When people criticize the financial industry in Canada, the target of their wrath is usually high fees and underperformance. These are huge issues and, of course, they go hand-in-hand. But the more I work with new clients who arrive after using other advisors, the more I’ve come to appreciate a different problem. I can’t understand why so many mutual fund advisors seem incapable of building a portfolio with a coherent strategy.
This seems almost ridiculously easy. Is it so difficult to pick one fund for each of the major asset classes (bonds, Canadian stocks, US stocks, international and emerging market, real estate) and then assign a target weight to each? Instead I see what I’ve dubbed the “advisor six-pack.” No, not the guy at Investors Group with the ripped abs. I’m talking about the portfolio built from a half-dozen mutual funds thrown together randomly. It’s like the advisor swallowed the Morningstar database and then threw up in the investor’s account.
“Hmm, how about a few thousand bucks in the Mackenzie Growth Fund (the sales rep just visited and gave me Leafs tickets), a few more in the CI Canadian Investment Fund, and a sprinkling in the RBC Canadian Dividend (ooh, dividends). Add a small sliver in the BMO Asian Growth & Income (that one’s done well lately). And I’m going to put that recent RRSP contribution into the TD Monthly Income and the Fidelity Monthly Income because, hey, monthly income.”
Determining a strategic asset allocation is the first and most critical step in creating an investment plan. But if you’ve got the advisor six-pack, no one has given your asset mix a moment’s thought. This kind of portfolio design has more in common with a harried homemaker who improvises dinner with whatever happens to be in the fridge.
Give me one reason
There is no magic formula for an optimized portfolio, and investors can quibble about which asset classes to include and the proportion assigned to each. But there needs to be a thoughtful explanation for your choices.
The point here is not to agonize over trivial details like whether emerging markets should be 8% or 10%. The idea is to look at each of your holdings and ask, “What role does this play in the portfolio, and is this an appropriate weighting?” Every ingredient should be there to increase the expected return or dampen the volatility (or both). And it needs to be large enough to make an impact, but not so large as to expose you to excessive risk. If it doesn’t fit all of these criteria, then it shouldn’t be in the portfolio.
Yet the advisor six-pack often includes two or more Canadian equity funds that are highly correlated and could easily be replaced by a single holding. It includes balanced funds that make little sense as a small component of a large portfolio. And often it has tiny holdings (1% in gold, or $1,000 in a couple of individual stocks) that cannot possibly have any meaningful impact, other than to increase costs and complexity.
Here’s how I would explain the Complete Couch Potato portfolio, a six-pack of index funds. The equity portion—which is the driver of growth—is divided about equally between Canadian, US, and international stocks for maximum diversification. There’s an allocation to REITs because real estate tends to have a low correlation with the rest of the equity market. The fixed income component is designed to lower volatility with a broad mix of investment-grade government and corporate bonds, plus some real-return bonds, which act as an inflation hedge and have low correlation with other asset classes.
Your portfolio may look quite different from this one, and that’s fine, as long as you have a reasonable strategy and an efficient process for carrying it out. If you can do that, you’re way ahead of the advisor six-pack.
Makes so much sense. I’ve never worked with an advisor, only the bank, but I’ve been given some interesting explanations why the advisor’s personal preferences should out weigh our personal choices or the bank’s questionnaire.
For some reason, when I read “because, hey, monthly income,” it brought me back to the charismatic first advisor I worked with when he would suggest what to do with new contributions. He always had a tidy little superficial reason for each choice. He definitely left me with a 6-pack of investments with no sensible plan.
I’ve been wondering the same thing lately when I reviewed a friend’s portfolio. Another problem was that many funds had a track record of less than 1-2 years…some had been rebranded under a different name recently, and also the advisor was switching in and out mutual funds every year…
I think one of the secret reason for such “complex” portfolios is that it becomes almost impossible to compare the portfolio “performance record” to other low cost alternatives.
You can’t go see the advisor and say:
– ” hey, that Canadian index fund did better than my canadian equity fund in my portfolio”
– or “that low cost balanced portfolio did better than my own portfolio of expensive active mutual funds”
They have essentially dug their own graves and tarnished their industry in 2 short decades. With the advent of robo-advisory (and now the banks are jumping in with no-cost solutions) and ETFs cleanly aligned with asset classes, the days of no strategy mutual funds and high commissions for monkeys who do not know the basics of portfolio construction and maintenance are over.
