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How to rebalance Canadian Couch Potato with the updated 2015 model?

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Mar 17, 2004
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How to rebalance Canadian Couch Potato with the updated 2015 model?

So it's my first time rebalancing my CCP portfolio, and to my surprise when i went to the CCP site, the ETF models have completely changed.
I have read some of the reasons on the site, mainly being just to simplify things: http://canadiancouchpotato.com/2015/01/ ... -for-2015/

The one's i carry now:
ZCN - Canadian Equity
VTI - US Equity
VXUS - International Equity
ZRE - Real estate investment trusts
XRB - Real return bonds
XBB - Canadian Bonds

The new one is simply:
VAB - Canadian Aggregate Bonds
VCN - Canadian Equity
VXC - All non Canadian

Question I have:
- I understand VXC replaces VTI & VXUS because of the complications of USD, but I have access to USD so should i just stick to the VTI & VXUS combo?
- REITS are cut off now. Should i sell off my ZRE or keep my current percentage?
- Same question with XRB since real return bonds are cut?
- Is VAB the direct replacement for XBB with just lower MER? If so is it worth selling off my existing XBB for VAB or selling fees offset this.
- ZCN & VCN look the exact same to me, same MER. Any reason to switch?

Btw i trade with Questrade

Thanks in advance!
8 replies
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the watcher wrote: So it's my first time rebalancing my CCP portfolio, and to my surprise when i went to the CCP site, the ETF models have completely changed.
I have read some of the reasons on the site, mainly being just to simplify things: http://canadiancouchpotato.com/2015/01/ ... -for-2015/

The one's i carry now:
ZCN - Canadian Equity
VTI - US Equity
VXUS - International Equity
ZRE - Real estate investment trusts
XRB - Real return bonds
XBB - Canadian Bonds

The new one is simply:
VAB - Canadian Aggregate Bonds
VCN - Canadian Equity
VXC - All non Canadian

Question I have:
- I understand VXC replaces VTI & VXUS because of the complications of USD, but I have access to USD so should i just stick to the VTI & VXUS combo?
- REITS are cut off now. Should i sell off my ZRE or keep my current percentage?
- Same question with XRB since real return bonds are cut?
- Is VAB the direct replacement for XBB with just lower MER? If so is it worth selling off my existing XBB for VAB or selling fees offset this.
- ZCN & VCN look the exact same to me, same MER. Any reason to switch?

Btw i trade with Questrade

Thanks in advance!
I wouldn't worry too much about the specific funds you have. You are invested in rather good funds already to begin with. The main idea with CCP is to hold good, and cheap funds and build up overtime, but not really worry about following it to the tooth. You are correct that the model has been changed to simplify the process for new starters.

In your particular case, I would keep the funds as is. Your VTI and VXUS funds are cheaper MER-wise (although after trading with US$ either through brokerage or Norbert's Gambit, it's probably more expensive or a wash), although you are right that it does involve more work. Keep to the old percentages as you did before, or cut out the Real Estate Investment Trusts and Real Return Bonds and add it to the other ETFs. It really makes little difference in the end. Do you value simplicity or even more diversification. That is your choice... heck, you could add different funds or stocks and diverge from your initial portfolio if you want. There are some interesting ETFs out there. India ETFs, Latin American ETFs. You could add token amounts of these just to try something new, of course keeping it low and not diverging too much from your safe portfolio.

VAB replaces XBB. VAB is about 1/3 the MER of XBB (0.12% versus 0.33%). You can switch it if you want, but whether it's worth the hassle is again your choice. The difference in price is about 21 cents per $100, and that doesn't factor if one does better than the other. VAB is fairly new, so we only have 3 years to look at, but XBB has beaten VAB over the last 3 years by a little leses than a percent. XBB does hold slightly (I mean slightly) more risky bonds which may explain the performance difference, but this is minimal at best, and this doesn't mean extra return by holding XBB over the long term.

My advice is you already have a solid CCP plan. I would stay with it. None of the changes warrants a drastically cheaper or better option. I would only switch to the new system if buying 6 different ETFs is too much work for you. Since Questrade allows free trading, it makes very little difference in your case.
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Oct 9, 2005
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^+1. Some of CPP's comments on the 2015 portfolio:

"If a more complex portfolio is already working for you I see no reason to change what you’re doing. The model portfolios are really designed for people who are starting from scratch."

