The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Blissful Biker on March 18, 2017, 04:17:42 PM
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We have a financial advisor at our bank, BMO, who we really like. He provides us good advice and plots out our financial plan every year. We trust him and always have a good laugh with him and his young family when we meet them out on the bike trails.
But following MMM and these forums I am starting to question if we should be paying the fees associated with using our friendly local bank advisor. For example, if I were to buy the same funds on BMO Investor line the MERs would be 1% or more less than we currently pay (2-2.5%ish).
As we get older and our net worth grows this is weighing on me more heavily. Our assets are:
House: $450K
RRSP: $850K
TFSA:$120K
RESP: $120K (for our 2 tweens)
We have no liabilities so a net worth of 1.5MM, with 1MM of assets invested with our BMO advisor.
If we assume an average fee of 2.2% that is $22K per year we are paying to feel safe and enjoy his company. Perhaps not money well spent.
I am hearing about robo-advisors and am considering them. But the marketing seems to be geared towards young folks with small portfolios as opposed to 40 year olds with medium to large portfolios like me. A robo-advisor seems like a reasonable compromise between paying the high fees for our local advisor and the risks of picking my own funds.
I want low fees, solid returns and to spend my free time on my bike as opposed to researching funds. Can I have it all?
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I recommend reading the Canadian Couch Potato website, starting with the tops tabs. And/or consult with a fee-based advisor. It will be significantly cheaper. (I am one but not set up to work outside of Alberta currently).
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Likeability and trust are among the most important characteristics of a sales person, especially in investments where you are trusting them with your future. But is that worth $22k/year? And about $10k of that will be going to the adviser and his firm as a trailing commission.
I also suggest you seriously investigate learning to invest on your own with a low-cost index portfolio. Augment that with a plan from a fee-only financial adviser if you need financial planning (as opposed to investing advice). I used to deal with a full service broker and have moved all my investments over to a discount broker, almost all of it in indexed ETFs. I started with $50k in one account to learn how to trade and build a portfolio, back when you needed $50 k assets or trades cost $30/trade.
Here are some learning resources:
If You Can: How Millennials Can Get Rich Slowly is a free ebook. The author says more in 16 pages than most say in hundreds. You are not millennials, and it is US based, but the basic principles apply in Canada. Just use Canadian ETFs instead of the ones the author recommends.
https://www.etf.com/docs/IfYouCan.pdf
Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam is a great story of frugal living and low-cost investing by a Canadian Author with a global perspective. I borrowed it from the library.
https://www.amazon.ca/Millionaire-Teacher-Wealth-Should-Learned/dp/1119356296
Finiki is an excellent resource for Canadian Investors
http://www.finiki.org/wiki/Getting_started
And Canadian Couch Portfolio will show you how simple and low-cost investing can be:
http://canadiancouchpotato.com/model-portfolios-2/
So can you have it all? Would you consider a 3 or 4 fund portfolio with a MER around 0.15% that you only need to review and rebalance annually having it all?
Robo-advisers will be a little simpler, and do automatic rebalancing in a single portfolio they manage for you. They will also do tax-loss harvesting. But the cost for that is in the 0.4 to 0.5% range, plus MERs of the underlying funds. Some of them use basic low-cost ETFs, others may use a mix of low-cost ETFs, higher fee active ETFs and mutual funds. Some are more open about what they will hold in your account. Check them carefully for their fee structure, type of investments they hold, how they rebalance and what mysterious algorithms they use for asset allocation and security selection.
This site has a good selection tool, but it focuses primarily on cost. You need to check each individual robo-adviser for the details.
http://autoinvest.ca/
You could start the way I did, with a small account to get the hang of it and decide which alternative suits you best.
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Terrific. Thanks so much for the advice GreatLaker and KMMK.
Based on your advice and what I read today on the Canadian Couch Potato site, I would like to try investing on my own with a low-cost index portfolio. I am an engineer, how hard can it be, right? My husband and I talked it over and agreed to start with $40K so I can learn and gain skills and confidence before we transfer big money.
What platform would you recommend? BMO Investorline? Questrade? Does it matter?
I have some reading ahead of me. Thanks!
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Terrific. Thanks so much for the advice GreatLaker and KMMK.
Based on your advice and what I read today on the Canadian Couch Potato site, I would like to try investing on my own with a low-cost index portfolio. I am an engineer, how hard can it be, right? My husband and I talked it over and agreed to start with $40K so I can learn and gain skills and confidence before we transfer big money.
What platform would you recommend? BMO Investorline? Questrade? Does it matter?
I have some reading ahead of me. Thanks!
I personally use Questrade and have been with them for a few years now. Overall a good experience. Much better than I had with my previous brokerage (TD Waterhouse). You simply can't beat the commission free ETF purchases and their platform is easy to use as well.
I would say it generally doesn't matter who you use, the differences between each broker is primarily based on their fee structure. Of course some brokerages are geared to technical traders, high frequency traders, margin users, and such, but that shouldn't be a selling feature for you.
Some people complain about Questrade's customer service, but I personally have received prompt responses to all my requests. Better than some service I got from TD, that's for sure. My only issue with Questrade was their handling of a pension transfer, but in fairness to them my pension plan was not at all helpful and notoriously bureaucratic to boot.
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If you plan on being an index investor you won't do a lot of trades, and won't need the research some of the larger brokers provide. In that case any of the major bank or independent brokers will work. Look for their fees, minimum account size, mobile app if you want that, availability of 3rd party GICs and mutual funds, to make sure there are no major gaps to your needs. Staying invested long-term with a balanced, diversified, low-cost portfolio will make more of a difference than the choice of broker. How much hand-holding and support do you get from your current adviser, and do you think you will be tempted to abandon your plan when the market drops suddenly or gets volatile? Treat your portfolio like a bar of soap: the more you touch it the smaller it gets.
Questrade is seems to be the broker of choice for investors looking for low cost, especially for their commission free ETF purchases. All of the big banks have good brokerages. I use TD Direct and have never had a problem. I chose it because it's also my main bank and I can access all my accounts from one web login and one mobile app, plus it gives access to their eSeries low cost mutual funds. Once you have $500k invested they upgrade you to President's Account... they always answer my calls on the first ring. Over the last 3 years they have add a lot of enhancements including new website, performance reporting, mobile app and US$ RRSPs.
One thing to consider is if you make monthly contributions, buying ETFs will cost you between $7 and $10 per trade, unless you go with Questrade. One way around that is to invest quarterly instead of monthly. Another way is to do monthly purchases of a low-cost balanced mutual fund (I use TDB965), then once or twice a year sell the MF and buy ETFs, and rebalancing your accounts at the same time.
Justin Bender at Canadian Portfolio Manager has a series of videos on how to build an ETF portfolio with several of the main brokerages. He goes through how to purchase online and walks through actual trading screens. Here are ones for BMO and Questrade. They are available on his website and YouTube.
http://www.canadianportfoliomanagerblog.com/how-to-build-an-etf-portfolio-at-bmo-investorline/
https://www.youtube.com/watch?v=DqORu39gktw
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It sounds like WealthSimple is going downhill - https://www.reddit.com/r/PersonalFinanceCanada/comments/5zyb3n/wealthsimple_no_more_live_phone_support/
I would certainly suggest doing some reading at CCP, but the honest truth is you can save probably 3/4 of that amount by just buying XWD.TO and VAB.TO. Like... ya, $15k a year.
Questrade are ok, but they don't do the good stuff like track your ACB. With that amount of money, and particularly if you won't trade much at all, I'd say go with a big bank's direct/DIY. So, CIBC Investor's Edge - $7 a trade - is probably the cheapest. You will get reasonable customer service (as in, they'll actually help you; where Questrade will have the facade of helpfulness but... won't... actually... help).
2+% is just free money for the banks.
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With 1MM in assets already, it'll cost you some time to learn and $50-100 in trading fees to move everything to Investorline and buy three to eight ETFs that will spin off $40k a year in growth. Your done man, stop paying through the nose!
Take your asset allocation today that BMO advisor has you in. I bet it's already in high cost BMO ETFs, or wrapper funds ( the "Income Fund", or "Growth Fund".). These usually just hold ETFs while making BMO Mutual funds Inc a shittonne of cash. Learn what you own today, and duplicate it with Couch Potato.
Post up your current fund selection and let us rip it apart for you! Fun stuff!
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Ps - I use BMO IL and also have an Iron Ring. I implemented couch potato when we became mortgage free and had to ditch 2.8% MERs and have doubled our investments in three years of self directing.
You're smarter and cheaper than a robo advisor
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With 850 in RSP, I'm curious what your FA has to say about taxes reduction, withdrawal rates and RMDs at 71 affecting your OAS when you start withdrawing. What's his plan?
Better question - what's your plan?
Who's got the most stake in your finances?
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For example, if I were to buy the same funds on BMO Investor line the MERs would be 1% or more less than we currently pay (2-2.5%ish).
This alone is an immediate no brainer to implement. $10,000 per year savings and additional compounding, come on! You probably can still keep your FA too, you just need to to the $9.95 trades yourself instead of him.
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Lots of great advice in here and @Heckler nailed it right away, the biggest worry I see right now is you are going to get hammered at 71 with the mandatory withdrawals on that RRSP unless you come up with a plan asap.
I personally use Scotia iTrade , it is such a no brainer and the easiest thing I have ever done.
I use the Aggressive portfolio from Canadian Couch Potatoe ETF and of 60 VXC 30 VCN 10 VAB
Based on what I have invested and what you have for $$ in RRSP you are looking at $20,000 per year revenue just off the dividends it yields !
Killer information @GreatLaker
You don't need an advisor, just read and start moving one accountant at a time. Start the awakening and realize how much you are loosing in just simple MER fees alone.
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I currently am using Wealthsimple, as my investments with them is not worth much. If you decide to put in some money with a roboadvisor, make sure you get a referral bonus to get some money managed for free. (You still pay the fund fees).
I got one for WealthSimple and it gives you another $5000 managed for free. It's below if you or anyone else would like to use it.
http://wsim.co/xlvo633
If you go with WealthSimple and have more than $100 000 invested, you get perks, such as a lower management fee, priority lounges, etc. But at that level I don't think it's worth it.
That being said, Questrade has a practice account so you can get a feel for the platform. It's helpful and pretty easy to navigate.
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My investing journey begins. I am excited and nervous.
You're smarter and cheaper than a robo advisor
Thanks for the encouragement!
I have decided to sign up for BMO investor line. I imagine that my trades will be infrequent, I like the idea of seeing all our financial information on one site, and maybe just maybe my BMO advisor will help keep us out of trouble.
I am thinking I'll start with $40K from our RRSP and learn the ropes for a few months. If all goes well, take over the rest of the RRSP ($810K) but leave the TFSA ($120K) and RESP ($120K) with our advisor. The bank does handy things like track how much we have contributed vs maximums and applies for and receives the 20% RESP grant. Plus that should leave him enough of a portfolio to warrant continuing as our financial planner. Reasonable, or am I too chicken?
I started the process of signing up for BMO Invesorline account but realized I have to choose between an AdviceDirect account or SelfDirected. The AdviceDirect account looks really appealing but you pay .75% up to a max of $3,750 a year, which puts it in the cost range of a roboadvisor like BMO SmartFolio. I am pausing to consider, how bold am I?
You guys have already given me great advice, recommendations and reading assignments. With you on my side I am thinking that fortune favours the bold.
Heckler encourage me to post my current holdings. These are my numbers (not including my husbands as I can't view his and he is not around):
RRSP
Balanced Funds:
BMO Balanced ETF Portfolio 257K
Growth Funds:
BMO Canadian Small Cap Equity Fund $54K
BMO Global Small Cap Fund Series A $67K
BMO Tactical Dividend ETF $56K
TFSA
BMO Equity Growth ETF $63K
RESP
BMO Intuition RESP Growth Portfolio $120K
Heckler and Stasher seemed concerned about $850K in RRSP. Please elaborate. More is better right? Granted there will be taxes in the future but that seems far superior to not having a healthy stash.
Our goals are to retire in about 7 years at age 52 with $1.65MM in investments to throw off an annual income of $65K based on a 4% SWR. Our current savings rate is about 40% with a spend of $84K per year, but we also have these active growing boys (12 and 13) eating the cupboards bare. In 7 years they will be feeding themselves, buying their own bikes and a spend of $65K/yr will be luxurious.
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Congrats on getting started... I'll address your main issues:
Starting with $40k then moving the balance of your RRSP later is a good idea IMO. I have grown my account 25 times since I first started self directed investing and am glad I started small. Making your first trade for $10k is a lot less stressful than making $200k trades (which is around where you will be if you invest the RRSP in a 3-fund ETF portfolio).
Leaving the RESP and TFSA with the adviser are worth trying, but I would not be surprised if the adviser's enthusiasm for supporting your account dropped off considerably, and you might also want to start investing it yourself anyway. Once you learn, investing $1M is not harder than $50k. And with those accounts you will have $240k with the adviser, driving around $5k in MER. For that amount you could go to a fee only CFP planner every year. But there is no harm in moving those accounts last and evaluating as you go.
I would not go for AdviceDirect. It is meant for much smaller accounts. You will be paying $3750/yr for a bit of hand holding and a few messages or phone calls. Again, for that cost you could get a full plan done by a fee-only planner every year.
I'll answer the RRSP size and tax question in another post.
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Our goals are to retire in about 7 years at age 52 with $1.65MM in investments to throw off an annual income of $65K based on a 4% SWR. Our current savings rate is about 40% with a spend of $84K per year, but we also have these active growing boys (12 and 13) eating the cupboards bare. In 7 years they will be feeding themselves, buying their own bikes and a spend of $65K/yr will be luxurious.
You have this well thought out. I am probably overloading you with reading and this one is for later, but The Real Retirement by Fred Vettese and Bill Morneau (yeah, that guy) is a good look at how much of your current income you will need in retirement based on your lifestyle. https://www.amazon.ca/Real-Retirement-Could-Better-Happen/dp/111849864X (https://www.amazon.ca/Real-Retirement-Could-Better-Happen/dp/111849864X) Another one I got from the library.
Heckler and Stasher seemed concerned about $850K in RRSP. Please elaborate. More is better right? Granted there will be taxes in the future but that seems far superior to not having a healthy stash.
It is a myth that the benefit of an RRSP is tax-deferred compounding. The real benefit of tax-deferred accounts like RRSPs is deferring taxes until your income is lower, therefore your tax rate is lower. That's common in retirement when youare not earning a salary or paying CPP/EI, or saving for retirement, and the kids are off the payroll.
The problem comes in when you have to convert a RRSP to a RRIF which is no later than the end of the year you turn 71 (I think couples can use the age of the lower spouse but let's ignore that for now). You can convert earlier if you want. But once you convert to a RRIF, every year after the year in which it is created you must withdraw the minimum amount which changes with age. You can see the age factors here: https://www.woodgundy.cibc.com/wg/reference-library/topics/retirement-planning/rrsp-maturity-options/rrif-minimal-withdrawal.html.
So the year you turn 72, you will have to withdraw 5.28% of the RRIF value at the end of the previous year. If you have $1M in your RRIF, you will be required to withdraw $52800. Now add approx $20k for CPP/OAS payments, and say you have $20k in pension income. Your income for the year is now over $90k, which could drive a higher tax rate than when you were working.
The other problem is OAS gets clawed back (I think the official name is OAS recovery tax) once your income goes above around $75k, by 15% for every dollar your income is above that threshold. It all gets clawed back by about $120k of income.
So if your RRSP gets too big you have a double whammy of getting hit with higher income tax rates, plus some or all of your OAS being clawed back. There are worse things than paying a lot of tax, like running out of money in retirement.
How do you manage this dilemma? Option one is contribute less to RRSP, and direct those savings to non-registered accounts instead. Another approach is to spend down some of the RRSP money after retirement but before you hit age 71. Your early retirement plans will give you lots of years to do that. From when you retire until you start collecting OAS (earliest age 65, latest age 70) you can withdraw as much as you want from the RRSP or RRIF, and probably pay less tax than leaving it until age 71 when you are forced to convert. Then from when you start OAS to the year you turn 71 you can withdraw until your income gets up to the ~$75k OAS clawback threshold. Note I have used numbers for a single person for all of the above... if your RRSP is split among both it will change the analysis.
So what do you do now? I say don't let this stop you from the self directed investing plan... Your RRSP is what it is, and delaying moving to a lower cost portfolio is not gonna make it worse in the short term. But as previous posters said you need to think longer term and have a good tax plan. This is where a good fee only financial planner can help, using software that considers tax rates and investment returns. Or with enough reading and number crunching you can analyze it yourself. But for the amount of $ we are talking about, spending a little on a comprehensive plan can be well worth it. Remember you are paying 5 figure MERs every year now, and AdviceDirect would have cost you $3750/year for something that would not be nearly as customized or comprehensive.
Albert Einstein is reported to have said “The hardest thing in the world to understand is the Income Tax.” I do find that if I think about investing taxes too long my brain gets all foggy and I start typing random incoherent gibberishjlkjhf kjh fakjdhqe8hf uiyf uf euyfh udft ...
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forgetabout AdviceDirect. You've got too much skin in the game to not go on your own.
However....
I would start in Excel. Learn, learn, learn! You can figure out your asset allocation, expected fees, costs of one vs the other all without spending a dime or moving a penny.
I started one account at a time - good idea! However, before you start moving that account, make a plan in Excel for ALL of your accounts.
Step 1 - your Investment Policy Statement.
https://www.bogleheads.org/wiki/Investment_policy_statement
Without it, you're shooting in the dark.
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RRSP
Balanced Funds:
BMO Balanced ETF Portfolio 257K
Growth Funds:
BMO Canadian Small Cap Equity Fund $54K
BMO Global Small Cap Fund Series A $67K
BMO Tactical Dividend ETF $56K
TFSA
BMO Equity Growth ETF $63K
RESP
BMO Intuition RESP Growth Portfolio $120K
Do you know what your overall asset allocation is? I would expect your financial adviser has provided this to you. Even what percentage bonds vs equities?
https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts
http://canadiancouchpotato.com/2014/08/13/managing-multiple-family-accounts/
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PS - I'm in North Van and just got back from a 16k Seymour ride. That's really why I'm helping so much. Kindred spirit, random stranger.
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so, here's all the funds you own today. What do you notice about your total asset allocation?
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Well, fuck. Now we will learn about my biggest peeve about my old financial advisor, and I'm sorry to say will keep you up at night.
http://fundfacts.bmo.com/advisorEnglish/BMO_Balanced_ETF_Portfolio_Class-EN-Advisor_Series.pdf
Section "How Much Does It Cost", page 2, 3. - this will depend on how long you've owned the fund and which version he sold you. Is he riding a carbon bike?
Did your friendly financial adviser sell you the Sales Charge, the Deferred Sales Charge or the no load/low load version? If he's your "friend", he sold you the DSC and is over the course of 8 years moving a percentage over to the Upfront Sales Charge funds, which are considered "paid for". If you hold onto the fund for 8 years, and didn't contribute in the past 8 years, then your fund is free to sell and move. If not, they've got you in the handcuffs. The low load only has handcuffs for three years. The Series A mutual funds are a bit better, because they don't have these sales charges.
I only lost a few thousand when I ditched my DSC funds, but only had $40k or so invested over 5 years or so. This is why I edumucated myself before we became mortgage free.
With Vanguard or I-shares or even BMO ETFs in Investorline, your sales charge is $9.95 to buy and $9.95 to sell. So, that's 0.2% to buy and sell a $10,000 chunk. 0.05% for a $40,000 chunk. Buy today, sell tomorrow or in 2065 - same cost (well, unless the $9.95 commission changes in 48 years from now - fair enough).
You'll notice (and sounds like you already know) many of your holdings are already broad index ETFs. The biggest question is - why do you need to hold so many?
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a quick google to findfacts.bmo.com. I know I never understood or even read these sheets my FA gave me. It's worth your effort to understand them before you buy.
Same thing with any ETFs you plan on buying. Understand them! What are the fees, what is the asset allocation and how does it meet your goals?
http://fundfacts.bmo.com/advisorEnglish/BMO_Balanced_ETF_Portfolio_Class-EN-Advisor_Series.pdf
http://fundfacts.bmo.com/advisorEnglish/BMO_Canadian_Small_Cap_Equity_Fund-EN-Series_A.pdf
http://fundfacts.bmo.com/RetailEnglish/BMO_Global_Small_Cap_Fund-EN-Series_A.pdf
http://fundfacts.bmo.com/advisorEnglish/BMO_Tactical_Dividend_ETF_Fund-EN-Advisor_Series.pdf
http://fundfacts.bmo.com/RetailEnglish/BMO_Equity_Growth_ETF_Portfolio-EN-Series_A.pdf
http://factsheets.lipperweb.com/digital/bmomf/68176842_en.pdf
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BMO had $19.6 Billion in revenue last year. What percent came from your investments?
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The great news is you are very well diversified globally. Kudos to your FA for that. Mine has me in a Alberta centric energy fund which was booming until a few months after she sold it to me.
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here's a fun link. Be careful though - these each assume a 6% annual return, which each asset class will not have. This is a reasonable average return for a balanced fund.
https://www.vanguardcanada.ca/individual/insights/fundcompare.htm#/target=cst&selectedFund0=F00000H6O6&selectedFund1=F00000NF6Q&selectedFund2=F00000QA9G&selectedFund3=F00000TVGA
This picture shows your $257,000 invested for 20 years in each of the four funds, making a 6% annual return before fees. Then fees are added in.
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@Heckler you rock !!
Awesome job on all the replies, @Blissful_Biker we gotta help and save you here.
Your advisor is making plenty of cash that belongs in your pocket.
In the Bonds too much Canadian and too much in Bonds only glancing quickly.
I personally believe in ETF's , as soon as the word FUND enters the equation means it's managed and will have extra costs.
I will comment more later and then this from @GreatLakes is why you need to start planning, great response.
So the year you turn 72, you will have to withdraw 5.28% of the RRIF value at the end of the previous year. If you have $1M in your RRIF, you will be required to withdraw $52800. Now add approx $20k for CPP/OAS payments, and say you have $20k in pension income. Your income for the year is now over $90k, which could drive a higher tax rate than when you were working.
The other problem is OAS gets clawed back (I think the official name is OAS recovery tax) once your income goes above around $75k, by 15% for every dollar your income is above that threshold. It all gets clawed back by about $120k of income.
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Thanks gang. I am so fortunate to have you!
But for the love of god, this made me cranky @Hecker
Well, fuck. Now we will learn about my biggest peeve about my old financial advisor, and I'm sorry to say will keep you up at night.
http://fundfacts.bmo.com/advisorEnglish/BMO_Balanced_ETF_Portfolio_Class-EN-Advisor_Series.pdf
Section "How Much Does It Cost", page 2, 3. - this will depend on how long you've owned the fund and which version he sold you. Is he riding a carbon bike?
Did your friendly financial adviser sell you the Sales Charge, the Deferred Sales Charge or the no load/low load version? If he's your "friend", he sold you the DSC and is over the course of 8 years moving a percentage over to the Upfront Sales Charge funds, which are considered "paid for". If you hold onto the fund for 8 years, and didn't contribute in the past 8 years, then your fund is free to sell and move. If not, they've got you in the handcuffs. The low load only has handcuffs for three years.
Our advisor, with our happy go lucky consent, moved $200K into this fund 18 months ago. Which means we are exposed to either 5.5% Standard Deferred Sales Charge or a 2.0% Low Load Deferred Sales Charge. ARGH! And online I can't see which would apply. I want to find out without confessing our imminent betrayal to our advisor. I'll try the 1-800 number and disguise my voice.
a quick google to fundfacts.bmo.com. I know I never understood or even read these sheets my FA gave me. It's worth your effort to understand them before you buy.
Same thing with any ETFs you plan on buying. Understand them! What are the fees, what is the asset allocation and how does it meet your goals?
Thanks for the links to my funds. Embarrassed to admit I hadn't read them before. They were interesting. And not rocket science.
So if your RRSP gets too big you have a double whammy of getting hit with higher income tax rates, plus some or all of your OAS being clawed back.
Thanks for the run down on the drawbacks of high RRSPs @GreatLaker. I wonder if it would make sense to slowly move my husbands RRSPs out into taxable accounts. He runs the household with a frugal iron fist, loves his part time work and earns enough to pay for his bikes but not enough to pay taxes. I contribute to a spousal RRSP to keep us both about even for when we head into retirement.
I put a hold on the Millionaire Teacher book at the library and have been absorbing the info shared in the posts. Thanks so much for helping me out. I am excited!
PS - I'm in North Van and just got back from a 16k Seymour ride. That's really why I'm helping so much. Kindred spirit, random stranger.
I am jealous @Heckler ... but we did ski in the spring sunshine this afternoon. Life is good. Thanks again.
I am travelling this week and will really get down to business when I return.
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"He runs the household with a frugal iron fist, loves his part time work and earns enough to pay for his bikes but not enough to pay taxes. "
This is what you must teach me about in return.
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Your last statement should define FE (Front End) or DSC (Deferred Service Charge) or LL (Low Load). Take a look at that wad of paper he leaves with you once a year. Even the Fund Code should be listed on your statement (from the infosheet I linked):
Fund codes(s):
FE: GGF87491
DSC: GGF85491
LL: GGF86491
It's OK -- I did the exact same thing five years ago with Invesco. Just sign the form to get back on the trails quicker.
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does anyone have the right tools to compare the 5 year performance of GGF86491 to it's relative index? I tried in Investorline, but the fund isn't showing up on a chart I can compare with ETFs. Morningstar.ca is being a bitch too.
I'm thinking GFF86491 is similar to this Vanguard/Ishares ETF portfolio:
16 VAB
19 VBU
10 unknown Fixed Income
(Total: 45 Fixed Income)
15 VCN
10 VDY
(Total: 25 Canada)
11 VFV
6 VGG
(Total: 17 US)
9 XIN
(Total: 9 International)
4 VEE
(Total: 4 Emerging)
Grand total: 100%
Found here: https://www.vanguardcanada.ca/individual/etfs/etfs.htm
(I"m not recommending this portfolio, I'm just trying to compare rotten apples to rotten apples - then we compare a simple 3 fund portfolio)
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blissfulbiker, your statements should have comparisons to the relative index, similar to the graph above I got from Investorline. The problem I have comparing this fund (I'm picking on your Balanced Fund) is that the fund is made up of many different narrow indexes, which all combine to a less volatile performance (you won't see the big market swings when US crashes but China skyrockets, which is awesome as intended!) The low cost alternative is to use a few broad indexes.
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The more I look at the info @Heckler is sharing the more I cringe, you are missing out on so much return on your capital investment with BMO. I like that you used the three funds I personally invest with to do the Cost comparison on and how little they cost me over the long term. I'm still shocked that Vanguard was so little and the BMO fund would cost you 6 figures over the long run. This is what the banks don't tell you.
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You are missing a taxable investment account in your assets. With your RRSP amount and maxed out TFSA there should be an investment account in your husbands name. Since he's low income it will be tax-free (marginal tax rate of 0%).
Your advisor isn't helping with a long term plan very well. He's not appearing versed on your allocations. In your shoes I would do more spousal RRSP, invest all his earnings in a seperate taxable account, fund his TFSA from your bank account (tax legal transfer) and get your tax liabilities lower. You have extra taxes owing in the future because of your current allocations.
It can all be fixed, it's not hard to reduce the tax burdens but it can take years of planning. Your planner should already have outlined the withdrawal strategies.
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I'm sorry for your situation there OP. But I have to tell you it's very very common.
It's amazing the stuff I see and hear about when it comes to personal finance. These certified and so-called professional advisors repeatedly make very amateur mistakes that they never get held to account on. Not to mention the exorbitant fees for this crappy service.
I've seen professional portfolios with duplicate funds upon duplicate funds upon almost identical funds with no consideration to cost and diversification for senior clients. I've seen advisors dump big contributions (I'm talking 6 figure deposits) into funds with DSC where they are getting a fat 4-5% right up front without their client having a clue. I've seen people with 7 figure accounts who are still investing in DSC funds with huge up front and trailing commissions attached where the client was never told about moving to low load funds that are much more appropriate for this portfolio size.
As far as I'm concerned, probably 90% of the personal finance professionals out there are not so professional. They are either scam artists, greed driven, or clueless. I'm personally leaning to the first two options. A lot of them are earning much more than 1% of assets through fund churn and client manipulation.
The solution is simple. Self manage your investments passively using good rules of thumb that are plentiful and free. Hire accountants and/or lawyers as appropriate on a fee basis for any other financial planning. Save yourself lots of money and headache in fees. Get rich with time and dedication.
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Since reading MMM for the past three years, along with reading and researching on my own, we are now investing on our own through TD Webroker in VAB, VXC and VCN in our TFSAs, RRSPs, etc. We also see a fee only advisor who is also a CA which has been very valuable to not only assess our portfolio, but to also advise on how best to approach our taxes. The combination of an annual check in with the fee only advisor and investing on our own has been so worthwhile. We are in the midst of selling a vacation property and our fee only advisor has advised us to plunk the proceeds into a Vanguard Dividend fund when it's finalized.
We still have a few GICs with the advisor we've been dealing with for about 20 years.
Another option might be investing with Steadyhand https://www.steadyhand.com/ as I understand the more invested, the lower the fees, which are lower than the banks to start with.
All the best.
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Good point on checking if there are deferred sales charge. I tend to forget about them. It takes a real shark of an adviser these days to sell DSC funds.
Some comments on the portfolio, from reviewing the images posted so not really detailed analysis. Looking at the entire portfolio as one asset allocation (excluding the RESP since it has a different use and timeline).
- Looks like 20-25% fixed income, all in the RRSP.. reasonable
- TFSA is all equity, makes sense since it will grow tax-free
- Slightly overweighted in dividend stocks with the BMO tactical dividend fund. Reasonable
- Huge overweighted to small caps...looks like almost 25% small cap... it's hard to believe I am interpreting that right
- The BMO ETF funds make it hard to understand the real holdings... mutual funds holding a dozen ETFs that hold stocks. And what's with the NASDAQ and India ETFs in the BMO Balanced ETF Portfolio?
- These BMO funds are probably an easy sell... investors ask about low-cost ETFs and the adviser responds with a mutual fund that holds 10 or more ETFs for greater diversification, and at only 1.75% MER instead of the 2.5% MER their regular MFs have. But really, BMO is bundling a bunch of ETFs with MERs from 0.05 for basic Cdn equity up to 0.7% for esoteric segments, but probably average cost = 0.25%, and they charge a 1.75% MER, keeping 1.5% for BMO. Toxic!
- Except for the massive overweighting of small caps it's not that bad of an allocation. But the ETF portfolio funds make it hard to understand the asset allocation and risk, and the HUGE MERs are slowly converting the investor's retirement savings to the adviser's retirement savings
So a move to a simple low-cost index portfolio would be easier to understand and give better performance. Some questions you can set up some time with the adviser to discuss:
- Why the huge overweight in small caps. Long term they have had higher return, but also more volatile
- What's the plan to ensure the RRSP is not heavily taxed in the future? Might be hard for the adviser to really answer this one unless he is using software to model tax rates and expected rates of return, which is why they tend not to do it.
- Plan for the RESP to gradually move to a less risky allocation as the kids get closer to needing the funds... don't want to have to withdraw from equities for mandatory tuition and education expenses
- Determine if any of the funds have DSC, and if so the amount of any penalty and how it declines over time. Bury this question in among the other, so the adviser won't get suspicious.
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I am back from our fun spring break road trip to visit family in Alberta. The kids were spoiled rotten by grandparents, aunts and uncles and loving it. My family shows love through food so we all ate far too much. Time to get back on the bike. And back to work on my master financial plan, soaking in all your support and advice. I told my family about how much helpful advice I had been receiving on this forum, and how it was going to change my life. I converted my sister but the rest think I have joined a cult.
So here is where I am at:
1. My RRSP contributions come off my paycheck, including the company matching, and go to a Scotia McLeod GRRSP, in a spousal RSSP under my husbands name. Historically we have pulled that money over to BMO every year(ish) to be included in the big pot managed my our friendly local BMO advisor. This Scotia pot is now $38K and my plan is to move it over to Investorline to start my foray into self directed investing.
2. I started setting up an Investorline account only to realize that I can not manage a spousal RRSP under my own account. So my husband is in the process of setting up an Investorline account.
3. My plan is to use the $38K to practice setting up and managing a portfolio of ETFs until the summer when we have our annual meeting with our advisor. I will do loads of studying (on this forum and books) between now and then so I am prepared with all the right questions, take full advantage the financial plan he will prepare and have the courage to then move the big pot of money ($1MM) over to Investorline and be the master of my own destiny.
Which brings me to the million dollar question: What should I invest in my practice $38K in? Canadian Couch Potato seems well respected. Should I just use one of his portfolios? Is that easy? Or should I try to mirror what my advisor has me in? @heckler gave an example of that.
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf
I tend towards growth but my husband prefers balanced. Perhaps halfway between those two CCP portfolios is the right answer for us. This money needs to keep us in burritos and bikes for 40 or 50 years.
Thanks again. Your help is very appreciated.
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Did you catch the tail end of this balmy Alberta warm front?
With the 38k you can't go wrong using a CCP 3 fund portfolio. If your husband is risk adverse, use 30-40% bonds. For your bond I would lean towards VSB.TO as it tend to be even less volatile.
So, 50% XAW.TO, 15% VCN.TO, 35% VSB.TO should be close to good.