We need more voices in investor education, like yours, the hasten the process.
Is it really necessary to invest in the REIT’s when some of them are already in the indexes? I counted 18 REIT companies in the S&P 500. Not sure about the TSX 60 or other indexes.
http://en.wikipedia.org/wiki/List_of_S%26P_500_companies
@Michael: Unfortunately, sometimes investors fall into that trap, too. They will make a contribution to their account and say to the advisor, “So where do you think we should put this money? [Insert asset class] is looking pretty sketchy these days so maybe we should consider [insert crap they heard about on BNN].” If you have a target asset mix and properly designed portfolio there’s no real decision to be made here: you put the money in whatever funds are furthest below their targets. I guess this just sounds too boring.
@Jas: Dumping losers and replacing them with winners is a great way to disguise underperformance. Advisors get to say, “Look, your portfolio is filled with five-star funds.” They don’t explain that they only bought the fund after a few years of good performance, which may or may not continue in the future.
@Ryan: REITs make up only a tiny part of the broad-market indexes, so unless you have a specific REIT holding you really don’t have any meaningful exposure to the asset class.
I got a call from TD last night (second time this year). They said because my portfolio was “doing so well” (their exact words) they wondered if I’d like to come in and speak with an advisor about some non-index non-eSeries options. Errr.. If my portfolio is doing very well as is, why the heck would I want to do that?!
I can’t even tell you the horrifying mess my portfolio was in before CCP. Losing money pretty much every month. It was something like:
– Canadian Bond Fund (did fairly well over the years)
– Canadian Real Return Bond Fund (also did well)
– Something called “Amerigrowth” (which was renamed and of which we will never, EVER speak of again)
– Precious Metals Fund (did horribly even during gold peaks)
– Latin American Growth Fund (in fairness, this was a shining rockstar of my portfolio)
– Energy Fund (boo!)
– Resource Fund
OK, seriously?! What sort of plan is that? It appears I’ve invested a good deal in Mexico, trees, oil/gas, and gold. Makes no sense whatsoever and was more like gambling than investing.
I turned TD down for the consultation. Told them I have a plan, it’s simple, fairly conservative, and lets me sleep at night. No more of their “this fund did well last year, so we should buy you some,” nonsense.
@Edward: “Told them I have a plan, it’s simple, fairly conservative, and lets me sleep at night. No more of their ‘this fund did well last year, so we should buy you some,’ nonsense.” Let me say that this single insight puts you light years ahead of most investors. Congratulations! (Having said that, I forecast excellent returns in the Mexican forestry sector. Give me a call if you’d like to discuss opportunities.)
Since moving over to a passive index strategy, I have been wondering the same thing.
The only answer that makes sense is that the majority of “advisors” out there are not acting as a financial planner/consultant, but as a salesperson. When you consider that a salesperson’s compensation is based on the quantity of “sales” then you can see a pattern in the behaviour.
First, they have to close the sale. If they can sell the client any product, then money is in the pocket. So it doesn’t matter what is sold as long as something is sold.
Second, they have to keep selling to bring in new money. This doesn’t leave a lot of time to review or adjust the portfolio unless they get a significant portion of money to “manage” the account. It is hard to figure out how much money is paid up front for the selling of the product and how much is paid each year for support.
So if the advisor is paid mostly up-front, then that person is going to concentrate on sales and only look at the review meeting as a way of generating additional commissions from more sales or swapping between products that generate a “new” sales commissions. In other words, they “churn” the account.
To give an idea of the scope of the problem, take a look at Investors Group months report on mutual fund sales. In September, IG sold $560.6 million in new financial products. However, when redemptions are considered, they made only $21 million in “net new” money’
That is one nasty treadmill where they have to run flat out to effectively stay still. No wonder that IG “advisors” have such a short career in the company. It is a revolving door of sales.
