portfolio design, 5-year horizon, 5%+ target return

treva84 wrote: ↑ To get 5% you'll have to move up the risk scale and this exposes you to more downside potential. You may get your return for 4 of the 5 years (50k --> 60K) but if in the final year there's a 20% crash in your portfolio (60K --> 48K), was it worth it?

treva84 wrote: ↑ Why is your time horizon 5 years? (i.e. what do you need the money for in 5 years).

Assuming your time frame is fixed and you have a big liability coming up (house, education, etc) then your primary focus should be on capital preservation and downside protection, rather than rate of return. The market doesn't care about what you want and will do what it will do.

To get 5% you'll have to move up the risk scale and this exposes you to more downside potential. You may get your return for 4 of the 5 years (50k --> 60K) but if in the final year there's a 20% crash in your portfolio (60K --> 48K), was it worth it?

FarmerHarv wrote: ↑ XTR maybe? One stop shopping fund of funds with a mix of everything you mentioned, although 20% US exposure included. 5%+ return, .61% MER.

https://www.blackrock.com/ca/individual ... ts/239495/
https://www.blackrock.com/ca/individual ... -en-ca.pdf

porticoman wrote: ↑ ^^^ agree, I like this one based on income & growth

only thing to consider are the total fees mgt 0.55% + mer 0.61%, other than that ... looks good

anyone have any other suggestions?

ukrainiandude wrote: ↑ Physical gold +8% YTD
Just saying.

ukrainiandude wrote: ↑ Physical gold +8% YTD
Just trolling.

rodbarc wrote: ↑ The portfolio design proposal is for 5 years, not 2 months.

Bitcoin is up 41% YTD. Many stocks are up by double digits YTD. What is your point and how is 2 months relevant to investing for the long term?


Rod

stanleyinfrared wrote: ↑ Rod, do you have any suggestions? How would you approach this problem?

porticoman wrote: ↑ lets take this one step further.

to be fair, what about a comparison of the % performance of Gold vs S&P over a 5 yr, 10 yr, 25yr timeframe

if you can find it, please post back the results.

was gold the winner?

rodbarc wrote: ↑ Timeframe on when you need the money defines the strategy. You have mentioned that you want to increase your purchasing power overtime, so equities are a great way to do that. The focus is on long term, potentially longer than 5 years, because the market can fluctuate a lot in the short term and a recession would degrade that purchasing power in the short term.

My approach is always to be fully invested at all times, but that's because I choose individual business that has a strong quality tracking record and which I believe to be fairly valued given how much the business is estimated to grow and priced at the moment. The more you buy companies with this approach, the better margin of safety you build on your portfolio when partnering with these businesses. Overtime, your portfolio performance will be a function of how these businesses perform. Price might oscillate in the short term and a recession will likely cause these companies to trade below their true worth, but overtime, perhaps on a time frame larger than 5 years, they will follow business performance. So I think it makes sense to be fully in equities at any moment, because in any market, there are always bargains to be found.

Now if you are not buying individual companies, you could index. Market is expensive, which is an added risk, but the principle is to keep averaging down and sticking to the plan. Overtime, you will notice that you will average up. It's better to index than to not have any exposure to equities.

Regarding your 4 points:

1) Regardless if you build your portfolio a company at the time or if you are indexing, in a way or another, you are partnering with companies that keep producing and growing cash flow. Fixed income can't keep up with inflation. So I would only own fixed income if I absolutely need to protect capital. I personally see no need to reduce volatility if the goal is for the long term. So unless there's a portion that you want to protect the capital, I wouldn't hold cash and equivalents because you want time on your side to work for you.

2) That depends. If your goal is total return, then a concentrated portfolio on companies estimated to grow above average that are fairly valued or undervalued would be the best setup. If your goal is resilience of income, then you might want more companies on your portfolio, from multiple sectors, to afford the odd company that might be severely affected by a recession or some other challenges. When it comes to dividends, I prefer the latter approach, since my goal is growth of income stream and resiliency of that income growth. But you need to be able to track and understand what you own and why you own. For capital appreciation, I rather setup a growth portfolio tailored to capital appreciation. So it all depends on your goals, risk tolerance and timeframe.

3) That's a personal choice. Some people have a mix because it's hard to endure the volatility. Some people have a mix because there's a portion of capital that must be protected. And some people are fully on equities. Do you need to reduce volatility? Do you have a certain amount that you must protect for the short term (up to 5 years?)

4) Preferreds is a whole different world, and that can be a good strategy depending on your objectives. Check this article out as a starter. You will see that the concept of valuation also applies (calculated via a different way than common stocks), and that many quality Preferreds at a lower valuation is a great way to build a decent total return.


Rod

Do you need to reduce volatility? Do you have a certain amount that you must protect for the short term (up to 5 years?)

stanleyinfrared wrote: ↑ Rod, thanks for your excellent post. The article on preferreds is very educational.

My goal is to have the lowest volatility with the target return of 5%. I plan to enter the real estate market in a few years, but I don't have definite plans. I want to have exposure to equities while waiting.

How did you protect a chunk of your portfolio that was supposed to be used a downpayment? Was it just invested as fixed income?