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Couch potato investing for the last 9 years - tracking my progress

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  • Mar 24th, 2017 8:27 pm
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[OP]
Deal Addict
Oct 1, 2006
1529 posts
437 upvotes
Montreal
HoTiCE_ wrote:
Mar 3rd, 2017 9:04 am
@Germack With the Stock markets at all time highs in US / CAD, the temptation to time the market is very strong, e.g. I'm about to do my annual CCP recalibration and one one want to wait for a correction before investing. Do you always stick to the same calendar plan regardless of what you see on the markets?
Don't try to time the market. It is not going to work and will likely result in overall lower returns.

I stick to the plan no matter what.
Member
Dec 27, 2005
243 posts
20 upvotes
Toronto, ON
Germack wrote:
Mar 3rd, 2017 9:13 am
Don't try to time the market. It is not going to work and will likely result in overall lower returns.

I stick to the plan no matter what.
Hello Germack,

Just trying to see why would one pick ETFs Over td e series or tangerine funds.

I've noticed alot of people talk about switching to ETFS
Deal Addict
Feb 4, 2015
1950 posts
299 upvotes
paf wrote:
Mar 3rd, 2017 9:18 am
Hello Germack,

Just trying to see why would one pick ETFs Over td e series or tangerine funds.

I've noticed alot of people talk about switching to ETFS
Germack will give you more thorough answer... Fees.

The MERs on ETFs talked about in this forum are lower then those on the mutual funds and that can make quite a drastic effect in return over many years.

Why pay more MER for TD or Tangerine fund over Vanguard ETF if they all are tracking same index.
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User avatar
Jun 15, 2005
805 posts
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Germack wrote:
Mar 3rd, 2017 9:13 am
Don't try to time the market. It is not going to work and will likely result in overall lower returns.

I stick to the plan no matter what.
Hi Germack, I'm curious if you're going to stick with your plan and purchase of VAB even with the inevitable increase in rising interest rates?

Here is an article that I was reading that may be of interest. I'm curious to get your opinion:

"Consider the Vanguard Canadian Aggregate Bond Index ETF (TSX:VAB). It’s a mix of long- and short-term duration bonds, and it’s a favourite pick of bond investors. People buy bonds mainly because of their safety, but the ETF has lost nearly 6% in fewer than four months. This is quite a decline for something that is considered “safe.” The pain might not be over yet for bond funds such as this one because interest rates are going to rise, and this will be a huge headwind for owners of the ETF.

Every investor needs bond exposure, but make sure you’re in short-term bonds and not long-term bonds in this rising interest rate environment. Short-term bonds are less sensitive to increasing interest rates, but long-term bonds are pretty much guaranteed to be losers over the next few years.

One terrific holding for bond investors would be Vanguard Canadian Short-term Corporate Bond Index ETF (TSX:VSC). This ETF offers a 3% dividend yield and more safety than a longer-term bond fund in this environment."
Newbie
Feb 5, 2017
33 posts
10 upvotes
Look I have 400K to reinvest in fixed revenue stuff and it won't be VAB that's for sure.
It is going to be a healthy mix of VSB, VSC and some preferred shares and will keep some in cash as well.
[OP]
Deal Addict
Oct 1, 2006
1529 posts
437 upvotes
Montreal
paf wrote:
Mar 3rd, 2017 9:18 am
Hello Germack,

Just trying to see why would one pick ETFs Over td e series or tangerine funds.

I've noticed alot of people talk about switching to ETFS
Because of lower fees (MER). The lower your fees the higher your likely return.

MER of various investment vehicles:
Mutual Funds: ~2.5%
Tangerine Index Funds: ~1%
TD e-series: ~0.42%
ETFs: ~0.15

The impact of these fees is shown in the image below:
[OP]
Deal Addict
Oct 1, 2006
1529 posts
437 upvotes
Montreal
Arkaine wrote:
Mar 3rd, 2017 2:47 pm
Hi Germack, I'm curious if you're going to stick with your plan and purchase of VAB even with the inevitable increase in rising interest rates?
"[/i]
Yes, of course I am going to stick to my plan. Nothing is certain, except for death and taxes.
Member
Dec 27, 2005
243 posts
20 upvotes
Toronto, ON
Germack wrote:
Mar 4th, 2017 11:00 am
Because of lower fees (MER). The lower your fees the higher your likely return.

