Investing

Couch potato investing for the last 12 years - tracking my progress

  • Last Updated:
  • Sep 20th, 2017 8:52 am
Tags:
None
Newbie
Nov 9, 2014
23 posts
8 upvotes
Alberta
petecool wrote:
Jul 12th, 2017 1:34 pm
Hedging is not perfect, there are situations where it doesn't quite work as expected - but hedging always costs you whenever it benefits you or not. Over a long period of time, the cost of hedging should be greater than it's benefits.
You're buying more stocks per invested dollar today than you were a few months ago, that's how I see it.

CCP has many articles with more details on his website, here's a few articles where he discusses hedging:

http://canadiancouchpotato.com/2016/03/ ... -currency/
http://canadiancouchpotato.com/2015/02/ ... the-hedge/
Could someone kindly explain how the rise in Canadian Dollar affects non-hedged ETFs more clearly? I didn't really understand that article too well lol. I know my XAW etf went down quite a bit recently as well.
Newbie
Jun 6, 2012
38 posts
24 upvotes
Calgary, AB
GucciCharms wrote:
Jul 17th, 2017 11:09 am
Could someone kindly explain how the rise in Canadian Dollar affects non-hedged ETFs more clearly? I didn't really understand that article too well lol. I know my XAW etf went down quite a bit recently as well.
When you buy XAW, you buy stocks that are denominated in USD, GBP, JPY, EUR, AUD, etc, etc. You buy them in CAD but they are still priced individually in their home currency.

Here's an example... I will use an USA example because it's simpler; XAW is the same but with many more currencies in the mix!

Day 1, you by 10000$ of a Canadian US Stocks ETF, unhedged in Canadian dollars., exchange rate is at par.
10000$ CAD buys you 10000$ of US stocks

Day 2, the stocks value didn't move (to make it simpler!), but the exchange rate has changed to 0.75 CAD for 1 USD.
Since the stocks' value didn't change, you still hold 10000$ of US stocks
However, it's now worth 13333.33 CAD (10000$USD / 0.75)
You still hold the same thing, but it's value in your local currency has changed.
(If you bought 10000$CAD of the US ETF today, it would be worth 7500$USD)

Day 3, the US stocks are still worth the same, exchange is back to par
You still hold 10000$USD of US stocks, with the exchange rate change, it's worth 10000$ CAD again
(ETF bought on day 2 is now worth 7500$CAD)

Did you lose or win anything? It all depends on when you buy and when you sell! The exchange rate when you retire and sell some funds will probably be different from today.
With XAW and the big array of currencies its stocks are based in, it's definitely not as neat to demonstrate, all the currencies move in different ways compared to CAD, every day. The same effect applies, though.

The CCP way will say, since it's impossible to predict forex movements, timing the market by buying hedged or unhedged based on the value of CAD is pointless. However the fees for hedged funds are always there - the costs of hedging are not shown in the MER as far as I can tell - they are buying currency futures to cover the variations if I remember right. As such CCP suggests no hedged funds.

Over a long period of time, sometimes you buy when it's more favorable, sometimes less, it pretty much evens out in the end. Plus that volatility/variability can be used to rebalance to your advantage.
There are still lots of people/institutions who buy hedged funds, XSP (S&P500 hedged to CAD) has 4 billion of assets under management!

It's definitely not a straightforward topic...
Newbie
Nov 9, 2014
23 posts
8 upvotes
Alberta
petecool wrote:
Jul 17th, 2017 4:17 pm
When you buy XAW, you buy stocks that are denominated in USD, GBP, JPY, EUR, AUD, etc, etc. You buy them in CAD but they are still priced individually in their home currency.

Here's an example... I will use an USA example because it's simpler; XAW is the same but with many more currencies in the mix!

Day 1, you by 10000$ of a Canadian US Stocks ETF, unhedged in Canadian dollars., exchange rate is at par.
10000$ CAD buys you 10000$ of US stocks

Day 2, the stocks value didn't move (to make it simpler!), but the exchange rate has changed to 0.75 CAD for 1 USD.
Since the stocks' value didn't change, you still hold 10000$ of US stocks
However, it's now worth 13333.33 CAD (10000$USD / 0.75)
You still hold the same thing, but it's value in your local currency has changed.
(If you bought 10000$CAD of the US ETF today, it would be worth 7500$USD)

Day 3, the US stocks are still worth the same, exchange is back to par
You still hold 10000$USD of US stocks, with the exchange rate change, it's worth 10000$ CAD again
(ETF bought on day 2 is now worth 7500$CAD)

Did you lose or win anything? It all depends on when you buy and when you sell! The exchange rate when you retire and sell some funds will probably be different from today.
With XAW and the big array of currencies its stocks are based in, it's definitely not as neat to demonstrate, all the currencies move in different ways compared to CAD, every day. The same effect applies, though.

