Investing

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

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  • Aug 13th, 2017 1:03 am
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[OP]
Deal Addict
Oct 1, 2006
1609 posts
525 upvotes
Montreal
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.
Thank you Jungle. Great post!
Newbie
Sep 25, 2007
38 posts
3 upvotes
Newmarket
Really great post - thoroughly enjoyed the read, Germack. Lots to take in.

I've personally been following the CCP strategy for 2 years and things have been great. However, I've now crossed that threshold into being "maxed" in RRSP/TFSA, and now find myself in the position of having to figure out the transition into ETFs. To top it off, I now need to organize my wife's portfolio - which is much larger than mine.

Currently in TFSA/RRSP I have a mix of 20 bonds / 80% equities (Canadian index, us index, international index). I used RBC's index funds because although they weren't the cheapest, that's where I bank and I felt that the simplicity of getting my feet wet and actually investing versus chasing lower fees and never getting around to it was best.

Now I find myself wondering if I should change the structure of holdings inside my TFSA/RRSP, and how to best set up my wife's, in order to ensure efficient tax structure. My goal is keeping things as simple as possible, so establishing the right foundation seems prudent now. As silly as it sounds now, I never really imagined I'd have these issues when I first learned about the couch potato approach. How quickly things change.

I suppose I could keep purchasing funds in the same basic weighting, both inside and outside of tfsa/rrsp for me and my wife, but I definitely have some figuring to do long term about keeping which funds where in order to ensure efficiency for taxation. Lots to wrap ones head around. Definitely going to read the books you mentioned.
Deal Addict
Sep 13, 2003
1195 posts
83 upvotes
Germack wrote:
Jul 11th, 2017 8:21 pm
Good question. Here is my current asset allocation:

Target Allocation.png


I made the following changes:
- Bond target allocation reduced from 20% to 50k. No new money is invested into bonds. Instead I make extra payments against the mortgage. Both investments are tax free, but after tax returns on extra mortgage payments likely > than returns of bonds.
- The 20% target allocation for bonds got transferred to Canada, USA, International and emerging market equities (+5% for each asset class)

The current goal is to pay down the mortgage within the next 2.5 years. Each year I max my RRSP/TFSA after that everything goes towards extra mortgage payments.
Considering or assuming that you net worth is 1 million, am I correct that your target for bonds is 5%? What is the reason for reducing your bonds?

I'm at the point where I need to adjust my actual allocation

Currently I'm 23% bonds, 15% cdn, 38% us, 19% int'l, 4% reit
I'm thinking of reducing my risk by increasing bonds to 30%, 60% (cad, us, int'l) and 10% reit
Newbie
Feb 11, 2016
57 posts
54 upvotes
I think it's because he compares the bond return with paying down the mortgage. Same return, but the mortgage is more tax efficient so he opted for that.

I'm struggling with the decision myself. There's opinions out there however that when considering paying down your mortgage, you should be comparing to the overall portfolio yield, not only the bond portion.
Deal Addict
Sep 13, 2003
1195 posts
83 upvotes
Oh I see, I never thought to include the mortgage payments. My guess, he is including his mortgage payments as part of the bonds within his portfolio.

Same here.
Deal Addict
May 31, 2007
4022 posts
1122 upvotes
Elendil wrote:
Jul 25th, 2017 12:52 pm
Really great post - thoroughly enjoyed the read, Germack. Lots to take in.

I've personally been following the CCP strategy for 2 years and things have been great. However, I've now crossed that threshold into being "maxed" in RRSP/TFSA, and now find myself in the position of having to figure out the transition into ETFs. To top it off, I now need to organize my wife's portfolio - which is much larger than mine.

Currently in TFSA/RRSP I have a mix of 20 bonds / 80% equities (Canadian index, us index, international index). I used RBC's index funds because although they weren't the cheapest, that's where I bank and I felt that the simplicity of getting my feet wet and actually investing versus chasing lower fees and never getting around to it was best.

Now I find myself wondering if I should change the structure of holdings inside my TFSA/RRSP, and how to best set up my wife's, in order to ensure efficient tax structure. My goal is keeping things as simple as possible, so establishing the right foundation seems prudent now. As silly as it sounds now, I never really imagined I'd have these issues when I first learned about the couch potato approach. How quickly things change.

I suppose I could keep purchasing funds in the same basic weighting, both inside and outside of tfsa/rrsp for me and my wife, but I definitely have some figuring to do long term about keeping which funds where in order to ensure efficiency for taxation. Lots to wrap ones head around. Definitely going to read the books you mentioned.
One thing I never liked was CPP suggestion to make accounts tax efficient and base allocation as "one big portfolio"
I found this to get complicated after 8 accounts (2X RSP, 2X TFSA, 2Xpension, 1X joint non-reg + RESP this just was not simple enough for me. Some problems I ran into

RSP got bigger than I want because CPP white paper said to put USD etf inside it. (tax efficient, right?) Well the s&p500 in CAD went over 4/fold since 2008, so now I have large RSP and TFSA is smaller.
Not sure how this is tax "optimized" but everything balanced would have been so much easier.

