Author Topic: Scaredy Cat from Canada  (Read 5425 times)

Mattzlaff

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Scaredy Cat from Canada
« on: January 30, 2016, 02:52:41 AM »
Hello all.

I spent the better part of the beggining of 2015 looking into MMM style investing after I had read the blog for over a year before that. I did alot of research on the canadian couch potato website I never made a move on that research so I did the only logical thing I could think of instead of sitting on my cash. I paid off my truck and my student loans and bought a house. After squaring away my savings and seeing how I could handle my mortgage (and all things included with home ownership) I decided to finally start back into the research and planning in my early retirement. However just as soon as I decided it was time to start self directed investments(my job currently has a decent plan I will get into later). The price of oil, a major factor in Canada's economy started to plummet along with the almighty dollar. So I'm sitting pretty with just my mortgage some ~350K by now. I'm feeling pretty good again about investing. But I'm also a little worried about any currency exchange based investment(get to that later)

currently my company has a little plan where I put in 7% and they match up to 4% of my salary. I have 10% of my salary going into RRSPs through that plan and they add 4% (it's registered but I'm not totally sure if it adds to my RRSP limit they call it the DPSP) I'll be finding out if it does this tax season. Aswell as this the company also puts in 4% towards my Defined contribution pension plan(DCPP). So really I'm saving 18% of my salary already in relatively high fee accounts with low selection investment options, which is okay because saving is saving, right? Wrong, I plan on trying to see if I can do a yearly broker to broker transfer from sunlife to questtrade when I get rolling in my investing future. I know that I can take my RRSPs and DPSP out when I want but I need to see if I can do that as a straight RRSP account to RRSP account transfer. Which would make me think theres some sort of high fee involved.

So here's a slight summary
I do shift work at a chemical plant
I'm 25 and live with my girlfriend who provides 600$ rent and occaisonally foots the bill for groceries/going out
Yearly Salary: $101,000
2x/Year Payment of 5207 before taxes (EDO Policy)
1 yearly payment of: 3605 before taxes (Shift carry over policy)
Every pay cheque has a shift adder of $170 (4420 with 26 pay cheqs)
1 yearly bonus that changes every year
Silly government officials which decided taxing us more is better with the way the economy is...

That's all garunteed however the salary is the only thing that adds to my company policy savings plan.
Ever changing yearly amounts of Overtime which I cannot ball park(usually in the last 3years above 150HRs up to 350Hrs)

My monthly spending is atrocious(as I just quantified it on this post then deleted it and got sick) to say the least. I'm working on it and it's gotten way better since late 2015. With my loans paid off and me smartening up.

So with that being said I've got a few stupid there are no stupid questions.

With a small sum of my savings about 20k (yes with my job...) sitting around in my bank account doing nothing I was planning on investing 50% of it into ETFs specifically VAB 30% VCN 15% and VXC 55% based on and with my own twist from a canadian couch potato basic portfolio. Leaving another 10k right now to see how my first jump into it all goes later investing what I feel comfortable with into a TFSA, should I be looking at somewhere else to start instead of ETFs? Or is this a good plan?

With those trackers mentioned above all currency should be CAD right? Vanguard canada has them as CAD. But I don't know about questtrade.

I was thinking about replacing the 15% VCN with VFV the returns seem much better but I'm not bright enough to see if there are any downsides.

I'm worried that if I invest now with the canadian dollar where it is, and the stock market still tracking downwards(that oil price) that I could end up harming myself when the market comes up and the dollar comes up a little quicker than it went down. I know its likely not to happen with long term investing but it's a worry of mine that I may lose out where I could have avoided it. Is there a way to avoid that or should I stop worrying all together?

I hardly know where to start on CCP website there's alot of very detailed information for a website based on simplicity. Is there any thing I should read separate from that or any articles on CCP I may have missed?

If I have any more questions I will make additional posts.


FIRE47

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Re: Scaredy Cat from Canada
« Reply #1 on: January 30, 2016, 05:58:11 AM »
I've seen several places that some countries are better diversified by buying in foreign currency(Canada being one of them)  and others are not really (usd. Pound, Swiss franc). However I wrestled with the fact recently that foreign currency is not like stocks it can always go up or down and long term their really isn't a trend other then possibly reverting to the mean for developed countries.  The CAD-USD "equilibrium" if you will number I see floated around  is generally around 85 cents so although it could go to .60 cents it could also go back to 1.10 the downside risk seems much worse to me right now(if I bought in USD). Personally I hedge half of my Foreign etfs and half are non-hedged. I like a bit of diversification but a possible 50%+ headwind if/when the currency rebounds is a little much for me.

