Investing

What to hold in LIRA (index investor)?

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[OP]
Sr. Member
Jan 14, 2010
684 posts
219 upvotes
Central Ontario

What to hold in LIRA (index investor)?

Will be commuting a DB pension and transferring a significant portion to a new LIRA. I am above the $$ threshold for ETFs, however am wondering if the MER cost savings will be negated by the PITA factor of dividend reinvestment and rebalancing options. My intention is to passive index invest (ie: sofa spud), and without being able to add $$ to this account, would it be better to stick with index mutual funds? I'm not with TD, so no e-series; the MER difference would be about .4%. Thanks for any info!
19 replies
Deal Addict
Mar 1, 2016
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How much is the transfer? is it a major component of your total assets

How long will .4% extra take to match 5-6 transaction cost now to rebalance?

for example My LIRA content is one ETF of an asset class i need at least twice the amount in total, so will likely not have to rebalance until retirement.
[OP]
Sr. Member
Jan 14, 2010
684 posts
219 upvotes
Central Ontario
Thanks foreigncontent (I upvoted you as no more thanks on RFDs Angry Face). You raise a good point of spreading my asset allocation over all my accounts, rather than rebalancing to the proper percentages within each account. So psychologically I'd have to look at total balance of all accounts (rather than currently seeing if RSP, TFSA, etc. 'up') as putting 1 ETF in 1 account might not look too positive sometimes. Same with 100% equity in all other accounts.

If I add accounts as a whole, LIRA contents would be ~46% of all investments, which is not too far off the balanced portfolio 40% mark for fixed income. Could be within target range within 1-2 years of my own regular contributions.

To improve the optics (ie so I don't look at my RSP account and cringe because it's 100% equity), is there a cheap ready-made balanced index ETF? Or are those priced with more fees (like wrap mutual funds)? Wouldn't be a bad marketing tool: an even lazier couch potato option for couch potatos? I just want something I can set and forget as this is supposed to be pension money.
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Feb 1, 2012
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I look at all my accounts as one portfolio from an asset allocation point of view.

I am also an index investor, mostly ETFs and GICs. I have 2 LIRAs, one = 3% of assets, the other = 30% of assets. Here is what I keep in my accounts:
  • Non-registered: Can, US & global equities (a lot of Cdn equity to take advantage of dividend tax credit)
  • TFSA: Can equities only
  • Small LIRA: fixed income only
  • Large LIRA: about half fixed income ETF & GICs, the other half US & global equities
  • RRSP: About 2/3 fixed income ETF & GICs, the other 1/3 holds some of each equity asset class

My RRSP is the account where I try to do all my rebalancing, for simplicity, and to defer cap gains taxes by not rebalancing in my non-registered account. That's why I hold every asset class in the RRSP. I do very little trading in any account other than my RRSP.

To avoid the PITA factor of reinvesting distributions, I invest my cash distributions into a low-cost balanced mutual fund, then when I get a few thousand built up in the mutual fund I sell it and buy whichever ETF I need to rebalance into. I do this in all my accounts. In my case I use TD Balanced Income Fund (TDB965). It is not an e-Fund, so should be available at any broker that sells TD funds. Its MER is 0.89, but that's not important, since I only hold a few thousand $ at any time.
https://www.tdassetmanagement.com/fundD ... undId=2099
http://canadiancouchpotato.com/2010/09/ ... ndex-fund/

I am not aware of any good low-cost balanced ETFs in Canada. There are ones like XTR and CBD, but their holdings are quirky and fees are much higher than core ETFs. Before you decide to invest in any of them, really look closely at the prospectus and assets held. You can see iShares funds at this link under Multi Asset
https://www.blackrock.com/ca/individual ... ew=grouped

You just need to learn to ignore investment returns in any one account, and only measure performance as a whole portfolio. A spreadsheet like the one at these link helps:
https://www.bogleheads.org/wiki/Calcula ... al_returns
https://www.bogleheads.org/forum/viewtopic.php?t=150025

Wow that was a long post. Maybe I should start blogging. :)
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
[OP]
Sr. Member
Jan 14, 2010
684 posts
219 upvotes
Central Ontario
Thanks to all who responded, and so quickly.

ksgill: I'm with RBC DI. I've been searching, but seem to have read that you can't DRIP in a LIRA there? Or can't DRIP ETFs? Someone let me know if I've got this wrong.