Also without all funds in each account, I found it sometimes hard or impossible to rebalance.

and I question the tax savings from doing norbet's gambit and using USD listed ETFS I don't even think is worth it because CAD etf track SO well now and they convert currency for fraction of the cost. I've tried to look at historical returns of USD vs CAD efts, but it's extremely hard to narrow down because not every ETF tracks index perfect every year (but almost and over long period of time)

So this year I finally said "forget it" and finally did what I wanted to do: make each account simple, and balanced. SO much easier to keep track and for making contributions.

This is what I have and suggest (all 25% weighting)

TFSA

XIU
XEF
XUS
XBB

RSP

VTI
VEA
XBB
XIU

RESP has legacy vanguard, I shares, and horizon.

I chose ISHARES because I believe they are the biggest (most AUM) and liquid. I've seen huge spreads on ETFS before that are new(er) to the market. Liquidity is important to me and I don't want the market to be gouging on a huge spread between bid and ask should I have to rebalance one day or during a stock market crash.

I left legacy USD in RSP because I don't wan to pay converting it back right now. But I don't even suggest using USD funds anymore because of the complexity of conversion. (norbert's gambit) and unflattering and uncertain results from doing it over the long run.

I will be done soon to fill the non-reg back up, this is what I'm using to lower distribution tax as it cuts into my CTB:

HXT
HBB
HXS
XEF

Good luck and try to get into those efts I suggested above (TFSA)
Last edited by Jungle on Jul 26th, 2017 12:00 am, edited 1 time in total.
Member
User avatar
Mar 27, 2011
373 posts
162 upvotes
Toronto
Jungle wrote:
Jul 26th, 2017 12:00 am

TFSA

XIU
XEF
XEF
XBB

RSP

VTI
VEA
XBB
XIU

Good luck and try to get into those efts I suggested above (TFSA)
You repeated XEF, did you mean XEC?
Deal Addict
May 31, 2007
4022 posts
1122 upvotes
gekaizer wrote:
Jul 26th, 2017 1:47 pm
You repeated XEF, did you mean XEC?
Sorry good catch, should be XUS.

XIU
XUS
XEF
XBB
Member
User avatar
Mar 27, 2011
373 posts
162 upvotes
Toronto
Nice post Jungle. When I started CP last fall, I didn't go with the tax efficient allocations due to the reasons you listed above. It's just simpler for rebalancing.
Deal Addict
May 31, 2007
4022 posts
1122 upvotes
gekaizer wrote:
Jul 26th, 2017 2:45 pm
Nice post Jungle. When I started CP last fall, I didn't go with the tax efficient allocations due to the reasons you listed above. It's just simpler for rebalancing.
Thanks!

I think you made a great choice.

Just my opinion, (but supported somewhat with stats out there) , if you can even just hold a basic couch potato, no matter for a long time , 10-20+ years, you are going to do better than most amateur investors, mutual fund managers, etc.
[OP]
Deal Addict
Oct 1, 2006
1609 posts
525 upvotes
Montreal
drey wrote:
Jul 25th, 2017 11:15 pm
Oh I see, I never thought to include the mortgage payments. My guess, he is including his mortgage payments as part of the bonds within his portfolio.

Same here.
Yes, exactly. Instead of investing money into bonds I prefer to make extra payments against my mortgage. Both are risk free, but the after tax return will likely be higher for the extra mortgage payments.

At the moment, 31% of my net worth in invested in safe assets (bonds/mortgage repayment) and 69% in equities.
[OP]
Deal Addict
Oct 1, 2006
1609 posts
525 upvotes
Montreal
Elendil wrote:
Jul 25th, 2017 12:52 pm
Really great post - thoroughly enjoyed the read, Germack. Lots to take in.

I've personally been following the CCP strategy for 2 years and things have been great. However, I've now crossed that threshold into being "maxed" in RRSP/TFSA, and now find myself in the position of having to figure out the transition into ETFs. To top it off, I now need to organize my wife's portfolio - which is much larger than mine.

Currently in TFSA/RRSP I have a mix of 20 bonds / 80% equities (Canadian index, us index, international index). I used RBC's index funds because although they weren't the cheapest, that's where I bank and I felt that the simplicity of getting my feet wet and actually investing versus chasing lower fees and never getting around to it was best.

Now I find myself wondering if I should change the structure of holdings inside my TFSA/RRSP, and how to best set up my wife's, in order to ensure efficient tax structure. My goal is keeping things as simple as possible, so establishing the right foundation seems prudent now. As silly as it sounds now, I never really imagined I'd have these issues when I first learned about the couch potato approach. How quickly things change.