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With IL, you can setup a UserID that links all your accounts to one login - very handy. You can also link it to your BMO online banking.
With the near term plan of porting over a big pile of dough, I still say your practuce should be planning in excel to determine your asset allocation and location. Then I'd take the $38k, transfer it using BMO IL account transfer forms found in your online account. I usually walk the transfer form to a BMO branch and get a copy of the fax transmission form. Make sure to transfer in cash - not in kind- if you plan to buy low cost ETFs instead of your current holdings. Otherwise you'll pay $9.95 to IL to sell your old funds.
As to practice trading, I made a couple low value buys to figure it out $500 or so. Then I would just buy one ETF to start with - $39k is a very small percentage of your holdings. No point in splitting it up right away - the rest of your funds are plenty diverse!
With multiple account - spousal, RSP, TFSA x2, you can reduce trading commissions significantly by holding only one or max two ETFs per account. Remember, you will also be paying $9.95 to sell an etf and take money out. How often is up to you to decide - consider it your personal MER!
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"I am thinking I'll start with $40K from our RRSP and learn the ropes for a few months. If all goes well, take over the rest of the RRSP ($810K) but leave the TFSA ($120K) and RESP ($120K) with our advisor."
What do mean by if all goes well?
I'm sure you will be able to figure out how to set up an account place a trade - that'll go well, but you might lose a bit if you get ask/bid values mixed up. Worst case you call up IL and they walk you through it.
What may not go well is the stock market crashes and you blame ETFs and not the market. That will be a function of your chosen asset allocation and diversification. Is your IPS strong enough to stick with it if it doesnt appear to go well short term? Is hubbie's?
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You are overthinking this, transfer your money into index funds and let it do it's work.
Read my journal or that of @Chaplin or @Retire-Canada as good places to see how we use the Canadian Couch Potato ETF Vanguard portfolio. Heckler and Great Laker have provided great advice additionally, have faith in this proven investing strategy.
Everyday you hesitate is another day you are loosing 1-2% in MER fees each month lining BMO's bank accounts rather than your own.
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So here is where I am at:
1. My RRSP contributions come off my paycheck, including the company matching, and go to a Scotia McLeod GRRSP, in a spousal RSSP under my husbands name. This Scotia pot is now $38K and my plan is to move it over to Investorline to start my foray into self directed investing.
2. I started setting up an Investorline account only to realize that I can not manage a spousal RRSP under my own account. So my husband is in the process of setting up an Investorline account.
3. My plan is to use the $38K to practice setting up and managing a portfolio of ETFs until the summer when we have our annual meeting with our advisor. I will do loads of studying (on this forum and books) between now and then so I am prepared with all the right questions, take full advantage the financial plan he will prepare and have the courage to then move the big pot of money ($1MM) over to Investorline and be the master of my own destiny.
Which brings me to the million dollar question: What should I invest in my practice $38K in?
Thanks again. Your help is very appreciated.
Based on your comments, you are looking to actively learn about investing through practical, hands-on activity.
My two cents -- take $33k and do a Canadian Couch potato.. The ETF version, and set yourself for rebalancing every 3 months (that is the learning part).
Take the remaining $5k and do the research to find a specific company stock to invest in. Take it slowly, do your research, read the annual report, and then start tracking it. It may take 3 months to find something, and that is Ok. I would also recommend investing in a US dollar stock, so you learn about currency exchange with your Investor line at the same time.
Why? It is not because of the fabulous returns, but about the learning you will get in how money is generated, distributed (dividends), and how stock valuations gain and lose value based on news reports, and so on. Even if you lose money, (a bit), the learning curve is better than any course you could take. Having real money on the table will amplify the learning process, but limit your losses (if any).
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Replying mostly to follow, as our situations are quite similar and you're getting a lot of good advice here! I also recently decided to go self-directed RRSP through BMO. So far all I've done is had them move all of the RRSP mutual fund holdings into the Investorline account. Have just left it for a couple months as I was not feeling brave enough to tackle it just yet, but at least it's in my control to sell and buy ETFs now. I will read the advice in this thread more thoroughly this weekend and get this done soon. It has been on the to-do list for a while, but procrastinating due to dread. The funds have done pretty well over the years, but THOSE FEES. Yikes. I don't want to calculate. Just get out and move onward and upward.
Thanks for posting!
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so, here's all the funds you own today. What do you notice about your total asset allocation?
You are trying to teach me something with this question @heckler. I looked at the charts you posted, looked some more, looked again and came up dry. I do not really know what my asset allocation should be so nothing strikes me as odd.
With the near term plan of porting over a big pile of dough, I still say your practice should be planning in excel to determine your asset allocation and location.
I am seeing a theme here. I obviously need to get my asset allocation figured out. Let's start with what categories should I use. The simplest would be 3 categories (stocks, bonds, cash) and then it could become increasing more granular to an infinite number of categories.
Your comment says "asset allocation and location". What is location? I totally dig spreadsheets. I have a one to track net worth and annual spend. Seeing a graph of the income at 4%SWR slowly converge with actual annual spend is satisfying. I want to understand what you are tracking on your sheet and add it to mine. "I am thinking I'll start with $40K from our RRSP and learn the ropes for a few months. If all goes well, take over the rest of the RRSP ($810K) but leave the TFSA ($120K) and RESP ($120K) with our advisor."
What do mean by if all goes well?
What may not go well is the stock market crashes and you blame ETFs and not the market. That will be a function of your chosen asset allocation and diversification. Is your IPS strong enough to stick with it if it doesnt appear to go well short term? Is hubbie's?
By "all goes well" I was really just referring to achieving a confidence level where I felt comfortable controlling the money myself. It is not a responsibility to take lightly and I am not there yet. I am still googling the acronyms in the advice being shared. But I will get there, and when I do I have a good tolerance for the ups and downs of the markets. I understand that we need to accept some risk to make reasonable returns over our long and blissful future. I want to invest the time nowDid you catch the tail end of this balmy Alberta warm front?
With the 38k you can't go wrong using a CCP 3 fund portfolio. If your husband is risk adverse, use 30-40% bonds. For your bond I would lean towards VSB.TO as it tend to be even less volatile.
So, 50% XAW.TO, 15% VCN.TO, 35% VSB.TO should be close to good.
to set up a good plan, move the money and then leave it be.
Read my journal or that of @Chaplin or @Retire-Canada as good places to see how we use the Canadian Couch Potato ETF Vanguard portfolio. Heckler and Great Laker have provided great advice additionally, have faith in this proven investing strategy.
Thank you@Stacher. I will!
Did you catch the tail end of this balmy Alberta warm front?
Yes, it was beautiful in Alberta. Thanks for the advice. Your blog is great @mr rich moose. Another great resource in my learning journey.
My husband set up his Investorline account but had to print and mail away a form to add me as a 3rd party to his account. Yes, with an envelope and a stamp. Thankfully the post office cave is near our cave.
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My links in post 16 & especially 17. Worthy of full understanding.
Your risk level is based on the percentage if cash/short term bonds/long term bonds/domestic stock/international stock. The further up that scale you go, the riskier it gets short term, but the more return you can get long term.
http://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/
CCP has so many great articles. Scroll down on his homepage to the catagories section and start devouring. Most articles are general knowledge, others are very specific technogarble. Ignore the latter. His earlier articles are more about the basics.
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My point about your current asset allocation and risk level is its very complicated to know your current bonds/equity ratio. Therefore your portfolio risk level is unknown and impossible to rebalance with all your funds of funds. I hope your annual report has a total accounts allocation chart, but I doubt it covers the complete bonds/equity across of all your accounts.
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posting to follow.
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I am finally into InvestorLine! Wow, so much information, so much fast paced data, so much power at my fingertips. I have only just started to explore and see that they do have some educational tools, such as recommending an asset allocation. I haven't moved any money yet, still learning the tool.
Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam is a great story of frugal living and low-cost investing by a Canadian Author with a global perspective. I borrowed it from the library.
https://www.amazon.ca/Millionaire-Teacher-Wealth-Should-Learned/dp/1119356296
The book arrived in town today on an intralibrary loan. Look's like a really great book. It will be my bed time reading this week. Thanks @GreatLaker.
My point about your current asset allocation and risk level is its very complicated to know your current bonds/equity ratio. Therefore your portfolio risk level is unknown and impossible to rebalance with all your funds of funds. I hope your annual report has a total accounts allocation chart, but I doubt it covers the complete bonds/equity across of all your accounts.
My BMO report shows only an asset allocation with two categories in the pie chart - Balanced Funds (57%) and Growth Funds (43%). I have been content with that previously but am starting to see the need for more granularity. I am interested to see what information investorline will provide on asset allocations within EFTs. I assume that is what your spreadsheet tracks to keep you balanced.
There is a gang of kids at my house for a sleep over and the noise level is steadily escalating. Better sign off before the house burns down. Thanks again for all your help.
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The AA tools are basic at best and only for one account in IL. I keep a spreadsheet and track dollar. Alues, knowing that my. aB and VSB are fixed income, VCN is Canada and VTI is USA. Thats the point of a simple three fund portfolio. (Un)fortunately we have multiple accounts so a spreadsheet is absolutely mandatory.
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Advisor or Adviser?
http://www.cbc.ca/beta/news/canada/british-columbia/bank-s-deceptive-titles-put-investments-at-risk-1.4044702
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Welcome back BB. I am envious of your commitment to get out cycling. Living downtown TO the riding is kinda brutal so my 25 year old Fattie and roadie mostly collect dust in my storage locker.
Which brings me to the million dollar question: What should I invest in my practice $38K in? Canadian Couch Potato seems well respected. Should I just use one of his portfolios? Is that easy?
Yes, it really can be that easy. A 3-fund Couch Potato ETF portfolio gets you thousands of stocks in dozens of countries plus a broad cross-section of Canadian government and investment grade corporate bonds at a very low cost. Well balanced, broadly diversified, easy to understand and easy to manage. You can add any number of segment or region or country funds, or individual stocks, junk bonds, etc, but you add cost, complexity and risk. And takes much more time to research and manage, which it seems like you would rather take care of the kids or get out and ride.
I tend towards growth but my husband prefers balanced. Perhaps halfway between those two CCP portfolios is the right answer for us. This money needs to keep us in burritos and bikes for 40 or 50 years.
At a quick glance it looks like your portfolio is 20 to 25% fixed income. That's from a quick look at the images upthread for each of your funds. BMO Balanced ETF Portfolio Fund shows 39.2% fixed income and you hold $257k. BMO Tactical Dividend ETF Fund shows 22% fixed income and you hold $56k. All the other holdings look like equity. Multiply that out and that's where I get the 20 to 25% of your total account (excluding the RESP) in fixed income. Take a closer look at all your funds and your husband's funds to make sure I have not missed anything.
Asset allocation is something you just have to decide on by feel or experience. There are lots of rules of thumb. Ben Graham, the father of value investing (and Warren Buffet's tutor) said never hold less than 25% stocks or more than 75% stocks. Others say age in bonds, or age minus 20 in bonds (which looks like where you are). Some investors are risk averse and only hold bank deposits or GICs, yet many retired investors only hold equities and live off dividends. Pick something you are comfortable with, that matches your risk tolerance and timeline. Is your current portfolio too volatile?
Check the CCP ETF portfolios: http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf
Look at the rows for standard deviation and lowest 12-month return. What level of volatility could you live with and sleep at night. Check the difference in returns between the conservative and aggressive allocations. NOTE: be careful using the 10 year and 20 year return numbers. They include 2 bear markets (dot.com crash and financial crisis) so are not indicative of typical equity returns. Somewhere between balanced and assertive makes sense, and given that this is a small amount of your $, the assertive allocation would help you learn about asset allocation and volatility.
This is a trial for you of index investing, so why not just buy a 3-ETF couch portfolio and give it a test drive?
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Advisor or Adviser?
http://www.cbc.ca/beta/news/canada/british-columbia/bank-s-deceptive-titles-put-investments-at-risk-1.4044702
Fascinating article. Makes me even more sure I am making the right choice to move into self directed investing. I looked at my local BMO guy's email signature. He is a "Financial Planner, Investment & Retirement Planning" with no professional designations shown. So I am not sure if he is an advisor or adviser. He does know where all the best huckleberry stashes are, so obviously no dummy, but likely not advice worth $20K/yr.
Yes, it really can be that easy. A 3-fund Couch Potato ETF portfolio gets you thousands of stocks in dozens of countries plus a broad cross-section of Canadian government and investment grade corporate bonds at a very low cost. Well balanced, broadly diversified, easy to understand and easy to manage. You can add any number of segment or region or country funds, or individual stocks, junk bonds, etc, but you add cost, complexity and risk. And takes much more time to research and manage, which it seems like you would rather take care of the kids or get out and ride.
This is a trial for you of index investing, so why not just buy a 3-ETF couch portfolio and give it a test drive?
You hit the nail on the head. I am willing to accept normal market risk in exchange for reasonable returns, but I am not willing to accept risk associated with trying to pick stocks in between family bike rides. The 3 ETF couch potato plan feels easy, low risk and low cost. I will use it for my practice money and in parallel start a spreadsheet to better understand my current asset allocation within the big pot of money.
Your bikes miss you GreatLaker. Downtown TO seems like the perfect spot to avoid driving. Show them and yourself some love and get out in the sun.
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The Advisor/Adviser thing means nothing. CBC are talking nonsense.
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The Advisor/Adviser thing means nothing. CBC are talking nonsense.
Agree. I've never heard this from a knowledgeable source or any of the regulatory bodies I'm
familiar with.
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Well, in my professional body its illegal to call yourself an engineer if you aren't registered. Even if you have a degree or are trained in another country. Why not for someone you trust your life savings too?
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The Advisor/Adviser thing means nothing. CBC are talking nonsense.
Agree. I've never heard this from a knowledgeable source or any of the regulatory bodies I'm
familiar with.
Makes for interesting click bait news, though. ! Maybe they know something about selling papers. :-)
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I stayed up late reading Millionaire Teacher.(https://www.amazon.ca/Millionaire-Teacher-Wealth-Should-Learned/dp/1119356296)
Holy smokes, I should have done this years ago. There is so much hard data on how index funds perform better than actively managed funds in the long run. And a good explanation on wny it is not in your advisors best interest to sell them to you. I made it through the "why" part of the book, but still need to read the "how" part.
I am also working through reading and understanding an ETF fact sheet. I choose VCN. https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9561/assetCode=EQUITY/?overview
Some questions I could use your help with:
- What is the difference between a distribution and dividend?
- What is a 12 month trailing yield?
Thanks!
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Stocks pay dividends, which is a portion of profits paid out to investors.
Bonds pay interest.
Mutual funds and ETFs pay distributions, which are the sum of a number of types of payments:
- Dividends for stock funds
- Interest for bond funds
- Interest on cash held. ETFs generally hold little cash so not a factor. Some actively managed funds may hold a lot of cash if it has not been invested.
- Capital Gains. If a fund sells investments at a profit it may pass capital gains on to unit holders. Index funds like VCN and XAW only sell investments if the index changes or there are large redemptions, so this tends to be small with ETFs
- Return of Capital which is a payment of capital back to investors. This is more common with real estate trusts, but equity funds sometimes pay small amounts of RoC
Mutual funds and ETFs are known as flow-through shares, so all of the above income types simply get paid out to unit holders as distributions and therefore taxed at the investor's tax rate.
12-month Trailing Yield (TTM) is what the stock or fund paid out over the last 12 months divided by its price. If a stock price is $60 and it pays $0.60 quarterly then its TTM is 4%. Another measure is distribution yield, which is the most recent distribution divided by the price. Since the yield varies over time the trailing yield may be different than the distribution yield.
Bond funds usually pay distributions monthly. Equity funds usually pay distributions quarterly or semi-annually. Distribution yield will be indicated on the fund website or info sheet. Distributions will be paid in cash into your account, unless you choose to have them reinvested. Click the Prices & Distributions tab on VCN's web page to see distribution history.
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One more thing to add to GL's excellent explanation.
Interest from bonds is taxable at your current income tax rate. Same as the interest in your savings account.
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Thank you so much GL and Heckler.
Distributions will be paid in cash into your account, unless you choose to have them reinvested.
I assume the right choice is to have the distributions automatically reinvested. Correct?
I stayed up late again reading Millionaire Teacher and listened to Canadian Couch Potatoe Podcasts on my run with the dog yesterday. The clouds are slowly clearing. I understand much better why Heckler was focused on asset allocation. And the power of rebalancing - means not only are you staying in line with your risk tolerance, you are buying stocks or bonds when they are on sale! Wow. Great stuff.
It turns out the Investor Line account is not fully operational until an individual at a branch verifies that you are who you say you are on the application. So today my husband and I are going to the bank and seizing the opportunity for a lunch date. The plan is to open the whole swath of IL accounts today. But this is making me consider how each will be funded in the upcoming months. We would move over the existing balances, but the biweekly contributions might make for a lot of trading fees.
Husband RRSP (no current contributions)
Husband Spousal RRSP (money piles up in Scotia GRRSP and I'll bring it over every few months, using it to rebalance)
Husband TFSA (contributing $210 biweekly)
My RRSP (no current contributions)
My TFSA (contributing $310 biweekly)
Kids RESP (contributing $200 biweekly)
So with a minimum of 6 monthly contributions trading fees would be $60/month. Still less than I am paying my advisor but is there a better way?
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Try not to overthink the whole thing though, you are getting amazing information here but it can be super simple.
I have a self traded brokerage account at Scotia iTrade
I hold 60/30/10 in VXC VCN and VAB Vanguard funds following the CCP ETF portfolio as outlined on his website
My VAB pays out a dividend monthly and VXC and VCN pay quarterly. (I just got my quarterly disbursements today!)
So basically I open up my excel spread sheet I have that I enter the current market of each ETF and the corresponding allocation % , the spread sheet then tells me how much to buy in each fund. I add any additional funds at this same time if I am buying more RRSP to mitigate trading fees. My cost like you mention is $9.99 per trade (x3) and then x2 in a 6 month period which is $60. Pretty damn awesome and minuscule fractions of what a mutual fund advisor would be charging.
I have maxed my RRSP and my TFSA accounts but don't have the level of cash you have therefore I don't have answers on your unique situation. What you need to think about is the sizeable amount of cash you will have in Non-Reg accounts and the best tax efficiency. So you will have to look at what funds you have across 3 account types (TFSA RRSP Non-Reg) and balance your desires asset allocation across them between stocks/bonds and CND/INT/US.
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Just stole this from @Retire-Canada 's journal post this morning and is relevant to the MER fees your are paying currently and where you need to get. Not sure if you have played with the cFIREsim calculator yet in looking at your SWR and how your future retirement looks like yet. It is eye opening to show what affect MER's have on your portfolio success.
Leaving all the default values in cFIREsim, but varying the value for fees I get:
- 2% fees = 75% success
- 1% fees = 91% success
- 0.5% fees = 93% success
- 0.25% fees = 96% success
- 0.1% fees = 97% success
Reducing your fees can have a significant impact on your FIRE success without any change to your lifestyle/happiness.
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Posting to follow - fellow Canadian here, and new to the game. There is so much to learn! I'm excited to dig through all of the information in this thread :)
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ETF purchases through IL with tranactiins less than $2500 is not feasible. Your personal MER will be through the roof!
$9.95/$2500=0.4 MER!
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ETF purchases through IL with tranactiins less than $2500 is not feasible. Your personal MER will be through the roof!
$9.95/$2500=0.4 MER!
Don't forget to do this calculation based on your entire portfolio value. If you make 12 transactions a year, it costs you $120. Divide by $1 million in investments and your added MER is 0.012%.
The better way maybe of thinking about this is just deducting the trade commission off your contribution. Instead of contributing $1,500 of month you are actually just contributing $1,490. It costs you about $1,600 after ten years.
The best way to contribute to your accounts with InvestorLine or another brokerage that charges purchase commissions is to lump your contributions together.
For example, January make a $1,500 contribution to your TFSA, February add $1,500 to your husband's TFSA, March back to yours, and so on until your TFSAs hit their contribution limits. Then work on the RESP account until that's full to your target.
This way instead of making 6 purchases a month, you only make 1. Cuts your trading costs substantially.
Edited for clarification.
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I trade about once/account/year. Meanwhile, I invest through index funds @ 0.5-0.7% MER
My average outstanding balance of these funds is +/- 2,500$ wich cost me 25$ in fees. On the other hand, I save about 150$ of trades, I'm still ahead doing this.
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Just stole this from @Retire-Canada 's journal post this morning and is relevant to the MER fees your are paying currently and where you need to get. Not sure if you have played with the cFIREsim calculator yet in looking at your SWR and how your future retirement looks like yet. It is eye opening to show what affect MER's have on your portfolio success.
Leaving all the default values in cFIREsim, but varying the value for fees I get:
- 2% fees = 75% success
- 1% fees = 91% success
- 0.5% fees = 93% success
- 0.25% fees = 96% success
- 0.1% fees = 97% success
Reducing your fees can have a significant impact on your FIRE success without any change to your lifestyle/happiness.
I googled and found the cFIREsim calculator. Thanks! Very interesting. I look forward to playing around with it. In my quick trial run I tested retiring with $1MM, spend of $40K per year for 50 years, 0.18MER to compare it to the 4%SWR rule of thumb and it gave me a 71% probability. Yikes. I was hoping for higher than that.
The best way to contribute to your accounts with InvestorLine or another brokerage that charges purchase commissions is to lump your contributions together. For example, January make a $1,500 contribution to your TFSA, February add $1,500 to your husband's TFSA, March back to yours, and so on until your TFSAs hit their contribution limits. Then work on the RESP account until that's full to your target.
This way instead of making 6 purchases a month, you only make 1. Cuts your trading costs substantially.
Edited for clarification.
This is a really good idea to limit trading fees. I am thinking through the logistics of how to do it. Likely can't be automated. Perhaps an automatic withdrawal from the checking account of $750 biweekly on paydays to be deposited in an IL cash account. Then once a month move the $1500 into a TFSA or RESP. Are fees charged when you deposit or withdraw from a cash account? The IL site was vague on the topic.
I can't let the money stay in our day to day checking account or it will be spent. We do not budget but always make sure we tuck our savings away on payday and it all turns out fine. Spare money in the checking account might just transform into a new paddleboard. :)
I hold 60/30/10 in VXC VCN and VAB Vanguard funds following the CCP ETF portfolio as outlined on his website
I think I will do a CCP ETF portfolio too but maybe 35% bonds as opposed to your 10%. I am 44, hubby is 53, but we do plan to live past 100.
I have maxed my RRSP and my TFSA accounts but don't have the level of cash you have therefore I don't have answers on your unique situation. What you need to think about is the sizeable amount of cash you will have in Non-Reg accounts and the best tax efficiency. So you will have to look at what funds you have across 3 account types (TFSA RRSP Non-Reg) and balance your desires asset allocation across them between stocks/bonds and CND/INT/US.
I think there was a misunderstanding along the way. We do not have any taxable accounts yet. Just $1M in RRSPs, TFSAs and RESPs that we keep close to max. Trying to save to replace the rattiest of our ratty cars and then we will be embarking on learning how to structure a taxable account.
Posting to follow - fellow Canadian here, and new to the game. There is so much to learn! I'm excited to dig through all of the information in this thread :)
Welcome WinterSkies! Let's learn together.
I trade about once/account/year. Meanwhile, I invest through index funds @ 0.5-0.7% MER
My average outstanding balance of these funds is +/- 2,500$ wich cost me 25$ in fees. On the other hand, I save about 150$ of trades, I'm still ahead doing this.
LeBarbu - Until this week I thought index funds and ETFs were synonymous. I now know they are different but haven't quite figured out how. Would you recommend index funds? The MER looks higher.
A general question - should I build a balanced ETF portfolio in each account with 3 ETFs per account (RRSP, husbands RRSP, Spousal RRSP, TFSA, husbands TFSA) or just maintain a good asset allocation across all of them combined as though they were a big pot.
The IL website was having trouble today but we did make to the bank with the paperwork for 4 of the accounts and afterwards enjoyed a tasty and child free donair.
Thanks again!
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LeBarbu - Until this week I thought index funds and ETFs were synonymous. I now know they are different but haven't quite figured out how. Would you recommend index funds? The MER looks higher.
People seem to use different terminology that can muddy the waters when it comes to index funds, mutual funds and ETFs.
An index fund is a fund that tracks an index (duh!). They are often available in the form of either mutual funds or ETFs.
Canadian Couch Potato has a quick run-down in his FAQ (http://canadiancouchpotato.com/couch-potato-faq/).
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Blissfull Biker, I read the entire thread this morning and here is what I would do (not telling you to do so!)
Open accounts at BMO investor line for each of your actual account + a taxable account (joint)
Use an Excell sheet to manage all of your accounts like 1 big portfolio
Throw all of the money of every RRSP into XAW - 850k$ (2-3 trades)
TFSA & RESP should go into VCN - 240k$ (2 trades)
Use a HELOC for 200k$ and buy more VCN (1 trade). Take a 5 years variable rate @ 2.25% wich is deductible against your income for a net 1.5% (less than inflation rate). It's called Smith Manœuvre and Million Dollar Journey will tell you the way to do this.
Your actual situation brings 20k$/year (1.1M$ @ 4% - 2.1% fees*) so you are AT MOST 30% FI (20/65)
The plan I suggest would produce 50k$/year (1.3M$ @ 4% - 0.15% fees) for a better 75% FI (50/65)
Your asset allocation would be 35% Canadian stock and 65% splitted evenly between US and Intl stock. Your total leverage (through HELOC) would be less than 12% (200k$/1.7M$ assets) wich is ridiculous in your overall situation.
I dont care what people think about this (being 112% stock, etc) you can do this within few days and 6 trades (60$) + 1 trade/account/year. I did this myself and have no regrets. Our NW is 1.1M$ now (950k$ invested, 350k$ house, 200k$ HELOC) and our COL is 50k$/year. We are close to 75% FI (100% FI on a barebone budget) and you could be in the same situation in a blink!
Dont forget that the general rules do not apply to us, especially if you are still young enough and able to work for few years!
*I can help anyone on a full time basis for 22k$/year! 😜
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You are starting to understand one of the reasons why DIY has such low fees relative to an adviser... it's more effort. Kinda like adjusting your gears and fixing flats instead of just dropping the bikes off at the shop and going for a Starbucks.
I assume the right choice is to have the distributions automatically reinvested. Correct?
Check with BMO on their reinvestment policy for ETFs. Most brokers do "synthetic drips" with ETFs, where the ETF distributes cash then the broker buys the closest number of full shares, but there will be cash left over. Say your VCN distributed $120 into one of your accounts, and it's current price is $31.69. The DRIP would buy 3 shares for a total of $95.07, leaving you with $24.93 in cash. Unlike mutual funds that can buy partial shares so can invest DRIPs down the penny. So even with ETF DRIPs some cash will still build up in your accounts. I don't drip with ETFs because I prefer to choose how to invest my distributions. Choice is yours.
So with a minimum of 6 monthly contributions trading fees would be $60/month. Still less than I am paying my advisor but is there a better way?
Another drawback of DIY with ETFs. You are at the bottom of a steep muddy hill, and you need to plot the best route with least likelihood of crashing. Maybe even stop a bit and eyeball it to pick the best course. Hunker down, slow and steady, so you don't lose traction. (Actually I don't recall if you ride road or offroad)
There are alternatives. One is just suck it up and pay the commissions. Another is invest quarterly instead of monthly. You said cash magically turns into toys when not invested, so just transfer cash into your brokerage accounts as a holding zone. The way I prefer is to invest monthly in a low-cost balanced mutual fund then maybe every 6 months sell the mutual fund and deploy the cash appropriately into ETFs. I generally buy ETFs in minimum 100 shares so $2500 to $3500 minimum for most ETFs. The fund I use is TD Balanced Index Fund (TDB965). It's MER is around 0.9%, not super low but good for a balanced mutual fund. It might be available in BMO IL, as I know BMO sells TD funds.
If you choose this route look for a balanced fund with a reasonable MER, no fee to buy, low minimum purchase and short minimum holding period. BMO sells D-Series mutual funds which are same as regular mutual funds, but have a lower MER for sale only to discount broker clients. Check out these links to see if you can find anything you like:
https://www.bmoinvestorline.com/selfDirected/pdfs/SeriesD_EN.pdf
http://www.moneysense.ca/save/investing/mutual-funds/bmo-launches-series-d-mutual-funds/
Mutual funds are also easier to get your broker to do a monthly purchase plan.
A general question - should I build a balanced ETF portfolio in each account with 3 ETFs per account (RRSP, husbands RRSP, Spousal RRSP, TFSA, husbands TFSA) or just maintain a good asset allocation across all of them combined as though they were a big pot.
Your choice. I find it is easier to look at all my accounts as one big allocation, but put fewer funds in smaller accounts. Growth in TFSAs is never taxed, but withdrawals from RRSPs are taxed at highest marginal rate, same as salary and interest income. So put high growth investments (equities) into TFSA, and bonds into RRSP. Then put equities that don't fit into TFSA into your RRSP.
Once you get into a non-registered account, how you distribute asset classes across accounts is more important, since dividends from Canadian equities get preferred tax treatment. But until all your registered room is used up, just make sure to fill TFSA with equities and bonds in RRSP.
I have non-registered, TFSA, RRSP and 2 LIRAs. My non-registered is all equities, mostly Canadian. TFSA is all equities. Smaller LIRA is all bond ETF. Larger LIRA is mostly bonds. RRSP is mostly fixed income but has some of each asset class to give me ability to rebalance without tax considerations. I just find it easier to limit the number of holdings in small accounts.
Would you recommend index funds? The MER looks higher.
There are not many low-cost index mutual funds in Canada, but they usually don't have any trade commissions to buy. ETFs are a better choice if you want to get the lowest cost / best return and are careful to manage trade commissions with some of the techniques other posters and I have suggested.
Your earlier idea of a CCP couch potato portfolio will serve you well.
I googled and found the cFIREsim calculator. Thanks! Very interesting. I look forward to playing around with it. In my quick trial run I tested retiring with $1MM, spend of $40K per year for 50 years, 0.18MER to compare it to the 4%SWR rule of thumb and it gave me a 71% probability. Yikes. I was hoping for higher than that.
Calculating all this accurately, especially considering tax impacts of withdrawals from various accounts plus avoiding the concerns of your RRSP getting too big driving higher taxes once you hit mandatory withdrawals is not a simple exercise. Consider getting a detailed plan done by a fee-only adviser with a professional planning designation such as CFP or PFP. A lot of people may object to that and say just do DIY, but for a couple of $k to get an objective expert to run detailed analysis is something I found worthwhile. Think about it for after you get the DIY portfolio set up.
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IL will DRIP Canadian ETFs, but not US traded ones (like VTI). You just buy your ETF and then call them to set it up.
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Posting to play with you all.
Heckler helped me out big time. I was sick to learn about the fees I was paying (essentially $2k/yr on a small portfolio) but ultimately was able to bite the bullet, cut my losses, move forward. Better to pay fees once to get out from under them, than to pay them forever so we don't have to look.
It's been good. Everyone has covered perfectly the lessons and resources that were awesome for me.
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Good news. I am now officially an ETF owner! I own 155 shares of VCN in my RRSP with a value of $4,950. Very exciting for me. I tried to post the order confirmation but couldn't figure out how to post an image. You guys can imagine it and it is beautiful.
My husband had an old Investor line RRSP account that went dormant years ago (after he learned his lesson on the perils of stock picking, the hard way). In order to set up a Spousal RRSP he it still working on getting his account reactivated. I need the spousal RRSP set up to transfer the $38K from the Scotia Spousal GRRSP over for practice money. I grew tired of waiting and scraped together $5K to get up and rolling.
I finished the Millionaire Teacher book last night, except that I fell asleep partway through the last chapter "The 10% stock Picking Solution ... If You Really Can't Help Yourself". But that is OK. I am pretty sure I can help myself. Great book. Thanks again for the recommendation GreatLaker. I have ordered The Real Retirement from the library as you suggested. Le Barbu mentions Million Dollar Journey. I'll try that one too.
Also really enjoying the Canadian Couch Potatoe podcasts. My podcast metrics are two episodes per run with the dog, or one episode per two pairs of skis waxed.
I am going to layout an investment plan, as Heckler suggested, and post it for your feedback. How would I share a spreadsheet?
I dont care what people think about this (being 112% stock, etc) you can do this within few days and 6 trades (60$) + 1 trade/account/year. I did this myself and have no regrets. Our NW is 1.1M$ now (950k$ invested, 350k$ house, 200k$ HELOC) and our COL is 50k$/year. We are close to 75% FI (100% FI on a barebone budget) and you could be in the same situation in a blink!
Dont forget that the general rules do not apply to us, especially if you are still young enough and able to work for few years!
You are bold Le Barbu! I like that. But I am not keen to take out a HELOC. I wish you could see our home, a chalet style post and beam house with giant mountain views, a big kitchen table for family and friends, vegetable and flower gardens, a garage filled with bikes, skis and neighbourhood kids. Owning it outright provides so much pleasure and a sense of security.
Your comments do make me consider reducing the percentage of bonds I will put in my asset allocation. Perhaps we can take more risk in our portfolio because the equity in the house is so safe.
You are starting to understand one of the reasons why DIY has such low fees relative to an adviser... it's more effort. Kinda like adjusting your gears and fixing flats instead of just dropping the bikes off at the shop and going for a Starbucks.
