC Le Barbu is skilled at Norbert's Gambit and so uses US-listed funds but he also has a huge stash and a good deal more experience.  You can always switch to US-listed funds in a few years when you are more comfortable with self-directed investing.

Pretty good advice here smilla!

In accounts with less than 25k$, I wouldnt bother holding US-listed ETF nor Int. stock

35%VCN and 65%VUN would do the job. Then, maybe when you hit 50k$ in an indivudual account, you can decide to split the 65%VUN into 35%VUN and 30%VDU. Then, when the account hit 100k$, perform a Norbert's-Gambit and buy VTI and VXUS...

so, assuming every SINGLE accounts are below 25k$:

Non-registered funds

100% RBF563 or High Interest Saving Account

Registered Accounts

Canadian Equity                35% - VCN  Vanguard FTSE Canada All Cap

US Equity                             65% - VUN  Vanguard  Total Stock Market

sounds good?
« Last Edit: January 13, 2015, 01:41:17 PM by Le Barbu »

Le Barbu

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Re: one (investing) question at a time
« Reply #175 on: January 13, 2015, 01:21:42 PM »
Thank you, Le Barbu and smilla!

My brain started popping. I:
  • calculated what the percentages come to in real numbers
  • remembered to look up each fund and locate its MER
  • calculated the MER on the real number
  • determined that those would total $925/yr for the non-registered accounts


Sorry for popping you brain, that would definetly help to get the ammount in each accounts...[/list]

scrubbyfish

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Re: one (investing) question at a time
« Reply #176 on: January 13, 2015, 01:25:06 PM »
Sorry for popping you brain...

Brain-popping is a good thing! It's that "carbonation" sensation I get when I'm suddenly grasping things :)

I can't get myself to post my numbers, but I can say that:
  • 3 out of 4 accounts are over $25,000
  • even if the market dropped by 50% at any point, I'd still have enough to cover any emergency needs
  • I am also holding a bit in a regular chequing account, to get me through several months of life


Le Barbu

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Re: one (investing) question at a time
« Reply #177 on: January 13, 2015, 01:52:29 PM »
Sorry for popping you brain...

Brain-popping is a good thing! It's that "carbonation" sensation I get when I'm suddenly grasping things :)

I can't get myself to post my numbers, but I can say that:
  • 3 out of 4 accounts are over $25,000
  • even if the market dropped by 50% at any point, I'd still have enough to cover any emergency needs
  • I am also holding a bit in a regular chequing account, to get me through several months of life

So, popping in a good way

ok then, if registered accounts are between 25k$ and 50k$: 35%VCN, 65%VUN is good

between 50k$ and 100k$, 35%VCN, 35%VUN and 30%VDU

over 100k$, perform a Norbert's-Gambit and buy the US listed versions VTI for VUN and VEA for VDU (simpler and cheaper than VXUS)

unless your non-registered accounts worth more than 25% of the total, it wont hurt return (here I mean net return after MER and taxes) to simply hold cash @ 1% (since you do not pay taxes it is net-net) and this could help a lot ($$ and psychologicaly) when the markets will tank again or shit hit your life again (what we do not wish).


Cookie78

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Re: one (investing) question at a time
« Reply #178 on: January 13, 2015, 02:15:14 PM »
Wow scrubbyfish, thank you for this thread.

You and I are in a very similar situation (minus the BC disability benefits complications). I've learned a lot from this thread and many of your questions were things I have been wondering myself as I try to transfer my own funds.

To everyone else, thank you for all the resources and answers. :D

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Re: one (investing) question at a time
« Reply #179 on: January 13, 2015, 02:40:19 PM »
Scrubbyfish, my understanding is that VTI and VXUS are US-listed funds which would mean you have exchange rates on top of actual commissions to pay.  You may want to substitute the 2 for the Canadian-listed versions, namely VUN for VTI and maybe a 50/50 VDU & VEE for VXUS (or just VDU).

https://www.vanguardcanada.ca/individual/etfs/etfs.htm 

IIRC Le Barbu is skilled at Norbert's Gambit and so uses US-listed funds but he also has a huge stash and a good deal more experience.  You can always switch to US-listed funds in a few years when you are more comfortable with self-directed investing.