I suppose I could keep purchasing funds in the same basic weighting, both inside and outside of tfsa/rrsp for me and my wife, but I definitely have some figuring to do long term about keeping which funds where in order to ensure efficiency for taxation. Lots to wrap ones head around. Definitely going to read the books you mentioned.
My target allocation is over all my portfolios combined. Each account (non-reg, TFSA, RRSP) can hold different investments. Each of my accounts can hold the following investments:

Non-Reg: Canadian equity, preferred shares, REITS, US equity, international equity

TFSA: Canadian equity, international equity, REITS

RRSP: Canadian equity, US equity, international equity, REITS, bonds

Hope it helps.
Newbie
Feb 11, 2016
57 posts
54 upvotes
We focus on target allocation across the entire portfolio as well, and we think of it as one pool - we don't distinguish between his and hers. But we try to keep things as tax efficient as possible. The bigger your portfolio gets, the more tax efficiency matters.

TFSA - XEF
RRSP - VWO ZAG
Non-Reg - XIC VTI

If one of these need to go into another account based on available contribution room, I don't sweat it too much. I had some bonds in Non-Reg at one point (ZDB). Sold now for a house DP. RRSP has a little VTI, etc. Just allocate most of the assets in the most tax efficient way possible, and if you need to deviate as you make contributions... it's no biggie. Just keep working towards the ideal. The above happens to be what's ideal for me based on my contribution room in each account. Everyone will be different.

I think it's pretty easy to balance. Much easier than trying to treat each account independently. just don't get hung up on having everything right at the target
Newbie
Apr 7, 2017
8 posts
1 upvote
Xbowop wrote:
Jul 27th, 2017 2:58 am
TFSA - XEF
RRSP - VWO ZAG
Non-Reg - XIC VTI
HI there, myself and my husband are new to the CCP. We currently hold everything in TFSAs but are on track to max these by our 30th birthdays.

I see that you are holding:
TFSA - Foreign Equities
RRSP - Bonds and Emerging Markets
Non-Reg - Canadian and US Equities

Was wondering if you could elaborate a little more on this strategy for tax purposes.

Thanks,
Newbie
Feb 11, 2016
57 posts
54 upvotes
User353402 wrote:
Jul 27th, 2017 2:54 pm
HI there, myself and my husband are new to the CCP. We currently hold everything in TFSAs but are on track to max these by our 30th birthdays.

I see that you are holding:
TFSA - Foreign Equities
RRSP - Bonds and Emerging Markets
Non-Reg - Canadian and US Equities

Was wondering if you could elaborate a little more on this strategy for tax purposes.

Thanks,
I will give this a try.. It gets a little complicated and you need to do a lot more reading to get a complete picture.

First choose your asset allocation based on your risk and the return that you're looking for. This needs to come first! And it should not be influenced by tax efficiency.

Second decide which accounts make the most sense for you. You can never go wrong with TFSA. Decide if this is the right time to max out your RRSP: Are you making 60k this year and expect to jump to 150k next year? Wait to get into that higher tax bracket when your contributions will yield a greater tax return. Non-Registered is the last resort. You'll find lots of discussion of RRSP versus TFSA, if you don't have the cash to max out both. I won't get into it here. It seems like you made your choice already anyway.

Finally, what goes where? It should be in this order.

RRSP-
1. Bonds: Interest taxes are high - same rate as your income. Shelter your bonds! This is not as critical right now with interest rates being so low, but as yield go up, it becomes more important.
2. Emerging Markets: Higher dividend payouts, keep these in your RRSP if they spill out of your TFSA.
3. Developed Market: Higher dividend payouts, keep these in your RRSP if they spill out of your TFSA.
4. US Equities: Due to tax treaties, you can avoid the 15% foreign tax on dividends if you hold these in USD (VTI or similar). The expense ratio is also slightly lower. Be warned you have to deal with currency exchange. Typically it's only worth holding USD it if you can get a good exchange rate (read about Norbert's Gambit). Is it worth the hassle? You decide. Lots of disadvantages just so you can reduce cost a little.

TFSA:
1. Developed Markets: High dividend pay. keep in TFSA to shelter. Hold XEF here, it buys the stocks directly! Most other ETFs hold the US ETF which buys the stocks. This means the US ETF will pay foreign tax, and the Canadian ETF will pay foreign tax again. You get hit twice. You can research this subject more if you would like.
2. Emerging Market: High dividend pay. Nothing holds emerging market directly as far as I know. You're better off hold VWO or IEMG in RRSP so you pay only 1 level of with-holding tax.

Non-Registered:
1. Canadian: Canadian dividends are treated most favourably. If you need to have something in non-registered, Canadian goes first.
2. US Equities: You can recover US with-holding tax here. Also US equities have the lowest dividend (less $ to be taxed). These are the 2nd option if you need to move something outside your registered accounts.

It's a complicated subject. I probably just confused everyone. It's much easier to provide advice for a specific situation. What happens when you max out your TFSA? Do you plan on contributing to your RRSP?

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