Portfolio Update – Dec. 2011

Now that you have money that you’re allocating towards retirement ($150 if you followed my post yesterday! Seriously, unless you’re making over $600/hr at your day job, the 5 minutes you spend signing up is worth it!) what do you do with it? The financial advertising machine tells you to buy mutual funds, but the MERs are insane! Wait a minute, what are YOU invested in? You as in me. You know what I mean.

So my investment history has been pretty messy. Started out with mutual funds, realized that I was getting ripped off, so sold them all and sat in cash while I learned about other techniques. A couple years ago, spent time learning about value investing and purchased a couple stocks after the massive stock market crash in 2008. Held on to those (still have them!), and picked up some other stocks and investment vehicles that I didn’t quite understand, got burned pretty nicely (again) on those choice, sold those. When I told people about what the mutual funds were ACTUALLY costing them, they started telling me to handle their investments for them. They don’t get it. They don’t care. Just take care of it for them. My strategy was to basically replicate the mutual funds they were already holding, but at a fraction of the cost with ETFs (Exchange Traded Funds). I didn’t feel comfortable holding something different in my clients’ portfolios compared to mine, so that’s when I started cleaning mine up as well. Therefore, my investment strategy is KISS. Keep It Simple Silly! Or Stupid, but that’s not very nice. 🙂 I want to be well-diversified at the lowest price possible, carefully watching both MERs and brokerage trading fees. I also want to do it on the most tax efficient basis, which is a goal I added more recently, which is why my portfolio is so messy. Technically, you can set up a portfolio that will do as well (if not better) than your current mutual funds by holding 4 ETFs.

Ideally, you want any foreign funds in your RRSP (Registered Retirement Savings Plan) as this shelters any dividends from the 15% withholding tax you will be subjected to. You want to hold investment income funds in your TFSA (Tax-Free Savings Account) as the earnings would not be taxed. You want to hold Canadian equities in non-registered accounts as dividend income and capital gains are cheaper to pay than investment income. If the previous paragraph sounds like another language to you, don’t worry about it. I will explain each account in detail in upcoming posts. This is just a quick summary to lead into what I’m holding in my portfolio.

So this is what my investment portfolio looks like:

TFSA – Stocks (CRS, SLF), ETFs (VTI, XSB)

RRSP – ETFs (XIC, XBB, XSP, XIN, VEU, VTI)

Non-registered investment account – ETFs (XIC)

As you can see, there are a lot of duplicates and all the funds are not in their ideal locations yet, but every time you trade (buy or sell) an ETF, it costs money. So I will be cleaning up my portfolio slowly as I add more money to it every year.

My target allocation is:

Canadian equities: 30%

US equities: 25%

International equities: 25%

Canadian bonds: 20%

My current allocation is:

Canadian equities: 29%

US equities: 26%

International equities: 17%

Canadian bonds: 19%

Cash: 8%

I need to bump up my international equities, so I will rebalance once I can contribute to my TFSA again. As I am not working, I cannot contribute to my RRSP (I’ve maxed out all my contributions).

My most expensive MER is 0.50%, but most are around 0.25%; compare this to the average mutual fund MER of 2.50%.

How diversified is your portfolio? Is maintaining your own portfolio too intimidating? Would you be interested in learning how to do it if it’s going to save you literally thousands and thousands through your lifetime?

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5 Comments (+add yours?)

  1. Angie
    Dec 12, 2011 @ 17:27:28

    Hey Vicky, how did you come up with your ideal “target allocation” percentages?

    Reply

    • Vicky Vo
      Dec 13, 2011 @ 01:58:09

      There are lots of different sources that give you different allocations for your investments. The allocation should be determined mainly by your risk tolerance. There are lots of books out there that helps you choose, but I generally tried to keep it as simple as possible, with the bond portion equivalent to my age, and the rest of the equities split pretty equally amongst the 3 main ones (Canadian, US, International). This provides good diversification, as well as the bond portion to help level out the inevitable drops in the equities market.

      Reply

  2. Trackback: Exchange Traded Funds (ETFs) – Part II « Vix's Money
  3. Trackback: Portfolio Update – January 2012 « Vix's Money
  4. Trackback: Portfolio Update – January 2012

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