Sorry scrubbyfish, I only just read your "US-listed ETFs" thread.  Please disregard the above.

scrubbyfish

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Re: one (investing) question at a time
« Reply #180 on: January 13, 2015, 03:12:11 PM »
Cookie78: Great! I'm really happy when I learn this thread has helped others, too. The folks responding are a godsend, aren't they?

smilla, no worries. I don't remember my other thread at the moment, but maybe I'll go back and look at it. I do remember the Trust is not permitted to be in those, so largely moot at this point. The Trust holds the bulk of my savings, so I'll need to keep assessing the cost:benefit of the Trust (which will change as my investments increase, too).

scrubbyfish

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Re: one (investing) question at a time
« Reply #181 on: January 18, 2015, 08:37:56 PM »
I've been studying and playing with four webpages, learning how varying MERs impact an investment held for 20 years.

Canadian Couch Potato Model Portfolios (updated a few days ago!) re: MERs, anticipated returns.
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-TD-e-Series.pdf
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf

Investment calculators:
http://www.calculatorsoup.com/calculators/financial/future-value-investment-account-calculator.php
http://www.daveramsey.com/article/investing-calculator/lifeandmoney_investing/#/entry_form

Questions:

1. If a portfolio's weighted average MER is .20%, and net 20 year return is 7.75%, is the overall return 7.95%?
....If a portfolio's weighted average MER is .41%, and net 20 year return is 7.21%, is the overall return 7.62%?

I'm trying to input equivalent calculations for a portfolio whose weighted MER is .57%.
I'm wondering if to do so correctly, I compare this MER with each of the above this way:
7.95-0.57=7.38 overall return on this portfolio
7.62-0.57=7.05 overall return on this portfolio

Am I viewing it all, and subsequently calculating it all, correctly?

2. When I punch these numbers in -same starting value, no additional deposits, no withdrawals, 20 years- to the two calculators I linked to, I get vastly different numbers. What are the two calculators doing differently?

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Re: one (investing) question at a time
« Reply #182 on: January 18, 2015, 09:37:47 PM »
Maybe it's late tonight but this one is to much for me Scrubby!

MDM

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Re: one (investing) question at a time
« Reply #183 on: January 18, 2015, 10:37:21 PM »
2. When I punch these numbers in -same starting value, no additional deposits, no withdrawals, 20 years- to the two calculators I linked to, I get vastly different numbers. What are the two calculators doing differently?
One was compounding daily, the other annually.
Copy the table below and paste into cell F3 of a blank spreadsheet.  It will show the difference between annual vs. daily compounding of $10,000 at 5% over 20 years.
Excel gets $26,532.98 for the annual compounding, $0.01 different from the Dave Ramsey page.  Excel gets $27,180.96 for the daily compounding, ~$20 different from the calculator soup page.

P1000010000
i0.050.05
n2020
freq1365
FV=FV(G4/G6,G5*G6,0,-G3,1)=FV(H4/H6,H5*H6,0,-H3,1)

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Re: one (investing) question at a time
« Reply #184 on: January 18, 2015, 11:00:14 PM »
The two calculators come up with different answers for me.
Calculatorsoup was compounding daily, David Ramsey annually.
I think the calculatorsoup calculator is probably the more correct one, as most funds I have found calculate daily. It also takes out the MER at the right time.

scrubbyfish

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Re: one (investing) question at a time
« Reply #185 on: May 15, 2015, 11:05:13 PM »
[In my online statements with TD Waterhouse,] does "book value" mean the amount I've invested?


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Re: one (investing) question at a time
« Reply #186 on: May 16, 2015, 12:58:27 AM »
Quote
Book value is the price paid for a particular asset. This price never changes so long as you own the asset. On the other hand, market value is the current price at which you can sell an asset.



http://www.investopedia.com/ask/answers/183.asp

scrubbyfish

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Re: one (investing) question at a time
« Reply #187 on: May 16, 2015, 01:18:09 AM »
Thanks, Heckler!

So, if I we put in, say:
January $1000
February $1300
March $800
April $2500
Total $5600

...how do we assess rate of growth/loss?

I read people here saying "my investments are up $4.2%." But how can we say that if we put different amounts in at different times? i.e., The percentage that displays on our online investment statement (increase/decrease), what is that referencing? Is it taking the growth on all the amounts, then averaging those out? Or stating the growth on whatever was in there on a given date against today?

I feel like I'm not asking this well at all...

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Re: one (investing) question at a time
« Reply #188 on: May 16, 2015, 02:57:06 AM »
I read people here saying "my investments are up $4.2%."