Deepwater: Very informative, spreadsheet helpful. Currently I use a rudimentary excel sheet simply comparing my $$ in vs. current account value. Interesting about rebalancing within RSP. This will be my first foray into having a non-registered account as well (not all can go into LIRA) and I've been attempting to learn about the various tax advantages per account. You make me consider your method (although will likely have to keep some FI in non-registered for inevitable tax hit (from receipt of all these funds) in April. Disappointed But Relieved Face)

'Quirky' and 'high fees' doesn't really fit with my investment style! Thanks for info though.
Deal Fanatic
Mar 24, 2008
6208 posts
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Toronto
I have XAW set up for DRIP in a LIRA at BMO, please call and check again... not sure why RBC would exclude LIRAs from DRIPs.
TFSA: XAW | RRSP: AOR | Non-reg: XUU + GICs
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Feb 1, 2012
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I've been attempting to learn about the various tax advantages per account.
Finiki is an excellent financial resource for Canadians: www.finiki.org

Finiki's Tax Efficient Investing Page: http://www.finiki.org/wiki/Tax-efficient_investing
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
Jr. Member
Mar 2, 2015
101 posts
27 upvotes
Toronto, ON
ksgill: I'm with RBC DI. I've been searching, but seem to have read that you can't DRIP in a LIRA there? Or can't DRIP ETFs? Someone let me know if I've got this wrong.
My LIRA was with RBC DI (Moved to BMO since I don't like their new website) and you can DRIP on it for sure. Check on google for the list of securities that are available with drip on RBC, not all stocks/ETFs are available.
Deal Addict
Mar 1, 2016
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toronto
cocodc wrote: Thanks foreigncontent (I upvoted you as no more thanks on RFDs Angry Face). You raise a good point of spreading my asset allocation over all my accounts, rather than rebalancing to the proper percentages within each account. So psychologically I'd have to look at total balance of all accounts (rather than currently seeing if RSP, TFSA, etc. 'up') as putting 1 ETF in 1 account might not look too positive sometimes. Same with 100% equity in all other accounts.

If I add accounts as a whole, LIRA contents would be ~46% of all investments, which is not too far off the balanced portfolio 40% mark for fixed income. Could be within target range within 1-2 years of my own regular contributions.

To improve the optics (ie so I don't look at my RSP account and cringe because it's 100% equity), is there a cheap ready-made balanced index ETF? Or are those priced with more fees (like wrap mutual funds)? Wouldn't be a bad marketing tool: an even lazier couch potato option for couch potatos? I just want something I can set and forget as this is supposed to be pension money.

46% is probably a bit more, so harder to have only one class and let it go- and yes it's hard to get your head to stop looking at specific accounts, but in the end once in place it saves lots of time and transaction fees, and since LIRA will likely not get any new cash flow, it doesn't give you any reason to have it as the main transaction rebalancing account. Note that it took me 2 years of couch potato to get comfortable with not looking at each bucket, and moved slowly to it (took advantage of a change of broker deal to do the switches cheaply, but it made the following rebalancings much easier)

As for the cringe, you will always get it, i cringe that my LIRA has gone too well, and now is a bigger % of total, and I can't take advantage of low account/"financial hardship" rules to unlock it :-)

Actually the main problem with the approach, is to get comfortable with your actual after tax asset mix. For asset classes that are only in your RRSP/LIRA account, you are actually less weighted than you think (due to tax at withdrawal).


