Author Topic: buy CAD bonds or int'l equity?  (Read 2793 times)

scrubbyfish

  • Guest
buy CAD bonds or int'l equity?
« on: June 27, 2016, 01:07:44 AM »
It happens I'm rebalancing right after the Brexit vote, a variable which obviously adjusted my portfolio somewhat.

I was already low in Canadian bonds (2% of total portfolio vs the 10% recommended in the model I follow).

I'm also a touch low in my US and international as well (28% each vs 30% each).

When I type that out, it seems to me I should be increasing the bonds per model portfolio, just because of the difference in spread...but those are not on sale right now and int'l is. I'd be buying the bonds high-ish.

What piece of info/wisdom am I missing here?

Also, if you are familiar with any of the below, can you tell me if I'm reading them right/wrong? (Per agency rules, I have to have this many different funds, unfortunately.)

VAB = Canadian bonds
VCN = Canadian equity
RBF556 = Canadian equity
VUN = US equity
TDB661 = US equity
VXC = 54% is US equity; 46% is other (non-US, non-Canada)
NBC839 = Japan/Europe/etc

deborah

  • Senior Mustachian
  • ********
  • Posts: 12253
  • Location: Australia or another awesome area
Re: buy CAD bonds or int'l equity?
« Reply #1 on: June 27, 2016, 01:41:42 AM »
While I am against timing the market, it may be that waiting a week to rebalance would be more effective right this minute, as things are busy yoyoing at the moment, and may settle a bit in a week. Otherwise, you may find that they are out of balance again very quickly.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1056
  • Age: 49
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: buy CAD bonds or int'l equity?
« Reply #2 on: June 27, 2016, 08:28:48 AM »
If you are due for buying, VXC and NBC839 are good buy right now. VUN and TDB661 are more expensive but can be a good option.

No need to do an official rebalance (sell-buy) because you are to close from your target %

Good luck!

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1534
  • Location: Canada
    • My Necronomicon of Badassity
Re: buy CAD bonds or int'l equity?
« Reply #3 on: June 27, 2016, 08:45:01 AM »

What piece of info/wisdom am I missing here?


I'm not sure you're doing rebalancing correctly if recent news allows you to change the way math is supposed to work.  That's not a clause in most peoples' Personal Investment Policy.  There will always be a story which influences markets at rebalancing time.  It's "noise".  However, that ignores human nature (which is ideally the best thing to do in regards to your portfolio--ignore all your emotions!), if you can't bring yourself to do what your rebalancing/asset allocation needs, throw an equal amount of new money at all three of the underperfomers and then forget about it.

scrubbyfish

  • Guest
Re: buy CAD bonds or int'l equity?
« Reply #4 on: June 27, 2016, 09:46:57 AM »
There will always be a story which influences markets at rebalancing time.

Excellent point.

I was excited about finally buying on sale for the first time ever since I started investing ;)

LeBarbu, that's a good point about not going whole-hog (buy/sell) in this "rebalance." It's true, I'm not— that's too exciting for me. I'm only dropping a new amount in.

Doing 25% in each of the four aspects may be most comfy for me.

GuitarStv

  • Senior Mustachian
  • ********
  • Posts: 18417
  • Age: 40
  • Location: Toronto, Ontario, Canada
Re: buy CAD bonds or int'l equity?
« Reply #5 on: June 27, 2016, 10:05:42 AM »
The whole point of deciding to balance funds is because they're out of whack from the target levels you want.  Your bonds are currently five times lower than the amount that you have decided you need.

Either your target portfolio balance is completely wrong and you need to correct it to what you want . . . or you're chasing news stories and trying to time the market (generally a bad idea).

scrubbyfish

  • Guest
Re: buy CAD bonds or int'l equity?
« Reply #6 on: June 27, 2016, 10:11:14 AM »
And they're lower because I am allergic to bonds, which is not good in itself.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1056
  • Age: 49
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: buy CAD bonds or int'l equity?
« Reply #7 on: June 27, 2016, 10:30:04 AM »
Your bonds are low because you did not buy enough (compared to your "target") in first place. In the last 2 years, VAB did not declined from 10% to 2% of your portfolio. You may just continue with 98% stocks if you do not want/need bonds. Bonds are not for everyone. If I buy some bonds (maybe someday) I will probably aim for 10% of my portfolio and choose something like VSB instead of VAB.