Love the bike analogies! You are speaking my language.
There are alternatives. One is just suck it up and pay the commissions. Another is invest quarterly instead of monthly. You said cash magically turns into toys when not invested, so just transfer cash into your brokerage accounts as a holding zone. The way I prefer is to invest monthly in a low-cost balanced mutual fund then maybe every 6 months sell the mutual fund and deploy the cash appropriately into ETFs. I generally buy ETFs in minimum 100 shares so $2500 to $3500 minimum for most ETFs. The fund I use is TD Balanced Index Fund (TDB965).
This is a great idea. I would be more relaxed letting money pile up a bit in a balanced index fund than cash. But where would you hold this? In a taxable account? I can't move money between RRSPs / TFSA / RESPs, so presumably I would make automated biweekly contributions to a taxable index fund and then when it is large enough transfer into the TFSA / RESP ETFs.
The only thing I am leary about is that I understand that taxable accounts are far more complicated to manage. The couch potatoe podcast made it sound onerus and confusing. I had assumed it was a problem for another day... unless I need to understand it for to implement this strategy.
Calculating all this accurately, especially considering tax impacts of withdrawals from various accounts plus avoiding the concerns of your RRSP getting too big driving higher taxes once you hit mandatory withdrawals is not a simple exercise. Consider getting a detailed plan done by a fee-only adviser with a professional planning designation such as CFP or PFP. A lot of people may object to that and say just do DIY, but for a couple of $k to get an objective expert to run detailed analysis is something I found worthwhile. Think about it for after you get the DIY portfolio set up.
Agreed. We are going to ask our BMO financial planner to update our financial plan with current numbers before we move our money to InvestorLine. And I will pay close attention to the details and ask far more question than I have in the past. That needs to happen sooner rather than later as I am now seeing up close what we are squandering in fees. We are paying $55/day in fees. Ouch.
IL will DRIP Canadian ETFs, but not US traded ones (like VTI). You just buy your ETF and then call them to set it up.
Yes. There was no ability to set it up when I bought VCN. Thanks for clarifying that I have to call.
Thanks again gang.
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Attached is my draft plan. Please take a look and let me know what you think. What would you do differently? It is based on the Assertive CCP portfolio. I was debating the Balanced portfolio but the house is paid off (worth $450K) and that provides some stability outside the portfolio. And we are healthy with good earning potential should we need to deploy it.
Thanks for encouraging me to lay it out on a spreadsheet Heckler. And GreatLaker, thanks for the tip to load TFSAs with equities, as growth has no future tax implications.
All input is appreciated!
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You can easily accumulate cash in any of your accounts. contribute daily $5 for each coffee you don't buy, if thats your thing. You're self directed now!
I contribute to my RSP and spousal off my paycheck pretax to my work plan. I buy the same index as my self directed, but as higher MER, no commission Sunlife versions. Once a year, I sell and transfer to my self directed, and buy large chunks of ETFs. SL lets me transfer out once per year for free. The second time costs $25, but IL refunds me the SL fee once I move it to them and send the reciept.
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I contribute to my RSP and spousal off my paycheck pretax to my work plan. I buy the same index as my self directed, but as higher MER, no commission Sunlife versions. Once a year, I sell and transfer to my self directed, and buy large chunks of ETFs. SL lets me transfer out once per year for free. The second time costs $25, but IL refunds me the SL fee once I move it to them and send the reciept.
This is a smart plan Heckler. I had thought about setting the Scotia GRRSP to a money market fund or something very low risk due to the short time frame, but using an index that you also hold in your self directed allows the money to grow without taking risks timing the market. I will ring Scotia on Monday. I am not sure if I can buy ETFs like VCN through them. Thanks!
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You can easily accumulate cash in any of your accounts. contribute daily $5 for each coffee you don't buy, if thats your thing. You're self directed now!
I contribute to my RSP and spousal off my paycheck pretax to my work plan. I buy the same index as my self directed, but as higher MER, no commission Sunlife versions. Once a year, I sell and transfer to my self directed, and buy large chunks of ETFs. SL lets me transfer out once per year for free. The second time costs $25, but IL refunds me the SL fee once I move it to them and send the reciept.
I continually pull out all my employee portion of my Sunlife company RRSP and dump into my Scotia iTrade Vanguard ETFs. That way I can build my savings into my own pool at that lower MER fee
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Attached is my draft plan. Please take a look and let me know what you think. What would you do differently? It is based on the Assertive CCP portfolio. I was debating the Balanced portfolio but the house is paid off (worth $450K) and that provides some stability outside the portfolio. And we are healthy with good earning potential should we need to deploy it.
Thanks for encouraging me to lay it out on a spreadsheet Heckler. And GreatLaker, thanks for the tip to load TFSAs with equities, as growth has no future tax implications.
All input is appreciated!
W00t! Now you know buying ETFs is not much harder than buying something on eBay, and the return is so much greater.
Good allocation plan.
Re the issues in your spreadsheet:
For the RESP, with $120k now and $4800 annual contrib, in 6 years at 2% return you would have $165k; at 5% return you would have $193k, so your goal is achievable. As you get closer to needing to withdraw the funds, the goal shifts from return on capital to return of capital. Gradually moving to a lower risk portfolio ensures you have the funds when needed. Imagine if it was Sept 2008 and you needed to start withdrawing money. GICs, short-term bond funds and savings deposits can be used to give adequate return and low risk.
For biweekly contributions, why not deposit them directly into each account you are saving in, and buy a mutual fund in each account? The fund I suggested has a $100 minimum purchase and no fee to sell as long as you hold for at least 30 days. The BMO d-series funds I linked to have a minimum $500 initial purchase and $50 subsequent purchase so they should be suitable too. As long as you are meeting the minimums there is no need to aggregate in a separate account. Buying mutual funds is easier than ETFs. With ETFs you need to take your purchase amount, subtract the commission, divide by the price to determine how many units to buy, and use a limit order or keep a cash cushion in case the price changes before your order gets filled. Mutual funds can be purchased in dollar amounts (right down to the penny), and the order will fill at the day's closing price.
For car savings, consider using a savings account with an online bank. EQ Bank pays 2%, Oaken pays 1.5%. Tangerine pays 0.8% but often has promos. https://www.highinterestsavings.ca/chart/. I have some "mad money" in Mawer Balanced fund in my non-registered broker account... easy to invest in the same broker account as my other savings, but using the Mawer fund segregates it from my retirement savings.
On the GRRSP, the short timeline will not matter as long as the GRRSP investments are similar risk profile to the RRSP you are moving the funds to. Even if the market tanks (nooooo!) you would be selling low, but then buying low, so no issue. And you must know this but it's worth a reminder you must do a registered transfer of any RRSP funds or you will lose that contribution room forever.
Re borrowing to invest... I borrowed money to invest in 1987, and shortly after that Black Monday happened https://en.wikipedia.org/wiki/Black_Monday_(1987) and the Dow fell 23% in one day. In 1995 I bought a property and just before closing the Mexican Peso Crisis happened https://en.wikipedia.org/wiki/Mexican_peso_crisis and mortgage rates shot way up. In 2000, just before the dot.com crash I bought a pre-construction condo, so I am glad i did not need to sell investments for my deposit money. I would not say never borrow to invest, but money you need at a specific time should be kept in very safe investments, and always consider a worst case black swan scenario.
Let us know your progress.
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I contribute to my RSP and spousal off my paycheck pretax to my work plan. I buy the same index as my self directed, but as higher MER, no commission Sunlife versions. Once a year, I sell and transfer to my self directed, and buy large chunks of ETFs. SL lets me transfer out once per year for free. The second time costs $25, but IL refunds me the SL fee once I move it to them and send the reciept.
This is a smart plan Heckler. I had thought about setting the Scotia GRRSP to a money market fund or something very low risk due to the short time frame, but using an index that you also hold in your self directed allows the money to grow without taking risks timing the market. I will ring Scotia on Monday. I am not sure if I can buy ETFs like VCN through them. Thanks!
I figure I am always holding the same index, but in different providers. Regardless if it goes up or down when its time to transfer, I sell anyway and rebuy the same index a week or two later as soon as the funds have moved. I don't transfer around known market influencing events like a US election or Brexit vote. Stay methodical - no emotions.
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For biweekly contributions, why not deposit them directly into each account you are saving in, and buy a mutual fund in each account? The fund I suggested has a $100 minimum purchase and no fee to sell as long as you hold for at least 30 days. The BMO d-series funds I linked to have a minimum $500 initial purchase and $50 subsequent purchase so they should be suitable too. As long as you are meeting the minimums there is no need to aggregate in a separate account. Buying mutual funds is easier than ETFs. With ETFs you need to take your purchase amount, subtract the commission, divide by the price to determine how many units to buy, and use a limit order or keep a cash cushion in case the price changes before your order gets filled. Mutual funds can be purchased in dollar amounts (right down to the penny), and the order will fill at the day's closing price.
For car savings, consider using a savings account with an online bank. EQ Bank pays 2%, Oaken pays 1.5%. Tangerine pays 0.8% but often has promos. https://www.highinterestsavings.ca/chart/. I have some "mad money" in Mawer Balanced fund in my non-registered broker account... easy to invest in the same broker account as my other savings, but using the Mawer fund segregates it from my retirement savings.
Thanks GreatLaker. Does contributing to a mutual fund still incur the $10 fee, similar to buying ETFs? If I am contributing $200 biweekly to a TFSA, or car savings, and incur a $10 fee every time, that is 5% lost. I called Investorline to ask. The lady's English was as bad as my financial vocabulary so all in all not very clear communication, but I left thinking that only biweekly deposits to cash would not incur fees. Do you believe that to be true or should I call again?
I planned to practice with a small amount of money until the summer but can no longer stomach the fees so I am going to move large pot of money over by the end of the month. We have an appointment with our financial advisor the end of next week. He is updating our overall financial plan. I will ask a lot of questions, particularly around his strategy for drawing down retirement funds in the most tax advantageous way. We will then thank him politely for his guidance over the years, move our money and hopefully all remain friends.
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Great work with how much your are learning and the readiness to make the change, you will do great!
I know for my Scotia iTrade there are zero fees for deposits to my brokerage RRSP and TFSA, just the fund purchases themselves.
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For biweekly contributions, why not deposit them directly into each account you are saving in, and buy a mutual fund in each account? The fund I suggested has a $100 minimum purchase and no fee to sell as long as you hold for at least 30 days. The BMO d-series funds I linked to have a minimum $500 initial purchase and $50 subsequent purchase so they should be suitable too. As long as you are meeting the minimums there is no need to aggregate in a separate account. Buying mutual funds is easier than ETFs. With ETFs you need to take your purchase amount, subtract the commission, divide by the price to determine how many units to buy, and use a limit order or keep a cash cushion in case the price changes before your order gets filled. Mutual funds can be purchased in dollar amounts (right down to the penny), and the order will fill at the day's closing price.
For car savings, consider using a savings account with an online bank. EQ Bank pays 2%, Oaken pays 1.5%. Tangerine pays 0.8% but often has promos. https://www.highinterestsavings.ca/chart/. I have some "mad money" in Mawer Balanced fund in my non-registered broker account... easy to invest in the same broker account as my other savings, but using the Mawer fund segregates it from my retirement savings.
Thanks GreatLaker. Does contributing to a mutual fund still incur the $10 fee, similar to buying ETFs? If I am contributing $200 biweekly to a TFSA, or car savings, and incur a $10 fee every time, that is 5% lost. I called Investorline to ask. The lady's English was as bad as my financial vocabulary so all in all not very clear communication, but I left thinking that only biweekly deposits to cash would not incur fees. Do you believe that to be true or should I call again?
I planned to practice with a small amount of money until the summer but can no longer stomach the fees so I am going to move large pot of money over by the end of the month. We have an appointment with our financial advisor the end of next week. He is updating our overall financial plan. I will ask a lot of questions, particularly around his strategy for drawing down retirement funds in the most tax advantageous way. We will then thank him politely for his guidance over the years, move our money and hopefully all remain friends.
Move everything at once when you are ready. Over thinking is your enemy (I know engeneers a lot) and btw, with the kind of money you stash/year, make only few trades to top each account every year. I do TFSA first, then RESP and RRSP last. Your mileage can vary!
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Thanks GreatLaker. Does contributing to a mutual fund still incur the $10 fee, similar to buying ETFs? If I am contributing $200 biweekly to a TFSA, or car savings, and incur a $10 fee every time, that is 5% lost. I called Investorline to ask. The lady's English was as bad as my financial vocabulary so all in all not very clear communication, but I left thinking that only biweekly deposits to cash would not incur fees. Do you believe that to be true or should I call again?
I may have misled you. :-( I was basing my comments on my own experience with TDDI where I can purchase mutual funds with no commission and only a $100 minimum initial purchase and $100 subsequent purchase. If I try to order less than the minimum it gives me an error message. There are exceptions that have higher minimums like Mawer funds that have $5000 minimum. Sorry 'bout that.
I looked for the BMO IL fee schedule:
https://www.bmo.com/self-directed/fees-investment-account-types/fees
https://www.bmoinvestorline.com/selfDirected/pdfs/SDFeeSchedule_E.pdf
Check p.2 of the 2nd link above. The good news is it says no commission to buy or sell mutual funds. The bad news is BMO has higher minimum purchases. It looks like BMO funds have $500 minimum initial and $50 minimum subsequent purchase and other funds have $1000 minimum initial and $500 minimum subsequent purchase. Hopefully you can find something workable with a BMO fund where you can do your monthly or biweekly contributions.
I planned to practice with a small amount of money until the summer but can no longer stomach the fees so I am going to move large pot of money over by the end of the month. We have an appointment with our financial advisor the end of next week. He is updating our overall financial plan. I will ask a lot of questions, particularly around his strategy for drawing down retirement funds in the most tax advantageous way. We will then thank him politely for his guidance over the years, move our money and hopefully all remain friends.
Both of my former advisers took me off their Christmas card list immediately. Here's hoping you will have better luck staying friends.
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Both of my former advisers took me off their Christmas card list immediately. Here's hoping you will have better luck staying friends.
ha, yep!
Kid was just reminiscing about one yesterday, saying how nice she was, how he misses her and wants to see her again... She went from warm, gushing, loving, buying gifts for my kid to stern then nada. I broke the news to kid.
I couldn't be friendly for sales purpose no matter how hard I might try, so I actually kind of admire this ability, just as I do with the similar talent of TV actors. It's freaky, though, to realize how much of a person's warmth may merely be a business strategy.
My first one, though -who never wanted any money from me- has sent me a card every year for 15 years. I think she's probably just awesome.
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I talked to another another lady at Investorline and she confirmed that there are no trading fees to buy mutual funds. The fees are embedded in the MERs. So either solution would work ok:
- biweekly contributions into mutual funds within RESP and TFSA accounts, to be moved into ETFs when sizable enough.
- or biweekly contributions into a mutual fund in a taxable account to then be moved into ETFs within RESP and TFSA accounts manually on a rotating basis.
Any suggestions on which mutual fund I should choose for this purpose?
I am still nervous about two types of accounts - taxable and RESP.
Taxable - I listened to a Canadian Couch Potato podcast that had a segment on the level of tracking required for ETFs in taxable accounts. It sounded very onerous and potentially hazardous. I think that as long as I stay in mutual funds in the taxable account I will receive a T3 and it will be as easy as pie. Next year when we have maxed our non-taxable accounts and acquired a reliable vehicle, I will need to learn a lot more about taxable accounts as we will be able to start stockpiling money there.
RESP - I now understand that InvestorLine will arrange for the 20% grant from the government to be added to the account, which is welcome news. What I am not clear on is the level of effort and gov't interaction required when it comes time to withdraw. We are 6 years away from first needing to access the RESP funds. Is it worth the effort to become self directed?
My husband and I are headed into town today to go to BMO and submit the paperwork to open the rest of the IL accounts. When we opened the first 4 accounts last week the teller did not know what do to with the IL account application forms we brought it. It took a couple of managers and a number of discussions for them to come up with a plan and accept our forms. It would seem that by going self directed we are diverging from the crowd, and choosing the path less travelled by and that will make all the difference. I believe Robert Frost would approve.
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Move everything at once when you are ready. Over thinking is your enemy (I know engineers a lot) and btw, with the kind of money you stash/year, make only few trades to top each account every year. I do TFSA first, then RESP and RRSP last. Your mileage can vary!
In defence of engineers everywhere: Einstein said: “If I were given an hour in which to do a problem upon which my life depended, I would spend 40 minutes studying it, 15 minutes reviewing it and 5 minutes solving it"
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Taxable - I listened to a Canadian Couch Potato podcast that had a segment on the level of tracking required for ETFs in taxable accounts. It sounded very onerous and potentially hazardous. I think that as long as I stay in mutual funds in the taxable account I will receive a T3 and it will be as easy as pie. Next year when we have maxed our non-taxable accounts and acquired a reliable vehicle, I will need to learn a lot more about taxable accounts as we will be able to start stockpiling money there.
RESP - I now understand that InvestorLine will arrange for the 20% grant from the government to be added to the account, which is welcome news. What I am not clear on is the level of effort and gov't interaction required when it comes time to withdraw. We are 6 years away from first needing to access the RESP funds. Is it worth the effort to become self directed?
Regarding ACBs in taxable accounts, I think CCP may have made it sound a lot more complicated than it really is--as long as you don't DRIP, don't buy REITs, and stay away from advanced strategy ETFs. While I can't speak for InvestorLine specifically, every brokerage I've been with automatically adjusts the cost basis of your ETF units and shows it as "book value". All other income is easy to report because your brokerage does up a T5 for you. If you still are wary, just use swap-based ETFs as they don't pay distributions.
Regarding RESPs, yes it is worth the effort. You're saving 1% plus in fees alone. That adds up to hundreds of dollars over 6 years. While I have no personal experience with this, by law the brokerage is required to keep track of your income types: non-taxable contribution withdrawals and EAP income. They should provide statements which separate these amounts for you. But you can check with them and even ask for a sample statement so you know what to expect.
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CCP says in various places that yes, most of us don't need to bother about some nuances. I don't, and all is well. Granted my portfolio is VERY different from yours, so some of the things might make a difference to yours specifically. But, worth it to keep in mind that even CCP says many of us needn't strategize to that degree. They just make the info available for ubergeeks, for people who want to tweak further after getting their ducks in a pretty awesome row, etc. As they emphasize, for most of us, simple is best and certainly good enough. You're already making the key moves.
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you've either:
1. Got too much money
2. Aren't spending enough
3. Are working too long
See attached a draft version of your life's financial plan. For 2.8% of assets annual fee, I'll tell you how it works. ;)
Caveat - I'm just an engineer who rides bikes and am not a financial advisor (er), accountant or mathematician. The attached spreadsheet is full of errors, because I created it in 54 minutes, based on my spreadsheet I've spent three years developing and the information you've posted on this thread. I assume no liability for the contents, result or outcome when you present it to your partner or financial advisor (er). I have not perfected how ages 70+ works in terms of moving RSP minimum withdrawals over to TFSA or taxable - that's the next step. Past Performance is not indicative of Future Performance. Nor are the assumptions shown expected to result in your financial success.
Feel free to use it as you desire.
Note what happens at age 71 when minimum withdrawals from RSP's kicks in - your income and income tax kick up a notch.
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take at least 40 minutes to study it.
ERTW
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Thanks Heckler! I am excited to review it after work tonight. If you are right, and we can retire earlier, I will kick my heels with glee!
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Thanks Heckler! I am excited to review it after work tonight. If you are right, and we can retire earlier, I will kick my heels with glee!
My plan was superior and my fees lower! Like Heckler, I bike and DIY investor for many years. Thats about all of my knowledge.
It's a good thing you rejected my ideas because I do not want to be sued if you did it, mess things up and/or SHTF after few months/years afterward
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Move everything at once when you are ready. Over thinking is your enemy (I know engineers a lot) and btw, with the kind of money you stash/year, make only few trades to top each account every year. I do TFSA first, then RESP and RRSP last. Your mileage can vary!
In defence of engineers everywhere: Einstein said: “If I were given an hour in which to do a problem upon which my life depended, I would spend 40 minutes studying it, 15 minutes reviewing it and 5 minutes solving it"
BOOM
Love this :) You are set to create an awesome new future for yourself Blissful Biker ~ own it and rock it !
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Move everything at once when you are ready. Over thinking is your enemy (I know engineers a lot) and btw, with the kind of money you stash/year, make only few trades to top each account every year. I do TFSA first, then RESP and RRSP last. Your mileage can vary!
In defence of engineers everywhere: Einstein said: “If I were given an hour in which to do a problem upon which my life depended, I would spend 40 minutes studying it, 15 minutes reviewing it and 5 minutes solving it"
BOOM
Love this :) You are set to create an awesome new future for yourself Blissful Biker ~ own it and rock it !
Einstein was an engineer? Did'nt know ´bout that!
I can make an infinite list of them who would study the problem for 55 minutes, review for 10 minutes...oops! To late!
They are probably a lot more intelligent than me but many suffer from analysis-paralisis or the better-is-the-ennemy-of-good-enough syndrome.
This thread should be pretty straighforward with no real problems to solve, plenty of money, home equity and very smart people implied...
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Move everything at once when you are ready. Over thinking is your enemy (I know engineers a lot) and btw, with the kind of money you stash/year, make only few trades to top each account every year. I do TFSA first, then RESP and RRSP last. Your mileage can vary!
In defence of engineers everywhere: Einstein said: “If I were given an hour in which to do a problem upon which my life depended, I would spend 40 minutes studying it, 15 minutes reviewing it and 5 minutes solving it"
BOOM
Love this :) You are set to create an awesome new future for yourself Blissful Biker ~ own it and rock it !
Einstein was an engineer? Did'nt know ´bout that!
I can make an infinite list of them who would study the problem for 55 minutes, review for 10 minutes...oops! To late!
They are probably a lot more intelligent than me but many suffer from analysis-paralisis or the better-is-the-ennemy-of-good-enough syndrome.
This thread should be pretty straighforward with no real problems to solve, plenty of money, home equity and very smart people implied...
Ha! This made me laugh. But ... ERTW
Heckler, what a great spreadsheet. Thanks. I have started reviewing still have a ways to go and am heading off to teach yoga tonight. I teach the karma class, so the money goes to great causes in the community. A fun way to counteract my relentlessly capitalistic day job.
So quick questions before I go:
- are the dollars all in 2017 dollars or future dollars? Ie, does the rate of return include or exclude inflation?
- what is basis for your estimated returns? 5.2% and 5.8% for my RRSP, 2% for husbands (presumably due to heavy weighting in bonds) , and 3.2% for TFSAs? I would have expected higher returns in the TFSAs because I set them at 100% international equitys based on GreatLakers tip.
Thanks again. Namaste.
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I am still nervous about two types of accounts - taxable and RESP.
Taxable - I listened to a Canadian Couch Potato podcast that had a segment on the level of tracking required for ETFs in taxable accounts. It sounded very onerous and potentially hazardous. I think that as long as I stay in mutual funds in the taxable account I will receive a T3 and it will be as easy as pie. Next year when we have maxed our non-taxable accounts and acquired a reliable vehicle, I will need to learn a lot more about taxable accounts as we will be able to start stockpiling money there.
RESP - I now understand that InvestorLine will arrange for the 20% grant from the government to be added to the account, which is welcome news. What I am not clear on is the level of effort and gov't interaction required when it comes time to withdraw. We are 6 years away from first needing to access the RESP funds. Is it worth the effort to become self directed?
The only thing I will add for RESPs is the conventional wisdom says don't have money in equities if you will need it within 5 years.
Taxable accounts are not that hard, but they can be a PITA to track.
When you sell investments for a gain you need to report that as a capital gain on your income tax (currently taxed at half what salary and interest would be taxed at). So you need to track your cost. When you buy it increases your cost base. When you sell it decreases your cost base. Reinvested distributions are equivalent to taking cash distributions and using it to buy new shares, so that increases your cost. If you buy monthly and have quarterly reinvested distributions that's 16 transactions you need to track each year. It's easy to do in a spreadsheet. Taking distributions in cash simplifies record keeping.
ETFs are a little more complex because the commission on your buy order gets added to your cost and the commission on your sell order gets subtracted from the sale proceeds. And ETFs have wonky extra transactions called Return of Capital (appears on a box on your T3 tax slip) and Reinvested Distributions (not sure about all brokerages, but at TD they are on the monthly statements).
Finiki has a good explanation: http://www.finiki.org/wiki/Adjusted_cost_base
Canadian Capitalist has a good explanation and spreadsheet: http://www.canadiancapitalist.com/free-acb-capital-gains-tracker-in-excel/
If you really cannot sleep here is the government's explanation: http://www.cra-arc.gc.ca/E/pub/tg/rc4169/README.html
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Posting to follow!
I'm fed up with paying >2% MER but have TONS to learn before/as I branch out on my own! (Going to start with my tax refund)
Thanks so much for sharing, everyone.
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No inflation taken into account, but you can adjust by increasing income proportionally (the negative numbers under contributions to each account).
The annual increases are quick estimate based on all bonds in hubbies RSP vs all equities in another account. Adjust as you feel fit. This will help. I calculated unique returns for each of my account's asset allocation, but I just threw out random numbers for yours.
http://canadiancouchpotato.com/2016/03/21/what-returns-to-expect-when-youre-expecting/
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Namaste.
I just learned handstands at 43 btw. awesome stuff.
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Posting to follow!
I'm fed up with paying >2% MER but have TONS to learn before/as I branch out on my own! (Going to start with my tax refund)
Thanks so much for sharing, everyone.
Welcome! I am receiving lots of great help on my journey. Glad you can benefit too.
Finished our taxes today, thank goodness. $6,200 refund coming our way, primarily due to RRSP contributions and medical expenses. We have never had to track medical before because we never came close to the threshold but one set of braces on some crooked young teeth and BAM, we hit the threshold right there. I think I'll use the refund to top up the RRSP and keep the tax return cycle continuing. We have a 10K gap to close in both our TFSA's (5K each) and my RRSP to reach the limit but my salary is high enough that RRSP is the way to go.
I have been working on reviewing the spreadsheet Heckler and updating with better information where I can. It is going to be a solid long term tool for me. Being able to see the formulas in the fields has helped me follow and validate the logic. I'll share when complete. So far it looks like we are not on track to retire in 7 years with income of $65K based on the 4%SWR (requiring 1.625 in investments in 2024), although if the assumptions hold true our net worth will grow beyond 2024. There must be a delta in assumptions between the sheet and the basis for the 4% rule.
Namaste.
I just learned handstands at 43 btw. awesome stuff.
Very cool. Well done my friend.
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Paying off Mortgage Early – How bad is it for your FI Date?
Look at this thread^^^
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I am nearly finished The Real Retirement Book (https://www.amazon.ca/Real-Retirement-Could-Better-Happen/dp/111849864X). It was worth reading to learn more about CPP, OAS, GIS and various Canadian financial retirement vehicles like RRIFs. And it does a good job of helping you understand stocks, bonds and the basics of an investment strategy.
So definitely time well spent, but the general premise of the book is not very Mustachian. The authors encourage individuals to shift their retirement plans from retirement at 65 to retirement at 67 instead. It also concludes that the typical family need only save 2-3% of income over 35 years to have a comfortable retirement. Saving more would only cut into consumption unnecessarily, thus robbing joy from our lives. Hmmm. Can't say I am on board with that.
So I am ready for a new book. Any suggestions?
I also wanted to ask for opinions on what I you think should have as an asset allocation, % of stocks vs bonds. I have been learning that this is really the cornerstone decision in any investment plan. I know it is very subjective and there is no right answer, but I am keen to hear what you think. I am thinking 75% stock / 25% bonds but my husband is a bit more risk averse. The house is paid for which provides stability, and I will be retired for 40 or 45 years. That is a long horizon. All opinions welcome, except for Le Barbu of course, the 112% equity madman. :)
GreatLaker, thanks for the feedback on taxable accounts. Not so scary after all.
Meeting with financial advisor on Friday. T - 7 days.
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So I am ready for a new book. Any suggestions?
The Millionaire Teacher, second edition (released January!)
Canadian author (writes for all regions)
super mustachian
early retired
funny
super clear
brief
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I am nearly finished The Real Retirement Book (https://www.amazon.ca/Real-Retirement-Could-Better-Happen/dp/111849864X). It was worth reading to learn more about CPP, OAS, GIS and various Canadian financial retirement vehicles like RRIFs. And it does a good job of helping you understand stocks, bonds and the basics of an investment strategy.
So definitely time well spent, but the general premise of the book is not very Mustachian. The authors encourage individuals to shift their retirement plans from retirement at 65 to retirement at 67 instead. It also concludes that the typical family need only save 2-3% of income over 35 years to have a comfortable retirement. Saving more would only cut into consumption unnecessarily, thus robbing joy from our lives. Hmmm. Can't say I am on board with that.
So I am ready for a new book. Any suggestions?
I also wanted to ask for opinions on what I you think should have as an asset allocation, % of stocks vs bonds. I have been learning that this is really the cornerstone decision in any investment plan. I know it is very subjective and there is no right answer, but I am keen to hear what you think. I am thinking 75% stock / 25% bonds but my husband is a bit more risk averse. The house is paid for which provides stability, and I will be retired for 40 or 45 years. That is a long horizon. All opinions welcome, except for Le Barbu of course, the 112% equity madman. :)
GreatLaker, thanks for the feedback on taxable accounts. Not so scary after all.
Meeting with financial advisor on Friday. T - 7 days.
How fascinating is a DIY FI journey!
Step 1- Dont give a shit (>90% of people never get further)
Step 2- Begin to sligthly give a shit
Step 3- Read, learn, then begin to realise we have been fooled by the financial industry and widespread bad advices (Mom, Dad, BIL, medias, advertising)
Step 4- Think for a moment we are doomed (it's to late, it's to much work, I dont like $$ paperwork)
Step 5- Discover MMM forum and finaly see the light!
Glad you learned something reading this book, but the paraphrazing you posted above scares me!
You should at least take few minutes to read threads about how bad it is for your FI date to have no mortgage. And for the stocks/bonds ratio, it's only for psychological and behavioral purposes. Bonds do not improve expected returns, they're a drag for your portfolio.
We use to talk about stocks and bonds as they are not real. Stocks are real ownerships of real busines managed by real CEO who get real people to work for real. We gives to much shit about the stocks prices, it does not care that much. When you can buy & hold for decades, they pay a shitload of money to pay for your groceries, clothes, utilities, etc.
You are 2 years away from FI but prefer to delay another 10 years? Your choice!
Bonus question for engineers: what are the stocks % and leverage in the following situations
Situation 1 - Le Barbu @ 27, just bougth a 95k$ house with a 70k$ mortgage. Investments portfolio 20k$ (75/25 stocks/bonds)
Situation 2 - Le Barbu @ 45, own a 350k$ house, 200k$ HELOC (mortgage is repaid) and >900k$ portfolio 100% stocks
Hint: I prefer #2
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^ Though, on the mortgage thread we've noted that the strategy may not be as effective for Canadians, per our inability to lock in a rate for the full amortization period or lifetime. A Canadian attempting that strategy should be ready to pay off their mortgage.
As well as a psychological support, bonds are meant to be a variable that allows us to buy when stocks are on sale. Many of us don't use bonds because we (1) aren't bothered when stocks dip, and (2) have something else we can buy stocks with during a sale (ongoing income, etc). But, they do have a purpose for many.
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^ Though, on the mortgage thread we've noted that the strategy may not be as effective for Canadians, per our inability to lock in a rate for the full amortization period or lifetime. A Canadian attempting that strategy should be ready to pay off their mortgage.
As well as a psychological support, bonds are meant to be a variable that allows us to buy when stocks are on sale. Many of us don't use bonds because we (1) aren't bothered when stocks dip, and (2) have something else we can buy stocks with during a sale (ongoing income, etc). But, they do have a purpose for many.
I am ready to repay my 200k$ HELOC if neaded because I own more than enough (4x) in liquid investment (liquid) assets. Our variable rates are as much efficients as a 30 years fixed rate on average. I actualy pay <1.5% net wich is less than inflation rate ie free money
Bonds are useful for many, but we are not those "many"!
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Simply posting to follow - I love these Canadian specific threads, and this one has some excellent info!
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And both bonds and mortgage are dependant on long term monetary policy set by people far richer than us. I am happy not worrying if interest rates bump up 1%, will I lose my home because I'm over leveraged like many of my friends. Instead, the payments from my 25-30% bonds A.A. will increase. 👍
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And both bonds and mortgage are dependant on long term monetary policy set by people far richer than us. I am happy not worrying if interest rates bump up 1%, will I lose my home because I'm over leveraged like many of my friends. Instead, the payments from my 25-30% bonds A.A. will increase. 👍
But the value of bonds will drop. If you really worry rates hikes, at least buy something like VSB instead of VAB!
Rates will increase when inflation rate will be out of control. Stock markets benefit long before hyperinflation happen.
What is overleverage exactly? 50/50 debt/assets ratio? More? Less? Mine is 15/85
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I am ready to repay my 200k$ HELOC if neaded because I own more than enough (4x) in liquid investment (liquid) assets. Our variable rates are as much efficients as a 30 years fixed rate on average. I actualy pay <1.5% net wich is less than inflation rate ie free money
Bonds are useful for many, but we are not those "many"!
How did you get less than 1.5%? how low is your rate to be so low after tax deduction for investments?