So go with what makes it easier for you.
[OP]
Sr. Member
Jan 14, 2010
684 posts
219 upvotes
Central Ontario
foreigncontent wrote: Note that it took me 2 years of couch potato to get comfortable with not looking at each bucket, and moved slowly to it (took advantage of a change of broker deal to do the switches cheaply, but it made the following rebalancings much easier)
Been indexing for at least 2-3 years now, but have always treated accounts separately as used to think of TFSA as a "car fund" and have an RESP with a very different AA than retirement planning. I will rework that premise (minus RESP of course, don't consider that my $$ as much as future liability) to merge the buckets. I guess I was trying to keep the LIRA AA balanced and separate as a kind of 'f you' to the pension plan (ie: ha ha, I can grow it to more than you would have paid me out). I've got to grow up and let that go!
foreigncontent wrote: For asset classes that are only in your RRSP/LIRA account, you are actually less weighted than you think (due to tax at withdrawal).
This just blew my mind, and is something to consider now that I will be using a taxable investment account as well. Never thought about it with the relatively equal amounts I've had in RSPs/TFSA. I guess my AA has been out of whack all along! Something to consider once I get comfortable with the new accounts... 1 step at a time.

As for other posters, thanks as well. I will check on the DRIPS and finiki. I've combed through CanCap, CCP, MillTeach, etc. websites but haven't reached research saturation yet!
Deal Addict
Mar 8, 2013
2792 posts
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Just remember that the LIRA and RRSP are similar only when it comes to withdrawals - minimum amount at certain age, etc. When it comes to contributions, you have one initial deposit for the LIRA, then variable RRSP deposits (contributions) based on your limits, marginal rate, personal circumstances, etc. To minimize time spent on rebalancing, personally I would start the LIRA with the asset allocation you want.
[OP]
Sr. Member
Jan 14, 2010
684 posts
219 upvotes
Central Ontario
akaManny wrote: When it comes to contributions, you have one initial deposit for the LIRA, then variable RRSP deposits (contributions) based on your limits, marginal rate, personal circumstances, etc. To minimize time spent on rebalancing, personally I would start the LIRA with the asset allocation you want.
Good point, especially if it's a matter of buying 2 ETFs or 3 to start it off balanced. Then treat all accounts as a whole and balance the AA in the ones with new contributions.
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Feb 1, 2012
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foreigncontent wrote:
cocodc wrote: Thanks foreigncontent (I upvoted you as no more thanks on RFDs Angry Face). You raise a good point of spreading my asset allocation over all my accounts, rather than rebalancing to the proper percentages within each account. So psychologically I'd have to look at total balance of all accounts (rather than currently seeing if RSP, TFSA, etc. 'up') as putting 1 ETF in 1 account might not look too positive sometimes. Same with 100% equity in all other accounts.

If I add accounts as a whole, LIRA contents would be ~46% of all investments, which is not too far off the balanced portfolio 40% mark for fixed income. Could be within target range within 1-2 years of my own regular contributions.

To improve the optics (ie so I don't look at my RSP account and cringe because it's 100% equity), is there a cheap ready-made balanced index ETF? Or are those priced with more fees (like wrap mutual funds)? Wouldn't be a bad marketing tool: an even lazier couch potato option for couch potatos? I just want something I can set and forget as this is supposed to be pension money.
Actually the main problem with the approach, is to get comfortable with your actual after tax asset mix. For asset classes that are only in your RRSP/LIRA account, you are actually less weighted than you think (due to tax at withdrawal).
Maybe taking this on a slight tangent. Is the after tax asset allocation really relevant?

I recognize that investors need to understand the implications of tax on withdrawal from different types of accounts, and that a dollar withdrawn from a TFSA is still a dollar after tax, whereas a dollar withdrawn from an RRSP gives $1 x (1-marginal tax rate).