The CCP way will say, since it's impossible to predict forex movements, timing the market by buying hedged or unhedged based on the value of CAD is pointless. However the fees for hedged funds are always there - the costs of hedging are not shown in the MER as far as I can tell - they are buying currency futures to cover the variations if I remember right. As such CCP suggests no hedged funds.

Over a long period of time, sometimes you buy when it's more favorable, sometimes less, it pretty much evens out in the end. Plus that volatility/variability can be used to rebalance to your advantage.
There are still lots of people/institutions who buy hedged funds, XSP (S&P500 hedged to CAD) has 4 billion of assets under management!

It's definitely not a straightforward topic...
Wow great explanation.

Thanks for the insight and clarity, greatly appreciate it!
Newbie
Feb 5, 2017
63 posts
29 upvotes
... and this is why it is right now a good time to buy more of XAW.
Last similar level of CAD against US$ was in april of last year.
Jr. Member
Jan 25, 2012
168 posts
59 upvotes
portraitofruin wrote:
Jul 16th, 2017 10:23 pm
Hi Germack,

Finished reading/skimming through the entire thread and just want to thank you for sharing your journey and all your advice.

Just to clarify, why do you suggest to have bonds in an RRSP? Is it because equities typically have higher gains and they're better off sheltered? I'm only investing in TFSA as I'm no where near maxing it out. Just want to know for the future.

I am 23 and living with parents. Can't decide if I'll rent or buy when I move out as I live in the GTA. Only investments are a TFSA balanced portfolio (40% ZAG, 20% VCN, 20% XUU, 16% XEF, 4% XEC). I'll be opening an RRSP likely when the next tax season comes around.
TFSA annual contribution room is "static" if you haven't sold any... you max it out annually and that's about the most you can do. However, when you decide to sell (lets assume everything), you regain the contribution room for next year, and the re-contribution allowance is now no longer limited by annual contribution amount, but your total balance. So the idea is you put the highest risk holdings in your TFSA, so that in the long run it has the most growth. You effectively get a larger tax sheltered amount when you start to sell and reap your gains.

http://www.millennial-revolution.com/in ... vestments/
Newbie
Dec 16, 2012
69 posts
10 upvotes
Richmond Hill, ON
shiangsta wrote:
Jul 19th, 2017 1:37 pm
TFSA annual contribution room is "static" if you haven't sold any... you max it out annually and that's about the most you can do. However, when you decide to sell (lets assume everything), you regain the contribution room for next year, and the re-contribution allowance is now no longer limited by annual contribution amount, but your total balance. So the idea is you put the highest risk holdings in your TFSA, so that in the long run it has the most growth. You effectively get a larger tax sheltered amount when you start to sell and reap your gains.

http://www.millennial-revolution.com/in ... vestments/
Most helpful answer, thank you. I'm still confused about one aspect. Let's say I bought shares of a company that amounted to $1000 in my TFSA. I then panic-sold it at a $500 loss and leave the proceeds as cash. Is my contribution room affected? Or do I lose $500 contribution room when I actually pull the cash out of the account?

(Yes, this example has led me to index investing and the numbers are much worse than shown.)
[OP]
Deal Addict
Oct 1, 2006
1635 posts
565 upvotes
Montreal
portraitofruin wrote:
Jul 19th, 2017 4:10 pm
Most helpful answer, thank you. I'm still confused about one aspect. Let's say I bought shares of a company that amounted to $1000 in my TFSA. I then panic-sold it at a $500 loss and leave the proceeds as cash. Is my contribution room affected? Or do I lose $500 contribution room when I actually pull the cash out of the account?

(Yes, this example has led me to index investing and the numbers are much worse than shown.)
You do not lose contribution room. E.g. if you pull out $500 in 2017 you can contribute an "extra" $500 to your TFSA in the following year (i.e. 2018).
Deal Addict
Jan 22, 2009
2309 posts
448 upvotes
slowtyper wrote:
Jul 17th, 2017 3:32 am
Can you explain the $50/yr fee bit? I also have a newborn (on the way) and looking to start resp. Currently have TFSA ETFs.
Questrade charges $50/yr fee for RESP account with them if the total balance cross all your account with them is < $15000. This fee is waived once you have at least 15000 cross all accounts you have with them.
Jr. Member
Jan 25, 2012
168 posts
59 upvotes
portraitofruin wrote:
Jul 19th, 2017 4:10 pm
Most helpful answer, thank you. I'm still confused about one aspect. Let's say I bought shares of a company that amounted to $1000 in my TFSA. I then panic-sold it at a $500 loss and leave the proceeds as cash. Is my contribution room affected? Or do I lose $500 contribution room when I actually pull the cash out of the account?