“(Having said that, I forecast excellent returns in the Mexican forestry sector. Give me a call if you’d like to discuss opportunities.)”
which index should i buy for this? :-)…
My favourite advisor story, was my mom’s who inherited the portfolio when my step father died. On a down year she called her advisor, acting stupid (she does it well) to complain that her portfolio was losing money. The advisor replied, “no look the balance is $5,000 more than it was at the start of the year, it is doing well” (no reference to indices which were down, or anything, just the MV)… I assume he expected her to go away, since he was the “expert”… he had absolutely no reply when she pointed out the $15,000 contribution she had made into the fund… what was sad is that the portfolio was actually doing well, but he couldn’t tell her why, and this was one of the senior advisor.. …
For simplicity & performance you could go with the “7 pack – all under one roof” Mawer Balanced Fund instead but I won’t mention this one as this is an index fund investor site :)
Good article!
Another great article. This is the kind of thing I like to read and keeps me grounded. Makes me think, “why the hell aren’t I an advisor?” I think I could do better than most of the mutual fund salespeople at the banks just by reading this blog.
We recently had to divorce ourselves from an advisor after we inherited my late mother-in-law’s portfolio. She had more than a six-pack of random mutual funds. Probably six or seven similar Canadian equity funds, plus a whole bunch more. Because the majority of it was in her RRSP, we will need almost half for taxes. The advisor couldn’t understand why we didn’t want equity exposure on a large sum of money that we will need in less than a year. That alone set off the alarms in my head.
@Rod-knee: Sounds like your mother-in-law had the “advisor two-four.”
@Bernie: I think you would have to be a pretty ideological indexer to find fault with the Mawer Balanced Fund. As far I’m concerned, I would never try to talk anyone out of a fund with such broad diversification, prudent management and low cost.
With conversations with friends on their portfolio content, I have come to the conclusion that people give more attention and importance to the name of the fund than what is ready in it. It is all a marketing game, some advisors are selling the name of the fund because it is an easier sell than having to explain its content, strategy and pertinence in a coherent investment policy.
Good day:
Another highly valuable post, thank-you.
A question I may have asked before, but would I be correct in saying that the Model Portfolios and the discussions here are all centered on the goal of growth and accumulation? If so, would you consider starting a discussion on the features of a portfolio which was designed for yield?
Jerry
As usual Dan, great stuff.
I like the notion of your six-pack with one major exception.
Personally, for the fees investors pay for REIT ETFs (north of 0.50% or more), I think it makes more sense to unbundle REITs (eventually) and hold a few REITs directly such as RioCan, H&R REIT and Calloway. I admit my bias for doing this, as a hybrid investor of stocks and indexed products.
I won’t be in Toronto that weekend but I will certainly promote your speaking engagement, sounds great.
All the best Dan,
Mark
@Jerry:
The old “Yield-Hungry Couch Potato” model portfolio:
http://web.archive.org/web/20121005025504/https://canadiancouchpotato.com/model-portfolios
Responding to the question on portfolio building for yield….
A relevant bond ladder and a well diversified equity portfolio is always the best. If you have a 10 year ladder then you are well insulated from stock market movements. At the end of each year add another rung to the ladder.
I have never been a fan of bond ETFs. They take away from the inherent nature of a bond held to maturity and the fees are brutal in a low interest rate regime.
@Jerry and Jas: I dropped the Yield-Hungry portfolio from the website a few years ago as I came to understand that focusing on yield usually results in poor investment decisions. I believe investors are better off using a total-return approach, even in retirement. The specific portfolio in that old link is now entirely inappropriate for anyone because several of those ETFs have changed their mandate.
@TJ: Bond or GIC ladders are indeed useful for investors in the drawdown stage, since they can provide very predictable cash flow. But don’t fool yourself into thinking a ladder of individual bonds is cheaper than a bond ETF. If you’re a retail investor, the spreads built into bond prices are often atrocious, while bond ETFs are now available for 0.12%.
I cant believe the number of people I see with a balanced fund, a canadian dividend fund (because who doesn’t like dividends), an canadian equity fund (for growth) and some form on int’l fund to diversify. They’e got themselves nothing less than an expensive mess
Dan, by chance have you written any articles on balancing your investment strategy with your account size?
For instance, I’ve read a great deal on the benefits of diversification among many asset classes, so when I first entered the fray, I had 4 etfs for equities (Canada, US, international, and emerging), 2 etfs for REITs (global and Canadian) 4 etfs for bonds (Long, mid, corporate and government short), and gold, natch’.
