Investing

Best Allocation for a Balanced Horizon ETF Portfolio

  • Last Updated:
  • Mar 21st, 2018 8:31 pm
[OP]
Newbie
Dec 29, 2017
2 posts
1 upvote

Best Allocation for a Balanced Horizon ETF Portfolio

I'm looking to create a diversified swap based portfolio for my company (non-registered) account using Horizons.

Using the following:
Canadian Index (TSX 60): HXT
US Index (S&P 500): HXS
International Index (MSCI EAFE): HXDM
Canadian Bond Index: HBB

What allocation of each would make it a balanced portfolio? 25% for each? I'm new to investing and just want a balanced ETF portfolio to keep my company money in, rather than having it in the bank.

Any input is appreciated, thanks.
Last edited by simplemonies on Feb 21st, 2018 5:35 pm, edited 2 times in total.
50 replies
Deal Addict
Dec 23, 2010
1897 posts
929 upvotes
Moon
100% US stocks every time dude. Canada sucks and international sucks as well. By 'diversifying' internationally you are only lowering your return.
Sr. Member
Jul 1, 2006
754 posts
584 upvotes
I think you have a good start there @simplemonies - there is definite simplicity in only having to deal with capital gains and never having to worry about ROC and other distributions causing confusion. A definite benefit of using Horizons in a non-registered account.

As far as allocations go, that is really a personal thing and will mostly affect how much you put into the bond portion. Bonds are generally there to smooth the ups and downs of the markets (and in the case of traditional bond ETFs, income). If you are going to freak out when your stock portions get cut in half, then you might want to lean towards a higher bond percentage. If you don't plan to sell for 20 years, then you could drop the bonds to 0%. It's really up to your goals and psychology. But once you pick your bond weighting, you could then pretty easily just allocate 1/3 of the remaining percentage to each of the others. Or if you want to follow a more established model you could look at what Vanguard has done:
http://www.canadianportfoliomanagerblog ... tion-etfs/

... and pick one of the weightings they use that you feel comfortable with.
Jr. Member
Feb 8, 2018
126 posts
41 upvotes
bonds is the source of money to buy stocks at "discount" when market is down
[OP]
Newbie
Dec 29, 2017
2 posts
1 upvote
sckor wrote: I think you have a good start there @simplemonies - there is definite simplicity in only having to deal with capital gains and never having to worry about ROC and other distributions causing confusion. A definite benefit of using Horizons in a non-registered account.

As far as allocations go, that is really a personal thing and will mostly affect how much you put into the bond portion. Bonds are generally there to smooth the ups and downs of the markets (and in the case of traditional bond ETFs, income). If you are going to freak out when your stock portions get cut in half, then you might want to lean towards a higher bond percentage. If you don't plan to sell for 20 years, then you could drop the bonds to 0%. It's really up to your goals and psychology. But once you pick your bond weighting, you could then pretty easily just allocate 1/3 of the remaining percentage to each of the others. Or if you want to follow a more established model you could look at what Vanguard has done:
http://www.canadianportfoliomanagerblog ... tion-etfs/

... and pick one of the weightings they use that you feel comfortable with.
Thanks a lot for your input. That helped clear things up.

So I'm thinking about doing this:
Canadian Index (TSX 60): HXT - 10%
US Index (S&P 500): HXS - 20%
International Index (MSCI EAFE): HXDM - 20%
Canadian Bond Index: HBB - 50%

Does this look like a fairly balanced portfolio? Any input is appreciated
Sr. Member
Jul 1, 2006
754 posts
584 upvotes
simplemonies wrote: Thanks a lot for your input. That helped clear things up.

So I'm thinking about doing this:
Canadian Index (TSX 60): HXT - 10%
US Index (S&P 500): HXS - 20%
International Index (MSCI EAFE): HXDM - 20%
Canadian Bond Index: HBB - 50%

Does this look like a fairly balanced portfolio? Any input is appreciated
I personally think that is too high in bonds. I don't think I'd go over 40% (I presently have no bond allocation at all, but I'm pretty comfortable with market gyrations and have a sizeable allocation of cash at 2.5% (Tangerine promo) or 2.3% (EQ Bank).
Deal Fanatic
May 31, 2007
5018 posts
2162 upvotes
Applesmack wrote: 100% US stocks every time dude. Canada sucks and international sucks as well. By 'diversifying' internationally you are only lowering your return.
Not good advice for Canadians because of loonie. A period between 2000-2009 investors lost about -40% on s&p500 in cad.

How likely would investor stick to the plan after nine years of horrible returns? During that time tsx 5% annualized.

Don't let Regency bias Of USA outperformance guide future expectations and expect behaviour risk to be in check when it doesn't.
Deal Fanatic
May 31, 2007
5018 posts
2162 upvotes
simplemonies wrote: Thanks a lot for your input. That helped clear things up.