If you are looking between a hedged and a non-hedged US stock etfs ex VFV the unhedged has outperformed as the CAD has dropped like a stone the last 2 years. Generally speaking unhedged USD will outperform in a bad economy and underperform in a good one due to the nature of the CAD. Personally when things rebound I don't want to be fighting a massive headwind at this point but that's just me.
« Last Edit: January 30, 2016, 06:06:13 AM by FIRE47 »

Retire-Canada

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Re: Scaredy Cat from Canada
« Reply #2 on: January 30, 2016, 07:21:57 AM »
All my investments are in CDN $$. I live here so that's what's easiest for me to manage and add to every month is small-ish chunks.

Since I hold a lot of US equities [~50% of my stocks] when CDN $$ goes down those investments go up. The downside is when the CDN $$ goes up they will go down, but then the other big chunk of my portfolio in CDN equities [30%] will go up.

That works for me.

Stasher

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Re: Scaredy Cat from Canada
« Reply #3 on: January 30, 2016, 08:45:49 AM »
I think you are on track just fine and just need to start dialling up the savings into RRSP to max out your yearly limit
In the same sentence you say you deduct 7 and they match 4 and right after that you say 10 and 4 , do they have two separate plans? Maybe one's an RRSP and ones an RPP. Anyhow, out of that I would suggest only contributing the minimum amount to get the maximum matching funds from the company . Then make sure to funnel ALL of the amount you reduced at the company into your self traded ETF account. I like the 3 fund model you chose from CCP and only suggest you are a bit heavy on VAB , heck you're only 25. I am personally not concerned with the CND $ and just stick to my asset allocation for my portfolio.

Woody Viet

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Re: Scaredy Cat from Canada
« Reply #4 on: January 30, 2016, 09:09:27 AM »
It seems to me that you are in an excellent situation. For your age the information you now possess gives you a huge amount of time in which to compound your savings and given enough efficiency in your spending you could retire comfortably before 35, possibly sooner. It seems that you are pretty new to investing so I would recommend reading all of the jhcollins stock series.

Trying to time your purchases around potential oil price movements is pure speculation. Unless you believe you have some information edge I would bet that this ends up costing you money in the long run. It seems your primary consideration for doing this is to lower the risk of losing money, and with that in mind I would just ignore the oil price as trying to trade it will actually increase the riskiness of your investments. Oil could go up or down but who knows.

I'm in the UK so am exposed to currency risk myself. The GBP has actually been more volatile than the CAD over the past decade. As a developed country it's probably going to oscillate in a 20-30% range against the USA. Personally I live with that and keep only 20% of my investments in UK equities.

As to your portfolio, keep it as simple as possible. How secure would you say your job is? If I were in your shoes I would go 100% equities, but that depends on how comfortable you are with risk. If the value of your portfolio dropped 50% tomorrow your earnings power could make up this gap in no time. I would go something like 25% VCN and 75% VXC investing new money to keep your investments near this target allocation (this way you will invest abroad when CAD is strong and at home when CAD is weak, lowering your currency risk). Time in the market is much more important than when you buy. Over the next few years you can dollar cost average in, virtually assuring you a reasonable buy price for your investments.

What's the housing market done in your area over the past decade? Has there been a run up in prices or are things stable? A run up could increase the downside risk on your house. What kind of emergency fund are you planning to keep? Do you have access to sources of credit during an emergency?

P.S. Your overall situation looks great. That pension plan really kicks ass

nobodyspecial

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Re: Scaredy Cat from Canada
« Reply #5 on: January 30, 2016, 09:46:46 AM »
There is an arguement for having no Canadian stocks (if you live in Canada)
If in a few years commodity/oil prices pick up and the CDN goes back to its average value to the US$ you will lose 20% on US shares you bought now. But for commodity/oil demand to go up so much means the US economy will be booming - so you will likely have been getting above average growth in the US stocks.
Remember the growth compounds  with time but you only get hit with the currency difference once when you sell.

Also if Canada is booming you are likely to be getting raises / a better job - so investing outside the country is a sort of hedge.

The only Canadian stocks I would own and the long term boring dividend payers (banks, telcos) and only then once the tax free accounts are  full - mainly because the dividends are tax free, typically better than bonds pay and about as safe. But only if you are planning to own them for decades

 

Heckler

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Re: Scaredy Cat from Canada
« Reply #6 on: January 30, 2016, 10:20:51 AM »
You are doing very well for your age!   Look into Sunlife funds that have "index" in the name. You can direct your funds to these lowest cost funds in your work plan, and mimic a couch potato if your wirk has made them available. 