Which I suppose is ok for a large account, but with only $100k it might have been a bit silly. When I add up all the expenses, slippage, and lack of any sort of tax awareness … I’m pretty sure I lost a few months of returns somewhere in that mess. The monthly buys and sells based on momentum probably didn’t help either…
I’m leaning the other way now, more Buffet-style advice for the layman. I’m thinking of putting about 90% of my account in a single etf that tracks the US market, making regular contributions, and then just ignoring the market and all its soothsayers for the next 20 years.
I came across an interview with Charles Ellis who stated simply that if you were under 40 your should have 100% in stocks (bonds having considerable risk, not so much from interest rates, but from having negative returns after inflation)
Any thoughts on this?
Best,
CB
(ps For those following, this is a bit of an about-face for me. But I am not finding any evidence that recreational investors can do anything other than lose money with their funds by active trading.)
@Chris B: I think you’ve asked a lot of (good) questions, but maybe more helpful to break them independently?
1. I don’t think there’s any hard and fast rule that says you can only use X number of ETFs until your accounts are Y dollars in size. It’s just about cost. If you use an expensive broker and rebalance twice/year, probably using 12 ETFs with a $20k portfolio is not going to be a good idea. Conversely if you use a low-cost broker, and rebalance once/year, there’s no reason that you can’t use 5-6 ETFs cost-efficiently to make up a $100k portfolio. It’s just about knowing your costs. That said:
2. Generally it doesn’t seem like there’s a need to use beyond 6-8 ETFs. Unless you’ve got a specific reason, I can’t think of many cases where you couldn’t cover just about everything a modest, young investor would need with 6 positions.?
3. Whether or not you want 100% equity is a personal question. Being younger (having a long time horizon) is one factor. But maybe more important is your psychological comfort? Can you watch your portfolio drop 50% without panicking? 100% equities could do that. It’s a personal question you need to answer.
4. Even if you decided you wanted 100% equities, I can’t see why you’d put it all in 1 market, like the US market. You could hold a Vanguard fund that holds Global equities, not just the US market. Or you could hold 2-3 funds (ex, one Canada, one US, one World). There are lots of options but I don’t see why you’d limit yourself to just US geography when you could hold the entire world for a tiny, inconsequential cost.
@Chris B: My response would be pretty much in line with Willy’s comments. Though I would add that cost is not the only factor: complexity is also an issue. There is nothing wrong with using a simple portfolio even if your account balances are large. As long as you cover fixed income and Canadian, US and international equities you’re at least 80% of the way there. And if you would rather not make things more difficult by adding other asset classes and multiple funds, that’s fine. As you discovered first-hand, the added diversification also comes with add complexity, which may outweigh any benefit.
Willy: I appreciate the thoughts. I’ve been back testing myself as to whether I could stand the swings of a 100% equity portfolio. No chance. From 2000-2012 anyone invested fully in the market didn’t make a dime with the added bonus of watching their funds drop in half. Twice. This is simply not an investment strategy you put your life savings into unless you have an exceptionally well paying job with a secure retirement pension.
Insofar as the US-only market was concerned, I think it was a knee-jerk reaction to the over-diversified approach I adopted before. Both Bogle and Buffet favor a low cost US index fund while emphasizing the importance of minimizing any drag on the investment vehicle. However, you are correct. Now we have indexes that track the entire world, and even Ellis recommends a two fund portfolio: the world index and a total bond market.
Dan: I have a few more thoughts here, that I think you might be onboard with insofar as cost and complexity are concerned. In the spirit of Ellis and simplicity, I looked at a two fund portfolio:
XWD and VAB
This seems one of the simplest approaches to take. Factor in your bonds in weight, and you have the world properly weighted, balanced, and covered with no home country bias. However, the MER is a bit high for XWD at .46% and once you include foreign withholding tax in an RRSP or TSFA (where 2/3s of my account will be) you can add an additional .45% to the cost, or thereabouts.
So I’m looking at at MER closer to .91%.
On top of this, you have commission fees, and slippage when you rebalance. Factor in frequent contributions spread between TSFA, RRSP, and taxable accounts and the benefits over a mutual fund for a small ($100K) account begin to dwindle.
I played with a few more variations (VXC, VCN, VAB), but failed to see the advantage over a single mutual fund. In particular, I’m thinking the Mawer Balance Fund (MAW104). It’s had a good run for the last decade, and has returned 10.6% net of expenses. I don’t expect the outperformance to last, but if I can ween myself off the belief that I know better than the market, I think the probabilities favor success by this route. I think there’s also a tax advantaged derivative for regular accounts.