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But the value of bonds will drop. If you really worry rates hikes, at least buy something like VSB instead of VAB!
What is overleverage exactly? 50/50 debt/assets ratio? More? Less? Mine is 15/85
I own both (two different accounts). VSB $21k big emergency fund. VAB long term buy and hold for income ten years from now.
By overleveraged, I'm talking about 35 year olds making $50-60k buying $800-1,100k homes with $200k down payment just because they have a new kid and a dog.
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90% Stocks for me and I honestly don't think I will change that Asset Allocation percentage.
At 2.3% rate I will not be even remotely considering paying off my mortgage and actually just extended to the maximum amortization so I had more free cash monthly to put towards savings.
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By overleveraged, I'm talking about 35 year olds making $50-60k buying $800-1,100k homes with $200k down payment just because they have a new kid and a dog.
...with 2 brand new cars payments and frequent high end vacations and restaurants
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I played around with some tools this AM to get a feel for what would be a recommended asset allocation.
Wealth Simple (https://my.wealthsimple.com/app/public/onboarding) would put us in 90% stocks / 10% bonds.
Blackrock iShares Core Builder tool (https://www.blackrock.com/tools/core-builder/us) would put us in 70% stocks / 30% bonds.
The rule of thumb of % bonds equal to age would put us at about 55% stocks / 45% bonds, using my age as opposed to my geezer husband. :)
I am thinking 20 or 25% bonds feels about right. We have a comfortable life and a reasonable plan. No need to risk the farm, so to speak.
I need to find a good balanced index fund to set up for biweekly contributions, with the intent to transfer the money to ETFs when sizable enough to warrant the trading fees. GreatLaker suggested TD Balanced Index Fund (TDB965) but I can not buy it on InvestorLine. The Canadian Couch Potatoe site recommends TD e-series funds, but alas, I also can not buy those on InvestorLine. Any suggestions? And if I did not have this fabulous forum, how would I go about picking a good one on my own?
Thanks!
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My choice has been CCP's Vanguard ETFs. I use those in my TD Direct Investing and RBC Direct Investing accounts.
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My choice has been CCP's Vanguard ETFs. I use those in my TD Direct Investing and RBC Direct Investing accounts.
Exactly
Keep things simple and go self brokerage , E-series still have higher fees.
CCP ETF Vanguard funds ~ VCN VUN VAB and the few other options as suggested on their portfolio page
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So I am ready for a new book. Any suggestions?
The Millionaire Teacher, second edition (released January!)
Canadian author (writes for all regions)
super mustachian
early retired
funny
super clear
brief
I read the first edition of this book a couple of weeks ago. I agree, all around awesome book. It spurred me into action.
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I played around with some tools this AM to get a feel for what would be a recommended asset allocation.
Wealth Simple (https://my.wealthsimple.com/app/public/onboarding) would put us in 90% stocks / 10% bonds.
Blackrock iShares Core Builder tool (https://www.blackrock.com/tools/core-builder/us) would put us in 70% stocks / 30% bonds.
The rule of thumb of % bonds equal to age would put us at about 55% stocks / 45% bonds, using my age as opposed to my geezer husband. :)
I am thinking 20 or 25% bonds feels about right. We have a comfortable life and a reasonable plan. No need to risk the farm, so to speak.
I need to find a good balanced index fund to set up for biweekly contributions, with the intent to transfer the money to ETFs when sizable enough to warrant the trading fees. GreatLaker suggested TD Balanced Index Fund (TDB965) but I can not buy it on InvestorLine. The Canadian Couch Potatoe site recommends TD e-series funds, but alas, I also can not buy those on InvestorLine. Any suggestions? And if I did not have this fabulous forum, how would I go about picking a good one on my own?
Thanks!
Just set automatic transfer/contribution and leave it in cash until you have >5k$ to buy ETF!
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So far it looks like we are not on track to retire in 7 years with income of $65K based on the 4%SWR (requiring 1.625 in investments in 2024), although if the assumptions hold true our net worth will grow beyond 2024. There must be a delta in assumptions between the sheet and the basis for the 4% rule.
The 4% "rule" came from a study of historical investment returns and inflation starting in 1926 to determine how much could be withdrawn from a low-cost balanced portfolio (equities between 50% and 75%) at the start of a 30 year retirement period then adjusted for inflation each year with a low probability of outliving the portfolio.
Withdrawal rates >4% had a much higher likelihood of a retiree outliving their funds. But recognize that 4% withstood the worst investment returns including the great depression, the dirty thirties and the stagflationary 1970s (stocks peaked in 1966 and did not return to that level until 1982). A portfolio designed to withstand the worst returns will protect retirees that are unfortunate to experience such a time, especially early in their retirement. Most other retirees will have much larger portfolios at the end of their life. That's why you see your net worth going up in the simulations.
This makes sense since you will be withdrawing 4% and forecasting a portfolio return higher than that. If stock returns and inflation were predictably the same every year and you knew your lifespan you could simply pick a withdrawal rate designed to exhaust your portfolio by that age. But since those are variables that can change unpredictably and at which you can only make educated guesses, you need some contingency in your numbers.
The 4% rule does that as long as market returns are no worse than they have been since 1926.
Also does the 65k include CPP and OAS, which could kick in as early as age 60 for CPP and 65 for OAS. CPP amount depends on work history. OAS depends only on length of Canadian residency.
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Just set automatic transfer/contribution and leave it in cash until you have >5k$ to buy ETF!
Agreed! Discipline is the key. I'm at $10k contributions as soon as I can save them up (benefits of mortgage burned a year ago)
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Just set automatic transfer/contribution and leave it in cash until you have >5k$ to buy ETF!
Agreed! Discipline is the key. I'm at $10k contributions as soon as I can save them up (benefits of mortgage burned a year ago)
I do the same, why bother investing few $$ in index funds, then sell and buy etf?
5-10k$ represent far less than 1% of OP NW, leave cash sitting still and buy once or twice a year for big chunks.
I suggest to make a plan with your investing priorities. What account do you want to contribute first? TFSA? RRSP? RESP? Then, how many wages period does it takes to accumulate this ammount? 2-3 months? Is that really important to invest for 2 months?
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I am nearly finished The Real Retirement Book (https://www.amazon.ca/Real-Retirement-Could-Better-Happen/dp/111849864X). It was worth reading to learn more about CPP, OAS, GIS and various Canadian financial retirement vehicles like RRIFs. And it does a good job of helping you understand stocks, bonds and the basics of an investment strategy.
So definitely time well spent, but the general premise of the book is not very Mustachian. The authors encourage individuals to shift their retirement plans from retirement at 65 to retirement at 67 instead. It also concludes that the typical family need only save 2-3% of income over 35 years to have a comfortable retirement. Saving more would only cut into consumption unnecessarily, thus robbing joy from our lives. Hmmm. Can't say I am on board with that.
So I am ready for a new book. Any suggestions?
I also wanted to ask for opinions on what I you think should have as an asset allocation, % of stocks vs bonds. I have been learning that this is really the cornerstone decision in any investment plan. I know it is very subjective and there is no right answer, but I am keen to hear what you think. I am thinking 75% stock / 25% bonds but my husband is a bit more risk averse. The house is paid for which provides stability, and I will be retired for 40 or 45 years. That is a long horizon. All opinions welcome, except for Le Barbu of course, the 112% equity madman. :)
One thing I recall from The Real Retirement (though the authors are not Mustachians) is how to estimate how much money is needed in retirement relative to pre-retirement spending. Kids are expensive so people that have kids get used to being frugal and not spending a lot on toys and vacations. So when they get the kids off the payroll and retire they can get by on significantly less than their pre-retirement income.
As far as asset allocation there are lots of rules of thumb, but it's something you just have to get comfortable with on your own. Bogleheads (the US version of Finiki) has a good section on asset allocation here:
https://www.bogleheads.org/wiki/Asset_allocation
Note especially the link to a 7 part series by Larry Swedroe on asset allocation: https://www.bogleheads.org/wiki/Asset_allocation#cite_note-11
If you like Larry's articles he also wrote a book on it:
https://www.amazon.ca/All-About-Asset-Allocation-Second/dp/0071700781/
It's kinda detailed though and goes into depth well beyond stocks vs. bonds, so I would not read it unless you really like his 7 part series.
If you do choose a portfolio with a high % of equities you have to PROMISE you won't panic and sell if there is a bear market or crash.
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Ahh, the house is quiet again. We had a wonderful Easter weekend. Hunted eggs, decorated eggs, smoked a big ham and ate it while arguing with family. All is right in the world. But best of all the lower trails are opening up and I got out for my first mountain bike ride of the season. Fresh air, sunshine and BC loam. So fabulous. And it sharpened my focus on FIRE. I want to ride every day!
As far as asset allocation there are lots of rules of thumb, but it's something you just have to get comfortable with on your own. Bogleheads (the US version of Finiki) has a good section on asset allocation here:
https://www.bogleheads.org/wiki/Asset_allocation
Note especially the link to a 7 part series by Larry Swedroe on asset allocation: https://www.bogleheads.org/wiki/Asset_allocation#cite_note-11
If you do choose a portfolio with a high % of equities you have to PROMISE you won't panic and sell if there is a bear market or crash.
Thanks GreatLaker. I read the articles and understand better how asset allocation is based on ability, willingness and need to take risk.
Ability - moderate - I am in a cyclical industry and located in a small town. There is no ability to pick up work with the competitor next door. Currently the industry is in a slump and I am working 3 days a week. This is actually wonderful, I am really enjoying it but wish it was of my own choosing.
Willingness - high for me, moderate for husband - risk equals reward. I have good savings, good earning potential and a high tolerance for market swings. I didn't lose any sleep over the 2008 crash, just kept making my biweekly contributions happy in the knowledge that I was buying low.
Need - moderate - I understand his concept of decreasing marginal utility of money once you have enough. I would like to retire and ride my bike everyday and do not yet have the funds to do that, so in that sense I still have a need to take some risk.
So after that reading, as well as taking the Asset Allocation quiz in the Real Retirement book, I would choose an 80% equity portfolio. But to keep peace in the household (which is also a key component in quality of life) I will set our plan at 75% equity. FIREcalc shows less than a percent difference in probability between the two portfolios.
I need to find a good balanced index fund to set up for biweekly contributions, with the intent to transfer the money to ETFs when sizable enough to warrant the trading fees. GreatLaker suggested TD Balanced Index Fund (TDB965) but I can not buy it on InvestorLine. The Canadian Couch Potatoe site recommends TD e-series funds, but alas, I also can not buy those on InvestorLine. Any suggestions? And if I did not have this fabulous forum, how would I go about picking a good one on my own?
Just set automatic transfer/contribution and leave it in cash until you have >5k$ to buy ETF!
OK. Sounds good. I'll keep it simple and keep my biweekly savings in cash until they are sufficient to warrant buying ETFs.
So what I am looking at for a plan is:
25% Bonds - ZAG BMO Aggregate Bond Index ETF
25% Canadian Equity - VCN Vanguard FTSE Canada All Cap Index ETF
50% International Equity - XAW ishares Core MSCI All Country World ex Canada Index ETF
Look familiar? It is essentially the CCP Assertive portfolio. Any recommendations to use different funds? I notice several of you stick with Vanguard funds. Any benefit to doing so, or just personal preference?
Meeting with Financial Advisor on Friday. T - 2 days!
Thanks again.
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I notice several of you stick with Vanguard funds.
We just like anything diverse and cheap :)
In many instances, Vanguard is the cheapest. Sometimes there's good reason to snag something else, and that's just fine...as long as it's still just as diverse and cheap. I've got a couple of alternatives per some banking requirements specific to my weird life.
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Ahh, the house is quiet again. We had a wonderful Easter weekend. Hunted eggs, decorated eggs, smoked a big ham and ate it while arguing with family. All is right in the world. But best of all the lower trails are opening up and I got out for my first mountain bike ride of the season. Fresh air, sunshine and BC loam. So fabulous. And it sharpened my focus on FIRE. I want to ride every day!
As far as asset allocation there are lots of rules of thumb, but it's something you just have to get comfortable with on your own. Bogleheads (the US version of Finiki) has a good section on asset allocation here:
https://www.bogleheads.org/wiki/Asset_allocation
Note especially the link to a 7 part series by Larry Swedroe on asset allocation: https://www.bogleheads.org/wiki/Asset_allocation#cite_note-11
If you do choose a portfolio with a high % of equities you have to PROMISE you won't panic and sell if there is a bear market or crash.
Thanks GreatLaker. I read the articles and understand better how asset allocation is based on ability, willingness and need to take risk.
Ability - moderate - I am in a cyclical industry and located in a small town. There is no ability to pick up work with the competitor next door. Currently the industry is in a slump and I am working 3 days a week. This is actually wonderful, I am really enjoying it but wish it was of my own choosing.
Willingness - high for me, moderate for husband - risk equals reward. I have good savings, good earning potential and a high tolerance for market swings. I didn't lose any sleep over the 2008 crash, just kept making my biweekly contributions happy in the knowledge that I was buying low.
Need - moderate - I understand his concept of decreasing marginal utility of money once you have enough. I would like to retire and ride my bike everyday and do not yet have the funds to do that, so in that sense I still have a need to take some risk.
So after that reading, as well as taking the Asset Allocation quiz in the Real Retirement book, I would choose an 80% equity portfolio. But to keep peace in the household (which is also a key component in quality of life) I will set our plan at 75% equity. FIREcalc shows less than a percent difference in probability between the two portfolios.
I need to find a good balanced index fund to set up for biweekly contributions, with the intent to transfer the money to ETFs when sizable enough to warrant the trading fees. GreatLaker suggested TD Balanced Index Fund (TDB965) but I can not buy it on InvestorLine. The Canadian Couch Potatoe site recommends TD e-series funds, but alas, I also can not buy those on InvestorLine. Any suggestions? And if I did not have this fabulous forum, how would I go about picking a good one on my own?
Just set automatic transfer/contribution and leave it in cash until you have >5k$ to buy ETF!
OK. Sounds good. I'll keep it simple and keep my biweekly savings in cash until they are sufficient to warrant buying ETFs.
So what I am looking at for a plan is:
25% Bonds - ZAG BMO Aggregate Bond Index ETF
25% Canadian Equity - VCN Vanguard FTSE Canada All Cap Index ETF
50% International Equity - XAW ishares Core MSCI All Country World ex Canada Index ETF
Look familiar? It is essentially the CCP Assertive portfolio. Any recommendations to use different funds? I notice several of you stick with Vanguard funds. Any benefit to doing so, or just personal preference?
Meeting with Financial Advisor on Friday. T - 2 days!
Thanks again.
Good lineup!
I would just go 20%ZAG, 20%VCN and 60%XAW...
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So what I am looking at for a plan is:
25% Bonds - ZAG BMO Aggregate Bond Index ETF
25% Canadian Equity - VCN Vanguard FTSE Canada All Cap Index ETF
50% International Equity - XAW ishares Core MSCI All Country World ex Canada Index ETF
Look familiar? It is essentially the CCP Assertive portfolio. Any recommendations to use different funds? I notice several of you stick with Vanguard funds. Any benefit to doing so, or just personal preference?
Meeting with Financial Advisor on Friday. T - 2 days!
Thanks again.
The funds you chose are, in my view, the current best-in-class available to us Canadians. Both from fee and tax efficiency perspectives.
My only suggestion is to chose ZBD instead of ZAG when investing in a non-registered account. They're identical fee-wise and nearly identical performance-wise, but ZDB is more tax efficient because of it's strategy. In TFSA/RRSP, just stick with ZAG.
I personally believe the obsession over Vanguard is primarily for its US-based brokerage / mutual fund business. It is pretty much unbeatable for fees and product offerings. I wish Vanguard Canada ran its own brokerage... maybe one day.
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Canadian Money Saver Magazine (March / April 2017) edition has a great article with this very question.
(and with a technical slant, but not too long). I saw it in my library, but maybe you can find it here?
https://www.canadianmoneysaver.ca/ (https://www.canadianmoneysaver.ca/)
I very much like the technical info in this magazine -- much better than Moneysense, anyway.
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I am glad Mr. Rich Moose and Le Barbu agree with the fund selections. Phew, the plan is coming together.
Goldielocks - I think the Canadian Money Saver Magazine article you reference is on robo advisors (I can't tell for sure because I am too cheap to subscribe). Thank you, but I am taking the bulls by the horn and going self directed with the support of my companions on this thread.
So tomorrow is the big day, the meeting with our Financial Advisor where we break the news that we are leaving him. As promised he has updated our financial plan and shared the draft for review prior to our meeting. I need to study it and understand it as it will be the last one we receive. Here are the first 4 pages.
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And the last two pages are attached.
The good news is that we seem to be on track to retire in seven years, even if I continue to work only 3 days a week, which was the basis for the $2,167 monthly RRSP contributions. If I work more, I could save more and retire even earlier. Hooray! And when we move to self directed and lose the high fees, the news should only get better.
I need to ask him a few questions:
- What is the "Other Income" shown in the first few years of retirement?
- Why the spike in "Registered Withdrawals" at about the time my husbands death?
- The initial withdrawals are primarily RRSP, transitioning slowly to primarily TFSA. Why? Is there a formula that sets that plan?
- I also need to see if any of our current funds have deferred sales charges that would discourage us from moving them to IL immediately.
My husband thinks that because the plan shows a net worth at death of $1.7MM as opposed to $0 I should retire earlier. (We tell our kids that we are going to spend our last nickle on ouzo at a rave on a greek island). I shared with him how GreatLaker described the 4% rule, that because the markets are variable and unpredictable we need to set conservative withdrawal rates to be successful in most markets, which will on average maintain or grow our net worth. So perhaps we will have enough to take the kids to the rave in Greece in 50 years. :)
Input welcome. Do you think the BMO plan is sound?
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Couple of quick comments after a brief look at your post:
It looks like a reasonably conservative growth plan with 5% return pre-retirement and 4% return post retirement and 2.5% inflation. Hopefully the market will provide more than that, but do you want to be safe or sorry (and hungry).
I don't see the $1.7M assets at end of life. In the 2nd table I see $1.7M investable account balance in the first row at age 52/61. In the last row at age 88/- I see $448k, which looks to me like end of life projected balance.
On death of the first spouse, the RRSP/RRIF balance passes tax-free to the surviving spouse. At that point the mandatory RRIF withdrawal becomes based on that total value, instead of just yours. Hence the mandatory withdrawal jumps up. I'm guessing it spikes up because of that, then drops down again as the RRSP is depleted and TFSA withdrawals start (which are tax-free).
It looks like withdrawals from RRSP/RRIF first until it is all spent, then start withdrawing from TFSA. I think this for a couple of reasons. 1) TFSA earnings compound tax free indefinitely, so best to defer spending them to later and withdraw from RRSP first. 2) Withdrawing from TFSA first would allow RRSP to continue to grow, which will drive up withdrawals when mandatory RRIF withdrawals start possibly driving higher tax rate. It could also drive your income into OAS clawback territory. Hence it's better to spend down RRSP before TFSA.
The adviser's software should do scenario analysis and iterations to find the savings & withdrawal plan the maximizes estate value for a specified set of assumptions, primarily rate of return, inflation, spending and lifespan. Conversely you could look at the maximum you can spend each year for a desired estate value. Also it should be capable of minimizing tax rates and OAS clawback by recommending a withdrawal plan... and also if your tax rates would be driven too high because your RRSP grows too big he should see that and recommend contributing something to a non-reg account instead of all to RRSP + TFSA. Good thing to ask the advisor though.
Good luck with the meeting.
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And the last two pages are attached.
The good news is that we seem to be on track to retire in seven years, even if I continue to work only 3 days a week, which was the basis for the $2,167 monthly RRSP contributions. If I work more, I could save more and retire even earlier. Hooray! And when we move to self directed and lose the high fees, the news should only get better.
I need to ask him a few questions:
- What is the "Other Income" shown in the first few years of retirement?
- Why the spike in "Registered Withdrawals" at about the time my husbands death?
- The initial withdrawals are primarily RRSP, transitioning slowly to primarily TFSA. Why? Is there a formula that sets that plan?
- I also need to see if any of our current funds have deferred sales charges that would discourage us from moving them to IL immediately.
My husband thinks that because the plan shows a net worth at death of $1.7MM as opposed to $0 I should retire earlier. (We tell our kids that we are going to spend our last nickle on ouzo at a rave on a greek island). I shared with him how GreatLaker described the 4% rule, that because the markets are variable and unpredictable we need to set conservative withdrawal rates to be successful in most markets, which will on average maintain or grow our net worth. So perhaps we will have enough to take the kids to the rave in Greece in 50 years. :)
Input welcome. Do you think the BMO plan is sound?
I think the plan is good, a little bit on the cautious side but no harm in that. $1.7 for $65k is a 3.8% WR. That's 95% safe on it's own if you use low-fee funds. Toss in your expected CPP/OAS income and you'll be living the life. You could party in Greece every year! ;)
Regarding the questions: The "Other Income" seems to be directly tied to increased expenses in the first few years of retirement. Maybe he's accounting for workplace payouts?
RRSPs should be depleted first mainly for RRIF issues down the road. He's on the right track with that. The only good scenario I can think of for using TFSA withdrawals as well is when your RRSP/CPP/OAS income is high enough to bump you into the next tax bracket.
Good luck with your talk! Be prepared for your advisor to become a whole lot less friendly once you mention shifting investments.
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I would take the approach that you are staying in the BMO family but going self directed. I had a BMO advisor in a branch I just walked into to submit a transfer form approach me to give me the same report. He based it on my spreadsheet details I provided, and even used my ETFs for the planning. You will still be paying BMO commission fees, deregistration fees and they hope you buy BMO ETFs...
This isn't the same as when we ditched Investia old lady advisor (up to her eyeballs in credit btw) who would visit our house annually to have us blindly sign some forms and take her 2.8%.
You might get a win-win if you deal with it right.
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I would take the approach that you are staying in the BMO family but going self directed. I had a BMO advisor in a branch I just walked into to submit a transfer form approach me to give me the same report. He based it on my spreadsheet details I provided, and even used my ETFs for the planning. You will still be paying BMO commission fees, deregistration fees and they hope you buy BMO ETFs...
This isn't the same as when we ditched Investia old lady advisor (up to her eyeballs in credit btw) who would visit our house annually to have us blindly sign some forms and take her 2.8%.
You might get a win-win if you deal with it right.
Just tell your buying ZDB, ZAG and replace VCN for ZCN (I do not own VCN myself, just ZCN)
This way, you will own 50% BMO ETFs!
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You are still a BMO high networth client. Remember that!
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You are still a BMO high networth client. Remember that!
I went through the same path 5 years ago with RBC vs RBC DI
This is not their core business so they seem to have nobody to handle this properly!
At the branch, you are like anybody else, especially if you have no mortgage
At DI, you are a big shot but speaking with a random clerk each time you contact them
It's ok for me but still!
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The meeting with the Financial Advisor went really quite well. I had given him a heads via email that we were looking at couch potatoeing which I think helped in ensuring that the discussion proceeded without too much drama.
We started, of course, by talking about the status of mountain bike trails, which ones were open, which ones were dry, which ones we had ridden lately and had a few laughs.
Then we walked through the financial plan he had provided and he answered my questions:
- the "Other Income" shown in the first 3 years of retirement is RESP withdrawals and does not affect the retirement calculations.
- the net worth at death of $1.7MM shown on page 2 includes the house while the investment assets at death on page 5, year 89/- show $340K remaining, which is only TFSA. It is assumed the house will be worth $1.4MM when I am 90.
- the spike of registered withdrawals at the point of my husbands death is exactly how GreatLaker explained it, being pushed by minimum RIFF withdrawals.
- TFSAs are saved for the end to allow them to pass to family with no taxation, get us a good deal at income tested retirement homes and to have a nice long time to grow knowing that the growth will never be taxed.
- Because we are staying in the BMO family, there are no deferred sales charges and we can move our money to IL with no fees. I am not sure if there would have been deferred sales charges if we moved the money elsewhere. I didn't pursue the line of questioning once I knew we were in the clear.
The only real remaining issue I have is how much CPP we will receive. He set up the calculations to run assuming I receive 100% of maximum and my husband 66% of maximum. As you can see from the graph, there is 15 years where roughly half our income will come from CPP and OAS so we need to make sure the assumptions are valid. If I retire at 51, I will have many years ahead of me of not contributing to CPP and thus presumably not eligible for 100%. My husband hasn't contributed to CPP since his mid 30's and probably wont ever again. On My Services Canada site we are able to see what our CPP is projected to be if we start withdrawing at 60, 65 or 70. But it is not clear what the assumptions are behind those numbers. Presumably they will drop each year when no more contributions are being made. The Financial Advisor understood my train of thought but couldn't answer the questions. So I am going to call the government and ask. I'll do it when I have plenty of time to be on hold.
When we finished reviewing the financial plan we talked about shifting to a self directed approach. I showed him my planned asset allocation, the associated ETFs and shared that I had the IL accounts set up and ready. He gave us a soft sell on why we would be better served with an advisor but really didn't push it too hard. (Heckler and Le Barbu - you were right, he did encourage me to switch my ETFs to those that start with "Z")
He was glad we were staying in the BMO family and offered his support if we have any trouble with IL. I complained a bit about the wide variety of skillset among those who answer the Investline phone. He said that once we have the money transferred when I call and enter our account number the system will recognize me as high net worth and speedily direct me to some one senior and helpful. Not a very socialist approach, but I have to say, I like it.
We asked if he could help us update the financial plan every year and he said unfortunately not, that is not BMO's business model. My husband plans to try and bribe him with a good scotch and a bike tune up in a year.
So, thankfully, we left as friends. I am pretty sure all Kootenay cyclists are good people. Haven't met a bad one yet. And now I feel free, ready to head out on the open road and start buying some ETFs.
Thanks again for all your help. I read your input before the meeting and was really useful for me. And after the meeting my husband commended me for how knowledgeable and prepared I was. Thanks go to you!
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The only real remaining issue I have is how much CPP we will receive. ... If I retire at 51, I will have many years ahead of me of not contributing to CPP and thus presumably not eligible for 100%.
If you want precision regarding impact of zero earning years for some time before withdrawals (given assumptions about current regulations, your supposed earnings til retirement etc.), you can have this calculated for a fee by Doug Runchey, or see his posts at retirehappy.ca on how to do this. I got some answers fairly close to his calcs using his method, but wanted to be sure. He also calculated some survivor CPP numbers for us.
His site is: http://www.drpensions.ca/
Thank you. I will definitely make use of this.
Today I am working on shifting my money from the mutual funds at the branch to Investorline. I have to select if I want to transfer in cash or in kind. What should I choose? I do not intend to keep the mutual funds so I imagine cash is the way to go and then once that cash arrives in my IL account, use it to buy ETFs. Agree?
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We asked if he could help us update the financial plan every year and he said unfortunately not, that is not BMO's business model. My husband plans to try and bribe him with a good scotch and a bike tune up in a year.
So, thankfully, we left as friends. I am pretty sure all Kootenay cyclists are good people. Haven't met a bad one yet. And now I feel free, ready to head out on the open road and start buying some ETFs.
Thanks again for all your help. I read your input before the meeting and was really useful for me. And after the meeting my husband commended me for how knowledgeable and prepared I was. Thanks go to you!
MTBers for the win... yes we are all an awesome bunch right !
Super happy with how far you have come since the start of this thread. So cool that you and the husband are rocking this path together and rad that your BMO advisor was super cool. Exciting to follow along with you on this journey.
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In my case, it was much faster to get everything where I wanted when I transferred in-kind, then sold, then bought what I wanted. Because we like "days in market", this was important to me, so I went this route.
I don't know, though, what factors determine the speed of each step in either path, so don't know if this is the case across the board.
I would ask your investment firm how many days each step would take, max (i.e., assuming worst case scenario), add up the days out of market, and choose the fastest one.
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Today I am working on shifting my money from the mutual funds at the branch to Investorline. I have to select if I want to transfer in cash or in kind. What should I choose? I do not intend to keep the mutual funds so I imagine cash is the way to go and then once that cash arrives in my IL account, use it to buy ETFs. Agree?
If you transfer in-kind you will have to sell each of the holdings after you transfer, incurring a commission on each order. If you had a lot of individual stocks the commissions could really add up, but with your mutual fund holdings it wont be a lot of transactions. Transfer in cash is easier, but if you want total control you can transfer i kind. Not likely to make a huge difference but you may miss on some gains if the market goes up a bunch while the cash makes its way into your account.
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I would transfer in kind but then, sell everything in each account and wait the cash deposit before make the ETFs buying transactions. At worst, you will loose 2-3 days in the market but will have no surprises afterward. Some transactions sets the next day*, some other sets 3 days later**
*mutual funds, when traded before 14:00, are sold at the "end of day" price and sets the next day
**etfs and stocks are traded at the market price immediatly and sets 3 days later
Do not trade anything outside trading hours on trading days. Sometime, weird things happen outside these days/hours
Always sets a limit order price within 2-3 cents/share just to make sure there is no glitch. This way, you will never get abused.
Do not trade when known event can widely move the needle (elections in France actually) it's another reason to move in kind and trade 2 weeks from now.
Do not trade to the last penny (figure trading cost etc) it's not a big deal if 50$ remains in each account.
Good luck!
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Why not trade to the last penny Barbu? I calculate cash on hand minus $9.95 and then maximize # units at ask price plus/minus a penny or two. My tfsa has $0.23 cash right now
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If you don't plan to hold your MF, just transfer cash. Save yourself the hassle of selling. It'll be a week or two, but irrelevant in the long run. Since you're bmo --> bmo, it'll be pretty quick actually.
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Why not trade to the last penny Barbu? I calculate cash on hand minus $9.95 and then maximize # units at ask price plus/minus a penny or two. My tfsa has $0.23 cash right now
Just because as a Rookie, I already made a mistake. Honestly, I dont remember if I forgot the commission or did not factored the bis/ask spread. At the end, I overdrafted just a bit and had to pay interests @ 21%
Remember Blissful Biker will transfer cash every 2 weeks and buy every 2-3 months. Cash is not that bad, for some short period of time, it perform better than stocks!
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BMO has some good ETFs. Many of them are segment funds so you need to choose carefully. ZAG is recommended by CCP and has the lowest MER of any aggregate bond ETF. ZCN is simiar to VCN, although it uses a different index, both track closely to the TSX composite. ZCN is my largest holding. ZCN and ZAG both have more assets than the corresponding Vanguard funds. What BMO lacks is an all world ex-Canada fund like XAW or VXC. You would have to hold ZSP (US S&P500) + ZEA (global developed) and ZEM (emerging markets) and even then those funds have fewer holdings, so for outside Canada XAW is the best choice.
In case you missed it upthread, Justin at Canadian Portfolio Manager did a blog and video on building an ETF portfolio at BMO:
https://www.canadianportfoliomanagerblog.com/how-to-build-an-etf-portfolio-at-bmo-investorline/
The CPP numbers you are seeing on your Service Canada login assume you continue to work until those ages. The numbers are not useful if you retire early, which will definitely increase your zero contribution years and lower the payout. If you had low-income years while the kids were under 7 those years will get dropped out of the calculation. Someone already mentioned Doug Runchey. Here are some of his articles:
https://retirehappy.ca/understanding-cpp-statement-contributions-soc/
https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/
https://retirehappy.ca/child-rearing-drop-out-parents-can-get/
Doug also has huge threads on FWF and CMF where he posts as Dogger1953
http://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=115904
http://canadianmoneyforum.com/showthread.php/15085-I-m-a-CPP-expert-Any-questions
Here is a CPP calculation spreadsheet. It is an approximation and does not factor in the child rearing dropout, but will give a reasonable estimate based on past contributions and projecting current income forward.
http://pabroon.blogspot.ca/2014/03/cpp-calculator.html
I think the need for an annual plan update is over emphasized. Once you have a detailed plan, you should have annual reviews to ensure you are still on plan, and detailed updates only if you drift significantly off plan, or have a substantial life change that affects your finances. I have a plan that is based on income, spending, projected rate of return and savings, and gives me projected account balances, spending in real dollars, income from investments, CPP, OAS, taxes and tax rates, etc for every year until I make my last shift into low gear and climb that final hill to Cloud 9.
Anyway, congrats on the great outcome!
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Thanks for the input. I talked to a guy at InvestorLine and he said that because I am transferring from BMO to BMO it should only take a few days, so I am choosing the easy route of requesting cash as opposed to transferring in-kind. I have all the transfer forms filled out and am walking to the library to fax them in the AM.
But the InvestorLine guy had bad news too. I expected to take advantage of the promotion where you get $1000 from InvestorLine when you deposit $250K or more. I figured we would get it twice, once for me and once for my husband and confirmed that with a lady who picked up the IL phone a couple of weeks ago. Her English was poor but she assured me we would receive the $2000 promotion money. The guy today says we are not eligible for the promotion because the funds are coming from BMO accounts and are thus not new money to BMO. Drat! I think I'll check in with my local ex-financial advisor, and see if he can break the tie.
Today I also learned how to log into the CRA website and view my TFSA and RRSP contribution room. I added the numbers to the spreadsheet that Heckler started for me and I am slowing solidifying. The CRA site also said that my tax return was approved without issue and we will receive a $6200 refund tomorrow! Hooray, more money for ETFs.
MTBers for the win... yes we are all an awesome bunch right !
Super happy with how far you have come since the start of this thread. So cool that you and the husband are rocking this path together and rad that your BMO advisor was super cool. Exciting to follow along with you on this journey.