So I'm thinking about doing this:
Canadian Index (TSX 60): HXT - 10%
US Index (S&P 500): HXS - 20%
International Index (MSCI EAFE): HXDM - 20%
Canadian Bond Index: HBB - 50%

Does this look like a fairly balanced portfolio? Any input is appreciated
Stick to 25% each it gives best balance over long term, my portfolio weighted this as well.
Newbie
Jul 22, 2016
26 posts
2 upvotes
Isn't there a big issue with swap based ETFs? I don't know much about them but if the National Bank bankrupts, aren't you screwed? How much would you end up losing if that were the case?
Sr. Member
Feb 13, 2008
580 posts
257 upvotes
Edmonton, AB
GreyFly wrote: Isn't there a big issue with swap based ETFs? I don't know much about them but if the National Bank bankrupts, aren't you screwed? How much would you end up losing if that were the case?
If National Bank bankrupts an investor will get back his original investment as I understand it. One will not get the gains.

If the bank goes under we will have have bigger problems to worry about.
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
simplemonies wrote: Thanks a lot for your input. That helped clear things up.

So I'm thinking about doing this:
Canadian Index (TSX 60): HXT - 10%
US Index (S&P 500): HXS - 20%
International Index (MSCI EAFE): HXDM - 20%
Canadian Bond Index: HBB - 50%

Does this look like a fairly balanced portfolio? Any input is appreciated
Any time horizon for when you might need the money?

If I understand correctly, this is is basically passive investment income --- how likely are you to be affected by the new tax measures?
Deal Addict
Nov 9, 2013
4066 posts
3933 upvotes
Edmonton, AB
Jungle wrote: Stick to 25% each it gives best balance over long term, my portfolio weighted this as well.
Keep calm and go long
Sr. Member
Feb 13, 2008
580 posts
257 upvotes
Edmonton, AB
John47 wrote: Any time horizon for when you might need the money?

If I understand correctly, this is is basically passive investment income --- how likely are you to be affected by the new tax measures?


I guess you mean the Government will bring in new legislation to do away with this like they did with Class mutual funds?
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
cocotheparrot wrote: [/b]

I guess you mean the Government will bring in new legislation to do away with this like they did with Class mutual funds?
Hi,
I'm referring to the new tax measures intended to disincentivize people from accumulating money within their private corporations.
Sr. Member
Feb 13, 2008
580 posts
257 upvotes
Edmonton, AB
John47 wrote: Hi,
I'm referring to the new tax measures intended to disincentivize people from accumulating money within their private corporations.
Thanks John 47.

---------------------------------------------------------------------------

I am very annoyed with JT for reducing the TFSA ten K limit. He said TFSA is only for rich people?
Deal Fanatic
Mar 24, 2008
6053 posts
2305 upvotes
Toronto
Jungle wrote: Stick to 25% each it gives best balance over long term, my portfolio weighted this as well.
Allocating 25% of your portfolio to a Country that's ~4% of the total world equity market and composed of 35% financials & 18% energy stocks is risky, don't you think?
Illegitimi non carborundum
Deal Fanatic
May 31, 2007
5018 posts
2162 upvotes
ksgill wrote: Allocating 25% of your portfolio to a Country that's ~4% of the total world equity market and composed of 35% financials & 18% energy stocks is risky, don't you think?
The TSX index (and economy) is not as diversified as say,US, but mixed together with other markets gives you balance. So that concentration risk does wash away over time. When one area lags, another area picks up.

Check out post #8, where TSX beat s&p during that time, and was still concentrated in banks and energy.

As per stingy investor, the TSX still has 20 annual return of 6.78%, 30 years 8.08% . (Using 0.25% drag, assuming ETF existed back then)
Deal Fanatic
Mar 24, 2008
6053 posts
2305 upvotes
Toronto
Jungle wrote: The TSX index (and economy) is not as diversified as say,US, but mixed together with other markets gives you balance. So that concentration risk does wash away over time. When one area lags, another area picks up.

Check out post #8, where TSX beat s&p during that time, and was still concentrated in banks and energy.

As per stingy investor, the TSX still has 20 annual return of 6.78%, 30 years 8.08% . (Using 0.25% drag, assuming ETF existed back then)
Yes, I see what you wrote but I am still not convinced that home bias based on cherry picked data is a good move.

Investing close to global equity market weightings is not based on recency bias but on diversification principles. Your mileage may vary, of course.
Illegitimi non carborundum
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User avatar
Oct 14, 2001
1696 posts
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GMA
ksgill wrote: Yes, I see what you wrote but I am still not convinced that home bias based on cherry picked data is a good move.

Investing close to global equity market weightings is not based on recency bias but on diversification principles. Your mileage may vary, of course.
Regardless of it being a good move or not, if the intent is to have a passive market-cap-based asset allocation, allocating 25 or 30% to a sub-market consisting of ~3% of the world market cap is still a form of active management.

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