***
I’m not completely sold on the idea. I have reservations about active managed funds, and I always laughed at the mutual route. Why would you pay someone to index for you? However, I know that its doubtful I could manage, build, and balance an equivalent etf mix for the same resulting cost. And if I eliminate my trading account, there’s one less temptation to dabble. It seems like a slam dunk, but if anyone could tell me the downsides, or potential dangers to this approach, I would really appreciate it.
Thanks guys,
CB
@Chris B: It really does sounds like a balanced fund would be perfect for your situation. Then you can concentrate on making regular contributions without being distracted by anything else. Whether it’s Mawer or Tangerine or some other low-cost option probably doesn’t matter all that much. Right now it’s not MERs that are costing you: it’s anxiety and lack of a disciplined strategy.
Chris B,
I agree with CCP. In your situation a single low cost balanced bund would likely give you the least angst so you can sleep better at night. I wasn’t going to reply until I read the title of the BNN Morning Newsletter in my email this morning “Be patient – the best investors are”…very wise words!
I had that kind of 12 funds (mixed, overlaped, high fees) from 1997 till 2012 (before I know CCP).
Now, I just own 30%ZCN, 30%VTI, 10%VRB and 30%VXUS and feel a lot better. Average MER is 0.08% and very simple. I could have only 3 funds but I really like the small-value tilt. I just keep myself to go more than 10% with this asset class.
I know what a downturn but I prefer to live with this than feel the drag of bonds over the next 25+ years. If I introduce bonds again when I get old or hit the 1M mark, I could include 10-20% of short bonds like VSB.
Great site, great inspiration !
@Le Barbu: Your portfolio is amazingly similar to mine. I went with 30% VCN, 25% VTI, 20% VBR, 25% VXUS.
Michael, it makes me droll !
Well, it’s unanimous then:
A single mutual fund is the solution for me.
Thanks, Bernie and Dan, for directing me to a simple, effective investment strategy moving forward. You are correct, Dan, than fussing over MERs is probably the least of my concerns. It’s far more important to begin systematically investing, than seeking out that perfect strategy. How did that play go?
“Striving to better, oft we mar what’s well”
(Shakespear, King Lear)
Cheers!
CB
(ps You 100% equity guys are nuts, but I concede the world would be a pretty bland place if everyone invested in balanced, conservative mutual funds and drank decaf sugar free vanilla soy lattes.)
Chris B, would you mind telling us wich mutual fund you finaly choose ?
Chris,
The Global Couch Potato Option 2 (4 e-series mutual funds) is pretty simple, and I find it no more difficult to manage than internet banking ( I am through TD direct investing, not Waterhouse)
I’m a pretty young investor (24) and I’ve gotten to the point where I have saved enough money to begin thinking about setting up a long term investment plan. I definitely want to go couch potato. Due to semi-complicated reasons, all of my retirement savings ($50k) are currently sitting in cash. With the market so high, it’s hard to pull the trigger and start investing. I’m not trying to time the market, and I’m not looking to take my money out until retirement, but it is still hard. Are these fears irrational? Should I just jump in now or wait a few more months?
You ARE trying to time the market.
Market is high now, do you thing it’s going to increase in the next 50 years ?
If yes, then jump and never look back !
@Robin: Your fears are entirely human. :) Try to remember that the entry point for investing your first $50K is likely to have no difference in the long run. If you were 60 years old and a $1 million sitting in cash it would be different. But you will be adding money for decades.
As for waiting a few more months, I can assure you that will only make the decision harder. The longer you wait, the harder it is to pull the trigger. If markets go up over the next few months, you’re worse off than you were before (and then how much longer will you wait?). And if they go down, you’ll worry about the economy, a looming bear market, etc. and delay some more. Trust me, it never feels like a good time to invest a large amount of cash. Use dollar-cost averaging over a few months if you must, but once you have a well-though-out plan, go ahead and implement it.
I think some advisors might be recommending this approach because it provides clients with a false sense of security. If you tell people that they should dump all of their money into three funds; US Index, Canadian Index and Canadian Bonds, they might be concerned and feel that they’ve got all of their eggs in one basket (or three baskets as the case may be). But, if they spread that money out into 6 or 10 funds they will feel much safer. Most people won’t even realize that they have several funds which are highly correlated. But, then that’s why those of us in the know come here each week to get our fill of sound investment advice. Good work Dan.
