Couch potato investing for the last 14 years - tracking my progress

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Dec 1st, 2020 4:13 pm

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Feb 11th, 2019 10:02 pm

#2806

georvu: Deal Fanatic; Feb 4, 2015; 6110 posts; 2573 upvotes; Canada, Eh!!

Feb 11th, 2019 10:02 pm

Folks you have done 99% of the heavy lifting... no need to complicate with various % of different etfs... simple like Germack said.

.......
July 13, 2017 to October 25, 2018: BOC raised rates 5 times and MCAP raised its prime rate next day each time.

2020: BOC dropped rates 3 times and MCAP waited and waited to drop its prime rate to include all 3 drops.

+1

Feb 23rd, 2019 7:51 pm

#2807

mathishard: Newbie; Oct 20, 2018; 12 posts

Feb 23rd, 2019 7:51 pm

Hi everyone, I have been following the Canadian Couch Potato model for the past 4 years, and I'm pretty happy with it. However, my wife and I have our investments spread out across 2 RRSPs, 2 TFSAs, and 2 margin accounts (all with Questrade except for 1 RRSP, which is with RBC Direct Investing), and I sometimes find rebalancing to be time consuming. When I set things up, the total market ETFs from Vanguard weren't available, so I chose 5 ETFs: 1 each for bonds, US, Canada, International, and emerging.

Here's my target allocation:
VAB (bonds) - 28%
HXS (US) - 24%
ZCN (Canada) - 24%
XEF (International) - 19%
XEC (Emerging) - 5%

For tax efficiency and to maximize growth in our TFSAs, I have all of my VAB in an RRSP. By my calculations, our overall MER is 0.21. Anyway, my questions are as follows:

1. For the sake of simplicity, should I sell everything and just buy one of the total market funds like VGRO?
2. Or should I keep bonds and equities separate, i.e., buy VAB and VEQT, so I can maintain the tax advantage of having bonds in my RRSP?
3. Is it worth buying a USD ETF in my RRSP instead of having a Canadian ETF?

Anyway, I think the fees would probably be under $100 to liquidate everything and just buy VGRO or VAB/VEQT (or something similar because i know there are competing funds offered), but maybe there's something I'm overlooking, so I'd like some feedback before I pull the trigger!

My wife and I are in our late 30s, so my timeframe is at least 20 years (probably more like 25). Any thoughts, advice, feedback, etc. would be greatly appreciated!

Feb 23rd, 2019 9:54 pm

#2808

bubak: Deal Addict; Jul 15, 2009; 1999 posts; 1124 upvotes

Feb 23rd, 2019 9:54 pm

mathishard wrote: ↑ Hi everyone, I have been following the Canadian Couch Potato model for the past 4 years, and I'm pretty happy with it. However, my wife and I have our investments spread out across 2 RRSPs, 2 TFSAs, and 2 margin accounts (all with Questrade except for 1 RRSP, which is with RBC Direct Investing), and I sometimes find rebalancing to be time consuming. When I set things up, the total market ETFs from Vanguard weren't available, so I chose 5 ETFs: 1 each for bonds, US, Canada, International, and emerging.

Here's my target allocation:
VAB (bonds) - 28%
HXS (US) - 24%
ZCN (Canada) - 24%
XEF (International) - 19%
XEC (Emerging) - 5%

For tax efficiency and to maximize growth in our TFSAs, I have all of my VAB in an RRSP. By my calculations, our overall MER is 0.21. Anyway, my questions are as follows:

1. For the sake of simplicity, should I sell everything and just buy one of the total market funds like VGRO?
2. Or should I keep bonds and equities separate, i.e., buy VAB and VEQT, so I can maintain the tax advantage of having bonds in my RRSP?
3. Is it worth buying a USD ETF in my RRSP instead of having a Canadian ETF?

Anyway, I think the fees would probably be under $100 to liquidate everything and just buy VGRO or VAB/VEQT (or something similar because i know there are competing funds offered), but maybe there's something I'm overlooking, so I'd like some feedback before I pull the trigger!

My wife and I are in our late 30s, so my timeframe is at least 20 years (probably more like 25). Any thoughts, advice, feedback, etc. would be greatly appreciated!