Thanks Stasher. Indeed we are an awesome bunch!
I am looking forward to digging into the CPP question this week. Thanks for the resources.
I also need to learn more about what the numbers on IL mean. A couple of weeks ago I opened my RRSP IL account with $5K, bought 155 shares of VCN for $4943.60 leaving $56.40 in cash.
Today my home screen shows Cash: 56.40, Account Balance: 4,957.10, Unrealized loss -42.90 (in a blood red colour).
But in My Portfolio Positions page it shows Cash: 56.40, Value of Securities: 4,938.30, Account Balance: 4,994.70, Unrealized loss: -5.30 (same red colour)
I do not understand why the Account Balances do not match and better get it figured out before the real money shows up.
BTW, the $38K that I had intended to use as practice money still hasn't arrived from Scotia. I thought it would be a few days, not a few weeks.
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The difference of Unrealized loss is because you looked at different time like last trading day closing value vs real time value.
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The difference of Unrealized loss is because you looked at different time like last trading day closing value vs real time value.
Ahh, yes, you are right. The My Portfolio Positions page lets you toggle between "Previous Business Day" and "Today's Activity". When I select "Previous Business Day" the numbers match the home page exactly. Thanks!
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The fax machine at the library is broken and they are not in a big rush to fix it because who faxes these days? InvestorLine apparently. So I drove to the BMO branch and they faxed the package of fund transfer forms for me. Hopefully in a few days my accounts will be flooded with cash.
In case you missed it upthread, Justin at Canadian Portfolio Manager did a blog and video on building an ETF portfolio at BMO:
https://www.canadianportfoliomanagerblog.com/how-to-build-an-etf-portfolio-at-bmo-investorline/
This is a very helpful video. Thanks. Justin does two videos for InvestorLine, the one above for an ETF portfolio and another to demonstrate Norbert's Gambit. I watched them both and out of curiosity also googled Norbert's Gambit. I now understand the mechanism for purchasing US dollars, but I am not clear on the motivation. In the near term I am going to stick with the simple Couch Potato Portfolio but down the road, what would be the benefit in investing in US dollars?
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I now understand the mechanism for purchasing US dollars, but I am not clear on the motivation. In the near term I am going to stick with the simple Couch Potato Portfolio but down the road, what would be the benefit in investing in US dollars?
The remaining* motivation of investing in USD is the witholding taxes agreement between Canada and US. This works only for US investments in RRSP. We talk about 15% on dividends so 15% x 2% (make your own maths)
*most of the reasons we had couple years ago disapeared since MER droped a lot and diversity of available ETFs is way better in CAD.
My RRSP is 100% USD (50%VTI and 50%VXUS) but for a RRSP under 200k$, I would not even think about it. Norbert-Gambit is a bit of a hassle for less than 100k$...
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You can very easily exchange to USD in Forex tab in BMOIL but you will pay more through the exchange rate.
VTI (the ETF lower cost version of the MMM favourite VTSAX) has lower MER and higher dividend than VUN (which holds VTI), but US funds are not able to DRIP via BMOIL, so dividends pile up as USD cash.
NG will cost you $60 US to exchange and buy VTI and subsequently sell and convert back to CAD you can spend at home. We plan to use USD to spend abroad, so the trading costs will be reduced by not having to NG both directions.
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ready for another tab of my spreadsheet?
VUN vs VTI.
Contribute $40,000 to start and $20,000 per year in two trades and over 28 years, save $82,000 in foreign tax and MER, as long as you keep your trades at a high dollar value (I'm doing once per year). 6% annual return and 1.54% C vs 1.95% U annual dividend assumed.
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And I always go to the BMO fax machine to ensure security and a record that BMO received my instructions. They type up a letterhead to fax it to BMOIL. Takes time, but well worth it, considering my credit card was just used fro $5,000 online gambling in the UK.
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Thanks. This PWL White Paper on Foreign Withholding Taxes, referenced in the spreadsheet, was particularly useful.
https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf (https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf)
Canadian ETF investing seems like a small world. I keep seeing Justin Bender and Dan Bortolotti everywhere.
I am going to stay with a simple CDN dollar couch potato portfolio for now. I think my change from high fee mutual funds to self directed ETFs is the biggest and most impactful change. Investing in US dollars is an opportunity to dial things in a little bit better in a year or so.
The IL accounts haven't flooded with cash yet. The money is still showing in the bank mutual funds. Hopefully everything will come across next week.
And I always go to the BMO fax machine to ensure security and a record that BMO received my instructions. They type up a letterhead to fax it to BMOIL. Takes time, but well worth it, considering my credit card was just used fro $5,000 online gambling in the UK.
Yikes. That stinks. Unless you're the UK gambler of course.
Today I am going for a bike ride in the sun, and buying next years family ski pass before the early bird special expires. At $2K the pass is worth almost as much as our car, but brings far more joy. I interpret mustachianism not as being cheap, but being crystal clear on what brings you joy. Now and in the future.
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I forgot to ask my question!
I am browsing the funds in IL looking to find something simple and low risk to use for saving for a car in my husbands taxable IL account. Maybe a money market fund? Any suggestions?
Also, the funds often have a letter suffix A, B, C, F, etc. The letters suffixes seem to be there regardless of fund provider so it must be an industry wide system. How can I learn more? "Suffix" must not be the right term because google is giving me nothing.
Thanks again.
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What is the time period and dollar amounts youre saving for a car?
ie starting at zero, contributing $100/week for 5 years, or putting aside $20k now until you need it 6 months or three years from now?
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Money saving for a car could just sit in your HISA. Do not bother invest, unless the car worth >40k$ and takes >5years to get the sum, wich is unlikely...
Last time I trade a car (for 18k$, I was spendy back then) 10k$ came from HISA, 5k$ from the old car sale, then I used LOC for 3k$ and reimburse over 2-3 months wich cost 20$ of interests...
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Suffix refers to the type of fund. No load, front end load, DSC, institution only. Be very careful and understand what you buy!
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I agree w Barbu on HISA, but you can get into a HISA (high interest savings account) through your existing IL account. You dont need to set up another "Smartsaver" account.
AAT770
http://financialcrooks.com/how-buy-aat770-hisa-bmo-investorline/
Please investigate it for me. Fees? Minimums? Interest rate?
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Try to find D-series funds. They are designed for discount broker clients and have lower MER because they don't pay a trailer fee. A-series are the standard funds that pay anywhere from 1/2% to 1% trailing commission annually to the sales rep/adviser. If you buy A-series funds in a discount broker the MER still includes a trailer fee, but the broker keeps it since there is no adviser involved, i.e. you pay for advice you don't get. F-series have the lowest fees but won't be available to you unless you buy through a fee-for-service adviser that typically also charges a % of assets each year as an advisory fee.
Edit: You may find the same fund name in different series, just the MER will be different. Always check for the one with the lowest MER that is available in your account. Otherwise you are basically giving money to the broker with nothing in return.
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/what-the-f-the-abcs-of-mutual-funds/article13816786/
http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/mutual-funds-and-segregated-funds/Pages/Mutual-fund-series.aspx#.WQTpBtryvIU
Agree w. others if you have a defined timeline in mind for the car purchase you should save in a High Interest Savings Account. If your timing is very flexible then a balanced mutual fund is an ok choice. Here is an article (a bit dated) that explains HISAs you can buy in brokerage accounts. http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/
Also: https://www.highinterestsavings.ca/chart/
I have accounts at EQ Bank, Oaken and Tangerine and shift my $ into whichever has the best interest rate.
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I forgot to ask my question!
I am browsing the funds in IL looking to find something simple and low risk to use for saving for a car in my husbands taxable IL account. Maybe a money market fund? Any suggestions?
Also, the funds often have a letter suffix A, B, C, F, etc. The letters suffixes seem to be there regardless of fund provider so it must be an industry wide system. How can I learn more? "Suffix" must not be the right term because google is giving me nothing.
Thanks again.
Open a HISA at Alterna and get 1.90%. https://www.highinterestsavings.ca/chart/
Or EQ Bank for 2% though they've had rate fluctuations.
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Try to find D-series funds. They are designed for discount broker clients and have lower MER because they don't pay a trailer fee.
http://www.getsmarteraboutmoney.ca/en/managing-your-money/investing/mutual-funds-and-segregated-funds/Pages/Mutual-fund-series.aspx#.WQTpBtryvIU
Thanks. I read the articles and see that D-series is clearly the way to go for DIY investors, if you wanted to buy a mutual fund. I see IL has many. I am getting smarter by the day!
What is the time period and dollar amounts youre saving for a car?
ie starting at zero, contributing $100/week for 5 years, or putting aside $20k now until you need it 6 months or three years from now?
Starting at $0, and assuming that I stay at 3 days a week (which would be groovy) we could save $1,000 per month and still max out RRSPs and TFSAs. So perhaps a couple of years to get a good used 4WD family mobile. I know MMM is against 4WDs but there are some implications that come with living in a ski town ... lots of snow!
I like Le Barbus and Hecklers suggestion of a HISA. Simple and flexible. Heckler, I did the research you recommended. The BMO IL HISA AAT770 is paying an interest rate of 0.75%, minimum initial investment of $1K. The fine print shows a fee of 0.25% but clarifies that it does not impact the interest rate so it doesn't seem very relevant.
The last time we bought a vehicle was 15 years ago and we did it using our HELOC. If our existing vehicle craters before we have saved enough to replace it, the HELOC will be our back up plan, but I sure love the feeling of being debt free so hope to avoid that.
GreatLaker & meghan88 - Do you use HISAs as part of the fixed income (or bond) part of your investment portfolio? Ie, do you have substantial funds in the HISAs that are part of your long term plan? I see the interest rates are better at Alterna and EQ Bank but they would not be as handy (for me) as keeping everything in IL.
Status Update: the RRSP and TFSA funds haven't yet moved across to IL. Still showing in the branch mutual funds. Am going to call IL to see what the hold up is. But at least the funds are still in the market. I learned from this thread that the goal is to minimize the days out of market.
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Every day in the market is important, last week our NW increased by 20k$ within 2 days! I would just be happy getting 3x that kind of money over 12 months!
I am in the proceed of transfering RESP from RBC branch to DI and waiting for further information....
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Open a HISA at Alterna and get 1.90%. https://www.highinterestsavings.ca/chart/
Or EQ Bank for 2% though they've had rate fluctuations.
Or Oaken. (Esarc)
Im sticking with major established banks, thank you very much.
https://forum.mrmoneymustache.com/investor-alley/oaken-(canada)-1-billion-on-credit-line-yikes!/
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Hi BB,
I don't consider HISAs part of my long-term investment portfolio. Most of my equities are in couch potato style ETFs, and fixed income is split among VAB and a 5-year GIC ladder. The GICs are because I am close to retirement and they will give me guaranteed cash, no matter how bad the markets might be when I start withdrawing from the portfolio.
I use HISAs for shorter term stuff like emergency fund, saving money for car purchase or mortgage prepayment, stashing work bonus money until I decide what to do with it.
Next year I will start drawing retirement funds from my portfolio. At the beginning of each year I plan to move money from TDDI into an HISA (whichever of Tangering, EQ and Oaken I can get the best rate), then "pay" myself monthly with a transfer from HISA to chequing. Online bank HISAs pay higher interest than broker HISAs, but I have occasionally used TDB8150 which is TDDI's version of AAT770. Most brokers will only let you use their HISA... I cannot buy AAT770 at TDDI.
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Hi BB,
I don't consider HISAs part of my long-term investment portfolio. Most of my equities are in couch potato style ETFs, and fixed income is split among VAB and a 5-year GIC ladder. The GICs are because I am close to retirement and they will give me guaranteed cash, no matter how bad the markets might be when I start withdrawing from the portfolio.
I use HISAs for shorter term stuff like emergency fund, saving money for car purchase or mortgage prepayment, stashing work bonus money until I decide what to do with it.
Next year I will start drawing retirement funds from my portfolio. At the beginning of each year I plan to move money from TDDI into an HISA (whichever of Tangering, EQ and Oaken I can get the best rate), then "pay" myself monthly with a transfer from HISA to chequing. Online bank HISAs pay higher interest than broker HISAs, but I have occasionally used TDB8150 which is TDDI's version of AAT770. Most brokers will only let you use their HISA... I cannot buy AAT770 at TDDI.
Why at the beginning of the year?
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I wouldn't touch Oaken, Home Trust, EQB, or any of those alt-mortgage lenders right now. Not a wise place to put money when they jumped at taking loans many times your HISA rates! It tells me something is very, very stinky there.
I would stick with Tangerine (backed by Scotia).
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Why at the beginning of the year?
Stocking up for the holiday season. ;)
Actually getting a little off the original topic so I did not provide the whole detail. If removing money from RRSP or RRIF I will do it near the end of the year, so any excess income tax withheld will be recovered when I do my taxes for the year. If removing capital from non-registered I will do it at the start of the year so any capital gains taxes due are not payable until the following tax season. If removing dividends from non-registered it does not really matter.
You saw my response on your leverage thread. I'm not risk averse or opposed to leverage and borrowing. I have experienced enough and studied enough investing history that I don't keep necessary cashflow in risky assets. Take a look at the stock market from 1966 to 1982... lots of volatility and over 16 years it basically ended at the same level it started. Or read the book When Genius Failed: The Rise and Fall of Long-Term Capital Management to see how risky hubris and overconfidence can be.
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Why at the beginning of the year?
Stocking up for the holiday season. ;)
Actually getting a little off the original topic so I did not provide the whole detail. If removing money from RRSP or RRIF I will do it near the end of the year, so any excess income tax withheld will be recovered when I do my taxes for the year. If removing capital from non-registered I will do it at the start of the year so any capital gains taxes due are not payable until the following tax season. If removing dividends from non-registered it does not really matter.
You saw my response on your leverage thread. I'm not risk averse or opposed to leverage and borrowing. I have experienced enough and studied enough investing history that I don't keep necessary cashflow in risky assets. Take a look at the stock market from 1966 to 1982... lots of volatility and over 16 years it basically ended at the same level it started. Or read the book When Genius Failed: The Rise and Fall of Long-Term Capital Management to see how risky hubris and overconfidence can be.
Your first paragraph sums up about everything I was thinking about when asking my question.
I will give a try reading this book! FWIW, I dont think I'm a Genius using leverage, I just decided to stop killing debt like crazy when I hit the 20% mark!
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Im sticking with major established banks, thank you very much.
https://forum.mrmoneymustache.com/investor-alley/oaken-(canada)-1-billion-on-credit-line-yikes!/
Considering the safety and convenience, it sounds like the BMO IL HISA (AAT770) will be the way to go for our vehicle savings. Thanks for the advice. I was thinking today about the last time we bought a vehicle. I was pregnant with our first child and we felt a keen sense of responsibility and the need for a "grown up" car. It has served us well.
If removing money from RRSP or RRIF I will do it near the end of the year, so any excess income tax withheld will be recovered when I do my taxes for the year.
I had to think through this sentence a few times. When you withdraw from RRSPs or RRIFs does the bank take a portion and give to the government as taxes, similar to how an employer would take taxes off your paycheck? That seems very big brotherish, but probably not a bad idea.
I was looking today at the form to initiate regular contributions to an Investorline Account. You can select a frequency of Monthly, Quarterly or Annually. Drat. I wanted biweekly in order to coincide with my paychecks. I guess I will have to either transfer funds manually biweekly or we get used to having money in the checking account that we do not spend.
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When you withdraw from RRSPs or RRIFs does the bank take a portion and give to the government as taxes, similar to how an employer would take taxes off your paycheck? That seems very big brotherish, but probably not a bad idea.
Correct.
See this page for the % withheld on RRSP withdrawals.
http://www.taxtips.ca/rrsp/withholdingtax.htm
Then it gets reconciled to the exact amount for your marginal tax rates when you do your tax return.
RRIF withdrawals are similar, except there is no withholding tax on the minimum required withdrawal, just any amount over the minimum. As soon as you convert a RRSP to a RRIF the minimum annual withdrawals start. You can convert an RRSP to a RRIF any time, but you must deregister RRSPs no later than the end of the year you turn 71 and there are 3 options. You can choose one or any combination of the 3 options: 1)Convert to RRIF, 2)Purchase an annuity or 3)Take the lump sum in cash and pay tax on the full amount.
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I populated the CPP spreadsheet that GreatLaker provided from the link below:
http://pabroon.blogspot.ca/2014/03/cpp-calculator.html
It shows that if I continue to contribute to CPP maximums over the next 7 years and then retire at 51 I will receive about $10K/year (in 2017 dollars) or 74% of maximum at age 65. When I play with it I can see that the retirement age does affect the payout but not enough to influence a retirement decision. Just a few hundred dollars for each extra year worked. My husbands numbers came out to 25% of max.
So the plan from our friendly BMO financial advisor is overstated. Drat. When we had our meeting with him he agreed to dial down the CPP assumptions and run the plan again but we haven't heard from him. Not on his priority list anymore. But I understand. DIY investing means DIY investing.
I am continuing to work on developing the spreadsheet that Heckler provided, and have put in the new CPP numbers.
A question for Heckler - the logic in your spreadsheet shows that you make RRSP withdrawals at 4% of value until conversion to RRIF. RRIFs withdrawals are set at minimum government withdrawal rates and any shortfall to meet your annual spend comes from the TFSAs. This is different from the plan from my advisor who withdrew from the RRIFs until the last dollar was gone before the TFSAs were touched. What is your rational for drawing from both RRIFs and TFSAs at the same time?
GreatLaker - Thanks for clarifying the withholding taxes on RRSP / RIFF withdrawals.
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My spreadsheet in the withdrawal stages is still a work in progress and learning. Step 1 is get to the goal line, then I figure I'll have plenty of time to figure it out. That's the beauty of having a plan you can easily mess around with. Imagine asking your FA for 13 different withdrawal rate options from six accounts!
I'm still debating if we should max RSPs or start a taxable account. Simplicity tells me to max the RSPs and draw them down before age 71. Having a spreadsheet lets me estimate our options.
http://www.taxtips.ca/calculators.htm
There are lots of online calculators where you can compare spreadsheet calculations vs online calculator estimates.
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And again, do not take my spreadsheet as financial advice. It's a tool for you to make you own plan and it may or may not be full of errors. I appreciate feedback on any calculations or assumption errors you find.
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And again, do not take my spreadsheet as financial advice. It's a tool for you to make you own plan and it may or may not be full of errors. I appreciate feedback on any calculations or assumption errors you find.
Will do. It is a great tool. Haven't found any errors yet but I have mostly just been focused so far on the pre-retirement phase. And I added a note to remind myself that all dollars are 2017 dollars. This is different from many plans (including BMOs) that show future dollars. I prefer current dollars because they are easy to relate to.
Some good news - biweekly contributions can be made to IL non-registered accounts. Terrific. I have the paperwork ready to submit.
Some bad news - apparently the transfer request form to move the $38K from Scotia to IL was missing a signature and not processed. After 6 weeks no one notified us and I only found out because I called to check on the transfer. Argh. New (signed!) form being submitted today.
Some good news - the sun is shining and a family ride is on the books for tonight.
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I am doing more research on porfolios so that when the money arrives in the IL accounts I can confidently set it up once and hold for the long term.
Dan's Couch Potato Portfolios have three funds: http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf (http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf)
While Justin's Canadian Porfolio Manager portfolios have 5 funds: https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2017/04/CPM-Model-ETF-Portfolios-2016.pdf (https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2017/04/CPM-Model-ETF-Portfolios-2016.pdf)
Essentially the difference is that US, International and Emerging Market stocks are held in a single ETF (XAW) in Dan's, and held separately (VUN, XEC, XEF) in Justins.
I am interested to hear what approach you have taken or would recommend. I am handy with spreadsheets so could easily manage 5 ETFs as opposed to 3 if there was an advantage to do so.
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I have 6 funds in 5 accounts and find balancing through contributions only a challenge. Since I pay $9.95, i have so far only sold one time, to exchange VUN for VTI once I had $40k accumulated.
I am focused on lowest MER possible in multiple accounts, so don't buy into XAW for this reason. I do see the huge benefits of a simple three fund version.
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I have 6 funds in 5 accounts and find balancing through contributions only a challenge. Since I pay $9.95, i have so far only sold one time, to exchange VUN for VTI once I had $40k accumulated.
I am focused on lowest MER possible in multiple accounts, so don't buy into XAW for this reason. I do see the huge benefits of a simple three fund version.
I own XAW in 2 accounts for a summ representing 2% of our entire portfolio. MER are a bit high but convenience for small accounts <50k$ may worth the price. At worst it's a wash when figuring trade cost.
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Thanks. Dan's Assertive Portfolio calls for XAW to hold 50% of investable assets. For me that would be just over $500K. Big enough that a occasional trading fees are not a significant drag. But the weighted MERs for the two portfolios are not significantly different (0.14-0.15%) so that wouldn't seem to be driver.
Having VUN separate would allow an easier swap to VIT down the road.
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Thanks. Dan's Assertive Portfolio calls for XAW to hold 50% of investable assets. For me that would be just over $500K. Big enough that a occasional trading fees are not a significant drag. But the weighted MERs for the two portfolios are not significantly different (0.14-0.15%) so that wouldn't seem to be driver.
Having VUN separate would allow an easier swap to VIT down the road.
That' the most important part! You can switch a big chunk to VTI once, then continue with VUN for a while. This is why I hold some XAW now, regular rather small contributions not worth N-Gambit
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Hi everyone. I've been lurking in the shadows reading this thread. All I can say is wow. Where else would you get this kind of advice from a complete stranger? So awesome.
Anyone in the Cranbrook area? I'll be out there for work in a couple of weeks. I haven't found any mustachians here in Medicine Hat :(
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Hi everyone. I've been lurking in the shadows reading this thread. All I can say is wow. Where else would you get this kind of advice from a complete stranger? So awesome.
Anyone in the Cranbrook area? I'll be out there for work in a couple of weeks. I haven't found any mustachians here in Medicine Hat :(
Mustachians are either low profile or pure fiction, never met 1 for real neither!
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Hi everyone. I've been lurking in the shadows reading this thread. All I can say is wow. Where else would you get this kind of advice from a complete stranger? So awesome.
Anyone in the Cranbrook area? I'll be out there for work in a couple of weeks. I haven't found any mustachians here in Medicine Hat :(
You are right! It is awesome. I am a few hours from Cranbrook, otherwise I would have been keen to get together. I haven't met any Mustachians either and am jealous of a group in Victoria that gets together for beer, bike rides and spreadsheet comparisons.
So I am leaning towards the 5 fund solution due to the slightly lower MER as well as the ability to flip the VUN to VTI down the road. This then raises the question which of the foreign equity funds do I put in the TFSA? Given that growth in the TFSA will never be taxed, and the TFSA funds will be last to be withdrawn in retirement it makes sense to put the highest risk / highest reward ETFs in the TFSA
From safest to riskiest I think the heirarchy would look like:
- Bonds (ZAG or VAB)
- Canadian Equities (VCN)
- US Equities (VUN)
- Europe, Australasia and Far East (XEF)
- Emerging Markets (XEC)
Agreed? Should I stuff our TFSAs with XEC first and then top up with XEF (while ensuring we have the desired asset allocation across all RRSP and TFSA accounts)?
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Mustachians are either low profile or pure fiction, never met 1 for real neither!
All of us are pure fiction.
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Mustachians are either low profile or pure fiction, never met 1 for real neither!
All of us are pure fiction.
Does that include me?
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So I am leaning towards the 5 fund solution due to the slightly lower MER as well as the ability to flip the VUN to VTI down the road. This then raises the question which of the foreign equity funds do I put in the TFSA? Given that growth in the TFSA will never be taxed, and the TFSA funds will be last to be withdrawn in retirement it makes sense to put the highest risk / highest reward ETFs in the TFSA
From safest to riskiest I think the heirarchy would look like:
- Bonds (ZAG or VAB)
- Canadian Equities (VCN)
- US Equities (VUN)
- Europe, Australasia and Far East (XEF)
- Emerging Markets (XEC)
Agreed? Should I stuff our TFSAs with XEC first and then top up with XEF (while ensuring we have the desired asset allocation across all RRSP and TFSA accounts)?
Yep I would say Emerging in TFSA for sure. Then other stocks. I don't see much of a risk difference between XEF and VUN, but VUN looks good in RRSP for the VTI swap down the road, so XEF would be my pick in TFSA.
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Hi everyone. I've been lurking in the shadows reading this thread. All I can say is wow. Where else would you get this kind of advice from a complete stranger? So awesome.
Anyone in the Cranbrook area? I'll be out there for work in a couple of weeks. I haven't found any mustachians here in Medicine Hat :(
You are right! It is awesome. I am a few hours from Cranbrook, otherwise I would have been keen to get together. I haven't met any Mustachians either and am jealous of a group in Victoria that gets together for beer, bike rides and spreadsheet comparisons.
The group sounds riveting! ;)
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Mr. Rich Moose - I was just looking at your RM Balanced Portfolio http://therichmoose.com/portfolios/ (http://therichmoose.com/portfolios/). You use XAW as a combined ETF for all foreign equity markets as opposed to breaking it up into:
- US Equities (VUN)
- Europe, Australasia and Far East (XEF)
- Emerging Markets (XEC)
Which is essentially my question of the day. Why did you choose XAW? Are you not using Norberts Gambit for your US equities?
I haven't met any Mustachians either and am jealous of a group in Victoria that gets together for beer, bike rides and spreadsheet comparisons.
The group sounds riveting! ;)
Come on, who doesn't love a good spreadsheet!
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Mr. Rich Moose - I was just looking at your RM Balanced Portfolio http://therichmoose.com/portfolios/ (http://therichmoose.com/portfolios/). You use XAW as a combined ETF for all foreign equity markets as opposed to breaking it up into:
- US Equities (VUN)
- Europe, Australasia and Far East (XEF)
- Emerging Markets (XEC)
Which is essentially my question of the day. Why did you choose XAW? Are you not using Norberts Gambit for your US equities?
Because it's easier for the average person and the benefit of Norberts Gambit it's shrinking as our MERs come down in Canada. I think XAW is a great product and I would not be surprised to see a <15bps MER in the future as the funds under management grow.
I believe our Quebecoise friend Le Barbu recently ran some numbers on the XAW vs 3 fund question and found the difference to be minimal and shrinking.
I personally invest in a macro momentum strategy which is substantially different altogether from a balanced Portfolio strategy. I started this with a portion of my portfolio last spring and fully committed in the fall. I could talk about this more in a different thread as I don't want to invite the diehard Bogleists to derail this one.
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Dan used to have several couch potato portfolios from simple to complex, with more asset classes including REITs, Real Return Bonds, small cap and value funds. The most complex one was called the Über-Tuber, with 11 funds. He changed to the current 3 fund portfolios to simplify and make things easier for novice investors. Even Justin's 5 fund portfolios stick to the basic asset classes.
I started back before Vanguard entered the Canadian market with a basic 4 fund with XIU, XSP, XIN and XBB. That was back in the days of 0.5% MER and $29.95 trades unless you had at least $50k in the account. We also had to slog through 6 ft snow drifts to the bank to make trades. And it was uphill both ways.
I now have 5 accounts with 7 funds in 5 asset classes. It's basically a Justin Bender lookalike portfolio plus some GICs. It took some thinking to set up, but I don't find it at all hard to manage.
- Non-reg: ZCN, VUN (Hold most of my Cdn in non-registered for the dividend tax credit)
- TFSA: XEF
- RRSP: VCN, XUS, XEF, XEC, VAB, 5 yr GIC ladder (I keep some of each asset class in here so I can easily rebalance without tax implications in non-registered)
- Small LIRA: VAB (smallest account so only one fund)
- Large LIRA: XUS, XEF, VAB, 5 yr GIC ladder
It's not perfect, but good enough. Fixed income is all in registered accounts. Note that I have 2 different Cdn and US funds, based on what I thought was best as I built my portfolio over time, but each is in a different account so it's not more work. For international I have only XEF and XEC since they were best of breed when they were launched. I think now that Vanguard VIU and VEE are very comparable. VXC and XAW were not launched yet when I built my current portfolio. In my non-reg I also have Mawer Tax-effective Balanced fund for my "Mad Money", and TD Balanced Index for short term investing distributions. But you could use a HISA for that too.
I have thought about using Norbit's Gambert and buying VTI in my RRSP and made some notes on how to do it. But so far I have had better things to do considering the couple hundred $ a year it would save me. (Rough arithmetic 15% withholding tax on ~2% yield on 20% of my portfolio ~=.06% annually if I did the math right.
You probably figured out by now I won't tell you what decision to make. Look at the total cost of 5-fund vs 3-fund portfolio based on MER and trade costs. Then map out how you would build the portfolio and what funds in which account. It should eventually settle on you whether you prefer flexibility and lowest cost of 5-fund over simplicity of 3-fund. And if you can't decide, then simplest is best. :)
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Assuming you plan around $300-500k in US equity, why would you buy VUN to swap for VTI later???
Buy the rest of your funds first fir practice and then buy your US allocation as DLR and call in to journal over and sell DLR.U. Then buy VTI once and forget about it - go ride and let it ride. Its really quite easy. It'll just freak you out because your $500C becomes ~$350U all of a sudden. But its the same as buying VUN now with a low $C - VUN is priced quite high due to exchange rate.
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Dan used to have several couch potato portfolios from simple to complex, with more asset classes including REITs, Real Return Bonds, small cap and value funds. The most complex one was called the Über-Tuber, with 11 funds. He changed to the current 3 fund portfolios to simplify and make things easier for novice investors. Even Justin's 5 fund portfolios stick to the basic asset classes.
I started back before Vanguard entered the Canadian market with a basic 4 fund with XIU, XSP, XIN and XBB. That was back in the days of 0.5% MER and $29.95 trades unless you had at least $50k in the account. We also had to slog through 6 ft snow drifts to the bank to make trades. And it was uphill both ways.
I now have 5 accounts with 7 funds in 5 asset classes. It's basically a Justin Bender lookalike portfolio plus some GICs. It took some thinking to set up, but I don't find it at all hard to manage.
- Non-reg: ZCN, VUN (Hold most of my Cdn in non-registered for the dividend tax credit)
- TFSA: XEF
- RRSP: VCN, XUS, XEF, XEC, VAB, 5 yr GIC ladder (I keep some of each asset class in here so I can easily rebalance without tax implications in non-registered)
- Small LIRA: VAB (smallest account so only one fund)
- Large LIRA: XUS, XEF, VAB, 5 yr GIC ladder
It's not perfect, but good enough. Fixed income is all in registered accounts. Note that I have 2 different Cdn and US funds, based on what I thought was best as I built my portfolio over time, but each is in a different account so it's not more work. For international I have only XEF and XEC since they were best of breed when they were launched. I think now that Vanguard VIU and VEE are very comparable. VXC and XAW were not launched yet when I built my current portfolio. In my non-reg I also have Mawer Tax-effective Balanced fund for my "Mad Money", and TD Balanced Index for short term investing distributions. But you could use a HISA for that too.
I have thought about using Norbit's Gambert and buying VTI in my RRSP and made some notes on how to do it. But so far I have had better things to do considering the couple hundred $ a year it would save me. (Rough arithmetic 15% withholding tax on ~2% yield on 20% of my portfolio ~=.06% annually if I did the math right.
You probably figured out by now I won't tell you what decision to make. Look at the total cost of 5-fund vs 3-fund portfolio based on MER and trade costs. Then map out how you would build the portfolio and what funds in which account. It should eventually settle on you whether you prefer flexibility and lowest cost of 5-fund over simplicity of 3-fund. And if you can't decide, then simplest is best. :)
And back then, distances were miles, wich is a lot longer than km...
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Wow! There is some really great information here. As we near filling our tax advantaged accounts for the first time ever, and venture into taxable investing, we will be looking optimize things and I'll be coming back to the great advice here.
Not sure if this helps you Blissful Biker, or just complicates your selection of already great ways to grow your accounts, but I'll share what we do.
For the accounts which receive regular weekly/monthly contributions, we buy CCP style TD e-series mutual funds in the amounts required to keep a balanced portfolio - we do this throughout the year (zero cost). When our contribution room is filled for the year, we wait the 30 day holding period, sell the e-series funds and buy CCP style ETFs the next day ($10 a trade). This allows us to get our funds invested and balanced throughout the year keeping our trading fees low.
Anyone else do something similar? I've toyed with the idea of moving to Questrade to avoid ETF purchase fees altogether, but have enjoyed using TD as it's where we do the bulk of our banking.
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Wow! There is some really great information here. As we near filling our tax advantaged accounts for the first time ever, and venture into taxable investing, we will be looking optimize things and I'll be coming back to the great advice here.
Not sure if this helps you Blissful Biker, or just complicates your selection of already great ways to grow your accounts, but I'll share what we do.
For the accounts which receive regular weekly/monthly contributions, we buy CCP style TD e-series mutual funds in the amounts required to keep a balanced portfolio - we do this throughout the year (zero cost). When our contribution room is filled for the year, we wait the 30 day holding period, sell the e-series funds and buy CCP style ETFs the next day ($10 a trade). This allows us to get our funds invested and balanced throughout the year keeping our trading fees low.
Anyone else do something similar? I've toyed with the idea of moving to Questrade to avoid ETF purchase fees altogether, but have enjoyed using TD as it's where we do the bulk of our banking.