But I have a hard time seeing why asset allocation should be looked at on an after-tax basis. Asset allocation controls the volatility and diversification of the portfolio, in current dollars, not future after-tax dollars.

After all, we hold asset classes in our accounts, but we withdraw dollars.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
Deal Addict
Mar 1, 2016
1092 posts
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toronto
Deepwater wrote:
foreigncontent wrote:
cocodc wrote: Thanks foreigncontent (I upvoted you as no more thanks on RFDs Angry Face). You raise a good point of spreading my asset allocation over all my accounts, rather than rebalancing to the proper percentages within each account. So psychologically I'd have to look at total balance of all accounts (rather than currently seeing if RSP, TFSA, etc. 'up') as putting 1 ETF in 1 account might not look too positive sometimes. Same with 100% equity in all other accounts.

If I add accounts as a whole, LIRA contents would be ~46% of all investments, which is not too far off the balanced portfolio 40% mark for fixed income. Could be within target range within 1-2 years of my own regular contributions.

To improve the optics (ie so I don't look at my RSP account and cringe because it's 100% equity), is there a cheap ready-made balanced index ETF? Or are those priced with more fees (like wrap mutual funds)? Wouldn't be a bad marketing tool: an even lazier couch potato option for couch potatos? I just want something I can set and forget as this is supposed to be pension money.
Actually the main problem with the approach, is to get comfortable with your actual after tax asset mix. For asset classes that are only in your RRSP/LIRA account, you are actually less weighted than you think (due to tax at withdrawal).
Maybe taking this on a slight tangent. Is the after tax asset allocation really relevant?

I recognize that investors need to understand the implications of tax on withdrawal from different types of accounts, and that a dollar withdrawn from a TFSA is still a dollar after tax, whereas a dollar withdrawn from an RRSP gives $1 x (1-marginal tax rate).

But I have a hard time seeing why asset allocation should be looked at on an after-tax basis. Asset allocation controls the volatility and diversification of the portfolio, in current dollars, not future after-tax dollars.

After all, we hold asset classes in our accounts, but we withdraw dollars.
simple case.
let's say my asset mix for my risk profile is 50% Bond/50% Equity, and i place all my equity in RRSP, and all bond in Non-Reg and TFSA.

since i have a tax liability in my RRSP (let's assume 25%), that component effectively belongs to CRA. Whatever growth there is on it will not belong to me. So MY real assets are

assuming start of $100,000 i Have

$50,000 Bond that's mine
$37,500 Equity that's mine
$12,500 Equity that will go to CRA

so effective after tax mix is 57% Bond, 43% Equity.

Obviously this is extreme, since most people don't have that dramatic a split, but i did notice it last year where all my US equity component was in my RRSP, that my retirement projections hadn't done as well as my initial mix would have suggested
Sr. Member
Jun 26, 2007
604 posts
274 upvotes
Sorry guys little bit confused. What if I buy Canadian stocks, reit, dividend paying stock in my lira account?

I have currently 7 to 10 blue chip stocks in my lira. How it will impact me in future.

Thanks
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Feb 1, 2012
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foreigncontent wrote:
Deepwater wrote:
foreigncontent wrote:
Actually the main problem with the approach, is to get comfortable with your actual after tax asset mix. For asset classes that are only in your RRSP/LIRA account, you are actually less weighted than you think (due to tax at withdrawal).
Maybe taking this on a slight tangent. Is the after tax asset allocation really relevant?

I recognize that investors need to understand the implications of tax on withdrawal from different types of accounts, and that a dollar withdrawn from a TFSA is still a dollar after tax, whereas a dollar withdrawn from an RRSP gives $1 x (1-marginal tax rate).

But I have a hard time seeing why asset allocation should be looked at on an after-tax basis. Asset allocation controls the volatility and diversification of the portfolio, in current dollars, not future after-tax dollars.

