Investing

Market timing step 2: going back in

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  • Nov 23rd, 2020 5:44 pm
Jr. Member
Nov 27, 2019
157 posts
119 upvotes
freilona wrote: Yeah I think 18% in ZPR is at least 5% too many even by Garth’ “guidelines” :) There’re a few alternative options, so the first question would be: what’s the most important to you in the FI/non-equities portion of your portfolio? Capital preservation? Tax efficiency? Capital gains? Higher interest/dividends/distributions? I’m not asking about negative correlation with equities as everything moves together nowadays, but from the theoretical perspective (or if things “return to normal” eventually) that’s still the main selling point for precious metals for example.

If you don’t have any HISAs yet, I’d start there and look for promos: official-rfd-thread-high-interest-savin ... 24-698055/ (our “investment HISA and GICs” are at people’s trust - still competitive with 1.75% HISA and 2% 3 year GICs: https://www.peoplestrust.com/en/peoples ... nts/rates/ ) That would be the safest option.

Gold and/or silver ETFs are widely becoming a part of the balanced portfolios, and I regret not buying some (so can’t recommend them, but if some predictions are correct - there’s still “a bit/lot” of upside left)

If what attracted you in preferred shares the most was high/tax efficient dividends, why not replace a portion of ZPR with dividends stocks/ETFs? As you’ve seen yourself, preferreds are not really Fixed Income. ZPR’s distributions getting lower when the underlying holdings are getting reset at lower rates. But it drops like equities (or even worse!) during crashes. So might as well buy banks or utilities ETF for example - with a good chance of price appreciation and dividend increases to sweeten the volatility. Or a covered calls etf for a comparable or even higher yield (as a tax specialist, you shouldn’t be scared by extra tracking & reporting headaches, like me 🤪) Here’s Banks one for example, should do really well while the banks move sideways and not increasing the dividends: https://www.bmo.com/gam/ca/advisor/prod ... file%2FZWB

(I actually had a thread about fixed ncome alternatives: fixed-income-alternatives-rising-rates- ... 2173737/4/ , but mostly got preferreds recommendations, despite saying that already have them and looking for something else Face With Tears Of Joy Upd. The perpetual ones held up amazingly well actually, so maybe should’ve listened to an experienced retiree!)
Thank you so much! A lot of homework for me but I'll probably start the research with dividends stocks/ETFs. High/tax efficient dividends would be my priority since that almost all my ZPR is on margin account and my current portfolio yields in average a bit above 3%.
Member
May 2, 2019
357 posts
334 upvotes
Vancouver
florenntina wrote: Have you seen Garth's new blog?
" The current preferred weightings in a 60/40 portfolio are 26% in a variety of bond funds, 13% in preferreds, 20% in Canadian growth assets (including 5% in REITs), 22% in US equities and 18% in international stocks. Of course, try to move things around for tax-efficiency between a non-registered account (dividends and capital gains), an RRSP (sheltering bonds) and your TFSA (the hot stuff)."
Can anybody explain the part in bold? Maybe I'm lacking the context. How can REITs be growth assets?

There is a variety of REIT business models. Yet, they are commonly supposed to pay out most of the profits as dividends. That makes them income assets.
Jr. Member
Nov 27, 2019
157 posts
119 upvotes
yvrbanker wrote: Can anybody explain the part in bold? Maybe I'm lacking the context. How can REITs be growth assets?

There is a variety of REIT business models. Yet, they are commonly supposed to pay out most of the profits as dividends. That makes them income assets.
I agree, but compering with e.g. XIC, REITs look like super growth assets. Only in Canada (and probably Australia) :)
Deal Addict
Jul 8, 2013
1466 posts
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Red Deer, AB
freilona wrote: Congrats as well! I also bought 1,000 shares of BHK “to test” last month, and now bought remaining 7,000 - paying $4.5K more than if I didn’t wait (or waited more? :)) But will be getting $540 monthly, so whatever.. :)

I discovered CEFs (closed end funds that use leverage to enhance yields) recently myself, and posted about them a few pages ago. They’re becoming more popular with retirees now that “normal” bonds ETFs yield squat. But they’ll (potentially) suffer more when the rates start going up, so stick with ZAG and “normal ETFs” while you work and don’t need the income! :)
Buying it at a higher price definitely strings, but you have the right attitude which you cannot teach.

Market timing is hard, eh?

With that said, all evidence points to a significant decline over the next little while. However, this is NOT guaranteed. Even if we knew that markets will drop, we just don't know WHEN. This is especially difficult for early retirees like yourself.

Keep us posted!
TFSA: XAW | RRSP: VEQT + VAB | Non-Reg: XIC

It's really that simple.
Deal Addict
Jul 8, 2013
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Red Deer, AB
freilona wrote: @florenntina yeah I saw - he missed 1% somewhere (all his numbers add up to 99%), but 26% in bonds sounds so last year! Face With Tears Of Joy I mean, bonds ETFs prices keep going up, can’t push myself to buy any.. sigh
The 1% is cash in a high-yield instrument. I do not do preferred shares (never understood them) but I still have 25% bonds in my RRSP portfolio. Bonds are important and serve their purpose. Reduces volatility, serves as dry powder when markets go down, huge hedge against deflation, etc.
TFSA: XAW | RRSP: VEQT + VAB | Non-Reg: XIC

It's really that simple.
[OP]
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Aug 4, 2014
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TuxedoBlack wrote: Buying it at a higher price definitely strings, but you have the right attitude which you cannot teach.
Yeah I’ve been definitely struggling to change my mindset from “Who cares? In 10+ years it’ll be higher!” to “Who cares? I’ll collect the distributions in the meantime!” :)
Market timing is hard, eh?