Much of the time when people quote alleged rates of return for their investment accounts, you can safely assume that the figure is arbitrary and not mathematically sound. ;-)

In terms of determining a figure that actually makes sense, there are a variety of ways to do it (each giving different results). The choice of which method to use depends on your premises. If you want to remove the effect of badly-timed or well-timed subsequent deposits and focus on the behaviour of the market, you probably want the "time-weighted return", as defined on the linked Wikipedia page. Note that the Wikipedia page shows you how to calculate the return, but you need to do further calculation to get an average annual return, if that is what you want.

The concept is actually quite simple. Basically you segment history into a series of periods with each period defined by a deposit or withdrawal. You then calculate the return separately for each period and then multiply the percentage changes together. To get an average annual return, you would then figure the CAGR, as described in an earlier post.

Here's an example. Suppose you deposit $1,000 on January 1st. On February 1st, the market value of the account is now $1,500, and you deposit another $8,000 on the same day. On March 1st, the market value of the account is now $10,000.

Between January 1st and February 1st, you can see that the investments themselves increased in value by 50%. After the deposit on February 1st, the market value of the account would have been $9,500, which then became $10,000 by March 1st, an increase of about 5.3%. To figure the total return, we then multiply those two increases together: `(100% + 50%) * (100% + 5.3%) ≈ 158%`, or a 58% increase. To go one step further and find an average annual return, we want to find `r` satisfying `(1+r)**(2/12) = 1.58...`, which gives `r  ≈ 1450%`. If you wanted the average monthly return instead, that would be given by `m` satisfying `(1+m)**2 = 1.58...`, which gives `m ≈ 26%`.

Heckler

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Re: one (investing) question at a time
« Reply #189 on: May 16, 2015, 02:58:10 AM »
You've put in $5600 (book value).  What's it worth today (market value)?



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Re: one (investing) question at a time
« Reply #190 on: May 16, 2015, 03:00:18 AM »
Cathy, my brain just popped, and I'm an engineer. ;)

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Re: one (investing) question at a time
« Reply #191 on: May 16, 2015, 04:06:53 AM »
In terms of determining a figure that actually makes sense, there are a variety of ways to do it (each giving different results). The choice of which method to use depends on your premises. If you want to remove the effect of badly-timed or well-timed subsequent deposits and focus on the behaviour of the market, you probably want the "time-weighted return", as defined on the linked Wikipedia page. Note that the Wikipedia page shows you how to calculate the return, but you need to do further calculation to get an average annual return, if that is what you want.

The concept is actually quite simple. Basically you segment history into a series of periods with each period defined by a deposit or withdrawal. You then calculate the return separately for each period and then multiply the percentage changes together. To get an average annual return, you would then figure the CAGR, as described in an earlier post.

Sorry if the answer is obvious, but what method would you use if you do not want to remove the effect of of badly or well-timed deposits? I was able to follow your explanation above but can't figure out how to account for the effects of market timing. Math isn't exactly my strong suit.

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Re: one (investing) question at a time
« Reply #192 on: May 16, 2015, 06:15:25 AM »
Scrubbyfish, if you want PM me your email and I'll send you a portion of my spreadsheet so you can see how I track my purchases and gains with TD.

scrubbyfish

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Re: one (investing) question at a time
« Reply #193 on: May 16, 2015, 09:42:15 AM »
Although I got lost when the 'r' got involved ;) the rest of Cathy's post answered my underlying question, yes: While we're still actively depositing, to get an accurate number we need to account for each period of time from deposit to deposit, and the market change in each period.

That gave me enough clarity to ask Waterhouse more questions.
They said the percentage they provide gives the gain/loss percentage re: cost per unit at purchase date vs last night's closing.
The rep said I can:

1. Look up each month's statement.

2. Record unit cost of each purchase. e.g.,
January $1000 @ $3/unit
February $1300 @ $1/unit
March $800 @ $4/unit
April $2500 @ $3/unit


3. Total all unit prices ($11)

4. Divide by number of purchases ($11/4 = 2.75 average purchase price per unit)

The gain/loss percentage reflects the difference between the average purchase price per unit that I paid and the unit price at last night's closing.

So, other forum members with the exact same fund and doing the exact same math get to say "up 4%" because the difference between their average purchase price per unit and cost per unit at last night's closing is 4%.

Mine is negative 2.5% because two months ago, when I bought the bulk of the same item, unit price was higher than it is now, and higher than when my forum buddies bought it.

The number provided by Waterhouse does not account for overall gain/loss personally, though, because its formula doesn't account for how many shares I bought at each unit price. Therefore, the percentage is very limited/near useless information?