MER of various investment vehicles:
Mutual Funds: ~2.5%
Tangerine Index Funds: ~1%
TD e-series: ~0.42%
ETFs: ~0.15

The impact of these fees is shown in the image below:
Affect of MER.png
Thank you . I see what you mean . I appreciate the image will definitely be helpful making the decision
Sr. Member
User avatar
Feb 1, 2012
524 posts
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TORONTO
Arkaine wrote:
Mar 3rd, 2017 2:47 pm
"Consider the Vanguard Canadian Aggregate Bond Index ETF (TSX:VAB). It’s a mix of long- and short-term duration bonds, and it’s a favourite pick of bond investors. People buy bonds mainly because of their safety, but the ETF has lost nearly 6% in fewer than four months. This is quite a decline for something that is considered “safe.” The pain might not be over yet for bond funds such as this one because interest rates are going to rise, and this will be a huge headwind for owners of the ETF.

Every investor needs bond exposure, but make sure you’re in short-term bonds and not long-term bonds in this rising interest rate environment. Short-term bonds are less sensitive to increasing interest rates, but long-term bonds are pretty much guaranteed to be losers over the next few years.

One terrific holding for bond investors would be Vanguard Canadian Short-term Corporate Bond Index ETF (TSX:VSC). This ETF offers a 3% dividend yield and more safety than a longer-term bond fund in this environment."
Is there a source for that quote and the statement that it has lost nearly 6% in fewer than 4 months?

You can see VAB's monthly total return here (click the link for monthly performance): https://www.vanguardcanada.ca/individua ... erformance
It has not lost 6%.

The price dropped 5.8% over the past 52 weeks, but that excludes distributions, The trailing 12 month yield was 2.8%. It lost 3.7% in 4th quarter 2016, but is up .56% YTD. When looking at bond performance (in fact, any investment performance), make sure you are using total return, not just price changes.

Bond prices move inversely to interest rates, and the longer the duration the more sensitive they will be to interest rate changes. If the price drops more than the distribution then the return will be negative. But then as existing holdings mature or are sold off, they will be replaced with newer bonds that have higher interest rates, pushing the yield up.

With bonds (and bond funds) it is important to match duration to expected holding time. VAB has a duration ~7.4 years, so if your expected holding period is much less than that a shorter term fund like VSB or VSC may be a better choice. But recognize that VSC has lower credit quality than VAB. 45% of VAB holdings are AAA, and >90% are A or higher. With VSC, only 8.5% of holdings are AAA, and about 70% are A or higher. Because VAB has better credit quality it will be less subject to holdings defaulting in an economic recession, but it will be more volatile in response to interest rate changes.

This CCP article explains the link between duration and volatility and how it should be matched to your expected holding period.
http://canadiancouchpotato.com/2011/07/ ... -duration/

Pundits have been predicting that interest rates will rise since 2011. Those that switched to short term bonds back then have got lower performance than aggregate bond fund holders. I am a long term investor so I am keeping my aggregate bond holding. Short term investors should match their fixed income holdings accordingly. On the other hand, investors that can not only predict when rates will rise, but also when they will level off or fall should do better by market timing in their fixed income holdings. Horses for courses.
Invest your time actively and your money passively.
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Sep 14, 2008
1406 posts
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Winnipeg
Hey all, I was wondering if you could give me feedback on my current situation.
Looking to move form Tangerine to e-series. More details below:

Link

TIA
Member
User avatar
Dec 11, 2009
325 posts
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Hi, this is a great thread and has helped go from having no clue to starting my portfolio. I'm investing money (other then in a savings account and in real estate) for the first time, I'm 30 and I wish I had started earlier.
I'm doing the Couch Potato ETF strategy and I'm trying to be tax efficient, can I please get some feedback on my distributions of assests amongst the accounts? I'm trying to be "tax efficient".

Scenario:

I have $140000 cash to start my portfolio
I have 52K room in my TFSA
I have ~53K of unused RRSP room
My spouse has 52K room in her TFSA and no money to invest in it (all her extra money goes into a pension that maxes out her RRSP, I can't use her RRSP)

I'm doing a 25/25/50 split of ZAG, VCN and XAW. This is how I'm splitting the investments in the accounts (all in Questrade):

I already bought $61475 of ZAG and VCN in my RRSP. $7918 is a transfer from an RRSP I had in cash in another account and the remaning $53557 will use all my contribution room and give me extra money when I do taxes.

My next moves will be to buy $52,000 of XAW in my TFSA account and then buy XAW and VCN in my spouse's TFSA. This will balance the portfolio with 25/25/50.

I didn't need to open a Taxable account yet by using my spouse's TFSA. Does this look like a good way to make my portfolio tax efficient?