1. Only you can decide this since it depends on what price you put on convenience. Figure out how much more it would cost you to go VGRO, and then decide whether you value the simplicity that much. It probably depends on what fraction of your portfolio is non-registered. There's not much tax efficiency to be gained by optimizing between TFSA and RRSP, but if your non-registered portion is relatively big, having your Canadian equity there for the dividend tax credit and HXS can make quite a big difference.

2. If you calculate your asset allocation properly accounting for the taxes payable on RRSP withdrawals, there is no benefit to holding bonds in an RRSP over a TFSA. See https://www.michaeljamesonmoney.com/201 ... tures.html and https://www.michaeljamesonmoney.com/201 ... rrors.html. If you don't account for the taxes payable on RRSP withdrawals, then by putting bonds in your RRSP, you are inadvertently changing your asset allocation slightly away from bonds and towards equities.

3. Having Canadian ETFs in your RRSP instead of US ones costs you about 0.3% of the value of your RRSP each year (2% dividend yield times 15% withholding tax). Having USD ETFs would cost you currency exchange fees when you buy and sell. Evaluate and compare those costs (considering how many years you plan to hold those investments) and if holding Canadian ETFs turns out to cost more, consider whether the convenience of avoiding currency exchange is worth that extra cost.

+1

Feb 23rd, 2019 10:07 pm

#2809

mathishard: Newbie; Oct 20, 2018; 12 posts

Feb 23rd, 2019 10:07 pm

bubak wrote: ↑ 1. Only you can decide this since it depends on what price you put on convenience. Figure out how much more it would cost you to go VGRO, and then decide whether you value the simplicity that much. It probably depends on what fraction of your portfolio is non-registered. There's not much tax efficiency to be gained by optimizing between TFSA and RRSP, but if your non-registered portion is relatively big, having your Canadian equity there for the dividend tax credit and HXS can make quite a big difference.

2. If you calculate your asset allocation properly accounting for the taxes payable on RRSP withdrawals, there is no benefit to holding bonds in an RRSP over a TFSA. See https://www.michaeljamesonmoney.com/201 ... tures.html and https://www.michaeljamesonmoney.com/201 ... rrors.html. If you don't account for the taxes payable on RRSP withdrawals, then by putting bonds in your RRSP, you are inadvertently changing your asset allocation slightly away from bonds and towards equities.

3. Having Canadian ETFs in your RRSP instead of US ones costs you about 0.3% of the value of your RRSP each year (2% dividend yield times 15% withholding tax). Having USD ETFs would cost you currency exchange fees when you buy and sell. Evaluate and compare those costs (considering how many years you plan to hold those investments) and if holding Canadian ETFs turns out to cost more, consider whether the convenience of avoiding currency exchange is worth that extra cost.

Thanks, this is very useful! I'll try to write a more thoughtful response when I have a bit more time available, but you've reminded me that I have left out some important information.

1. I have a defined benefits pension, and I don't have much RRSP space. I'll probably contribute around $40k to a spousal RRSP in the next two years, but after that I will only be able to contribute about $3k/year.
2. Our TFSA's are maxed out.
3. My wife was working, but she is no longer able to. We have about $100k in her RRSP, but I feel like there's no point in putting any more of her money in the RRSP because she wouldn't get any meaningful deduction on her contribution.
4. We will be opening an RDSP for my wife next month, but my plan so far is to only contribute enough to maximize the matching amounts available from the government.
5. We're saving about $3k a month, so most of our investments going forward will be in unregistered accounts.

Does this change your feedback at all?

Feb 24th, 2019 3:37 pm

#2810

Germack [OP]: Deal Addict; Oct 1, 2006; 2156 posts; 1762 upvotes; Montreal

Feb 24th, 2019 3:37 pm

Hi Mathishard,

You got very good advice from @bubak. The ETFs you picked are very good. I do not see the need to sell your ETFs and purchase VGRO instead. For new money just invest it in VGRO for simplicity.

I prefer to hold my bonds in my RRSP instead of my TFSA due lower expected returns compared to equities --> lower tax bill in the end.

Since you wife is not working anymore she should not contribute to her RRSP, but you could make a spousal contribution instead. This may help saving taxes later.