Do I have that right so far?

arebelspy

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Re: one (investing) question at a time
« Reply #194 on: May 16, 2015, 10:33:33 AM »
Although I got lost when the 'r' got involved ;) the rest of Cathy's post answered my underlying question, yes: While we're still actively depositing, to get an accurate number we need to account for each period of time from deposit to deposit, and the market change in each period.

Do a simple XIRR statement in excel, and you don't even need the market change in each period.

Just put in the date of each deposit, amount of deposit, and today's date and current total value.

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Re: one (investing) question at a time
« Reply #195 on: May 16, 2015, 10:41:09 AM »
Here, I made a mock one using your dates and purchase amounts above, and made up a number for the current value (I chose $5700 -- I also assumed the purchase came on the 1st of the month, that could be changed).  See attached.

Your purchases are put in as negative numbers (it's money you paid out), and the current value is positive (it's money you'd get paid out, if you sold).

Let me know if that all made sense.  :)

Now feel free to put in your own numbers, add some rows, and just KISS from now on.  :)
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scrubbyfish

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Re: one (investing) question at a time
« Reply #196 on: May 16, 2015, 11:18:55 AM »
Thank you, arebelspy! What a nice bonus* present!!

I'm gazing at it, looked at the formula within it... Now I will go outside to help some neighbours dig, plant, build, clean and let this percolate while I do that, as that's the only way my brain can grasp stuff like this. Then I will come back, look at my actual statements, put my dates, deposits, and today's market value in, and see what happens :)


*In my mind, every time someone answers one of my questions with care, gentleness, straightforwardness, kindness, clarity, and patience, I see that as a present. This thread is one long and awesome Christmas. Thanks, everyone!!

fb132

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Re: one (investing) question at a time
« Reply #197 on: May 16, 2015, 11:40:27 AM »
I am currently in the lower tax bracket and will probably stay there (I get a pay raise of 3% which is basically almost equal to inflation). If I have 1000$ to invest each most, do I put all 100% in TFSA until I hit the maximum contribution?? Or should I split that amount 50/50 by putting half of the money in TFSA and the other half in RRSP. What is the best strategy for me?

Here is my status incase you need it as info:
-I am single
-Lower tax Bracket
-I already have my maximum in RRSP to qualify for the HBP (Home Buyer's Plan)
-I have almost 35K$ room in my TFSA with 17K$ maximum that I can contribute to RRSP this year.
-I don't own a home, but I would like to one day.

Back to my question, should I put 100% available money every month in the TFSA or 50/50 between RRSP and TFSA?
« Last Edit: May 16, 2015, 11:44:47 AM by fb132 »

MDM

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Re: one (investing) question at a time
« Reply #198 on: May 16, 2015, 12:12:53 PM »
Sorry if the answer is obvious, but what method would you use if you do not want to remove the effect of of badly or well-timed deposits? I was able to follow your explanation above but can't figure out how to account for the effects of market timing. Math isn't exactly my strong suit.

This reply also answers the above question:
Do a simple XIRR statement in excel, and you don't even need the market change in each period.
Just put in the date of each deposit, amount of deposit, and today's date and current total value.

Cathy

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Re: one (investing) question at a time
« Reply #199 on: May 16, 2015, 12:24:23 PM »
The number provided by Waterhouse does not account for overall gain/loss personally, though, because its formula doesn't account for how many shares I bought at each unit price. Therefore, the percentage is very limited/near useless information?

Do I have that right so far?

I don't know what method of calculating return is used by TD so I can't say whether the phone representative is accurate in their description of it.

The time-weighted return as I explained above will give the return of the underlying securities, and this allows you to compare your portfolio to the portfolios of other passive index investors on this forum. By contrast, the internal rate of return ("IRR") incorporates the effect of market timing which means the result will be skewed by how skilled you are at timing the market. This is probably not useful for comparing to other passive investors because none of you are trying to time the market; you are only interested in how the underlying securities have performed.

You might be wondering why the IRR, as calculated by Excel or LibreOffice, does not require information on the cost basis or market value of the securities at each purchase or withdrawal. The reason it doesn't need that information is that it essentially "fits" those values to make it work out so that a fixed rate of growth or loss in the cost basis applies across the entire period. This is not necessarily a unique value, which leads to one of the quirks of the IRR: there can be multiple values of it for the same portfolio, all of which are equally correct. For example, the IRR of your portfolio might be both 3% and 5%. Excel or LibreOffice will return the value closest to your guess, but you should realise that the value is not necessarily unique.
« Last Edit: May 16, 2015, 12:31:07 PM by Cathy »