"I think Mike’s comment captures my feelings nicely. If you are already managing a more complex portfolio successfully, just carry on. It’s not that real-return bonds or REITs are unimportant, just non-essential."

"And again, the point was not to create an optimal solution, but simply a useable one."

"The model portfolios have always been intended as a starting point, nothing more."

"There is no reason to sell your existing ETFs based on the new model portfolio recommendations!"
Intricated
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xgbsSS wrote: I wouldn't worry too much about the specific funds you have. You are invested in rather good funds already to begin with. The main idea with CCP is to hold good, and cheap funds and build up overtime, but not really worry about following it to the tooth. You are correct that the model has been changed to simplify the process for new starters.

In your particular case, I would keep the funds as is. Your VTI and VXUS funds are cheaper MER-wise (although after trading with US$ either through brokerage or Norbert's Gambit, it's probably more expensive or a wash), although you are right that it does involve more work. Keep to the old percentages as you did before, or cut out the Real Estate Investment Trusts and Real Return Bonds and add it to the other ETFs. It really makes little difference in the end. Do you value simplicity or even more diversification. That is your choice... heck, you could add different funds or stocks and diverge from your initial portfolio if you want. There are some interesting ETFs out there. India ETFs, Latin American ETFs. You could add token amounts of these just to try something new, of course keeping it low and not diverging too much from your safe portfolio.

VAB replaces XBB. VAB is about 1/3 the MER of XBB (0.12% versus 0.33%). You can switch it if you want, but whether it's worth the hassle is again your choice. The difference in price is about 21 cents per $100, and that doesn't factor if one does better than the other. VAB is fairly new, so we only have 3 years to look at, but XBB has beaten VAB over the last 3 years by a little leses than a percent. XBB does hold slightly (I mean slightly) more risky bonds which may explain the performance difference, but this is minimal at best, and this doesn't mean extra return by holding XBB over the long term.

My advice is you already have a solid CCP plan. I would stay with it. None of the changes warrants a drastically cheaper or better option. I would only switch to the new system if buying 6 different ETFs is too much work for you. Since Questrade allows free trading, it makes very little difference in your case.
Intricated wrote: ^+1. Some of CPP's comments on the 2015 portfolio:

"If a more complex portfolio is already working for you I see no reason to change what you’re doing. The model portfolios are really designed for people who are starting from scratch."

"I think Mike’s comment captures my feelings nicely. If you are already managing a more complex portfolio successfully, just carry on. It’s not that real-return bonds or REITs are unimportant, just non-essential."

"And again, the point was not to create an optimal solution, but simply a useable one."

"The model portfolios have always been intended as a starting point, nothing more."

"There is no reason to sell your existing ETFs based on the new model portfolio recommendations!"
Thanks for the answers.
As mentioned this is my first time rebalancing, and putting everything in tax efficient places was kind of a pain so I do embrace the simplicity.

What I will do then is:
- keep my current REITs and real return bonds, but not by any more.
- stick to VXUS and VTI until i run out of USDs. Switch to VXC after.
- Keep my current XBB, but purchase VAB from now on due to lower MERs.

Any input on VCN vs ZCN though?
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@OP: Why change your plan? You maybe over complicating the effort only after 1 year. Rebalancing means bringing back in line your original allocation targets. In my opinion, if the allocation are +-15% I don't bother doing anything. If they are out of whack by a greater % then you can either add new money so you don't have any fees (I assume Questrade offers free trades on these ETF's) or you sell (thus incurring fees) to rebalance to realign your initial allocations.