I do the same and also use TDB217 for USD
I wait for at least 5k$ so my average is 3-5 trades/year for 6 accounts (some accounts can wait 2-3 years for even 1 trade)
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I started back before Vanguard entered the Canadian market with a basic 4 fund with XIU, XSP, XIN and XBB. That was back in the days of 0.5% MER and $29.95 trades unless you had at least $50k in the account. We also had to slog through 6 ft snow drifts to the bank to make trades. And it was uphill both ways.
I now have 5 accounts with 7 funds in 5 asset classes. It's basically a Justin Bender lookalike portfolio plus some GICs. It took some thinking to set up, but I don't find it at all hard to manage.
- Non-reg: ZCN, VUN (Hold most of my Cdn in non-registered for the dividend tax credit)
- TFSA: XEF
- RRSP: VCN, XUS, XEF, XEC, VAB, 5 yr GIC ladder (I keep some of each asset class in here so I can easily rebalance without tax implications in non-registered)
- Small LIRA: VAB (smallest account so only one fund)
- Large LIRA: XUS, XEF, VAB, 5 yr GIC ladder
It's not perfect, but good enough. Fixed income is all in registered accounts. Note that I have 2 different Cdn and US funds, based on what I thought was best as I built my portfolio over time, but each is in a different account so it's not more work. For international I have only XEF and XEC since they were best of breed when they were launched. I think now that Vanguard VIU and VEE are very comparable. VXC and XAW were not launched yet when I built my current portfolio. In my non-reg I also have Mawer Tax-effective Balanced fund for my "Mad Money", and TD Balanced Index for short term investing distributions. But you could use a HISA for that too.
Ha! My kids came over to see why I was laughing ...uphill both ways to make trades. :)
Why do you have fixed income in registered accounts? I would have thought that to take advantage of tax protection it would be best to put fast growing (ie equity) investments in registered accounts. And pay only a little tax on the slow growing fixed income holdings in taxable accounts.
I have thought about using Norbit's Gambert and buying VTI in my RRSP and made some notes on how to do it. But so far I have had better things to do considering the couple hundred $ a year it would save me. (Rough arithmetic 15% withholding tax on ~2% yield on 20% of my portfolio ~=.06% annually if I did the math right.
Using Justin's 5 fund plan https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2017/04/CPM-Model-ETF-Portfolios-2016.pdf (https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2017/04/CPM-Model-ETF-Portfolios-2016.pdf) with 80% equities calls for 27% US stocks. For me that would be $270K Cdn, so saving 15% withholding tax on 2% yield would be an annual savings of $800. To compare this to our standard metrics, $800 is a new pair of skis, or a new set of mtn bike wheels, every single year. For my husband the answer is clear. "Honey, I believe in you, dance on hot coals, jump through flaming hoops and get us the $800/year!".
Assuming you plan around $300-500k in US equity, why would you buy VUN to swap for VTI later???
Buy the rest of your funds first fir practice and then buy your US allocation as DLR and call in to journal over and sell DLR.U. Then buy VTI once and forget about it - go ride and let it ride. Its really quite easy. It'll just freak you out because your $500C becomes ~$350U all of a sudden. But its the same as buying VUN now with a low $C - VUN is priced quite high due to exchange rate.
So I agree with Heckler and will take the Norbert Gambit's plunge. I am going to read the foreign withholding taxes white paper more thoroughly to make sure I understand what I am doing and why. https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf (https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?ext=.pdf) My husbands confidence in my ability exceeds my own. Which is always nice, well except for when we are hitting the "jump line" mtn bike trail. Yikes!
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I believe our Quebecoise friend Le Barbu recently ran some numbers on the XAW vs 3 fund question and found the difference to be minimal and shrinking.
I personally invest in a macro momentum strategy which is substantially different altogether from a balanced Portfolio strategy. I started this with a portion of my portfolio last spring and fully committed in the fall. I could talk about this more in a different thread as I don't want to invite the diehard Bogleists to derail this one.
I am interested to hear what Le Barbu found in his analysis of XAW vs the 3 foreign equity funds. Was investing in US dollars for tax witholding reasons accounted for and the delta still found to be minimal?
Mr Rich Moose - I am curious to learn more about your macro momentum strategy. If you do post elsewhere let me know. As I learn more I see how few hard and fast investing rules there are, and how good principals, some judgement and a wee bit of luck come into play.
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I believe our Quebecoise friend Le Barbu recently ran some numbers on the XAW vs 3 fund question and found the difference to be minimal and shrinking.
I personally invest in a macro momentum strategy which is substantially different altogether from a balanced Portfolio strategy. I started this with a portion of my portfolio last spring and fully committed in the fall. I could talk about this more in a different thread as I don't want to invite the diehard Bogleists to derail this one.
I am interested to hear what Le Barbu found in his analysis of XAW vs the 3 foreign equity funds. Was investing in US dollars for tax witholding reasons accounted for and the delta still found to be minimal?
Mr Rich Moose - I am curious to learn more about your macro momentum strategy. If you do post elsewhere let me know. As I learn more I see how few hard and fast investing rules there are, and how good principals, some judgement and a wee bit of luck come into play.
Hopefully Le Barbu doesn't mind me ripping his work:
I did backtesting to compare 4 differents AA. All of them are 100% stocks, 30% canadian, 35%US and 35% Intl. My backtest covers only 2011-2017 for simplicity (availability of ETFs)
1-30%XIC/70%VT=9.91%CAGR & 9.98%stdev
2-30%XIC/35%VTI/35%VXUS=10.13%CAGR & 9.89%stdev
3-30%XIC/25%VTI/10%VBR/35%VXUS (my actual AA)=10.25%CAGR & 10.00%stdev
4-30%XIC/20%VTI/10%VBR/5%VNQ/20%VXUS/5%VSS/5%VWO/5%VNQI=10.24%CAGR & 9.84%stdev
So, between the most simple (2 ETFs) and the "slice & dice" (8 ETFs) I only gained 0.33%CAGR and reduced stdev by 0.14%. Most of the job was done with a 2 ETFs portfolio and most improvement came from splitting US and Intl. indexes. Simplicity won again!
It appears he used US ETFs in this sample.
Regarding the momentum I'm doing, I plan to talk more about the strategy in my blog. It's a big topic so it might be a late summer/early fall project for me.
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Interestingly, if you look at Benders portfolios vs CCP portfolios and compare the two, the only real apples for apples comparison is the 60/40 portfolio. The results are mixed, it doesn't give Bender a clear edge. I'm actually a little surprised myself because I only chose XAW.TO for simplicity but I expected a clear edge to a 5 ETF portfolio.
1 Year Return: CCP wins by 0.29%
3 Year Return: CCP wins by 0.12%
5 Year Return: Bender wins by 0.01%
10 Year Return: Bender wins by 0.12%
20 Year Return: CCP wins by 0.11%
MER average is the same at 0.14% for both.
Standard deviation gives the win to CCP.
In a nutshell, your only real gain is with the withholding tax on US index within your RRSP.
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At this point, I would say wathever you do, hard to say which lineup will perform better. The key is to keep things as simple as you can with reasonables fees. If you really want to juice up your returns, go for 100% stocks, or even more! If you NG to buy USD, do it only for the biggest account and only to buy VTI. Personnaly, I would think twice to rush it under 250k$!!! It will makes your portfolio more complexe to rebalance. It's not as simple as 800$=1 ski pair...
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My plan has our USD funds at a reasonable amount so as to spend USD for travel later on (post Trump) . I will try not to NG back to $CAD, but who knows what reality will bring.
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Why do you have fixed income in registered accounts? I would have thought that to take advantage of tax protection it would be best to put fast growing (ie equity) investments in registered accounts. And pay only a little tax on the slow growing fixed income holdings in taxable accounts.
Excellent question. The onging debate is whether to tax-shelter investments that have high tax rates or high projected growth rates. Traditional thinking often repeated on financial forums is to shelter investments that have high tax rates, i.e. fixed income, bonds & GICs.
As usual Dan&Justin ran the numbers. They asked the question:
Do Bonds Still Belong in an RRSP?
It has long been conventional wisdom that bonds should be held in RRSPs wherever possible, since interest income is fully taxable. Once you run out of contribution room, equities can go in a non-registered account, because Canadian dividends and capital gains are taxed more favorably. But is this idea still valid?
And answered:
Let’s start by admitting the optimal asset location can only be known in retrospect. We can make assumptions about stock returns and bond yields, but these change over the years. The amount of tax you ultimately pay also depends on when you decide to realize capital gains. So it’s not possible to do an analysis that produces a definitive answer. However, Justin and I wanted to use some real historical returns rather than relying on assumptions.
While it would have been preferable to hold bonds in an RRSP during the last decade, we can’t draw any sweeping conclusions from our findings. Bond yields are much lower today than they were in 2003, and the situation might have changed. Going forward, is holding bonds in an RRSP still the right asset location strategy?
Again, no one can know this in advance. But investors need to make a decision, and we believe it still makes sense to follow the conventional wisdom and keep bonds in an RRSP and equities (when necessary) in a taxable account.
And for bonds especially:
Premium bonds are particularly tax-inefficient. The period we examined would actually have been a relatively good time to hold bonds in a non-registered account. Bond ETFs today are far more likely to hold premium bonds, which are exceptionally tax-inefficient and should generally not be held in non-registered accounts.
You can read the gory details in the blog post and white paper:
http://canadiancouchpotato.com/2014/04/24/do-bonds-still-belong-in-an-rrsp/
https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/Justin%20Bender%20Assets/2014/PWL_Bender-Bortolotti_Asset-Location-for-Taxable-Investors_v02_hyperlinked.pdf?ext=.pdf
So the answer is a wishy-washy bonds still make sense in an RRSP for many investors but a strong case cannot be made either way and it depends on the individual investor and future investment returns and tax rates.
Also the Canadian dividend tax credit means that the tax rate on dividends is actually negative on taxable income up to $46k in ON, AB, and BC. Once they pay off the mortgage, stop saving for retirement, don't have to pay CPP and EI premiums and get the kids off the payroll, many retirees can easily live on that income level.
$800 is a new pair of skis, or a new set of mtn bike wheels, every single year.
$800 bucks for mountain bike wheels?!? Note even a whole bike? How anti-mustachian of you. I should not talk though. I used to have a part time j*b in a ski and bike shop to fund my equipment addictions.
So I agree with Heckler and will take the Norbert Gambit's plunge.
I have heard that BMO and RBC are easy for gambitting and TD is hard, so I have not gone there.
In case you get bored or have insomnia there is a 48 page NG thread on FWF:
http://www.financialwisdomforum.org/forum/viewtopic.php?f=29&t=198
And since you must be wondering "Who is Norbert?", here is a link to the website of the man behind the eponymously named gambit: http://www.libra-investments.com/pr02.htm
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$800 bucks for mountain bike wheels?!? Note even a whole bike? How anti-mustachian of you. I should not talk though. I used to have a part time j*b in a ski and bike shop to fund my equipment addictions.
Lol, We ride $5200 carbon mountain bikes that actually make us a few hundred per year. Ancient Chinese secret! 😸
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This is such a great thread for Canadians investing! Blissful Biker, I went through this entire process about 1.5 years ago, including reading Millionaire Teacher, which like you, really did help convince me that investing in index ETF's would be better than using our financial advisor. When I found out our MER's and the fact that all of our funds had delayed sales charges, I was pretty ticked! But I bit the bullet and transferred everything over to Questrade and couldn't be happier. I will say that I love being able to buy even one share at a time from dividend payments without trading fees and would recommend it to everyone. I like to get my money working for us as soon as possible, and I actually enjoy the buying process! It only takes a day or two to transfer funds from my TD account to Questrade, and they will reimburse transfer fees. Seems better than all these workarounds to wait to accumulate funds to reduce trading fees. We've got quite a bit invested in our taxable account but I'm obviously not doing ACB correctly, so I will need to learn more about it.
Le Barbu, I'm a longtime reader of Million Dollar Journey where I first learned about the Smith Manoeuvre and am considering this as we are moving soon and have accumulated substantial equity in our current house. But where does one get a 2.25% HELOC rate? Most of the ones with re-advancable mortgages I see are prime + 0.5%.
Use a HELOC for 200k$ and buy more VCN (1 trade). Take a 5 years variable rate @ 2.25% wich is deductible against your income for a net 1.5% (less than inflation rate). It's called Smith Manœuvre and Million Dollar Journey will tell you the way to do this.
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This is such a great thread for Canadians investing! Blissful Biker, I went through this entire process about 1.5 years ago, including reading Millionaire Teacher, which like you, really did help convince me that investing in index ETF's would be better than using our financial advisor. When I found out our MER's and the fact that all of our funds had delayed sales charges, I was pretty ticked! But I bit the bullet and transferred everything over to Questrade and couldn't be happier. I will say that I love being able to buy even one share at a time from dividend payments without trading fees and would recommend it to everyone. I like to get my money working for us as soon as possible, and I actually enjoy the buying process! It only takes a day or two to transfer funds from my TD account to Questrade, and they will reimburse transfer fees. Seems better than all these workarounds to wait to accumulate funds to reduce trading fees. We've got quite a bit invested in our taxable account but I'm obviously not doing ACB correctly, so I will need to learn more about it.
Le Barbu, I'm a longtime reader of Million Dollar Journey where I first learned about the Smith Manoeuvre and am considering this as we are moving soon and have accumulated substantial equity in our current house. But where does one get a 2.25% HELOC rate? Most of the ones with re-advancable mortgages I see are prime + 0.5%.
Use a HELOC for 200k$ and buy more VCN (1 trade). Take a 5 years variable rate @ 2.25% wich is deductible against your income for a net 1.5% (less than inflation rate). It's called Smith Manœuvre and Million Dollar Journey will tell you the way to do this.
My re-advancable HELOC is also @ prime + 0.5% now. But, if you pull à substantial ammount, 150k$ in my case, it worth to convert a segment of the HELOC in a reinbursment schedual (mortgage like) then you have acces to the same rates as mortgages and 2.35% is the best variable rate you can get now. I did started my SM Jan'15 and converted in Nov'15 @ 2.05% variable instead of 3.2%
On top of that, I use the remaining room of the HELOC to "capitalise" the interests of the other segment. In fact, the re-advacable part pays for P + I of the amortized one.
Get use to track your acb before going any further with SM! CRA is watching you...
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I returned from a lovely yoga class this AM to find my kids making pancakes for me. How great. They are developing a taste for pop music so we dance around the kitchen and I teach them my fabulous dance moves. So fun. And better me than my husband...he has no moves. :) So a good start to another great day.
I wasn't the teacher today. I only teach the weekly Karma class (free with donation to charity) as a volunteer. I don't want to compete with the lovely young ladies in town who are striving to make a living teaching yoga. I want them to be wildly successful. Teaching the Karma class is good for my soul and also allows me to attend the other classes for free which is good for my pocketbook. Everybody wins.
Interestingly, if you look at Benders portfolios vs CCP portfolios and compare the two, the only real apples for apples comparison is the 60/40 portfolio. The results are mixed, it doesn't give Bender a clear edge. I'm actually a little surprised myself because I only chose XAW.TO for simplicity but I expected a clear edge to a 5 ETF portfolio.
1 Year Return: CCP wins by 0.29%
3 Year Return: CCP wins by 0.12%
5 Year Return: Bender wins by 0.01%
10 Year Return: Bender wins by 0.12%
20 Year Return: CCP wins by 0.11%
MER average is the same at 0.14% for both.
Standard deviation gives the win to CCP.
In a nutshell, your only real gain is with the withholding tax on US index within your RRSP.
Simple and brilliant comparison and conclusion, Mr. Rich Moose. Le Barbu's comparison of the 2 equity funds vs 8 equity funds supports the same conclusion. Portfolio simplicity does not sacrifice returns. This is a welcome piece of news.
I have been thinking more about Norberts Gambit. It would require a more complex portfolio and even among the group of experienced investors on this thread who I have learned to trust and respect only half of you use it. Perhaps it is not for me, yet. I am leaning towards reverting to the original 3 fund CPP plan.
Of the 6 registered accounts that we are moving from BMO to IL, the funds have only disappeared from online banking for one of the RRSPs. None of the funds have shown up yet in IL. The process is surprisingly slow for being in the digital age. So I still have a week before I need to firmly commit to a portfolio.
GreatLaker - thanks for your excellent explanation on why it makes normally sense to hold bonds in RRSPs as opposed to taxable accounts. We do not yet have taxable investments but that day is getting closer and I am stockpiling knowledge.
This is such a great thread for Canadians investing! Blissful Biker, I went through this entire process about 1.5 years ago, including reading Millionaire Teacher, which like you, really did help convince me that investing in index ETF's would be better than using our financial advisor. When I found out our MER's and the fact that all of our funds had delayed sales charges, I was pretty ticked! But I bit the bullet and transferred everything over to Questrade and couldn't be happier. I will say that I love being able to buy even one share at a time from dividend payments without trading fees and would recommend it to everyone. I like to get my money working for us as soon as possible, and I actually enjoy the buying process! It only takes a day or two to transfer funds from my TD account to Questrade, and they will reimburse transfer fees. Seems better than all these workarounds to wait to accumulate funds to reduce trading fees. We've got quite a bit invested in our taxable account but I'm obviously not doing ACB correctly, so I will need to learn more about it.
Le Barbu, I'm a longtime reader of Million Dollar Journey where I first learned about the Smith Manoeuvre and am considering this as we are moving soon and have accumulated substantial equity in our current house. But where does one get a 2.25% HELOC rate? Most of the ones with re-advancable mortgages I see are prime + 0.5%.
Use a HELOC for 200k$ and buy more VCN (1 trade). Take a 5 years variable rate @ 2.25% wich is deductible against your income for a net 1.5% (less than inflation rate). It's called Smith Manœuvre and Million Dollar Journey will tell you the way to do this.
Welcome Travelling Biologist! I just searched the library catalogue for a Million Dollar Journey book and came up dry. A google search led me to http://www.milliondollarjourney.com (http://www.milliondollarjourney.com). Are you and Le Barbu referring to the website, or is there a book? Looks like good material on the website.
$800 bucks for mountain bike wheels?!? Not even a whole bike? How anti-mustachian of you. I should not talk though. I used to have a part time j*b in a ski and bike shop to fund my equipment addictions.
Lol, We ride $5200 carbon mountain bikes that actually make us a few hundred per year. Ancient Chinese secret! 😸
I need this ancient Chinese secret! We were fortunate to have nearly a decade of free bikes each spring from the team sponsors. Even when I dropped out of the race scene to have babies I still got screaming deals through my husbands sponsors. My favorite mtn bike is worth $8K and we paid $2K. It is such a sweet ride. In the current pairing of me and my bike, I am by far the limiting factor, for which I obviously blame my kids. :) We take really good care of the bikes to make sure they last a long time. Our racing (and free bikes) days are behind us but we will forever love good quality bikes. Disclaimer - bike racing is certainly not the direct path to financial freedom but it was an enjoyable detour.
This week I need to develop a plan for the $120K in RESPs. IL confirmed that they obtain the government grant on our behalf and I have submitted the paper work to transfer the funds to IL. Withdrawals could start in 5.5 years and last for 5 or 6 years. Perhaps the Balanced or Cautious CPP portfolio:http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf (http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf). Any advice or opinions?
Thanks again.
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Lol, We ride $5200 carbon mountain bikes that actually make us a few hundred per year. Ancient Chinese secret! 😸
I need this ancient Chinese secret! We were fortunate to have nearly a decade of free bikes each spring from the team sponsors. Even when I dropped out of the race scene to have babies I still got screaming deals through my husbands sponsors. My favorite mtn bike is worth $8K and we paid $2K. It is such a sweet ride. In the current pairing of me and my bike, I am by far the limiting factor, for which I obviously blame my kids. :) We take really good care of the bikes to make sure they last a long time. Our racing (and free bikes) days are behind us but we will forever love good quality bikes. Disclaimer - bike racing is certainly not the direct path to financial freedom but it was an enjoyable detour.
If you don't mind saying, what type of bikes do you ride?
I have a Fat Chance mountain bike. It was a sweet ride in its time but I doubt any young'uns here ever heard of it.
(Steel is Real)
This week I need to develop a plan for the $120K in RESPs. IL confirmed that they obtain the government grant on our behalf and I have submitted the paper work to transfer the funds to IL. Withdrawals could start in 5.5 years and last for 5 or 6 years. Perhaps the Balanced or Cautious CPP portfolio:http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf (http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf). Any advice or opinions?
Do you really want money you need for the kid's education in stocks, or even long-term bonds? Here is a chart of VAB over the past 5 years.
(http://www.pbase.com/brucemck/image/165414409/large.jpg)
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All of the RESP, 105k$ now, is in a Canadian stock index funds. If it was invested in a balanced funds or a target date funds, it would worth no more than 80k$. Plan to pull out this money in 4 years from now but will probably not "need" it. So much good school options for cheap around here! Honestly, we contributed to get the grants and shelter the stash from taxes. My biggest concern is not volatility but being able to draw everything without penalty. I think that up to 20k$/year there is no problems. I may recommend my kids to open a TFSA and begin to top it full every single year!
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Lol, We ride $5200 carbon mountain bikes that actually make us a few hundred per year. Ancient Chinese secret! 😸
I need this ancient Chinese secret!
If you don't mind saying, what type of bikes do you ride?
I have a Fat Chance mountain bike. It was a sweet ride in its time but I doubt any young'uns here ever heard of it.
(Steel is Real)
Most of our bikes are from the Specialized S-Works series. My beautiful mtn bike is a Safire. It is my all time favourite bike but Specialized doesn't make them anymore. Which is all the more reason to make sure she lasts forever. I attached a photo. How do you imbed an image? My kids ride hand me down S-Works Stumpjumpers and really have no idea how lucky they are. I don't think the dog fully appreciates his awesome lifestyle either. But I do, I appreciate it enough for all of us.
A Fat Chance bike - very indy, you hipster. Been getting some spring riding in?
I see GreatLaker and Le Barbu have polar opposite opinions on the RESP asset allocation. Which on the surface may not seem helpful but I really like seeing you guys disagree. I am learning there are no hard and fast rules that I need to memorize. Just understand your objectives and risks and use good judgement.
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All of the RESP, 105k$ now, is in a Canadian stock index funds. If it was invested in a balanced funds or a target date funds, it would worth no more than 80k$. Plan to pull out this money in 4 years from now but will probably not "need" it. So much good school options for cheap around here! Honestly, we contributed to get the grants and shelter the stash from taxes. My biggest concern is not volatility but being able to draw everything without penalty. I think that up to 20k$/year there is no problems. I may recommend my kids to open a TFSA and begin to top it full every single year!
Does the Quebec provincial government contribute more to post secondary education than the other provinces? Will your kids live at home? I figure we need $160K to cover $20K/year for 2 kids for 4 years each. I'll encourage them to expand beyond a 1st degree, but that would be on their own dime. I like the TFSA idea. I just looked it up and see they are eligible to start contributing at age 18. I too am going to encourage my kids to top it up every year.
100% stocks feels too risky for the time frame. I think I'll dial that down a bit. GreatLaker seems to recommend GICs or equivalent. That feels too conservative. I need to find a balance in there somewhere.
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That VAB price chart is misleading. Look up total return to include interest payments and get the real picture.
http://canadiancouchpotato.com/2017/04/26/bond-basics-2-why-your-etf-isnt-losing-money/
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VSB might be your RESP answer
https://www.vanguardcanada.ca/individual/mvc/loadImage?country=can&docId=249
Find total return here:
https://www.vanguardcanada.ca/advisors/mvc/detail/etf/overview?portId=9553##performance
Plan to hold bonds fir longer than thier duration.
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steel is real
And Ti is fly. Titus Fireline Titanium 29er hardtail is my long term ride.
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So much good information here! I'm just starting out but it's great to see Canadian specific details. I just started with the CCC recommended Tangerine funds till I have enough and feel comfortable starting questrade. Thanks everyone!
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The robbers stole my Brodie and my kid's Specialized. I continue to feel strongly that police should prioritize not according to value of item stolen -ignoring the bikes in favour of the ATVs and boats- but according to proportion of family's net worth. Bike theft is a harder blow on some of us, and we won't be buying shiny again until we have a very different life.
I do RESPs with the same reasoning as Le Barbu. I don't plan for kid to use them as RESPs, but to roll them into whatever other useful option (e.g., RDSP if that's an option). The govt matches were great. If he chooses post-secondary, we'll pursue grants.
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All of the RESP, 105k$ now, is in a Canadian stock index funds. If it was invested in a balanced funds or a target date funds, it would worth no more than 80k$. Plan to pull out this money in 4 years from now but will probably not "need" it. So much good school options for cheap around here! Honestly, we contributed to get the grants and shelter the stash from taxes. My biggest concern is not volatility but being able to draw everything without penalty. I think that up to 20k$/year there is no problems. I may recommend my kids to open a TFSA and begin to top it full every single year!
Does the Quebec provincial government contribute more to post secondary education than the other provinces? Will your kids live at home? I figure we need $160K to cover $20K/year for 2 kids for 4 years each. I'll encourage them to expand beyond a 1st degree, but that would be on their own dime. I like the TFSA idea. I just looked it up and see they are eligible to start contributing at age 18. I too am going to encourage my kids to top it up every year.
100% stocks feels too risky for the time frame. I think I'll dial that down a bit. GreatLaker seems to recommend GICs or equivalent. That feels too conservative. I need to find a balance in there somewhere.
Quebec have dirt cheap education costs. If kids decide to stay home while studying, real aditional fees will be <5k$/year (conservative). We have a lot of options close to home, public transit is accessible and easy, especially for schools. It's been 12 years our living cost didnt change, first it was kindergarden, then hockey, next will be post-secondary school. At the end, its a wash, so be it!
The difference between me and GreatLaker, I consider myself as an investor vs lender. Investor own producing assets (i.e. stocks) and lenders own debts (i.e. bonds). Asside that, both options are valid, depends who you are!
I went through majors downturns and know my confidence level, so dont worry for me!
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BlissfulBiker, in your position I would go with a 60/40 portfolio of XAW and VSB. It's super easy to manage and diversified. If you kids start uni during a bad stock market year pull their income from VSB. If they start in good markets pull from XAW. You pretty much can't go wrong.
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BlissfulBiker, in your position I would go with a 60/40 portfolio of XAW and VSB. It's super easy to manage and diversified. If you kids start uni during a bad stock market year pull their income from VSB. If they start in good markets pull from XAW. You pretty much can't go wrong.
+1 for VSB
If I decide to own bonds someday, I prefer short bonds, they brings what you need, stability!
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First off I wont hold it against you for riding Specialized....they are a rare breed on Vancouver Island
We are a world of Giant Trek Pivot Yeti DeVinci Kona and Knolly :)
I am happy that you appreciate the simplicity of a minimal portfolio
I couldn't be happier with VAB VCN and VXC (we have US and INT when it can all be in one)
Dan now changed from VXC to XAW though recently for his model ETF portfolios at CCP
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We used to scrape the I and Z off our Specialized helmets so it said "SPECIAL ED". I imagine your sponsor would not have liked that.
BlissfulBiker, in your position I would go with a 60/40 portfolio of XAW and VSB. It's super easy to manage and diversified. If you kids start uni during a bad stock market year pull their income from VSB. If they start in good markets pull from XAW. You pretty much can't go wrong.
^^^This. It's not about risk tolerance or investing vs. lending. Nothing wrong with risky assets in a RESP while in savings mode. But when you start spending and you need to withdraw 20% of a portfolio each year to fund education, return of capital is more important than return on capital. So as the withdrawal phase approaches, consider de-risking the portfolio.
XAW+VSB is a good choice, or similar with iShares short term bond fund XSQ. The duration of VAB is much longer than a university education; it could be adversely affected by a quick spike in interest rates.
Or if you want greater certainty of returns combine a 5-year GIC ladder with a short term bond ETF. The ETF gives flexibility with part of the funds, while the GIC ladder ensures specific funds become available each year, while also getting the best 5-year rates. That's what I would do. If interested check with BMO to see if they allow purchase of GICs in RESPs.
http://www.finiki.org/wiki/Fixed_income_ladder
For a real world example, consider an equity investor with 100% in the S&P500, funding kids education over 5 years. Starting with US$100k at the beginning of 2008, the market dropped 40% that year. So when you need to make your first withdrawal, you have $60k left, then you make your withdrawal and you only have $40k left. The market recovered 24% in 2009 (but it takes a 66% increase to recover a 40% decline), so you have $50k, then withdraw that year's $20k and you are down to $30k with 3 years left. Or similarly, the S&P500 dropped 9% in 2000, 12% in 2001, and 22% in 2002. So after your withdrawal for the 3rd year you only have $13k left. Then it went up 25% in 2003, leaving $16k for the last 2 years. Both examples would have run out of money before 5 years. Those are real world numbers from 2 crashes within a decade.
Then you have to try and smile at the kids across the dinner table as they excitedly tell you about their plans for the upcoming school year. Markets can crash faster than me on a steep muddy hill. And they take longer to recover. When you need money, return of investment is more important than return on investment.
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Now, what if I do not need the RESP money to fund your kids education? My sons are already aware that their grand-parents retirement money have shrinked by inflation because they owned GICs for safety purposes...
The key is, as usual, minimise expenses, invest as much as possible, pay low fees & taxes, gets all the grants available, stay liquid & solvent, keep calm. This is the way I manage my money for the last 20 years and I have no regrets.
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Now, what if I do not need the RESP money to fund your kids education? My sons are already aware that their grand-parents retirement money have shrinked by inflation because they owned GICs for safety purposes...
My comments were directed at Blissful Biker who does plan to start using the money within 5 or so years. You are not in the same position and have your plan already in place. 2 or 3 % inflation won't do much damage to a GIC portfolio over 5 years. On the other hand spending down an RESP over 5 years means 20% annual withdrawals. Selling that much in a bear market is really corrosive to a portfolio.
Horses for courses. :)
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VSB might be your RESP answer
https://www.vanguardcanada.ca/individual/mvc/loadImage?country=can&docId=249
Find total return here:
https://www.vanguardcanada.ca/advisors/mvc/detail/etf/overview?portId=9553##performance
Plan to hold bonds fir longer than thier duration.
Thanks. Please tell me more. Why plan to hold bonds for longer than their duration? I assume this is why you are recommending VSB (Vanguard Short-Term Bond ETF) as opposed to VAB or ZAG (Aggreate Bond ETFs) that are used in the couch potato portfolios.
BlissfulBiker, in your position I would go with a 60/40 portfolio of XAW and VSB. It's super easy to manage and diversified. If you kids start uni during a bad stock market year pull their income from VSB. If they start in good markets pull from XAW. You pretty much can't go wrong.
I like this. It sounds simple, less risky than 100% equities, but still provides an opportunity for the portfolio to grow. I might take it to 50/50 as opposed to 60/40. GreatLaker has earned his financial stripes and caution the hard way and I agree it is time to start being more conservative. I notice there are no Canadian equities in a XAW / VSB split. I assume this is for simplicity.
Historically I have been very aggressive with the RESP, investing it in "aggressive growth funds" and it has paid off. At our meeting our ex-BMO advisor gave me the figures on what the cumulative RESP contributions have been so I can take over tracking. In 13 years we have contributed $60K and the other $60K has come from earnings. I was impressed. And that means we still have $40K of contribution room before we hit the $100K max ($50K / child lifetime limit).
In a couple of years, I could dial down the risk again and look at GIC ladders. Thanks for the article on ladders GreatLaker.
We used to scrape the I and Z off our Specialized helmets so it said "SPECIAL ED". I imagine your sponsor would not have liked that.
XAW+VSB is a good choice, or similar with iShares short term bond fund XSQ. The duration of VAB is much longer than a university education; it could be adversely affected by a quick spike in interest rates.
Markets can crash faster than me on a steep muddy hill. And they take longer to recover. When you need money, return of investment is more important than return on investment.
Really, how can I take advice from someone with a SPECIAL ED helmet? ;)
First off I wont hold it against you for riding Specialized....they are a rare breed on Vancouver Island
We are a world of Giant Trek Pivot Yeti DeVinci Kona and Knolly :)
I am happy that you appreciate the simplicity of a minimal portfolio
I couldn't be happier with VAB VCN and VXC (we have US and INT when it can all be in one)
Dan now changed from VXC to XAW though recently for his model ETF portfolios at CCP
Thanks Stasher. Glad to hear you weigh in on the side of simplicity. I truly love my Saphire, but at some point our fleet of Specialized bikes will wear out and I'll likely get a Yeti Beti. I am hoping that is many years and many happy rides away.
So much good information here! I'm just starting out but it's great to see Canadian specific details. I just started with the CCC recommended Tangerine funds till I have enough and feel comfortable starting questrade. Thanks everyone!
Welcome. I am glad you can also benefit from the terrific advice I am getting. Feel free to chime in with questions.
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Dan explains it much better than I. I'm just passing on his knowledge.
http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/
VAB - 10 year duration in my RSP for long term
VSB - 3 year duration as a $21k big emergency fund in my easily (no taxes or fees) accessible TFSA.
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Now, what if I do not need the RESP money to fund your kids education? My sons are already aware that their grand-parents retirement money have shrinked by inflation because they owned GICs for safety purposes...
My comments were directed at Blissful Biker who does plan to start using the money within 5 or so years. You are not in the same position and have your plan already in place. 2 or 3 % inflation won't do much damage to a GIC portfolio over 5 years. On the other hand spending down an RESP over 5 years means 20% annual withdrawals. Selling that much in a bear market is really corrosive to a portfolio.
