Investing

Advice for Proper Diversification

  • Last Updated:
  • Mar 20th, 2017 9:00 pm
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[OP]
Jr. Member
Sep 1, 2014
133 posts
42 upvotes
Toronto, ON

Advice for Proper Diversification

Was hoping to get some of your very knowledgeable opinions to help me properly set up my portfolio for maximum diversification. I am newer to investing and have always planned to do it independently. I find bank/bankers to be difficult and disrespectful towards clients who are younger and just starting to build and organize their finances. I am with TD and if it weren't for the ease of TDDI I would be long gone.

Anyways.... I have started my portfolio in my TFSA, which currently holds.
125 shares of T
120 shares of Fortis
100 shares of ENB
205 shares of CHR
$1500 cash

I would love to max out my TFSA, but am currently working towards paying off mortgage, saving, starting family (currently my wife and young son), so I will have to work towards contributing as much as I can, when I can. My wife has roughly 16k in her TFSA and another 7k in an RRSP. This is on top of our cash in checking and savings accounts.

Both my wife and I have good pensions, so RRSP at this point, till we need tax deferral, doesn't make sense ( I don't think).... I have an RRSP, that I have just recently transferred over to TD, from Manulife that was started and contributed towards during a previous job. There is 20k in the RRSP.

Since I cannot technically access the cash without a massive tax hit, I would like to couch potato invest it. My question is, since the model portfolios aim to diversify through all the markets, do I consider my stock holdings to be Canadian investments in my portfolio and count it towards the allocation % outlined in the models? Or do I take the 20k and invest them in the ZAG, VCN, XAW (I figure the ETF portfolio works best?), in whatever % risk I decide?

Hopefully that makes sense.... Any advice would be appreciated.
8 replies
Deal Addict
User avatar
Aug 4, 2014
1001 posts
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Toronto, ON
Stive85 wrote:
Mar 20th, 2017 1:03 pm
My question is, since the model portfolios aim to diversify through all the markets, do I consider my stock holdings to be Canadian investments in my portfolio and count it towards the allocation % outlined in the models? Or do I take the 20k and invest them in the ZAG, VCN, XAW (I figure the ETF portfolio works best?), in whatever % risk I decide?
I count our individual stocks as %-age of their respective equity. So for example:
20% Canadian equities:
15% Individual stocks
5% Index ETFs
[OP]
Jr. Member
Sep 1, 2014
133 posts
42 upvotes
Toronto, ON
freilona wrote:
Mar 20th, 2017 2:01 pm
I count our individual stocks as %-age of their respective equity. So for example:
20% Canadian equities:
15% Individual stocks
5% Index ETFs
Thanks. So I essentially have 45% invested in Canadian equities then. In straight stocks. Therefore I will have to decide how to allocate the remaining 20k between bonds and intl equities. Would people recommend 5k in zag and then the other 15 k in xaw?

Thanks again.
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Aug 4, 2014
1001 posts
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Stive85 wrote:
Mar 20th, 2017 2:25 pm
My wife has roughly 16k in her TFSA and another 7k in an RRSP.
...
So I essentially have 45% invested in Canadian equities then. In straight stocks. Therefore I will have to decide how to allocate the remaining 20k between bonds and intl equities. Would people recommend 5k in zag and then the other 15 k in xaw?
It's usually recommended to treat all separate accounts as one investment portfolio. So for example if your wife already has some bonds in her accounts, you can just go with XAW in yours. And if you have more than a year of expenses in your checking and savings accounts - maybe you can skip bonds completely (at least until the rates start rising) But also depends on how you'll handle the volatility or a market crash/corrections. 5K in ZAG won't make much difference either way, and you can always adjust your asset allocations later, when adding more money :)
Member
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Jul 10, 2007
319 posts
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Edmonton
If you wanted maximum diversification, why not buy benchmark etfs?
[OP]
Jr. Member
Sep 1, 2014
133 posts
42 upvotes
Toronto, ON
golfcraze wrote:
Mar 20th, 2017 3:11 pm
If you wanted maximum diversification, why not buy benchmark etfs?
I am not as familiar with benchmark etfs, but will do some reading on them now.

It seems that people have had great success following the couch potato strategy. I am someone who enjoys looking at how my holding are performing on a regular basis, but also someone who is prepared to hold onto many of my securities for the long haul.

I am just looking for advice as to a good way to allocate my remaining funds within my RRSP...given the above criteria.
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Oct 9, 2005
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In a way, you're in the middle of a rebalance, so consider these references. If selling those individual Canadian stocks is not an option for you, consider them part of your Canadian equities allocation (which if your asset allocation target says to add more, do so with a passive Canadian equity market ETF, e.g. VCN/XIC/HXT to gain the "right" kind of diversification a couch potato approach entails).

http://canadiancouchpotato.com/2012/03/ ... -accounts/
http://canadiancouchpotato.com/2012/03/ ... -accounts/
Intricated
[OP]
Jr. Member
Sep 1, 2014
133 posts
42 upvotes
Toronto, ON
Intricated wrote:
Mar 20th, 2017 4:38 pm
In a way, you're in the middle of a rebalance, so consider these references. If selling those individual Canadian stocks is not an option for you, consider them part of your Canadian equities allocation (which if your asset allocation target says to add more, do so with a passive Canadian equity market ETF, e.g. VCN/XIC/HXT to gain the "right" kind of diversification a couch potato approach entails).

http://canadiancouchpotato.com/2012/03/ ... -accounts/
http://canadiancouchpotato.com/2012/03/ ... -accounts/
Thanks for the links. It should work out well, as now I have room in my rrsp to shield US equities, as well as bonds.

Now to decide the exact funds.
Deal Addict
Mar 8, 2013
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Since both you and your spouse have good pensions, that is like already having an overweight position in fixed income. In your situation, I would buy 0 bonds. Even so, 45% Canadian equities seems pretty high to me. Perhaps you have grown attached to the stocks you picked, and that is always an impediment to sell. If you are not already familiar with technical analysis, you should consider that before you sell or reduce.

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