(Yes, this example has led me to index investing and the numbers are much worse than shown.)
No you would not. Think of your previous contribution room as the floor.
Sr. Member
Dec 3, 2014
913 posts
161 upvotes
QUESTION:

Historically I have not kept ETFs in my TFSA. I have too much cash in my TFSA and am looking to buy some ETFs (XEF and XEC in particular). So my question is:
1. I know to keep US dividends in RRSP where possible;
2. For XEF and XEC how does foreign withholding tax work? Is it stupid to have these in a TFSA?
3. I also have XEF and XEC in my RRSP but I am out of RRSP cash and I want to add to these holdings so I am looking specifically to know what the implications of XEF and XEC are within my TFSA

Thanks in advance.
Sr. Member
User avatar
Aug 4, 2014
961 posts
155 upvotes
Toronto, ON
XEF & XEC cost the same in TFSA and RRSP - see at the bottom of page 13 there. I hold IEMG in RRSP - and XEF everywhere :)
Deal Addict
User avatar
Sep 1, 2013
1388 posts
309 upvotes
New Tecumseth, ON
llpresident wrote:
Jul 21st, 2017 12:01 pm
QUESTION:

Historically I have not kept ETFs in my TFSA. I have too much cash in my TFSA and am looking to buy some ETFs (XEF and XEC in particular). So my question is:
1. I know to keep US dividends in RRSP where possible;
2. For XEF and XEC how does foreign withholding tax work? Is it stupid to have these in a TFSA?
3. I also have XEF and XEC in my RRSP but I am out of RRSP cash and I want to add to these holdings so I am looking specifically to know what the implications of XEF and XEC are within my TFSA

Thanks in advance.
Nothing wrong with those in a TFSA. The foreign withholding tax is automatically taken out of the distributions, nothing is needed on your part.
Just because you can doesn't mean you should.
Member
Sep 15, 2006
455 posts
116 upvotes
GucciCharms wrote:
Jul 17th, 2017 11:09 am
Could someone kindly explain how the rise in Canadian Dollar affects non-hedged ETFs more clearly? I didn't really understand that article too well lol. I know my XAW etf went down quite a bit recently as well.
Good question, I was coming here wondering the same thing.

My next question would be, what do I do to stop the bleeding from my CPP recommended ETF's continuously going down since our dollar has been going up? Is now a good time to buy more? I have holdings in XAW, VCN, ZAG.
Deal Addict
May 31, 2007
4067 posts
1177 upvotes
engman13 wrote:
Jul 24th, 2017 3:02 pm
Good question, I was coming here wondering the same thing.

My next question would be, what do I do to stop the bleeding from my CPP recommended ETF's continuously going down since our dollar has been going up? Is now a good time to buy more? I have holdings in XAW, VCN, ZAG.
You do nothing. You are likely to botch your returns making any changes. Stop checking your investments everyday. You are in it to "ride the wave" for a very long time.

Expect a lower annual return for the next decade, but still the best place to invest and best way to grow your money. Don't expect repeat performance of the last 10 years.

Contribute as you normally do. DCA bi-weekly will remove any market timing or guessing mistakes.

If you are losing sleep over this portfolio being down only 4% from peek (but still up 4% YTD!) the you need more bonds so portfolio is less volatile. Maybe 60-70% bonds if you are that worried.

Also remember there is a stock market crash coming one day. Based on market cycles we are getting mature. Expect your portfolio to drop a lot but recover fast. You do not want to make any knee jerk reactions and have the best allocation for your tolerance BEFORE the crash happens.
Member
Sep 15, 2006
455 posts
116 upvotes
Jungle wrote:
Jul 24th, 2017 3:16 pm
You do nothing. You are likely to botch your returns making any changes. Stop checking your investments everyday. You are in it to "ride the wave" for a very long time.

Expect a lower annual return for the next decade, but still the best place to invest and best way to grow your money. Don't expect repeat performance of the last 10 years.

Contribute as you normally do. DCA bi-weekly will remove any market timing or guessing mistakes.

If you are losing sleep over this portfolio being down only 4% from peek (but still up 4% YTD!) the you need more bonds so portfolio is less volatile. Maybe 60-70% bonds if you are that worried.

Also remember there is a stock market crash coming one day. Based on market cycles we are getting mature. Expect your portfolio to drop a lot but recover fast. You do not want to make any knee jerk reactions and have the best allocation for your tolerance BEFORE the crash happens.
Fair enough, thanks for the advice.

Top