If you set up a self directed, you absolutely can transfer from your Sunlife to your self directed.  Just a question of the fees involved.  My Sunlife plan allows once per year no fee.  This works especially well if you line up your allocations in both accounts such that you stay in the same asset class when yiu do the transfer, and also leave opportunity for rebalancing annually.  Judt make sure to use transfer forms from yiur self directed account, not a cash withdrawal. 


Heckler

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Re: Scaredy Cat from Canada
« Reply #7 on: January 30, 2016, 10:22:22 AM »
Try finiki for a good read. The canadian version of bogleheads.

http://www.finiki.org/wiki/Main_Page

Heckler

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Re: Scaredy Cat from Canada
« Reply #8 on: January 30, 2016, 10:28:03 AM »
You may want to stick with your Sunlife RSPs and maximize your RSP contributions (18% of last years income) till you have enough saved up for ETFs to be efficient.  Take the rest of your excess cash and open a self directed TFSA. 


At your age, 30% bonds may be what you need for your risk tolerance and fraidy catness, but in the very early stages of growth, I support 100% equities, globally diversified.  Buy and hold by not looking at your account.

Heckler

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Re: Scaredy Cat from Canada
« Reply #9 on: January 30, 2016, 10:32:38 AM »
Say, for example, your Sunlife offers a bond index, a US index and an EAFE index, like mine does.   You could use your RSP to hold these three asset classes, and set up a TFSA to hold a Canada index only.  (At 22, I'd skip the Bonds - at 42, Ive got 30% now)

Heckler

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Re: Scaredy Cat from Canada
« Reply #10 on: January 30, 2016, 10:35:45 AM »
Rsp and dpsp limits: 

http://www.cra-arc.gc.ca/tx/rgstrd/papspapar-fefespfer/lmts-eng.html

Find your limits.  You can also setup a mycra account to have Justin tell you what your limit is personally.

http://www.cra-arc.gc.ca/myaccount/


Mattzlaff

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Re: Scaredy Cat from Canada
« Reply #11 on: January 31, 2016, 02:40:36 AM »
I think you are on track just fine and just need to start dialling up the savings into RRSP to max out your yearly limit
In the same sentence you say you deduct 7 and they match 4 and right after that you say 10 and 4 , do they have two separate plans? Maybe one's an RRSP and ones an RPP. Anyhow, out of that I would suggest only contributing the minimum amount to get the maximum matching funds from the company . Then make sure to funnel ALL of the amount you reduced at the company into your self traded ETF account. I like the 3 fund model you chose from CCP and only suggest you are a bit heavy on VAB , heck you're only 25. I am personally not concerned with the CND $ and just stick to my asset allocation for my portfolio.

As far as the Savings plan goes, I can contribute up to 30% but my company will only ever match 4% of my salary, the 10% i picked goes to my RRSPs and the company part is in another registered plan Defferred profit sharing plan, I do not believe it adds to my RRSP contributions but like a registered plan withdrawing adds to my income. Then another 4% of my salary goes to my pension plan.

As to your portfolio, keep it as simple as possible. How secure would you say your job is? If I were in your shoes I would go 100% equities, but that depends on how comfortable you are with risk. If the value of your portfolio dropped 50% tomorrow your earnings power could make up this gap in no time. I would go something like 25% VCN and 75% VXC investing new money to keep your investments near this target allocation (this way you will invest abroad when CAD is strong and at home when CAD is weak, lowering your currency risk). Time in the market is much more important than when you buy. Over the next few years you can dollar cost average in, virtually assuring you a reasonable buy price for your investments.

I'd say my job is very secure considering the turmoil the price of oil has had on Alberta's economy. So what about 25% VCN 55% VXC and 20% VFV? Heged or unheged? From what I've been seeing I think hedged is better with how the CAD is against the USD right now but I just can't get that straight in my head right now.

What's the housing market done in your area over the past decade? Has there been a run up in prices or are things stable? A run up could increase the downside risk on your house. What kind of emergency fund are you planning to keep? Do you have access to sources of credit during an emergency?

Housing was on the rise until say october last year, now it's coming to a stand still and probably a steady drop in prices as oil drops and maintains a low(Alberta Canada is very dependant on the black gold). As far as emergency funding I was hoping to do what I said invest right away 10K and hold 10k until a bit later eventually adding it in maybe TFSA, I'll have to see what I have room for in my RRSPs after, I haven't opened a LOC on my house never even looked into it and I do make some small purchases on a 5k limit CC. That's about it.