[QUOTE] As mentioned this is my first time rebalancing, and putting everything in tax efficient places was kind of a pain so I do embrace the simplicity.[/QUOTE]
If you find managing many ETF's this too complicated... Sell them all and just buy the three new funds. Your sacrificing some portfolio diversification but making your life simpler!
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If you haven't read CPP's article on when to rebalance: http://canadiancouchpotato.com/2011/02/ ... rebalance/

VCN covers all cap (large, mid, and small), while ZCN is only the large cap (~250 holdings), but is still 95% of the total Canadian equity market. ZCN also pays out higher distributions (I think more eligible dividends), so it may be more tax efficient in a taxable account and more effective if the ETFs have the same post-fee (but pre-tax) returns. That said, you could expect the addition of mid/small cap in VCN to yield slightly higher returns in the long run. And with that said, VCN's benchmark has trailed ZCN's in the past 3/5 years, and the small cap value premium for Canadian equities isn't as pronounced as it is in the US or Int'l.

In regards to keeping XBB, at 0.30% MER vs. VAB's 0.12%, if you have a substantial amount in XBB, it could be worth triggering trading fees and capital gains to switch. Run your own numbers, but example:

20k in XBB. Switching saves you ~$40/year in MER (+HST). Your XBB ACB is 18k. Marginal tax rate is 40%, so you'll pay ((40% / 2) * (20k - 18k)) = $400 in taxes for selling. It costs $10 to sell XBB. Total cost is $410. So it'll take ~10 years to recoup it in MER savings.
Intricated
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Allen32 wrote: @OP: Why change your plan? You maybe over complicating the effort only after 1 year. Rebalancing means bringing back in line your original allocation targets. In my opinion, if the allocation are +-15% I don't bother doing anything. If they are out of whack by a greater % then you can either add new money so you don't have any fees (I assume Questrade offers free trades on these ETF's) or you sell (thus incurring fees) to rebalance to realign your initial allocations.


If you find managing many ETF's this too complicated... Sell them all and just buy the three new funds. Your sacrificing some portfolio diversification but making your life simpler!
Intricated wrote: If you haven't read CPP's article on when to rebalance: http://canadiancouchpotato.com/2011/02/ ... rebalance/

VCN covers all cap (large, mid, and small), while ZCN is only the large cap (~250 holdings), but is still 95% of the total Canadian equity market. ZCN also pays out higher distributions (I think more eligible dividends), so it may be more tax efficient in a taxable account and more effective if the ETFs have the same post-fee (but pre-tax) returns. That said, you could expect the addition of mid/small cap in VCN to yield slightly higher returns in the long run. And with that said, VCN's benchmark has trailed ZCN's in the past 3/5 years, and the small cap value premium for Canadian equities isn't as pronounced as it is in the US or Int'l.

In regards to keeping XBB, at 0.30% MER vs. VAB's 0.12%, if you have a substantial amount in XBB, it could be worth triggering trading fees and capital gains to switch. Run your own numbers, but example:

20k in XBB. Switching saves you ~$40/year in MER (+HST). Your XBB ACB is 18k. Marginal tax rate is 40%, so you'll pay ((40% / 2) * (20k - 18k)) = $400 in taxes for selling. It costs $10 to sell XBB. Total cost is $410. So it'll take ~10 years to recoup it in MER savings.
- I'm rebalancing because I haven't contributed to my portfolio over the year, so I will do that now and then rebalance in the process by adding these new funds. so reason #3 on that article.

- I definitely agree that if the percentages are off by a bit to not bother.

- Thanks for pointing out the difference between VCN and ZCN, exactly what I was looking for!

- my XBB is in my TSFA, so i wouldn't get hit up with taxes, just trading fees. But xgbsSS did write above that XBB is very slightly different, and has slightly riskier bonds so I think i will keep them.

cheers!
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I'm rebalancing because I haven't contributed to my portfolio over the year, so I will do that now and then rebalance in the process by adding these new funds. so reason #3 on that article.
Isn't the point of rebalancing to move things closer to your asset allocation when things have gone past a tolerable threshold? You don't have to rebalance every year 'just cause'. If things are close enough, leave it be.
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wm009 wrote: Isn't the point of rebalancing to move things closer to your asset allocation when things have gone past a tolerable threshold? You don't have to rebalance every year 'just cause'. If things are close enough, leave it be.
Yup. A 1 or 2% variance isn't worth the effort. If you contribute new funds this year, allocate them to try and get as close to possible as the orginal scheme.

However, doing a massive sell and buy back of all the funds just to go with teh current recommendations from one web site is overkill.

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