Horses for courses. :)
Well said GreatLaker, I imagine it's just to hard for me to think about a mustachian in the early 40´s, 1.5M$ NW wich more than 1M$ is invested, now debt and still planning to work for 5-7 years to be so conservative. I would agree for a normal person but still struggle for one of MMM comunity...
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Well said GreatLaker, I imagine it's just to hard for me to think about a mustachian in the early 40´s, 1.5M$ NW wich more than 1M$ is invested, now debt and still planning to work for 5-7 years to be so conservative. I would agree for a normal person but still struggle for one of MMM comunity...
Good points... The way I look at it, investors with mandatory spending like education or home down payment should ask 2 questions:
1) How would another market crash like 2000 or 2008 affect my ability to meet my near term spending needs?
2) How would my ability to meet my immediate goals be affected by keeping that money in less risky assets?
1 could be huge, 2 probably not so much.
Edit: revised #2 for better clarity.
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Well said GreatLaker, I imagine it's just to hard for me to think about a mustachian in the early 40´s, 1.5M$ NW wich more than 1M$ is invested, now debt and still planning to work for 5-7 years to be so conservative. I would agree for a normal person but still struggle for one of MMM comunity...
Good points... The way I look at it, investors with mandatory spending like education or home down payment should ask 2 questions:
1) How would another market crash like 2000 or 2008 affect my ability to meet my near term spending needs?
2) How would my ability to meet my immediate goals be affected by keeping that money in less risky assets?
1 could be huge, 2 probably not so much.
Edit: revised #2 for better clarity.
In my own situation, wich could differ from others as OP, I would react differently if a crash happen at the same time than mandatory expenses. As for the schooling fees, our now mid-class incomes would be a perfect situation for pulling big student loans, they could be repaid when RESP recover 5-10 years latter. One friends of mine, wich did not need their student loan money, just invested for all the years the loans were no interest, his parents told him how to manage money. This guy was millionnaire at 30y.o. but not being very mustachian, he probably need 5-10M$ to fund his lifestyle...
Last year, I quit a high income job mid-summer. Our youngest son just started a tooth job wich cost few thousands. The plan was to pay once a month for 2 years, no fees. In december, I decided to pay the entire bill to get the max refund for medical expenses when filling our income taxes 3 months later. Our 2016 lower income was an opportunity to get more!
This is why I usualy keep +/-10k$ cash in HISA, 30k$ CC, 50k$ LOC and 25k$ HELOC available anytime, wich is enough of a buffer for my nerves and needs.
That said, your advices are exactly what a good financial advisor would give, minus fees!
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Wow great information in this thread. Thanks Le Barbu, GreatLaker and Heckler for all of the information and good job Blissful Biker on the conversion to self directed!
Following the thread for even more words of wisdom from the group!
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Saskatchewstachian: Love the avatar!!
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Thanks, figured it was fitting for a hunter from the prairies. I've also commented over at your blog before but I don't think it had any sort of avatar on my post there.
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Dan explains it much better than I. I'm just passing on his knowledge.
http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/
VAB - 10 year duration in my RSP for long term
VSB - 3 year duration as a $21k big emergency fund in my easily (no taxes or fees) accessible TFSA.
Ahh. Great article. Thanks. I am trying to work my way through the CCP website but I still have a ways to go. I burned through the podcasts quickly. Sitting at a computer is not as enjoyable as being out in the woods with the dog and a podcast. :) But the reading is interesting. I am loving learning and the articles are well written.
The article referenced differentiates between bond maturity and duration. On the VSB fact sheet https://www.vanguardcanada.ca/advisors/mvc/detail/etf/overview?portId=9553##overview (https://www.vanguardcanada.ca/advisors/mvc/detail/etf/overview?portId=9553##overview), it shows a average maturity of 3.0 years and an average duration of 2.8 years. Maturity is easy enough to understand as the weighted average term to maturity. So VBS is comprised essentially of 3 year bonds.
Duration is a tougher concept. The article describes it as a measure of sensitivity to interest rate swings. If I understand Dan, if the interest rates increased one percent. a bond fund with a duration of 2.8 could drop 2.8% in value in a year. By that logic, it would seem a smaller duration is always better. Agreed?
The debate between Le Barbu and GreatLaker has made me consider what the consequences would be if the RESPs lost value. I work part time a bit longer, which would not be terrible, or the boys pick up some student loans, which again would not be terrible. I paid my own way through engineering school and it made me frugal, resilient and independent. So with statistics in my favour, being that the odds of market increases exceeding market losses, I am willing to take some market risk in the RESPs. A split between VSB and XAW sounds like a good plan.
Saskatchwestachian - Welcome!
Jooniflorisplo - Sorry to hear about your bikes being stolen. That is crummy.
I put the $6K tax return in my husbands TFSA and have tried twice to buy XAW with it with out success. I am able to successfully create orders but they are not filled and then expire at the end of the day. The Justin Bender InvestorLine EFT video https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/Blog/Justin-Bender/October-2016/How-to-Build-an-ETF-Portfolio-at-BMO-InvestorLine (https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/Blog/Justin-Bender/October-2016/How-to-Build-an-ETF-Portfolio-at-BMO-InvestorLine) explained that you should select a maximum price that you will pay that is just a few cents over the ask price and have the offer good only for the day.
Using todays XAW numbers, IL shows a Bid price of $24.40 and an Ask price of $24.47. I am not quite sure what the difference between those two numbers are, but I figured I should set my limit above the highest one so I set it at $24.49. No luck. The order still hasn't been processed and will shortly expire. Drat. What do you think? Raise my offer? Is that why it is not being filled?
No more movement on the bulk of the funds. The funds are still showing in BMO online banking except for one RRSP. Nothing has shown up yet in IL. Continuing to wait and learn.
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The article referenced differentiates between bond maturity and duration. On the VSB fact sheet https://www.vanguardcanada.ca/advisors/mvc/detail/etf/overview?portId=9553##overview (https://www.vanguardcanada.ca/advisors/mvc/detail/etf/overview?portId=9553##overview), it shows a average maturity of 3.0 years and an average duration of 2.8 years. Maturity is easy enough to understand as the weighted average term to maturity. So VBS is comprised essentially of 3 year bonds.
Duration is a tougher concept. The article describes it as a measure of sensitivity to interest rate swings. If I understand Dan, if the interest rates increased one percent. a bond fund with a duration of 2.8 could drop 2.8% in value in a year. By that logic, it would seem a smaller duration is always better. Agreed?
VSB holds bonds with a 1 to 5 year duration, so 3 is the average.
Short duration bonds are better for maximum negative correlation to stocks and in rising interest rate environments. However, because they are safer their yield is also lower which translates to lower returns over long time frames and in falling interest rate environments when comparing to longer term bonds.
I personally feel VSB is good for your RESP situation because the drawdowns on RESPs are so huge during fulltime education.
Using todays XAW numbers, IL shows a Bid price of $24.40 and an Ask price of $24.47. I am not quite sure what the difference between those two numbers are, but I figured I should set my limit above the highest one so I set it at $24.49. No luck. The order still hasn't been processed and will shortly expire. Drat. What do you think? Raise my offer? Is that why it is not being filled?
Strange! It should have filled without a problem because XAW closed the day $24.42 which is well under your bid and there was decent volume. I would call IL to find out whats going on because that shouldnt have happened. And don't take "raise your bid" as an answer!
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Strange, XAW spent most of the trading hours below 24.49$ today...
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By that logic, it would seem a smaller duration is always better. Agreed?
If only it were that easy. Longer GICs have higher returns than shorter ones, as a reward for locking up your money. Similar with bonds, longer maturity bonds have higher yields (for bonds with the same risk level and credit quality), but they are more volatile. Look at the price chart of XBB (aggregate bond) vs XSB (short term bonds). I used these instead of VAB/VSB because they have more history.
https://www.blackrock.com/ca/individual/en/products/239493/
https://www.blackrock.com/ca/individual/en/products/239491/
Click on the small chart on those links and a bigger chart will open up.
So if you want stability, go short term, if you want better returns, go long term. That's why the article says hold your bonds for the duration. If you hold them long enough, the interest payments will offset any price drop caused by a rise in interest rates. That's why VAB is recommended for long-term portfolios.
Maturity is just how long until a bond matures and repays its principal. Duration is a more obtuse concept. Duration is a measure of how long it takes to get back the price of a bond, considering the present value of its interest payments and the principal. So it is shorter than the maturity. And the higher the interest rate, the shorter the duration. A 5 year bond with a 10% annual interest payment will have a shorter duration than a 5 year bond with a 2% annual interest payment. Higher interest payments mean you get your money back faster. But that's not too critical for investing. Just know that higher duration = more volatility but also higher return for the same credit quality.
Strange that your order did not fill. Consider bid/ask like buying a house. If you offer (bid) what the seller is asking they should take your offer. So buyers were willing to pay $24.40, but sellers wanted $24.47. A buy order at or above ask should fill. A sell order at or below bid should fill. But say the ask is $24.47 and you put in a buy order at $24.50, your order should still fill at $24.47 assuming there are enough shares offered to fill it.
You can go to TMXMoney to see the last 25 orders and prices with a slight delay. You might even see your own order after it fills (with seller as BMO).
https://web.tmxmoney.com/quote.php?qm_symbol=XAW
Maybe there was some weirdness at BMO or with your order.
OK, finance class is over. Who wants to go for drinks after class?
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All of the RESP, 105k$ now, is in a Canadian stock index funds. If it was invested in a balanced funds or a target date funds, it would worth no more than 80k$. Plan to pull out this money in 4 years from now but will probably not "need" it. So much good school options for cheap around here! Honestly, we contributed to get the grants and shelter the stash from taxes. My biggest concern is not volatility but being able to draw everything without penalty. I think that up to 20k$/year there is no problems. I may recommend my kids to open a TFSA and begin to top it full every single year!
Does the Quebec provincial government contribute more to post secondary education than the other provinces? Will your kids live at home? I figure we need $160K to cover $20K/year for 2 kids for 4 years each. I'll encourage them to expand beyond a 1st degree, but that would be on their own dime. I like the TFSA idea. I just looked it up and see they are eligible to start contributing at age 18. I too am going to encourage my kids to top it up every year.
100% stocks feels too risky for the time frame. I think I'll dial that down a bit. GreatLaker seems to recommend GICs or equivalent. That feels too conservative. I need to find a balance in there somewhere.
Blissful Biker -- For the amount needed for post secondary, $16k-$19k/yr per kid in BC is what is needed today, for a live in residence top school.
But, then you subtract your tax credits, the kids' own contributions, scholarships (if any), and the fact that you personally don't cut your kids off at age 19. (e.g., you will have money to give during the ages 19-22 and don't need all of it in advance).
Quebec - not sure the limits, but Federal RESPs are 20% top up, up to $7200 max per kid. 30% or 40% are for lower income families too, plus free money if you qualify for national child supplement. (income tested). Many provinces have $500 or more extra money for RESP's too, so check yours.
Why to have fixed income in registered funds?
First. Decide IF you want to have fixed income in your asset mix.
THEN, If the answer is "yes", you choose where to put it.:
RRSPs are the best place because of tax deferred growth. But if it grows exceptionally large, you pay more taxes when you withdraw it.
Keep TFSA's for your fast growing options, as it is not only tax deferred, but no tax on the growth at all. See the difference?
If you had it in a non-registered account, you would pay the most tax, every year, no tax benefits. This is only a good choice if you are in a very low/ no tax bracket, otherwise RRSP is best place for any fixed income that you choose to have.
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Well said GreatLaker, I imagine it's just to hard for me to think about a mustachian in the early 40´s, 1.5M$ NW wich more than 1M$ is invested, now debt and still planning to work for 5-7 years to be so conservative. I would agree for a normal person but still struggle for one of MMM comunity...
Good points... The way I look at it, investors with mandatory spending like education or home down payment should ask 2 questions:
1) How would another market crash like 2000 or 2008 affect my ability to meet my near term spending needs?
2) How would my ability to meet my immediate goals be affected by keeping that money in less risky assets?
1 could be huge, 2 probably not so much.
Edit: revised #2 for better clarity.
Nice answer!
After having burned myself financially previously, by keeping my short term money in equities then having to sell when it was down (20% or more), I have learned my lesson, and i begin to lock in my money to a fixed or cash basis within 4 years of needing it. (gradually sell when there is an uptick in the market).
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Mystery solved. I called IL today to ask why yesterday's order didn't fill. He looked it up and we talked through it. I made the order mid afternoon yesterday which seems like a perfectly civilized time to be making trades. But apparently not. It turns out that markets close at 1PM PST so when I set the duration of the buy request to one day, that day was today and the order was filled this AM at $24.41. So all is well and I am a little smarter.
Some good news, the funds from one of the RRSPs made it over to IL, so I now have an account balance of $380K. When I called IL about yesterday's failed trade I put my account number in the automated answering service and then a live human picked up after two rings. A bright, knowledgable human with an excellent command of the English language. A coincidence? When the whole $1.1M makes it across I wonder what will happen, a pick up in half a ring by the VP? :)
So tomorrow when the market opens (which happens to be 6:30AM PST) I will be able to make my first big dollar purchases of ETFs. Very exciting!
Blissful Biker -- For the amount needed for post secondary, $16k-$19k/yr per kid in BC is what is needed today, for a live in residence top school.
But, then you subtract your tax credits, the kids' own contributions, scholarships (if any), and the fact that you personally don't cut your kids off at age 19. (e.g., you will have money to give during the ages 19-22 and don't need all of it in advance).
Why to have fixed income in registered funds?
First. Decide IF you want to have fixed income in your asset mix.
THEN, If the answer is "yes", you choose where to put it.:
RRSPs are the best place because of tax deferred growth. But if it grows exceptionally large, you pay more taxes when you withdraw it.
Keep TFSA's for your fast growing options, as it is not only tax deferred, but no tax on the growth at all. See the difference?
If you had it in a non-registered account, you would pay the most tax, every year, no tax benefits. This is only a good choice if you are in a very low/ no tax bracket, otherwise RRSP is best place for any fixed income that you choose to have.
Thanks. My neighbour tracks the costs of his kids at UBC and it came out to $19K/kid/year so I rounded to $20K and that was the extent of my research. Glad to hear it is conservative. You mention that the number can be reduced by tax credits. How does that work? With costs being covered by RESP funds withdrawn and taxed in the kids names, why would I receive tax credits?
As for the fixed income, agreed, I am going to put bonds primarily in my RRSP as it is larger than my husbands RRSP + spousal RRSP and I am trying to even them out. So I'll let his grow quicker by loading with equities.
OK, finance class is over. Who wants to go for drinks after class?
I am in! Thanks for another great lesson.
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Holy fuck, 20k a year per kid??? That's nuts. Im pretty sure I went to UWO living at home for 4k.
Oh yeah, BB - plan your orders and make them at 7-8 AM PST and I like to make them valid for a week, not a day and also at ask price, not below. BMO will charge two commissions if an order is partially filled one day, then totally filled the next day, and also partially fill an order and close it if you ask for one day of validity.
I would be patient and buy one ETF per day - get it right.
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Holy fuck, 20k a year per kid??? That's nuts. Im pretty sure I went to UWO living at home for 4k.
Just wanted to chime in on the 20k/yr figure as I am only a couple years out of uni and have been tracking every cent spent since about 2012.
Tuition Rent Food+ Spending
Year 1 $5,332 $4,800 $18,000
Year 2 $3,946 $4,800 $18,000
Year 3 $6,900 $4,800 $18,000
Internship $7,124 $4,800 $18,000
Year 4 $5,901 $4,800 $18,000
Total = $29,203 $24000 $90,000 = $143,203
That tuition is for an engineering degree heavy on labs and therefore increased tuition costs. It also has more credit units and classes overall than a standard Art's degree.
These costs are for living off campus, sharing a condo with 2 other people and includes spending on gas, booze, food, clothing, textbooks, etc.
The only way I can see the full 160k is:
A) a premium applied to the living costs and food costs due to living in residence;
B) the parents is supporting the child outside of direct school costs as well by including a living stipend;
C) The child is going for a dual degree which may take 6+ years;
D) Zero scholarships were granted over the duration of the degree.
Hope this helps!
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Mystery solved. I called IL today to ask why yesterday's order didn't fill. He looked it up and we talked through it. I made the order mid afternoon yesterday which seems like a perfectly civilized time to be making trades. But apparently not. It turns out that markets close at 1PM PST so when I set the duration of the buy request to one day, that day was today and the order was filled this AM at $24.41. So all is well and I am a little smarter.
Doh! Time zone difference so obvious now that it's been explained.
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The tuition and rent costs rock. That $18k/yr in food and entertainment MMM kids will hopefully skip! I'd be mortified if I learned I'd done all this hard work to save only for my kid to blow it that way, eek. That's why I won't give him that :)
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The tuition and rent costs rock. That $18k/yr in food and entertainment MMM kids will hopefully skip! I'd be mortified if I learned I'd done all this hard work to save only for my kid to blow it that way, eek. That's why I won't give him that :)
Agreed, by living at home the 24k of rent disappears, and i'm sure the other living expenses would go wayyyy down. Yes college students are still going to attend beer nights and need to buy books but many of the other items will drop or be absorbed into the parents budget. i.e. cleaning supplies for the students household, tanks of propane for the bbq, all the other random stuff that add up while living away from home.
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The tuition and rent costs rock. That $18k/yr in food and entertainment MMM kids will hopefully skip! I'd be mortified if I learned I'd done all this hard work to save only for my kid to blow it that way, eek. That's why I won't give him that :)
Agreed, by living at home the 24k of rent disappears, and i'm sure the other living expenses would go wayyyy down. Yes college students are still going to attend beer nights and need to buy books but many of the other items will drop or be absorbed into the parents budget. i.e. cleaning supplies for the students household, tanks of propane for the bbq, all the other random stuff that add up while living away from home.
This is exactly why I budget 5k$/year to be "normal" extra cost for 5-6 years for a total from 25-30k$
Tuition, books, public transit pass, these are costs I will pay for. Beer, springbreak, electronic gadgets, car, are what kids will have to find money else where. When I consider they manage money fairly well, I may consider them getting the remaining stash in RESP...
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Agreed, by living at home the 24k of rent disappears, and i'm sure the other living expenses would go wayyyy down. Yes college students are still going to attend beer nights and need to buy books but many of the other items will drop or be absorbed into the parents budget. i.e. cleaning supplies for the students household, tanks of propane for the bbq, all the other random stuff that add up while living away from home.
My hope is that by the time Kid has had 15 years of MMM-style training, he won't overspend on beer nights, etc.
The rent amount was excellent. The only concerning line was $18k on "food and other." That's not an amount we'd want to reduce by absorbing it into a parent's spending. It's just an extremely high amount to spend, for anyone, in any circumstance. i.e., We're one adult and one teen and our entire monthly spending (housing, food, entertainment, household supplies, vehicle, etc) is ~$1400/mo. So, half that for one student, plus tuition (mostly grants), and the RESP needs are quite low.
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Agreed, by living at home the 24k of rent disappears, and i'm sure the other living expenses would go wayyyy down. Yes college students are still going to attend beer nights and need to buy books but many of the other items will drop or be absorbed into the parents budget. i.e. cleaning supplies for the students household, tanks of propane for the bbq, all the other random stuff that add up while living away from home.
My hope is that by the time Kid has had 15 years of MMM-style training, he won't overspend on beer nights, etc.
The rent amount was excellent. The only concerning line was $18k on "food and other." That's not an amount we'd want to reduce by absorbing it into a parent's spending. It's just an extremely high amount to spend, for anyone, in any circumstance. i.e., We're one adult and one teen and our entire monthly spending (housing, food, entertainment, household supplies, vehicle, etc) is ~$1400/mo. So, half that for one student, plus tuition (mostly grants), and the RESP needs are quite low.
Although I would have to disagree that 18k is a lot for anyone to spend in any circumstances, I do have to say that I am continuously impressed by mustachians. $1400/month works out to $16800 per year. For a family of two the federal Low Income Cut Off is $29,700. not only are you living frugally based on income but you are living on just 56% of what is classified as low income. Well done to you!
And my apologies Blissful Biker, I will stop hijacking the thread with University cost talk :)
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I have been soaking in the advice and reading but today is the day the rubber hits the road. I need to commit to an asset allocation and start buying large chunks of ETFs. Another RRSP and a TFSA account came across today so I now have $700K in IL to spend.
I have been debating between the CPP 3 fund 25% bond portfolio ( https://cdn.canadianportfoliomanagerblog.com/wp-content/up (https://cdn.canadianportfoliomanagerblog.com/wp-content/up)) or Justin's 5 fund 20% bond portfolio (http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pd (http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pd)). Both are great options. I dont think I could go wrong with either. Mr. Rich Moose demonstrated that at 60/40 the 3 fund and 5 fund performed essentially the same. Le Barbu showed that increasing the number of funds showed slight improvements in performance with the biggest gains coming from splitting out US equities. Justin Bender recommends the 5 fund approach for larger accounts and the 3 fund approach for smaller accounts.
I have landed on using Justin's 5 fund 20% bond portfolio with a plan to take that up to 30% bonds within 5 years. 20% bonds still gives me enough $$ to buy stocks cheap if they drop and it comes time to re balance. And having the house paid off makes me comfortable with an aggressive asset allocation. The re-balancing of 5 funds is a bit more work than 3 but I do not mind. I don't think it will be hard.
Justin provides a portfolio rebalancing tool on his blog and I have populated my plan. Please take a look and see what you think. To balance flexibility and simplicity I have tried to keep 2 funds per account and each fund spread over 2 accounts. I loaded the TFSAs with the riskier equities and my RRSP with the bonds (to let my husband's catch up). The RESP is of course excluded.
Oh yeah, BB - plan your orders and make them at 7-8 AM PST and I like to make them valid for a week, not a day and also at ask price, not below. BMO will charge two commissions if an order is partially filled one day, then totally filled the next day, and also partially fill an order and close it if you ask for one day of validity.
I would be patient and buy one ETF per day - get it right.
Thanks Heckler. Why keep it valid for a week?
I am nervous about the timing of the purchases. The markets are pretty much at an all time high. I have never paid too much attention to market fluctuations but I have also never spent a million in a week. Ackh! And Moodys downgraded the Canadian banks yesterday. Eeek.
Saskatchewstachian - your costs surprised me. I also hope my boys choose a STEM degree and they will have to move away to get it.
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I am nervous about the timing of the purchases. The markets are pretty much at an all time high. I have never paid too much attention to market fluctuations but I have also never spent a million in a week. Ackh! And Moodys downgraded the Canadian banks yesterday. Eeek.
Welcome to self-directed investing! :)
Make your purchases and stick to your plan knowing it is a good one.
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Drat. Work got in the way and the markets have closed for the day. Tomorrow I'll start making the big buys. On the bright side that gives me a chance to get feedback on the plan I attached this AM.
I am nervous about the timing of the purchases. The markets are pretty much at an all time high. I have never paid too much attention to market fluctuations but I have also never spent a million in a week. Ackh! And Moodys downgraded the Canadian banks yesterday. Eeek.
Welcome to self-directed investing! :)
Make your purchases and stick to your plan knowing it is a good one.
Thanks. It feels hair raising today, but once I have all the money invested I plan to largely ignore the markets for another year.
The tuition and rent costs rock. That $18k/yr in food and entertainment MMM kids will hopefully skip! I'd be mortified if I learned I'd done all this hard work to save only for my kid to blow it that way, eek. That's why I won't give him that :)
Agreed, by living at home the 24k of rent disappears, and i'm sure the other living expenses would go wayyyy down. Yes college students are still going to attend beer nights and need to buy books but many of the other items will drop or be absorbed into the parents budget. i.e. cleaning supplies for the students household, tanks of propane for the bbq, all the other random stuff that add up while living away from home.
This is exactly why I budget 5k$/year to be "normal" extra cost for 5-6 years for a total from 25-30k$
Tuition, books, public transit pass, these are costs I will pay for. Beer, springbreak, electronic gadgets, car, are what kids will have to find money else where. When I consider they manage money fairly well, I may consider them getting the remaining stash in RESP...
Having the kids cover discretionary expenses is a good plan. A taste of real life.
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I am incredibly impressed with how you've tackled all of this Blissful Biker! Way to go with the hard conversations with the advisor and learning so much in so little time.
It's doubtful that you could go wrong with either Asset Allocation but am quite new to this as well (have read a ton but am investing much much smaller amounts than you right now).
It's got to be terrifying to put all that money in at one time, but with your well thought-out plan and the diligence to stick to it if the market does go down you will do so much better than your advisor could have. Money in as a lump sum beats a dollar cost averaging over 65% of the time, so it's scary to throw it in but I would be making the same decision and then trying not to watch the market daily (I fail at this basically every day..)
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$1400/month works out to $16800 per year. For a family of two the federal Low Income Cut Off is $29,700. not only are you living frugally based on income but you are living on just 56% of what is classified as low income. Well done to you!
Thanks, Saskatchewstachian :) Yeah, I started out frugal, then went high for a few years, then slashed it all back down. We live quite luxuriously, too! Our rent may need to increase soon-ish, but we'll be able to keep the rest down with our upcoming move.
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Thanks Heckler. Why keep it valid for a week?
I am nervous about the timing of the purchases. The markets are pretty much at an all time high. I have never paid too much attention to market fluctuations but I have also never spent a million in a week.
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Still interested to Norbert-Gambit? 3x more trade + currency convertion to factor in! Look like you made the good choice!
Set your order early and valid for the day only. Just a few cents higher like you already did and wait until it's filled, usually immediatly.
Remember your money was already invested, you are just realocating funds!
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Still interested to Norbert-Gambit? 3x more trade + currency convertion to factor in! Look like you made the good choice!
Remember your money was already invested, you are just reallocating funds!
I rearranged my plan slightly to keep all the US equity in one account for simplicity, to flip over to VTI down the road when the dust settles. The updated plan is attached. In the future I plan to use the rebalancing portion of Hecklers spreadsheet as opposed to this one because Justin has locked most of the fields. While it is a safe way to start, my creative genius is being squashed by protected fields.
I made a few big buys this AM! In each case I set the maximum at the ask price and set the time frame for several days. Each order filled immediately and the whole process was pretty smooth. Planning to buy more on Monday and hopefully the rest of the funds will make it over to IL next week and I can get those invested too.
I am not used to seeing the market fluctuations in real time and have lost $250 this AM. I have to learn to ignore it. I have a good plan. Just relax.
It was interesting to watch the trades occurring for each fund at the site GreatLaker provided https://web.tmxmoney.com (https://web.tmxmoney.com). It gave me the courage to use the Ask price as I could see that many trades were happening at or below that value.
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Still interested to Norbert-Gambit? 3x more trade + currency convertion to factor in! Look like you made the good choice!
Remember your money was already invested, you are just reallocating funds!
I rearranged my plan slightly to keep all the US equity in one account for simplicity, to flip over to VTI down the road when the dust settles. The updated plan is attached. In the future I plan to use the rebalancing portion of Hecklers spreadsheet as opposed to this one because Justin has locked most of the fields. While it is a safe way to start, my creative genius is being squashed by protected fields.
I made a few big buys this AM! In each case I set the maximum at the ask price and set the time frame for several days. Each order filled immediately and the whole process was pretty smooth. Planning to buy more on Monday and hopefully the rest of the funds will make it over to IL next week and I can get those invested too.
I am not used to seeing the market fluctuations in real time and have lost $250 this AM. I have to learn to ignore it. I have a good plan. Just relax.
It was interesting to watch the trades occurring for each fund at the site GreatLaker provided https://web.tmxmoney.com (https://web.tmxmoney.com). It gave me the courage to use the Ask price as I could see that many trades were happening at or below that value.
The price you set is just to avoid system anomalies. The final price should always be the "market" price as long as it's below the price you set. Keep up!
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For anyone just starting on this journey, Moneygeek has a easy to understand set of videos
https://m.youtube.com/watch?v=xMkzF3bawvY
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For anyone just starting on this journey, Moneygeek has a easy to understand set of videos
https://m.youtube.com/watch?v=xMkzF3bawvY
Thanks. I have watched the first few. He does a good job at explaining concepts very simply. I will work my way through them all.
With the money being 2/3 moved over to IL, I am starting to think about DRIP. Do you use DRIPs or use the cash to rebalance? VCN and VUN have quarterly distributions, ZAG has monthly distributions, XEC and XEC are every six months.
Thanks. The kids are making me Mothers day breakfast, which is wonderful and getting less hazardous each year.
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my bonds DRIP 1 or 2 shares per month
my equities DRIP 4-5 shares per quarter
for this reason, I choose to DRIP all holdings because I won't spend $9.95 on the fee to reinvest a few hundred $ at a time. As it is, my accounts still accumulate one or two hundreds until I contribute a significant chunk and reinvest the cash portion of the dividends.
With a significantly larger portfolio, your dividends may be more feasible to be used to rebalance (and cost you $9.95) if you hold bonds and equities in the same account that majority of dividends are coming out of.
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That $4k of XEF in his TFSA will drive you crazy, because it'll dividend not enough to reinvest. If you haven't already purchased it, I would go 100% XEC in his TFSA and keep it simple.
Your three holdings of VCN are adding low value complexity - I would look for a way to eliminate one of them.
See attached an additional page from my spreadsheet, with a estimation of your dividends (VAB and VEE are shown instead of your ZAG and XEC). Again, play around in excel and execute with knowledge.
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It was interesting to watch the trades occurring for each fund at the site GreatLaker provided https://web.tmxmoney.com (https://web.tmxmoney.com). It gave me the courage to use the Ask price as I could see that many trades were happening at or below that value.
your BMO IL also give you access to detailed ask/bids. Look under Quotes + / Level II button. That brings up a window with Price, Size of order, Bid, Ask for the last ten transactions in real time.
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Sorry to hack this thread, I just want to confirm an appropriate AA for my 70yo Dad. He's got a generous DB pension, do not need the investments money ever (sligth surplus every year)
TFSA would hold a mix of 30%ZCN/70%XAW
RRSP probably 100%VAB or 100%VSB?
No taxable account, paid off house, no debt, low COL etc (Mom have a bigger DB pension from gov!)
The final AA would be something like: 10%ZCN/20%XAW/70%VAB or 70%VSB
Easy to manage, low cost and appropriate with his risk tolerance.
The reason why I posted here is because this thread have been very efficient lately and I just want some quick second guesses. Please, keep it short!
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Sorry to hack this thread, I just want to confirm an appropriate AA for my 70yo Dad. He's got a generous DB pension, do not need the investments money ever (sligth surplus every year)
TFSA would hold a mix of 30%ZCN/70%XAW
RRSP probably 100%VAB or 100%VSB?
No taxable account, paid off house, no debt, low COL etc (Mom have a bigger DB pension from gov!)
The final AA would be something like: 10%ZCN/20%XAW/70%VAB or 70%VSB
Easy to manage, low cost and appropriate with his risk tolerance.
The reason why I posted here is because this thread have been very efficient lately and I just want some quick second guesses. Please, keep it short!
As you know Le Barbu, it's super cautious. The theoretical max drop of this portfolio is less than 15%. I would review his volatility tolerance with him using all available personal information and give him a realistic picture of how the portfolio would perform with higher equity allocation.
Does he actually need income from his portfolio given their DB pension income? It sounds like the pensions are enough, so why is he so worried about volatility?
I would move up the equity allocations to 50/50 at minimum. Theoretical max drop in the low 20% range.
Also, it may be worthwhile to throw corporates in the mix for his RRSP. I personally like ZIC.TO because it gives exposure to US corps at reasonable cost. However, a more efficient way of doing things is converting part of the account to a US dollar RRSP (if size is appropriate). Invest in VCIT for better yield and currency exposure, then keep the remaining in VSB.TO for Canadian exposure.
If he needs money during bad market conditions, he can always pull from the VSB.TO in RRSP.
Also, I would look at shifting from RRSP to TFSA or even non-reg account over time. Big RRSP + big pension = big tax bills
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Holy fuck, 20k a year per kid??? That's nuts. Im pretty sure I went to UWO living at home for 4k.
The $16k to $19k per kid includes about $11k of residence and meal fees.
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Sorry to hack this thread, I just want to confirm an appropriate AA for my 70yo Dad. He's got a generous DB pension, do not need the investments money ever (sligth surplus every year)
TFSA would hold a mix of 30%ZCN/70%XAW
RRSP probably 100%VAB or 100%VSB?
No taxable account, paid off house, no debt, low COL etc (Mom have a bigger DB pension from gov!)
The final AA would be something like: 10%ZCN/20%XAW/70%VAB or 70%VSB
Easy to manage, low cost and appropriate with his risk tolerance.
The reason why I posted here is because this thread have been very efficient lately and I just want some quick second guesses. Please, keep it short!
As you know Le Barbu, it's super cautious. The theoretical max drop of this portfolio is less than 15%. I would review his volatility tolerance with him using all available personal information and give him a realistic picture of how the portfolio would perform with higher equity allocation.
Does he actually need income from his portfolio given their DB pension income? It sounds like the pensions are enough, so why is he so worried about volatility?
I would move up the equity allocations to 50/50 at minimum. Theoretical max drop in the low 20% range.
Also, it may be worthwhile to throw corporates in the mix for his RRSP. I personally like ZIC.TO because it gives exposure to US corps at reasonable cost. However, a more efficient way of doing things is converting part of the account to a US dollar RRSP (if size is appropriate). Invest in VCIT for better yield and currency exposure, then keep the remaining in VSB.TO for Canadian exposure.