Rsp and dpsp limits: 

http://www.cra-arc.gc.ca/tx/rgstrd/papspapar-fefespfer/lmts-eng.html

Find your limits.  You can also setup a mycra account to have Justin tell you what your limit is personally.

http://www.cra-arc.gc.ca/myaccount/
I have managed to set up an account last year, yaddayadda forgot my password and keep forgetting to bring my tax documents to work with me (as you need a specific line to re-register an account)...night shifts = lots of spare time to do this stuff while i'm getting paid and keep my free time free.

Shooter_D

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Re: Scaredy Cat from Canada
« Reply #12 on: February 02, 2016, 07:27:32 AM »
Hey Mattzlaff. Sounds like you're in a pretty good place with your income, home and savings plan! Good job! As for the Scaredy Cat-ness, I think it's completely normal. I was in your position a few years ago (with much less income, and no house!) and I decided to see a financial advisor to manage some of my funds (my RRSP and TFSA) while I opened up an account (Margin) at Questrade and set up a small Canadian Couch Potato portfolio. Basically, I invested about $5,000 and watched it and saw how it felt to see the numbers go green and red on a day-to-day basis. I started in 2014, so it was a pretty good year, and in early 2015 I had all the funds from my advisor sent over to Questrade where I put the rest in ETFs according to a specific asset allocation. I have seen things drop quite a bit but I feel pretty comfortable about re-balancing and now buying things (like VCN) "on sale".

I think one important thing that you should do is set up your asset allocation before you start investing (even if you tweak it like you mentioned in your post with more VFV) and stick to it after you purchase your ETFs. This may help minimize your worry. I find having that set asset allocation helps back you up mentally and makes things more structured taking some of the emotion out of the picture. And time in the market is more important that timing the market. So when you feel ready to test the waters, put some money in and see how it feels. By all accounts it is probably a decent time to get in the market because you've done some research and have some great resources here, and the Canadian market is lower than it has been in a while (buy low, right!).

As for other reading material, think about picking up or borrowing "Millionaire Teacher" by Andrew Hallam from the library. He also has a blog and some articles in the Globe and Mail. His breakdown of using ETFs as an investment vehicle and setting up your asset allocation is really understandable and compelling!

Stasher

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Re: Scaredy Cat from Canada
« Reply #13 on: February 02, 2016, 09:09:42 AM »

As for other reading material, think about picking up or borrowing "Millionaire Teacher" by Andrew Hallam from the library. He also has a blog and some articles in the Globe and Mail. His breakdown of using ETFs as an investment vehicle and setting up your asset allocation is really understandable and compelling!
Yup, have that one on my shelf from about 3 years ago, Wealthy Barber returns was pretty good. Easy thing to do is wander the finance section of Chapters and see what jumps out for you.

Stasher

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Re: Scaredy Cat from Canada
« Reply #14 on: February 02, 2016, 09:13:53 AM »
As far as the Savings plan goes, I can contribute up to 30% but my company will only ever match 4% of my salary, the 10% i picked goes to my RRSPs and the company part is in another registered plan Defferred profit sharing plan, I do not believe it adds to my RRSP contributions but like a registered plan withdrawing adds to my income. Then another 4% of my salary goes to my pension plan.

Basically what I was trying to get at is only invest the bare minimum with your employer to get the maximum matching funds from them, so you say it is 4% correct.

Then direct what you are no longer deducting into the employer plan into your self directed RRSP couch potato index portfolio

Mattzlaff

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Re: Scaredy Cat from Canada
« Reply #15 on: February 06, 2016, 08:18:53 AM »
Thanks for the support and insight to my concerns everyone, really appreciate it.

I have set my portfolio up on Questtrade, taking into some "set it and forget it" mentality but not really. I plan on making 2000-3000 lump sum contributions to my RRSP account every so often, I was just offered a few neat OT earning side opportunities at work and plan to put those towards. Keeping my RRSP contribution room in mind I have changed my 10% sunlife contribution to 7% to max out the company’s portion and will direct that to my own plan. I also learned something fairly interesting which may - or may not - give me a slight advantage compared to some of the guys on the "old" pension plan at work.

My work savings plan allows me to transfer out my funds when I want. However I MUST leave 1% of my company's contribution or else forfeit the matching 4% contribution of my salary for a year which is bad news. However my company also pays into my pension plan which is also the same account as my sunlife savings (so 3 separate plans my RRSP savings, my companies portion: DPSP and my pension: DCPP).
I get to direct all three to which ever investment I want that is in their list of 15-20 funds. If I decide I want to transfer out my RRSP and my DPSP I don't need to leave 1% of the DPSP because my DCPP counts as company contributions to the plan. This isn't the same for someone who was hired 1 year before me under a different pension. Possibly giving me a small advantage in that I can take out 1% more and put into less MER and better yielding funds. I recently confirmed this scenario with sunlife and they said I'm 100% right. I'll have to look into fees and taxes however because I don't ever recall claiming that 4% as income before but possibly transferring it to RRSPs if at all possible might count as income? In that case I would just let it grow in sunlife.