+3

Feb 27th, 2019 3:10 pm

#2811

hat1811: Newbie; Oct 28, 2008; 62 posts; 12 upvotes; Toronto

Feb 27th, 2019 3:10 pm

Vanguard actively managed Mutual Funds - Management Fee - .50 and MER - ?
Global Dividend Fund Series F VIC 200
International Growth Fund Series F VIC 400
Windsor U.S. Value Fund Series F VIC 300

Compare above Mutual Fund with VGRO, VBAL,VCNS Management Fee -,22 + MER .25

Any thoughts or information shared will be appreciated Does it sounds great as couch potato approach

Mar 1st, 2019 11:31 am

#2812

carmaster: Deal Expert; Jun 30, 2006; 18416 posts; 6430 upvotes; Toronto

Mar 1st, 2019 11:31 am

What are the best funds to invest in at the moment with around $20K?

Mar 1st, 2019 11:51 am

#2813

Shojin: Sr. Member; Dec 12, 2005; 935 posts; 97 upvotes; GTA

Mar 1st, 2019 11:51 am

hat1811 wrote: ↑ Vanguard actively managed Mutual Funds - Management Fee - .50 and MER - ?
Global Dividend Fund Series F VIC 200
International Growth Fund Series F VIC 400
Windsor U.S. Value Fund Series F VIC 300

Compare above Mutual Fund with VGRO, VBAL,VCNS Management Fee -,22 + MER .25

Any thoughts or information shared will be appreciated Does it sounds great as couch potato approach

Those are F-series funds which you won't have access to as an individual investor. If you're purchasing them through an advisor then there will be additional investment fees on the whole portfolio so your overall cost may be closer to 1.5% or higher depending on your portfolio size.

The MER for VGRO/VBAL/VCNS includes the management fee so your overall cost is 0.25%. They are a great option for couch potato investing (or the corresponding iShares equivalent).

Shojin wrote:I like to quote myself.

Mar 1st, 2019 12:42 pm

#2814

asa1973: Deal Addict; Jan 20, 2016; 2028 posts; 1008 upvotes; Houston, TX

Mar 1st, 2019 12:42 pm

mathishard wrote: ↑ Thanks, this is very useful! I'll try to write a more thoughtful response when I have a bit more time available, but you've reminded me that I have left out some important information.

1. I have a defined benefits pension, and I don't have much RRSP space. I'll probably contribute around $40k to a spousal RRSP in the next two years, but after that I will only be able to contribute about $3k/year.
2. Our TFSA's are maxed out.
3. My wife was working, but she is no longer able to. We have about $100k in her RRSP, but I feel like there's no point in putting any more of her money in the RRSP because she wouldn't get any meaningful deduction on her contribution.
4. We will be opening an RDSP for my wife next month, but my plan so far is to only contribute enough to maximize the matching amounts available from the government.
5. We're saving about $3k a month, so most of our investments going forward will be in unregistered accounts.

Does this change your feedback at all?

Just to think about.

As your spouse has zero income, she can retrieve effective zero tax her rrsp and put the proceeds to TFSA now. I'd think about that.

* Effective mean she would be charged tax on rrsp withdrawal by brokerage with reimbursement from CRA on tax filing.
Also it makes sense to you to start doing spousal rrsp...

Unreg account also make sense to have under her name... that's rare moment I'd recommend to read Garth Turner blog specifically about spousal investment....

Make the face great again

+1

Mar 2nd, 2019 8:07 am

#2815

VerticalTab: Newbie; Mar 1, 2019; 11 posts; 6 upvotes

Mar 2nd, 2019 8:07 am

I don't have any comments on the mutual funds themselves, but it is possible for an individual investor to buy them, and many other F series funds, using Questrade for a $10 commission.

Last edited by VerticalTab on Mar 2nd, 2019 12:02 pm, edited 1 time in total.

Mar 2nd, 2019 7:35 pm

#2816

Germack [OP]: Deal Addict; Oct 1, 2006; 2156 posts; 1762 upvotes; Montreal

Mar 2nd, 2019 7:35 pm

Very interesting graph from Ben Carlson. While the stock market can be very volatile in the short term, long-term returns have been relatively stable.

+5

Mar 6th, 2019 10:50 pm

#2817

drey: Deal Addict; Sep 13, 2003; 1269 posts; 104 upvotes

Mar 6th, 2019 10:50 pm

I am curious after reading something. Should we consider safeguarding our investments by resetting allocations for 2019? For simplicity, increasing your fixed and reducing your growth exposures and with expectation to return to original exposure the following year?