If he needs money during bad market conditions, he can always pull from the VSB.TO in RRSP.
Also, I would look at shifting from RRSP to TFSA or even non-reg account over time. Big RRSP + big pension = big tax bills
Thank you Mr Rich Moose, I am surprised you suggest a higher stock allocation. So many people of 70yo only hold GICs around here! My parents have so generous DB pensions, there is no way to pull RRSP without paying 29% taxes. This is why I put bonds in RRSP and stocks in TFSA. Size of RRSP does not worth NG to get USD. Priority here is simplicity and low fees. We may increase the stock allocation after the crash (market timing rules)!!!
I am helping him for 3 years now. We sold bbd-b.to and na.to (yep, only 2 individual stocks!) and replace with ZCN, ditched high MER funds and buy XAW and VAB, filled TFSA room etc. Just want to optimise a bit now. His AA is now 20/20/60 ZCN/XAW/VAB but XAW is into RRSP...
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Thank you Mr Rich Moose, I am surprised you suggest a higher stock allocation. So many people of 70yo only hold GICs around here! My parents have so generous DB pensions, there is no way to pull RRSP without paying 29% taxes. This is why I put bonds in RRSP and stocks in TFSA. Size of RRSP does not worth NG to get USD. Priority here is simplicity and low fees. We may increase the stock allocation after the crash (market timing rules)!!!
I am helping him for 3 years now. We sold bbd-b.to and na.to (yep, only 2 individual stocks!) and replace with ZCN, ditched high MER funds and buy XAW and VAB, filled TFSA room etc. Just want to optimise a bit now. His AA is now 20/20/60 ZCN/XAW/VAB but XAW is into RRSP...
A healthy 70 y/o can expect to live another 20 years, so one should invest with the same mindset.
Nothing wrong with stocks in RRSP as well. He will get taxed on the withdrawals there regardless of how much the account grows.
First priority is to properly educate him on risk and volatility tolerance. Then, given the factors (big DB pensions, longevity, spend rate, etc), let him decide on how much of a portfolio drawdown he is OK with. If his max is 15%, then 60-70% bonds is good. If it's 30%, than 70% stocks is better. His registered account values shouldn't determine his stock/bond allocation.
After that, distribute appropriately by account type. Stocks in TFSA first, then RRSP. Bonds in RRSP first, then TFSA as last resort. I have a guide posted on my blog for sorting investments for taxes by account type.
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My parents, who are also 70, cashed out a good DB pension and put it almost entirely in GICs because they felt nervous about the (very remote) possibility of the company going bankrupt. They have a healthy amount of money and will be fine so I haven't pressed it with them. But their conservatism sure has a heavy price. They will not be keeping up with inflation.
I am obviously a new DIY'er but I agree with Mr. Rich Moose's assessment. 70% bonds feels high when your parents have good DB pensions.
That $4k of XEF in his TFSA will drive you crazy, because it'll dividend not enough to reinvest. If you haven't already purchased it, I would go 100% XEC in his TFSA and keep it simple.
Your three holdings of VCN are adding low value complexity - I would look for a way to eliminate one of them.
See attached an additional page from my spreadsheet, with a estimation of your dividends (VAB and VEE are shown instead of your ZAG and XEC). Again, play around in excel and execute with knowledge.
Thanks Heckler. I consolidated the VCN into one account for simplicity and to support the likely eventual flip to VTI. You are the spreadsheet master!
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People over 65 dont care about inflation, even if they're blessed with good health (wich is not exactly the case with my parents) they burry a friend, neighbor or relative every month or so. They value life, time and money quite differently than us...
I may consider recomend Dady 40% stocks, but it's still better than your parents! My MIL is even worst, widowed lately, fair DB pension, 100% GICs wich only 50% is tax sheltered! The other 50% return 0.5% net before inflation, so negative real return. There is no way to convince her to hold stocks!!!
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Inflation was low in the 50s and 60s and everyone thought it would stay low forever. It was high in the 70s and 80s and everyone thought it would stay high forever. Since the early 90s we have low inflation and everyone thinks it will stay low forever. It's a great example of recency effect. While we don't anticipate inflation suddenly increasing, someone retiring at 60 could easily live for 30 years, enough time for an inflationary economic cycle.
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I see inflation as a silent killer. Many are aware of stocks downsides of interests they pay but inflation is a vague concept for most. Reminds me the depreciation concept for a car. My neighbor lately told me (when talking about his mega-comute) he doesnt count depreciation. Only gas, tires and brakes! He said "The car will worth 0$ at the end anyway, so I do not consider this" WTF? This is THE reason why you HAVE to consider this!
Why does old people are so prompt at reminding us the price of a Coke in 1953 but do not realise inflation only did the job of not being able to buy a bottle for 5 penny anymore?
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Another account came across to IL so we are now 80% invested. So far so good.
We are headed away for the long weekend to visit family but before I go I wanted to express my thanks to everyone who has coached and encouraged me through this DIY journey. This is something I have been thinking about for a long time but wouldn't have had the courage to take the leap without you.
Special thanks to Heckler, GreatLaker, Le Barbu and Mr Rich Moose. I will forever be indebted to you. If you ever make it out to the Kootenays I would love to meet you, make you my famous lasagna, teach you yoga or show you the best trails.
I am also writing thank you cards to mail to Dan Bortolotti and Justin Bender. Helping the DIY'er is not a lucrative business model and I want to show my appreciation. Thinking of sending locally made chocolate but would they eat chocolate from a stranger? PM me with your address and I'll send you guys chocolate - I am far less of a stranger to the group on this forum, and it is really good chocolate.
I am feeling independent, in control of my own destiny and walking a little taller. Excited about the DIY journey ahead and glad to know you guys are just a post away.
Thanks!
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Has anyone used WealthSimple before? If so, how is it?
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Super happy for you @Blissful_Biker !!
Soooo....now that things are in cruise mode we can talk bikes !
To hijack the thread I sold my Giant Trance and listed my Giant Glory to combine my All-mountain and DH bike into one beauty. I'm headed to Calgary in a couple weeks to pick up my new Giant Reign Advanced1 from my friend. He is a BC Bike racer 29'er weirdo and the aggressive downhill characteristics for of the Reign didn't suit him. Hopefully I can come your way and ride in the future, my buddy built the trail Powerslave at Retallack and would be wicked to check that out.
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BB, you're very welcome. Sharing knowledge is what makes this community great!
I'm not sure if you've shared which corner of the Kootenays you're in, but Nelson & Creston are on our list of target vacation spots in the coming years. I'd love to share an ice cold local brew one day!
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Stasher, is it a '16 or '17 RA1? I've had both- currently on the red one. We love it! For island riding, you might want to put on similar tires to the Trance (slightly smaller and lighter). That was the biggest difference I noticed demoing the '17 TA1 and the RA1.
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Stasher, is it a '16 or '17 RA1? I've had both- currently on the red one. We love it! For island riding, you might want to put on similar tires to the Trance (slightly smaller and lighter). That was the biggest difference I noticed demoing the '17 TA1 and the RA1.
Thread officially hijacked until Blissful_Biker returns LOL
It is the 2016 model and looking forward to going to get it very soon. Actually for tires I will do the upgrade I did on my Trance (only after the stock ones wear out) > Tubeless conversion with Schwalbe Magic Mary up front and Hans Dampf in rear.
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Back from a great road trip to visit family. The kids were spoiled rotten, especially when I would leave them with grandpa during my morning runs. I would return each day to find their pockets bulging with candy. If we lived closer I would have to set down some tough rules, but since it is just a couple times a year I let them all enjoy their sweets with abandon.
When I was a youngster my Dad had me read "The Weathly Barber" and would draw me curves showing the power of compound interest and starting savings early. It was impactful and I want to give the same gift to my kids. So I took advantage of the trip to the city to buy the new "The Wealthy Barber Returns". To make sure it was appropriate for the kids I read it first and am a bit disappointed. The original was a story, like a novel with a cast of characters that could capture the interest of a young mind. The new book still uses simple language but is dry in comparison. I think I'll have the kids read the original, even though it was pre-TFSAs, the basic tenants of good financial management are there.
The $120K in RESPs made it across to IL. I was thinking 40% ZAG / 60% XAW as recommended by Mr Rich Moose but in the end I went 40% ZAG, 20% ZCN, 40% XAW which matches the CCP balanced portfolio. The kids will be attending Canadian schools so I figured it would be good to dial down the currency risk. And balancing once a year between three funds wont create high trading fees.
Within my husbands taxable account I opened the HISA (AAT770) and now have $2200 as the official start of savings for a vehicle. Yesterday was a nice hot day and I came to realise the AC in our existing vehicle is broken, again. Hmm. fix? or just drive with the windows down this summer? We never had AC in vehicles growing up and did just fine. My husband is travelling. I'll wait until he returns and can weigh in on the decision.
Still waiting for one TFSA and the $40K from the scotia GRRSP to come across, and then everything will be set up. Getting close!
Super happy for you @Blissful_Biker !!
Soooo....now that things are in cruise mode we can talk bikes !
To hijack the thread I sold my Giant Trance and listed my Giant Glory to combine my All-mountain and DH bike into one beauty. I'm headed to Calgary in a couple weeks to pick up my new Giant Reign Advanced1 from my friend. He is a BC Bike racer 29'er weirdo and the aggressive downhill characteristics for of the Reign didn't suit him. Hopefully I can come your way and ride in the future, my buddy built the trail Powerslave at Retallack and would be wicked to check that out.
Love talking about bikes! I have a couple of friends on Giant Reigns that love them. Sounds like a good choice for you. We have a Trance in the basement as a back up bike for the boys.
Over the years I have been whittling down my quiver of bikes too, I now have only 3 - my Specialized Safire mtn bike that I ride a lot, a nice road bike that I ride very little, and an old touring bike on the trainer that I ride even less. If I ever move back to a flatter landscape (which I don't plan too) I would get a groovy cruiser bike - painted with daiseys and a big basket. Yeah baby.
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could you please tell me more about AAT770?
In BMOIL Quotes, it doesn't say anything, but price = $1.00, Return = 0 and there's no load.
Does it tell you the interest rate after you purchase it?
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Have am estimate done for the A/C issue, then take your decision based on this and vehicule value. I had 2 A/C issues on my 2 vehicules in the last 3 years and the cost was +/- 125$ in both cases. They purged the system, checked for leaks then recharge. Once, the clutch gap was to wide (a shim removal did the job) and on the other one, the gas level was just to low to build pressure. Work like new for 2 years now!
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Have am estimate done for the A/C issue, then take your decision based on this and vehicule value. I had 2 A/C issues on my 2 vehicules in the last 3 years and the cost was +/- 125$ in both cases. They purged the system, checked for leaks then recharge. Once, the clutch gap was to wide (a shim removal did the job) and on the other one, the gas level was just to low to build pressure. Work like new for 2 years now!
Agreed! Having a mechanic you trust is helpful. A dealer will use the opportunity to either fleece you or talk you into a new vehicle.
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W00T! Congrats BB! Setting up a portfolio takes a lot of analysis and thought. Once it is done you just need to watch it grow while you do other things... well maybe rebalance once in a while. Definitely feels good.
I have been off doing other things like travelling, visiting family and putting the final pieces of my retirement plan into place. Early next year I should have everything done.
Oh yeah, my road bike is also an old steel beast. Rode a bunch of centuries on it, including several times up and down the Niagara Escarpment. An Italian job called a Pogliaghi. (I am still working on the pronunciation after a couple of decades. Something like Poy-ahh-ghi.)
And thanks for the offer of chocolate. You have made this forum a much friendlier place.
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could you please tell me more about AAT770?
In BMOIL Quotes, it doesn't say anything, but price = $1.00, Return = 0 and there's no load.
Does it tell you the interest rate after you purchase it?
It's a CDIC insured savings product, but bought like units of a mutual fund. More details:
https://www1.bmoinvestorline.com/selfDirected/pdfs/BMO_CAD_HISA_EN.pdf
http://financialcrooks.com/how-buy-aat770-hisa-bmo-investorline/
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Sorry BB to hack this thread again, but lately this is the best place to get sounds advices from fellow Canadian within MMM comunity! I posted this in the "real estate & landlording" section but only got 1 answer within 1 week!
I was just wondering if moving from current house worth:
We are a family of 4 including a 11 & 14yo. kids. We are ourselves 45yo. and 5 years from FIRE (actually FI on a barebone budget).
Our house, built in 2007, have all the features we need and more. The street and neighborhood is quiet and friendly. Main concern, we are about 5km from most everything wich make the car habit easy to fall in...
We always talked about leaving someday to get closer to the older part of town, closer to every services and entertainments. So, I watch the inscriptions in the desired sector for a while to get an idea of the real estate market. I found something that may worth...
It's a detached 2-1/2 storeys house, built in 1850 and well maintained. Asking price +/- the same as I would ask for mine, taxes are +/- the same also. It's a little bigger than our house (2,300 sq.ft. instead of 1,900sq.ft.) but doesnt feel that big (old houses are not always sets efficiently) but still more than enough for us. There is actually a tenant on the ground level floor and this place rent for 670$/month. A quick update could crank the rent of this place to 900$/month, wich is a 10k$ net/year! DW exclude this plan for now, she may be interested when kids leave home...another way to see it with the 4% rule is like we got a 250k$ sitting still and ready to work anytime! It makes us more financialy resilient automaticaly even if we do not rent.
This place is the epicentre of EVERYTHING in Town! A 20 minutes walk in any direction (1.5km radius) brings you anywhere you need to go! The street itself is QUIET & SAFE and the most beautyfull street of old down is 1 block away! It does not make us closer to work, 10km now and about the same then. Anyway, jobs are not in a place where you want to live (no services, close to highway, more like industrial area) so it's not an option. Anyway, we intend to FIRE within 5 years.
Main concerns are: is it to early to move and does old houses cost that more to maintain then new? Kids doesnt see the value of moving to get closer to every places they require us to go because of them (school, sports, etc) but we begin to feel like Uber drivers! Our actual house is cheap to maintain for now but some appealing features will depreciate or cost few thousands in the future anyway (i.e. pool)
FWIW, actual place worth 225$/living sq.ft. compared to 175$ for the other place. The lot is about 50% smaller but still close to 4,000sq.ft. This area is the most dense of our city with 40 units/acre.
The place have been improved in many aspects, including insulation back in 2011. The seller face the "sunk fund loss" because the real estate market cannot justify more for a home in this particular area. I assume that utilities (electricity + heating) will cost 2,200$/year instead of 1,900$ wich is no a big deal. Maintenance will certainly be more than actual house but the smaller lot is cheaper to maintain. Overall, we may face a 2,500$ annual increase (conservative) but, the future income offset this hands down!
So, what do you think?
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Tough choice Le Barbu. I can speak from experience that older houses are a lot more work. You never know how the upgrades were done and where corners were cut to save a few dollars. You may have to replace electrical, plumbing, HVAC systems, insulation, windows, sidings, etc. These can be very expensive.
I have another proposal. Stay where you are and increase your kids weekly allowance. But, for every drive they ask you to make they have to pay you a small amount ($5 maybe). My guess is they may choose to bike more often. ;)
I'm not sure what house prices are in your area, but in general they are quite reasonable in QC. What would your rent/purchase price ration be on the new house?
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Quebec is a pretty slow market right now, would you even be able to sell at the price you want?
Also, there is a lot of extra $$ in the Welcome tax, realtor %, probably the most money will be paying for the fees, as well as the move itself.
The other question is will you miss having a nice yard and space? Or is the new place much smaller outside?
(This is with no details, just guessing since you have Levis as a location, and you're talking about moving closer downtown.)
Most of your points are emotional/preferences, as much of the financial portion is equivalent in both places. Make yourself a nice chart with the 1x expenses, the monthly changes in cash-flow, and decide if the move will increase your happiness by the amount it will increase your costs in the budget!
(Rational robot shuts down)
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Tough choice Le Barbu. I can speak from experience that older houses are a lot more work. You never know how the upgrades were done and where corners were cut to save a few dollars. You may have to replace electrical, plumbing, HVAC systems, insulation, windows, sidings, etc. These can be very expensive.
I have another proposal. Stay where you are and increase your kids weekly allowance. But, for every drive they ask you to make they have to pay you a small amount ($5 maybe). My guess is they may choose to bike more often. ;)
I'm not sure what house prices are in your area, but in general they are quite reasonable in QC. What would your rent/purchase price ration be on the new house?
You made good points here! When I talk about the "just to far to bike" location I am as guilty as my kids & DW but we usually combine errances. Our total km for work, hockey, vacations, ect. is about 18,000km/year so not a big deal, 70% less than our friends and relatives.
Comparing rent/buy ratio is not that easy here. Rent is a lot cheaper but the rent market does not offer the same product. You can rent luxury condos or basic appartments. Nothing else available...
I may stay here for another few years and then, sell and rent for more liberty?
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Quebec is a pretty slow market right now, would you even be able to sell at the price you want?
Also, there is a lot of extra $$ in the Welcome tax, realtor %, probably the most money will be paying for the fees, as well as the move itself.
The other question is will you miss having a nice yard and space? Or is the new place much smaller outside?
(This is with no details, just guessing since you have Levis as a location, and you're talking about moving closer downtown.)
Most of your points are emotional/preferences, as much of the financial portion is equivalent in both places. Make yourself a nice chart with the 1x expenses, the monthly changes in cash-flow, and decide if the move will increase your happiness by the amount it will increase your costs in the budget!
(Rational robot shuts down)
Slow market apply to me AND the seller. Welcome tax, realtor etc. may summs very fast! Smaller yard 4,000 instead of 7,500sq.ft. but honestly, we use street and public spaces more than our Yard wich provide more work than fun. Probably not ready yet but I will track the market down the road to be aware when a real opportunity shows up!
Very helpfull to read you and Rich Moose, Thank you!
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could you please tell me more about AAT770?
In BMOIL Quotes, it doesn't say anything, but price = $1.00, Return = 0 and there's no load.
Does it tell you the interest rate after you purchase it?
In Investorline go to Trading > Fixed Income > High Interest Savings Offerings. You will see:
High Interest Savings Accounts Rate Price Initial purchase Subsequent purchase CDIC eligible
AAT770 BMO CAD HIGH INTEREST SAVINGS 0.75% 1.00 CAD 1,000 C 50 C Yes
AAT780 BMO USD HIGH INTEREST SAVINGS 0.50% 1.00 USD 1,000 U 50 U No
So AAT770 has a minimum initial purchase of $1,000 and provides an interest rate of 0.75%. Not a bad deal. But from the time you make the request to move money from cash into HISA it takes 48 hours to process, which seems a bit strange.
W00T! Congrats BB! Setting up a portfolio takes a lot of analysis and thought. Once it is done you just need to watch it grow while you do other things... well maybe rebalance once in a while. Definitely feels good.
I have been off doing other things like travelling, visiting family and putting the final pieces of my retirement plan into place. Early next year I should have everything done.
Oh yeah, my road bike is also an old steel beast. Rode a bunch of centuries on it, including several times up and down the Niagara Escarpment. An Italian job called a Pogliaghi. (I am still working on the pronunciation after a couple of decades. Something like Poy-ahh-ghi.)
And thanks for the offer of chocolate. You have made this forum a much friendlier place.
A vintage Italian road bike - that is a treasure. I hadn't heard of Pogliaghi and looked them up. You are riding a beautiful piece of history. If you ever stop riding it, which I hope you don't, it deserves to be showcased on the wall. If money was no object I would have a Pinarello. Nobody makes road bikes better than the Italians.
Thanks for sharing your address. The kids helped me pick out some tasty locally made chocolates for you and I'll drop them in the post tomorrow. Heckler, Le Barbu, Mr Rich Moose - don't miss out.
I mentioned you guys and this forum in my thank you cards to Dan Bortolotti and Justin Bender. I would have never gotten this far without you. (don't tell my kids I said "gotten")
Le Barbu - It sounds like you are excited about the potential purchase. You have been talking for years about moving closer to the old part of town. You say the area is beautiful and you would be right in the center of places and activities you love. With the rental suite it can make good sense financially too. Sounds like a winner to me. Of course we need to act responsibly, but that aside, what would make you happy? What would put extra spring in your step? In my experience kids resist change but are actually very resilient. They would quickly learn to love the new place if that is what you choose.
My boss retires at the end of this week and I am stepping into the role. Sheryl Sandberg would encourage me to "Lean In" to my career but really, I just want to enjoy my family and ride my bike. But I can see that the team needs me, and I will do my best. I am going to try to stay part time, but if I need to move up to full time that just means I can retire sooner.
The black bears got into my garden beds today, ate the kale and beans and crushed the tomatoes. I am going to replant this weekend, because I am stubborn.
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@Le Barbu just make sure you haven't been watching too may episodes of Rental Property with Scott McGilvery lol
As mentioned I would seriously check out the wiring, plumbing, HVAC etc... old houses scare me.
@Blissful_Biker As your RE plans become clearer the choices at work should as well, hopefully. As for the bears , hope they were black bears and not Grizzlies. That right there is the reason I prefer VanIsle over the mainland and hiking there...big ole Grizz
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@Le Barbu just make sure you haven't been watching too may episodes of Rental Property with Scott McGilvery lol
As mentioned I would seriously check out the wiring, plumbing, HVAC etc... old houses scare me.
Loled at your comment!
I may have watched almost all of the seasons including the vacation edition and the last one where he built that gigaMcmansion for his family. That was to much for me, a total turn off! This guy was once a badass but now, he caugth into the spendypants trap where nothing make sense anymore (99% of his spending is pure waste). His numbers never make sense but he still does great jobs!
I am not that interested in being a landlord. It's more like a back up plan wich can be used if money is needed or a place to live for my growing sons (let say in their early 20s) or one of my parents (if one of them die). This particular area have not so many real estate options: luxury condos, entry level appartments and duplex/triplex are the most commons.
Comments from Rich Moose and Canadian Ben already turned me off a bit! I may wait another few years but look at listing from time to time...
My goal would be to get my property below 20% of my total assets someday, actualy just over 25%
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I am not that interested in being a landlord. It's more like a back up plan wich can be used if money is needed or a place to live for my growing sons (let say in their early 20s) or one of my parents (if one of them die). This particular area have not so many real estate options: luxury condos, entry level appartments and duplex/triplex are the most commons.
Comments from Rich Moose and Canadian Ben already turned me off a bit! I may wait another few years but look at listing from time to time...
My goal would be to get my property below 20% of my total assets someday, actualy just over 25%
Another option would be to buy a bare lot, teardown house, or "good bones" place at lot value only in your desired neighbourhood. Then you could build new, or strip an old place to the framing and do a complete restoration.
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I am not that interested in being a landlord. It's more like a back up plan wich can be used if money is needed or a place to live for my growing sons (let say in their early 20s) or one of my parents (if one of them die). This particular area have not so many real estate options: luxury condos, entry level appartments and duplex/triplex are the most commons.
Comments from Rich Moose and Canadian Ben already turned me off a bit! I may wait another few years but look at listing from time to time...
My goal would be to get my property below 20% of my total assets someday, actualy just over 25%
Another option would be to buy a bare lot, teardown house, or "good bones" place at lot value only in your desired neighbourhood. Then you could build new, or strip an old place to the framing and do a complete restoration.
Good idea! But I would definetly wait another 3-5 years to do that. That kind of opportunity happen now and then in the area and being ready and patient is the key. New building are nice but also bring a bunch of surprises. The financials got to make sense to!
Meanwhile, I deleveraged myself this week, sold for 10k$ of ZCN and reimburse HELOC-1 (segment @ 3.2%) with the proceed. The Smith manœuvre assets now worth 155k$ and HELOC-2 (segment @ 2.05%) is down to 140k$. 2017 is a low income year for me so I will pay low taxes on capital gain.
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Your Heloc at 2% is insanely low.
I've been looking recently, and I haven't found anyone offering better than prime+.5%
Do you have a special deal, or just a long term variable rate (in the past I seem to remember it being prime -1%)
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Your Heloc at 2% is insanely low.
I've been looking recently, and I haven't found anyone offering better than prime+.5%
Do you have a special deal, or just a long term variable rate (in the past I seem to remember it being prime -1%)
The readvancable part of my HELOC is @ prime + 0.5 (3.2% now)
The 2.05% is indeed a variable/5 years signed back in november 2015. It's a C + I with on a 30 years amortization. I usualy make the monthly payments with the readvancable segment of the HELOC for convenience. Today, I wouldnt get better than +/- 2.5% for the same set up.
I also got a 2.24% fix on the remaining mortgage balance (40k$) for 3 years 6 months ago...
My credit score is pristine, NW over 1M$ and my "business volume" with RBC/RBC DI is around 1.1M$, I suppose all of this help getting good deals?!
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My credit score is pristine, NW over 1M$ and my "business volume" with RBC/RBC DI is around 1.1M$, I suppose all of this help getting good deals?!
I'm sitting in the same boat now but after quitting work last month I know wonder how I will ever get access to cash again in my life if I ever need it. That being said before I FIRE'd I opened another $30k line of credit just to have extra in case who know what.
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Le Barbu - Very nice.
Looking forwards to being a large fish so that people treat me better like you :D.
Ha, as if. Questrade will hold all my investments. Atleast we get good deals for being in the military with BMO. Still not enough to balance out not being millionaire rich, but still better than nothing!
Stasher - Do you have a HELOC? most people I see recommend it even for those who don't want to borrow to invest just to sit unused in order to avoid that problem.
The other portion I see is people showing either High cash checking accounts, or paying everything in one installment. That usually gets the lender to ignore the fact you are no longer getting a paycheck, and are living on investments.
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We have $50K line of credit secured by our home equity with a rate of 3%. We negotiated hard to get a good mortgage rate of 2.2% years ago but didn't press too hard on the LOC because we normally keep the balance at zero. The LOC is our emergency fund. We are debt averse but to me it makes more sense to maintain access to an LOC than build an emergency fund outside our normal investments.
Good luck Canadian Ben. And remember that the rates are negotiable regardless of your assets.
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Le Barbu - Very nice.
Looking forwards to being a large fish so that people treat me better like you :D.
Ha, as if. Questrade will hold all my investments. Atleast we get good deals for being in the military with BMO. Still not enough to balance out not being millionaire rich, but still better than nothing!
Stasher - Do you have a HELOC? most people I see recommend it even for those who don't want to borrow to invest just to sit unused in order to avoid that problem.
The other portion I see is people showing either High cash checking accounts, or paying everything in one installment. That usually gets the lender to ignore the fact you are no longer getting a paycheck, and are living on investments.
What hold you to combine all of your finances with BMO/BMOIL??? Questrade is a good option if you trade a lot, but I usualy trade 5x/year over 6 accounts, I would not split my finances through 2-3 places to save 49$/year! The big banks consider your total volume weather it's investments or debt, they really dont care! Now, I got over 900k$ invested, 40k$ mortgage, 140k$ HELOC used for SM (40k$ available), 50k$ LOC (not used) and 2 CC (Visa and MC with RBC) for a total "volume" of 1.1M$
As soon as you get over 250k$ then 500k$, your status gets better. Another thing you mentioned, the big checking account balance...well, the bank dont give a shit about this. Your assets and NW are important but the "link" they got is more important (mortgaged home is better than mortgage free, big LOC/HELOC are good, used or not, etc) with the credit cards, take 1-2 big one (a lot bigger than what you really need) and set automatic balance every month. Aim to use no more than 25-40% of the limit on average. They want you to get big tools and show how you can have self control with.
Open many accounts with your bank. A checking, USD, HISA, TFSA, RRSP etc. Then you get no more monthly fees! Counter intuitive I know, and this is why many suck with money...
Hope this help!
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@Le Barbu ... sounds like the goals I am trying to achieve at Scotia Bank by having all my eggs there including my investments via iTrade.
@Canadian Ben , I do have a small HELOC on my rental property , Scotia calls it a "step" mortgage. I didn't do one on my home as when I renewed it I just went with the simple crazy low new % rate and a simple signature. If I wanted a HELOC I had to go through all the paperwork all over again as it would have been a new mtg vs a renewal. I like simplicity too much.
I think I have $100,000 in credit line access right now and about $80,000 in credit cards. I never touch the credit lines but use the cards all the time and pay them in full each month (I never touch my debit card or cash to max reward points) Yes I have all that emergency cash and still have too much in savings but that was my living allowance now in FIRE.
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@Stasher - 100k in Credit, I think you'll be fine in getting access to cash!
@Le barbu - Sadly I'm not even in the 250k range yet, but I really should see if what they offer for BMO investing if I offer to bring all the different services over (I'm using TD E-series right now, and I'm just above the range where switching to direct investments is more effective than the .3 MER and free buy/sell). Mortgage-Heloc-RRSP-TFSA-Registered, probably good bargaining chips. I usually want to rip out the eyes of the "financial advisor" or the "investment planner" at the bank, as he is obviously looking for the lowest hanging fruit, and has very little training.
-Advisor: Oh well have some great mutual funds at only 2% MER, and if you are looking for safe investments, we have some products that guarantee 2-3% if you are willing to only pull out the money after 5 years.
-Me 2-3%, per year? so 10-15%?
-Advisor: No, 2-3% total after 5 years.
-Me.... Claws out my own eyes.
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@ Canadian Ben - Your smaller than 250k$ "volume" is another reason why You should group everything! I suppose that BMOIL gives acces to some no-load fees mutual funds for small trades. I do this regularly with RBCDI buying TD and RBC mutual index funds @ 0.5-0.7% MER for convenience (low balance, small impact).
Your best friend now is your federal paycheck slip! Open big LOC and keep less than 1k$ in checking account! Shovel every dollar toward investments, pedal to the metal as we say!
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Right now I'm gaming the system for Credit card rewards / account rewards, and I keep moving my money around for the welcome/opening bonuses.
BMO already gives free banking for military, and TD E-series that I have are .3, so right now I'm on the edge of starting to buy ETFs, just have to REMAIN IN MY DAMN CITY FOR LONGER THAN TWO CONSECUTIVE WEEKS. And then I'll move over my accounts to ETFs. I'm also being posted to Ottawa, so free cash'll be necessary with the house market so slow in Quebec, it's unlikely that I will have sold my Qc house before buying my Ott house. grumble grumble, two down payments stuck in houses grumble grumble.
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Right now I'm gaming the system for Credit card rewards / account rewards, and I keep moving my money around for the welcome/opening bonuses.
BMO already gives free banking for military, and TD E-series that I have are .3, so right now I'm on the edge of starting to buy ETFs, just have to REMAIN IN MY DAMN CITY FOR LONGER THAN TWO CONSECUTIVE WEEKS. And then I'll move over my accounts to ETFs. I'm also being posted to Ottawa, so free cash'll be necessary with the house market so slow in Quebec, it's unlikely that I will have sold my Qc house before buying my Ott house. grumble grumble, two down payments stuck in houses grumble grumble.
Haha! Is there now way to rent something nice in the Ottawa area?
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Military pays for all buying/Selling extras (lawyer,welcome tax, fees); comparable rents/buys are almost 2x as much to rent as to buy (including repairs, maintenance, taxes). It's actually quite easy to buy in the outskirts of Ottawa, however my investments will be stuck in the two houses until Qc sells and frees up the 75k I have in it (my pre-mustache days, when I thought that paying down the mortgage was a great idea!) - Good idea, just not as good as investing.
As a guide, the outskirts of Ottawa are about 50-75k more than Quebec suburbs for the same type of house. (my house 220k in Qc, would probably be close to 300k) So moving from a bungalow to a row house, and remaining in the same price range.
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What are the rent for nice place close to work? If you can get something for 1,500$/month, I would never bother buying a 220-300k$ house. You are single? Couple? How many children? My house worth 350k$ in actual market and I would sell and rent the same place for 2,200$/month if someone was fool enough to agree!
My Mom's cousin worked as a real estate agent for over 40 years and had 2 rules: Green is the worst color for a house and never own 2 places at the same time.
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The semi I'm looking at is 184k (list price).
Similar houses would rent at 1500+ easy.
All costs included (including opportunity cost of the downpayment is less than 1k)
Buy > rent
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The semi I'm looking at is 184k (list price).
Similar houses would rent at 1500+ easy.
All costs included (including opportunity cost of the downpayment is less than 1k)
Buy > rent
Reasonable price for Ottawa area! Dont forget the 1% rule (monthly rent/price) that factor for mostly everything: interests, taxes (muni+school), insurances, snow removal, maintenance, repairs, and risk because house is a illiquid poorly diversified asset, subject to loose value when interests rates rise.
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Yup. those are all included in the 1k/month for buying estimate.
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Yup. those are all included in the 1k/month for buying estimate.
Good! Just be carefull at owning 2 houses then
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Ah I see the confusion.
I'm just waiting for the one in Qc to sell.
I have 6 months during which the forces pay the mortgage interest+taxes on it.
Should easily sell by then. I'm not actively trying to keep it, but the market is just so slow.
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Ah I see the confusion.
I'm just waiting for the one in Qc to sell.
I have 6 months during which the forces pay the mortgage interest+taxes on it.
Should easily sell by then. I'm not actively trying to keep it, but the market is just so slow.
Way to go budy!
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@ Canadian Ben: Any reason you don't just rent in Ottawa for a year or so? It would give you time to get the lay of the land and settle your QC house. Are there military resources for people doing a relocation?