Before next year when I need to add more money I won't be able to do it in my TFSA since it's maxed out, but I can still use my spouse's. When both our TFSAs are maxed out I will need to put XAW and VCN in another account.

Thanks.
Last edited by MoreDealsPlease on Mar 5th, 2017 9:22 am, edited 1 time in total.
Deal Addict
Feb 4, 2015
1950 posts
299 upvotes
Others will have better feedback...

For your age imho you could lower to bonds to 15 or 20% but again depends on your comfort level.

When do open taxable account then suggest VCN for favourable dividend treatment.

Could be wrong but I think better tax efficiency with XAW in RRSP and VCN/ZAG in TFSA.

The fact that you are thinking about this AND getting it done is very good. The tax efficiency is cream on top so you are already ahead of many folks in your age group.
Sr. Member
User avatar
Jun 15, 2005
805 posts
13 upvotes
Deepwater wrote:
Mar 4th, 2017 12:43 pm
Is there a source for that quote and the statement that it has lost nearly 6% in fewer than 4 months?

You can see VAB's monthly total return here (click the link for monthly performance): https://www.vanguardcanada.ca/individua ... erformance
It has not lost 6%.

The price dropped 5.8% over the past 52 weeks, but that excludes distributions, The trailing 12 month yield was 2.8%. It lost 3.7% in 4th quarter 2016, but is up .56% YTD. When looking at bond performance (in fact, any investment performance), make sure you are using total return, not just price changes.

Bond prices move inversely to interest rates, and the longer the duration the more sensitive they will be to interest rate changes. If the price drops more than the distribution then the return will be negative. But then as existing holdings mature or are sold off, they will be replaced with newer bonds that have higher interest rates, pushing the yield up.

With bonds (and bond funds) it is important to match duration to expected holding time. VAB has a duration ~7.4 years, so if your expected holding period is much less than that a shorter term fund like VSB or VSC may be a better choice. But recognize that VSC has lower credit quality than VAB. 45% of VAB holdings are AAA, and >90% are A or higher. With VSC, only 8.5% of holdings are AAA, and about 70% are A or higher. Because VAB has better credit quality it will be less subject to holdings defaulting in an economic recession, but it will be more volatile in response to interest rate changes.

This CCP article explains the link between duration and volatility and how it should be matched to your expected holding period.
http://canadiancouchpotato.com/2011/07/ ... -duration/

Pundits have been predicting that interest rates will rise since 2011. Those that switched to short term bonds back then have got lower performance than aggregate bond fund holders. I am a long term investor so I am keeping my aggregate bond holding. Short term investors should match their fixed income holdings accordingly. On the other hand, investors that can not only predict when rates will rise, but also when they will level off or fall should do better by market timing in their fixed income holdings. Horses for courses.
Hello sir,
appreciate the detailed reponse.

Here is the source you were requesting, the article was published in December 2016, so it's why the numbers may seem a bit off to you:
http://www.fool.ca/2016/12/19/safe-inve ... vironment/
It's a pretty good read.

My holding period is still for many many years as well, but I am still considering moving my VAB portfolio of the CCP to VSC.
While this may be a slight gamble I believe there is value added with all of Trumps proclamations and the CDN market census for interest rates.
Last edited by Arkaine on Mar 5th, 2017 12:22 pm, edited 1 time in total.
Member
User avatar
Dec 11, 2009
325 posts
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georvu wrote:
Mar 5th, 2017 10:56 am

Could be wrong but I think better tax efficiency with XAW in RRSP and VCN/ZAG in TFSA.

The fact that you are thinking about this AND getting it done is very good. The tax efficiency is cream on top so you are already ahead of many folks in your age group.
Thanks for the feedback. My thinking was that VCN and XAW (both are equities) have more potential to grow so I maxmized them in the TFSA accounts and ZAG (bonds) have less potential so they went in RRSP. Later when I retire I think I would want the TFSA account to have exercised its maximum potential since I won't be charged tax when taking money from it, but I will from the RRSP.

I might be missing other factors.

Edit: I had written ZAG instead of XAW by accident on the first sentence. Fixed.
Last edited by MoreDealsPlease on Mar 5th, 2017 12:45 pm, edited 1 time in total.
Penalty Box
Jun 15, 2012
528 posts
40 upvotes
MB
Hi guys,
A simple question if I may.
Has anyone come across a portfolio app that will allow add term deposits or GIC ?
I was searching one for days, nothing.
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
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