You are timing the market. Even if you were to invest at the height of the market in ’08 you’d still be ahead now… You could stagger the investments of 10k a month or so, but if you are sure this is what you want long term, pull the trigger
Robin: I was in somewhat the same situation when I started out, and would wait for downturns to buy into various asset classes. Didn’t work. There’s one asset class I got into at 20% higher prices than when I made my plan, so that’s 20% fewer gains.
Besides, with 50K$, you’ll be looking at something like 5 ETFs with 10K in each…. a downturn might make you buy a bit more, but you can wait a long time for a 10% downturn…. and it might have gone up 30% in the meantime (that’s what happened to me)
Plus, I think it’s important to start investing when the amounts aren’t astronomical, and mistakes (like mine) don’t lead to huge losses. If investing 50K$ makes you nervous, imagine implementing a strategy with 100K$ or 200K$ instead… it becomes paralyzing!
Hey Guys,
LB: It looks like Mawer’s Balanced Fund (MAW104) will be the mutual fund of choice. Morningstar gives them 5 stars, and they seem to consistently place near the top in any comparison. Solid, conservative Couch Potatoe returns. Nothing close to your all equity portfolio, but it’s actually outperformed the S&P500 over the past 20 years. I doubt this outperformance will last, but I can’t find a single negative review online.
CM: Hey Craig, actually I looked at TD’s e-series. I quite liked it. And you are correct, it looks like a nice, simple approach. The stats are solid, and the Global Potatoe would have returned 8.2% over the past decade. I would have gone this direction if it weren’t for the fact it looks like opening an account with TD is such a pain in the ass:
https://canadiancouchpotato.com/2010/09/23/more-fun-with-the-e-series-funds/
I honestly have no clue the difference between TD Bank and TD Waterhouse. To be honest, I don’t even know what a waterhouse is. Or why I have to convert from a TD mutual fund account to a TD e-series acccount to buy their TD mutual funds. Then explain to the rep how this works because he probably isn’t aware of it, all the while answering questionaires that have no relevance to my objective to obtain an account I then have to transfer out of. And repeat 3x?
The lady above is exceptional. I would have probably started smashing things. As it stands, I can buy my MAW104 with one click in my Scotia itrade accounts. Still, I’ll probably swing by TD tomorrow.
I’ll try not to break anything.
Best,
CB
Robin: Well, I’m not sure I should be offering any thoughts on this, but FWIW … your reservations are quite valid. QE has ended, oil is at $80/barrel, and Europe is struggling. Swing by Zero Hedge and you’ll be quite convinced that your only course of action is to stock up on gold, guns, and a cabin. In the woods. Once hyperinflation sets in, you’ll be laughing. That’s, of course, if the Jihadists, Ebola, and the Russians don’t invade.
I jest. Sorta.
My first thought would be to determine how much this money means to you. If you have a solid career, pension lined up, and know you will always be in demand, the situation is much different than if you are in a marginalized service-oriented position.
My second thought is $50K savings for a young person is pretty decent. You are far ahead of the curve. You could consider doing exactly what you’ve been doing up to this point, while placing your money in something very secure, like GICs or whatnot. True, the return will barely match inflation, but your money is safe.
It seems to be a constant, those with opportunity and skills can adopt far greater risk than those without. So my last thought would be that if your future is in question, take the money and invest in yourself. Be the sort of person that can throw $50K into stocks, irrespective of the market conditions, and not blink, knowing that whatever the outcome, you’ll be just fine.
All the best,
CB
An add on to the second thought, the philosophy comes from Harry Browne who suggested your wealth comes not from your investments, but from your career. Investing should be though of more as wealth preserving than wealth building.
I think it has some merit.
Can someone explain what exactly advisor fees is suppose to get us investors? with talk of how advisors invest our cash in to multiple same asset classes haven’t these advisors been required to do any training? it appears to me its just a big scam and there is no need for an advisor. Maybe they should teach more of this stuff in school growing up than shakespeare. everyone doesn’t use shakespeare knowledge today but everyone does have money to manage properly.
Even if someone who just put half their investing cash in gic’s and half in a lonely canadian index fund will likely be way ahead of someone using an advisor who puts their cash in a whole slew of funds with high fees.