After all, we hold asset classes in our accounts, but we withdraw dollars.
simple case.
let's say my asset mix for my risk profile is 50% Bond/50% Equity, and i place all my equity in RRSP, and all bond in Non-Reg and TFSA.

since i have a tax liability in my RRSP (let's assume 25%), that component effectively belongs to CRA. Whatever growth there is on it will not belong to me. So MY real assets are

assuming start of $100,000 i Have

$50,000 Bond that's mine
$37,500 Equity that's mine
$12,500 Equity that will go to CRA

so effective after tax mix is 57% Bond, 43% Equity.

Obviously this is extreme, since most people don't have that dramatic a split, but i did notice it last year where all my US equity component was in my RRSP, that my retirement projections hadn't done as well as my initial mix would have suggested
OK, say you start with 100% equities in your RRSP and 100% fixed income in your TFSA. Then you switch to 100% fixed income in RRSP and 100% equities in TFSA. (Ignore transaction costs and there are no tax implications since both accounts are registered.) You still have the same asset allocation, the pre-tax amount is the same, and the after-tax value is the same. In both cases if you withdraw all of the funds from both accounts, the after-tax value will be the same. Thus, after-tax asset allocation is not relevant.
Last edited by Deepwater on Sep 4th, 2016 4:31 pm, edited 1 time in total.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
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armaan wrote: Sorry guys little bit confused. What if I buy Canadian stocks, reit, dividend paying stock in my lira account?

I have currently 7 to 10 blue chip stocks in my lira. How it will impact me in future.

Thanks
A LIRA is just a container for assets, where tax is not assessed until you withdraw funds. It can hold the same type of investments as an RRSP. Any funds withdrawn from a LIRA will be taxed as income at your marginal tax rate. Primary difference between RRSP and LIRA is when an RRSP is converted to a RRIF (no later than end of the year you turn 71) it has minimum annual withdrawals. To withdraw funds from a LIRA it generally must be converted to a Life Income Fund (or similar account) and in addition to minimum annual withdrawals it also has maximum annual withdrawals. (There are some cases where funds can be removed from a LIRA, such as small LIRAs, without converting to a LIF.) There are no taxes on capital gains or interest while funds are inside a RRSP or LIRA.

Here is a good article: http://www.avrexmoney.com/retirement/lo ... -road-map/

Does that help?
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
Deal Addict
Mar 1, 2016
1092 posts
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toronto
Deepwater wrote:
foreigncontent wrote:
Deepwater wrote:

Maybe taking this on a slight tangent. Is the after tax asset allocation really relevant?

I recognize that investors need to understand the implications of tax on withdrawal from different types of accounts, and that a dollar withdrawn from a TFSA is still a dollar after tax, whereas a dollar withdrawn from an RRSP gives $1 x (1-marginal tax rate).

But I have a hard time seeing why asset allocation should be looked at on an after-tax basis. Asset allocation controls the volatility and diversification of the portfolio, in current dollars, not future after-tax dollars.

After all, we hold asset classes in our accounts, but we withdraw dollars.
simple case.
let's say my asset mix for my risk profile is 50% Bond/50% Equity, and i place all my equity in RRSP, and all bond in Non-Reg and TFSA.

since i have a tax liability in my RRSP (let's assume 25%), that component effectively belongs to CRA. Whatever growth there is on it will not belong to me. So MY real assets are

assuming start of $100,000 i Have

$50,000 Bond that's mine
$37,500 Equity that's mine
$12,500 Equity that will go to CRA

so effective after tax mix is 57% Bond, 43% Equity.