Gotta make a list of questions for sunlife for monday haha...

Woody Viet

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Re: Scaredy Cat from Canada
« Reply #16 on: February 06, 2016, 10:09:30 AM »
I can only say from my experience that I haven't used hedged ETFs. Despite the volatility in currencies it is often self correcting (especially when measured in real terms). I also don't like counterparty risk and from my understanding they would need to use futures to hedge their currency exposure. Don't take my word on hedging however as I have never used it or done sufficient research on it as I don't see it as useful to my needs.

It sounds like you have more than sufficient liquidity to handle emergencies. For me the only potentially disaster you could face would be loosing your job, remaining unemployed for some time and also having a crashing housing market. Being unable to earn and unable to move would be a real sucker punch. For an emergency like that I would say the best 'emergency fund' you could own would be paying down your mortgage to reduce your need for cash flow. For anything else you can then draw on your credit card or a LOC (worth looking into once you have sufficient equity). I would invest whatever you don't overpay in your mortgage right into stock investments and get them working!

The fund allocation you suggested seems perfectly reasonable. You will be getting a little REIT exposure as they are included in both the S&P 500 and FTSE indicies nowadays

Goldielocks

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Re: Scaredy Cat from Canada
« Reply #17 on: February 06, 2016, 11:09:22 AM »
INVESTING
My two cents -- it is the rebalancing part (annual or by % of investment) of your portfolio, that is very important, once you decide on an allocation mix.     So it doesn't matter as much what mix you choose, for your risk level, as long as you reset the mix to the %.  That way you buy more CDN when the dollar is low, and more US when the CDN dollar is high.   Likewise, you buy more of the index fund that is low, and less of the high... automatically...   Works great over 10-15 year time periods.

A correction  - you have your terms a bit mixed up.

DPSP  Defferred Profit Sharing Plan -- you can't contribute to this, only employer.  It is often to your RRSP amounts, and the employer can randomly choose how much to contribute each year, to a maximum, protecting your employer a bit more in low profit years.

DCPP -  This is a set amount, into an RRSP fund, that is the % matching you indicated.  You contribute an amount, and the employer contributes, based on a formula.  Sometimes the employer portion is locked in, but usually that only applies to Pensions (defined BENEFIT) plans.

RRSP -- in addition, you can add additional monies to a company group plan or personal RRSP, up to your contribution limit.

Contribututing your 18% directly off your pay, and immediately paying less taxes with no big annual refund is a great way to do this.  Many of us do not put that large refund all back into RRSP's, after all.


Most RRSP plans in Canada are vested immediately, or within 2 years of the employer contributions.   For the DCPP, you can ask if there is any penalty to transfer $ out to your own RRSP set up at a brokerage, if you want more direct control of your money.  I have much lower MERs in my personal RRSP than the Manulife accounts set by my employer, so I move out the money that I can every two years.


Lastly, if you are contributing to your RRSP limit of 18%, start building up that TFSA.  In fact, if you just want a personal account to start investing with, set up a TFSA at your discount brokerage, leave the RRSP alone for now.   

The tip with TFSA is to invest to NOT LOSE money...  as you can not claim any capital losses there, but regular interest bearing bonds, etc. are not taxed.   And of course, the TFSA is your FU account, your savings for large purchases, and your emergency fund...



Stasher

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Re: Scaredy Cat from Canada
« Reply #18 on: February 06, 2016, 11:18:34 AM »


DCPP -  This is a set amount, into an RRSP fund, that is the % matching you indicated.  You contribute an amount, and the employer contributes, based on a formula.  Sometimes the employer portion is locked in, but usually that only applies to Pensions (defined BENEFIT) plans.

Most RRSP plans in Canada are vested immediately, or within 2 years of the employer contributions.   For the DCPP, you can ask if there is any penalty to transfer $ out to your own RRSP set up at a brokerage, if you want more direct control of your money.  I have much lower MERs in my personal RRSP than the Manulife accounts set by my employer, so I move out the money that I can every two years.


DCPP is what I have been doing for years with my employer but only deduct up to the maximum they match to free up my remining net income to self direct

As for the transferring out of that plan, finally did that this week thanks to the heads up from this awesome forum. Sunlight said I could only move my employee portion of contributions so I did that. Can't wait to buy new ETFs in my brokerage account once the transfer goes through.