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1534
  • Location: Canada
    • My Necronomicon of Badassity
Re: buy CAD bonds or int'l equity?
« Reply #8 on: June 27, 2016, 10:40:37 AM »
And they're lower because I am allergic to bonds, which is not good in itself.

No, it's not good.  YTD, Canadian bond indexes are up 2%.  That's not a bad climb over 6 months for an income-producing, "safe" asset class, which reduces portfolio volatility.  (Yes, safe is in quotation marks because I know I could get brow-beaten and nitpicked on that point.)

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1056
  • Age: 49
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: buy CAD bonds or int'l equity?
« Reply #9 on: June 27, 2016, 11:58:55 AM »
And they're lower because I am allergic to bonds, which is not good in itself.

No, it's not good.  YTD, Canadian bond indexes are up 2%.  That's not a bad climb over 6 months for an income-producing, "safe" asset class, which reduces portfolio volatility.  (Yes, safe is in quotation marks because I know I could get brow-beaten and nitpicked on that point.)

Bonds are not good or bad, they are just a part of one asset allocation. For myself (my investing policy) I prefer to keep repaying my mortgage @ 3% instead of owning bonds. At that point, my invested assets (porfolio) should worth close to 1M$. Only then, I will look at the possibility to own bonds (VSB) because for me it makes no sense to own bonds while being "in debt". 

Snowboard junkie

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: buy CAD bonds or int'l equity?
« Reply #10 on: June 27, 2016, 12:52:26 PM »
my humble opinion:

bonds are a ridiculous thing to buy in a low interest rate environment.
there is no potential upside.  the yield will inevitably be lost to inflation and taxes. 
you will lose capital when interest rates rise. 

your options for interest based lending are things like lending club, or deflation resistant investments like gold & silver.  At least when the shtf and people start doing stupid things gold has the potential to go up in value. 

It does not seem realistic for our current minimal bond yields to play out favourably in the long term.

scrubbyfish

  • Guest
Re: buy CAD bonds or int'l equity?
« Reply #11 on: June 27, 2016, 06:20:15 PM »
Yes, I always had bonds low intentionally.

I reviewed my personal investment policy today, and was reminded of the scoop. I don't do 10% in bonds because, for several reasons specific to my situation, I hold higher cash for specific periods and drop it in at specific thresholds.

Some people hold bonds even long before planned withdrawal so that they have something strong to sell when stocks are on sale. I don't rely on bonds to buy on-sale stocks. I'm confident in my income, and and use that to keep buying stocks. Canadian Couch Potato makes a good case for bonds at 10% or more (i.e., sometimes bonds see excellent growth) but 10% or more is not part of my plan at this stage.

I sure appreciate the discussion. Very helpful! It's only my second time looking at balancing, so had forgotten some key considerations.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1056
  • Age: 49
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: buy CAD bonds or int'l equity?
« Reply #12 on: June 27, 2016, 07:51:14 PM »
Yes, I always had bonds low intentionally.

I reviewed my personal investment policy today, and was reminded of the scoop. I don't do 10% in bonds because, for several reasons specific to my situation, I hold higher cash for specific periods and drop it in at specific thresholds.

Some people hold bonds even long before planned withdrawal so that they have something strong to sell when stocks are on sale. I don't rely on bonds to buy on-sale stocks. I'm confident in my income, and and use that to keep buying stocks. Canadian Couch Potato makes a good case for bonds at 10% or more (i.e., sometimes bonds see excellent growth) but 10% or more is not part of my plan at this stage.

I sure appreciate the discussion. Very helpful! It's only my second time looking at balancing, so had forgotten some key considerations.

Sometime, there is no need for rebalance. New money does the job given to your asset allocation %