Obviously this is extreme, since most people don't have that dramatic a split, but i did notice it last year where all my US equity component was in my RRSP, that my retirement projections hadn't done as well as my initial mix would have suggested
OK, say you start with 100% equities in your RRSP and 100% fixed income in your TFSA. Then you switch to 100% fixed income in RRSP and 100% equities in TFSA. (Ignore transaction costs and there are no tax implications since both accounts are registered.) You still have the same asset allocation, the pre-tax amount is the same, and the after-tax value is the same. In both cases if you withdraw all of the funds from both accounts, the after-tax value will be the same. Thus, after-tax asset allocation is not relevant.
If you have enough room for all your savings in Registered accounts, you are ahead of me. But still

Expected return Bond 2%, Equity 6%, Tax 25%, 50/50split (total expected 4%)
One year in. Gross is $104,000

Bond in TFSA, Equity in RRSP Total after tax value $50000+ .02*50000 + 75%* (50000 + .06*50000) = $90,750
Bond in RRSP, Equity in TFSA Total after tax value 75%*($50000+ .02*50000) + (50000 + .06*50000) = $91,250


note that with your expected portfolio rate of 4% you would have expected the net value to be
$50000+ .04*50000 + 75%* (50000 + .04*50000) = $91,000
so neither results was in line with expected based on risk profile set initially of 50/50
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Feb 1, 2012
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foreigncontent wrote:
Deepwater wrote:
foreigncontent wrote:

simple case.
let's say my asset mix for my risk profile is 50% Bond/50% Equity, and i place all my equity in RRSP, and all bond in Non-Reg and TFSA.

since i have a tax liability in my RRSP (let's assume 25%), that component effectively belongs to CRA. Whatever growth there is on it will not belong to me. So MY real assets are

assuming start of $100,000 i Have

$50,000 Bond that's mine
$37,500 Equity that's mine
$12,500 Equity that will go to CRA

so effective after tax mix is 57% Bond, 43% Equity.

Obviously this is extreme, since most people don't have that dramatic a split, but i did notice it last year where all my US equity component was in my RRSP, that my retirement projections hadn't done as well as my initial mix would have suggested
OK, say you start with 100% equities in your RRSP and 100% fixed income in your TFSA. Then you switch to 100% fixed income in RRSP and 100% equities in TFSA. (Ignore transaction costs and there are no tax implications since both accounts are registered.) You still have the same asset allocation, the pre-tax amount is the same, and the after-tax value is the same. In both cases if you withdraw all of the funds from both accounts, the after-tax value will be the same. Thus, after-tax asset allocation is not relevant.
If you have enough room for all your savings in Registered accounts, you are ahead of me. But still

Expected return Bond 2%, Equity 6%, Tax 25%, 50/50split (total expected 4%)
One year in. Gross is $104,000

Bond in TFSA, Equity in RRSP Total after tax value $50000+ .02*50000 + 75%* (50000 + .06*50000) = $90,750
Bond in RRSP, Equity in TFSA Total after tax value 75%*($50000+ .02*50000) + (50000 + .06*50000) = $91,250


note that with your expected portfolio rate of 4% you would have expected the net value to be
$50000+ .04*50000 + 75%* (50000 + .04*50000) = $91,000
so neither results was in line with expected based on risk profile set initially of 50/50
That's a well written response... to a different issue. Previously we were discussing whether asset allocation should be measured on a pre-tax or after-tax basis. On that subject, here is what Dr. William Bernstein says: http://www.efficientfrontier.com/ef/704/where.htm
In most cases, your assets don’t know or care where they are. By all means, discount your total portfolio by the total amount of taxes due. But, except in rare circumstances, you don’t have to tie yourself into pretzels discounting each asset class according to its location.
In fairness he does provide a link at the end of the article to a counterpoint by another author.

Your most recent post refers instead to tax-efficient investing. Note that in post #8 I provided a link to the Finiki Tax-Efficient Investing page, and in post #5 I gave an overview of my own portfolio, and how it is invested tax-efficiently across 5 accounts. So we agree on that.

Another important thing for investors is to recognize how their tax rates will likely change over time, high during their prime earning years, probably lower in retirement, then higher at age 71 when mandatory RIF withdrawals kick in. This may give investors the ability to lower lifetime taxes by withdrawing from an RRSP before age 71, to lessen the likelihood of OAS clawback.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.

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