With that said, all evidence points to a significant decline over the next little while. However, this is NOT guaranteed. Even if we knew that markets will drop, we just don't know WHEN. This is especially difficult for early retirees like yourself.

Keep us posted!
Thank you :) I still have 41K+ cash in my tfsa from the recent XAW sale, hope to play “catch the bottom” game once more Face With Tears Of Joy But honestly, just wanted to replace it with that “quality world equities” ETF, ZGQ, hoping it’ll help me be less jittery and just keep adding to it yearly..
[OP]
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@MrMom , I was itching to sell CSU-T yesterday, but it didn’t get just a bit to my +30% target sell price, and of course closed down almost 5% today, which I’m sure won’t feel lucky next week.. Face With Tears Of Joy
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Aug 17, 2008
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@freilona If I was as smart as you, I wouldn't be worried unless it breaks below the current range. Chart attached.
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Sep 21, 2007
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my entire RRSP is currently with mutual funds with BMO.

I won't be touching this money for at least another 25+ years.

I'm in the process of switching my RRSP over to Questtrade since you can trade ETF's without fee's. I'm tired of the high MER on those Mutual Funds.

Can someone recommend me a good overall ETF to be properly diversified? I've been doing a bunch of research the last few weeks on this..Dunno which ones are good.
Mostly want to buy Canadian ETF's...

I'm aware of XIC and VAB. Would it be smart to invest in VFV, then whatever the equivalent for the TSX one, then an overall international one?
"An essential aspect of creativity is not being afraid to fail." -- Edward Land
[OP]
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@faken , what do you think of “all-in-one” ETFs, like XGRO/VGRO or XBAL/VBAL? My personal favourite is HBAL because it has the largest US proportion (with Nasdaq and 7-10 years Treasuries additions), but its total return structure is best suited for non-registered accounts (doesn’t mean you can’t hold it in registered though :))
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Sep 21, 2007
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freilona wrote: @faken , what do you think of “all-in-one” ETFs, like XGRO/VGRO or XBAL/VBAL? My personal favourite is HBAL because it has the largest US proportion (with Nasdaq and 7-10 years Treasuries additions), but its total return structure is best suited for non-registered accounts (doesn’t mean you can’t hold it in registered though :))
I've looked into XGRO/VGRO and it is a possibility. From some of the posts I've read in other threads, this is a good starter.. But I'm pretty risk averse and I wouldn't mind holding 2-3. I just don't know which ones.. Also how do you find out which sectors each of them holds so they don't overlap. This is way harder than individual stocks lol.
"An essential aspect of creativity is not being afraid to fail." -- Edward Land
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faken wrote: Also how do you find out which sectors each of them holds so they don't overlap. This is way harder than individual stocks lol.
All-in-one ETFs hold separate ETFs, so you’d need to look at those for sector breakdown. For example, XGRO holds ITOT for total US market equities which has the following breakdown:

Information Technology
27.00
Health Care
14.48
Consumer Discretionary
11.72
Financials
10.30
Communication
9.96
Industrials
8.56
Consumer Staples
6.26
Real Estate
3.43
Utilities
2.87
Materials
2.72
Energy
2.40
Cash and/or Derivatives
0.30

https://www.ishares.com/us/products/239 ... market-etf

(Personally, I think it’s much simpler - all stocks, all sectors :))
Jr. Member
Nov 27, 2019
157 posts
119 upvotes
@Freliona
Interesting Doug’s opinion yesterday:

“...However, it is true that investors will need to take more risk in the future with their fixed income holdings to achieve better rates of return.

A 40% fixed income component being composed predominately of US Treasuries or Government of Canada bonds will no longer work. More exposure to corporate bonds, for instance, will likely be required instead.”

And it comes in right time as I just made decision about my portfolio rebalance. Maybe he reads RFD? Face With Tears Of Joy

Btw. I already did some work:
* decreased ZSP (to 27% and will keep it like this for now)
* changed VEE to XEC (thank you once again for the call)
* bought another 1% of bonds Flushed Face

Next should be:
* buy another 8% of bonds (up to
10%)
* decrease ZPR to 13%
* buy 10% of some dividend ETF (prefer ZDV for now but will see).

On the end of the day, the target portfolio should be:
27% ZSP
15% XIC
15% XEF
5% XEC
5% ZRE
13% ZPR
5% ZDV or some other dividend ETF
10% bonds
5% cash (will go in bonds later)
Last edited by florenntina on Aug 9th, 2020 12:18 pm, edited 1 time in total.
Jr. Member
Nov 27, 2019
157 posts
119 upvotes
faken wrote: I've looked into XGRO/VGRO and it is a possibility. From some of the posts I've read in other threads, this is a good starter.. But I'm pretty risk averse and I wouldn't mind holding 2-3. I just don't know which ones.. Also how do you find out which sectors each of them holds so they don't overlap. This is way harder than individual stocks lol.
I usually use https://www.morningstar.com/etfs/xtse/zdv/portfolio to get relevant information about ETF I’m interested in. This one works for me but there are a lot of other ways to find it out. You can also check the site of company who makes the particular ETF (Vanguard, BMO ect.). Also, pay attention on MERs since it can make a significant difference in total return on long run. Good luck Thumbs Up Sign

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