“It’s like the advisor swallowed the Morningstar database and then threw up in the investor’s account.”
That made me laugh out loud.
After a year or so of reading this blog, I am now completely out of mutual funds and away from advisors.
40% US (XUS- and ZDY in the the RSP)
30% EAFE (XEF)
30% Canada (half XIC, half made up of individual REITs and a few long term Canada Div stocks)
With 85% of my holdings in just 4 ETFs it not only gives me a great plan- its also way easier to organize, cheaper and actually performs just as well if not better…
Hi Dan,
Based on the comments above, what I retain is that simplicity and low cost ETF are essential characteristics of a good portfolio for your readers. Not sometching some advisors want to show when they compile an “advisor six-pack”. However some asset classes are not efficient, such as small cap space. So to complement my core ETF holdings, such as those mentioned above, and to keep it simple, I chose to allocate 10% of my asset mix to Mawer Global Small Cap fund. it is simple way to cover on a global basis an inefficient asset class at a relatively lower cost compared to other retail options. Not a decision I ever regretted. Do you have any other suggestion on how to cover the small cap space?
@Daniel C: I would not argue too strenuously with an investor who wanted to keep 10% of his portfolio in an actively managed small-cap fund. But one should not simply assume that the small-cap market is inefficient. It is almost certainly less efficient that the large-cap space, but there is no reason to believe that active stock picking in this space is likely to outperform an index fund. For that exposure I would simply recommend a US or international small-cap ETF from Vanguard or iShares.
[Lengthy post!]
Hello All,
I really appreciate the article and reading everyone’s comments – and am looking into many of the funds you mentioned – thank you for that.
I welcome any feedback you might have. I seem to be creating my own 6-pack – and *not* in a good way! I’m in my mid 40’s, returned to school in my 30’s, and therefore my savings really started in the past 10-12 years. I’m trying to find the asset allocation that works for me at this time and am also considering my investments. I’ve spoken with my bank, but advisers will only make recommendations/plan based on what’s with them – not on a complete asset allocation – would would include my investments in the D series as well as modest investments through work. Although I understand why – this is quite frustrating.
The biggest decision for me right now is that I want to change where I invest my monthly RSP contributions – about 450$/mth. (currently going to RBC mutual funds). I’m not sure where to invest it and this has had me searching and reading for the past months. I thought perhaps of a dividend fund (ooh dividends!) or RBC North American Value Fund series D (value!), the list goes on. Then I came by this article and would welcome any suggestions or ideas.
I’m looking for the following:
1. Where to invest approx $10,000 lump sum (ETF? funds through work?) – within an RRSP
2. Where to make monthly investments of 450$ (mutual funds? index funds? funds through work?) – in an RRSP
(Still have RRSP room)
What do you think of this Canadian/US/Global allocation right now? Income/Equities?
My knowledge on REITS is very minimal, so low comfort level with these – although open to hear more.
Current investments:
21% RBC Monthly Income Fund (A series – cannot move it – would lose RRSP status for new contributions)
(55/41% – bonds/equity – decent fund & , I will continue small monthly contributions here)
20% O’Shaughnessy Canadian Equity Fund (D series)
10% O’Shaughnessy US Value Fund (D series)
4% O’Shaughnessy US Growth Fund (D series)
[In addition: Currently contribute 11% of salary – automated withdrawal from source; defined contribution pension; some employer matching].
9% Franklin Bisset Canadian Equity Fund
20% TD Emerald US market Index fund
9% Mawer global equity fund
4% TD Emerald Canadian Bond Index
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(small balance in cash in RSP)
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Benefit of the funds at work is that they all have low MER fees, and there are no charges incurred by contributing to them, selling them, moving them around. Only issue is if they are good funds – and I’m already contributing 11% of income to the Canadian/US/International equity funds (1/3 each).
So….for the lump sum I was initially looking into dividend fund, but after reading everything here – *not* so into it.
My TFSA is in a balanced fund (unfortunately not Mawer – which sounds like a super star) – wanting it to be available within next 5 years possibly, so I haven’t included it in my asset allocations above.
Thank you in advance for any considerations,
Appears Amy has one big salad of funds to say. Looks to me like a fine example of cleaning up that portfolio into a simple couch potatoe index investing. not sure why she said she can’t move the rbc monthly income fund, and what she means by losing rrsp status, makes no sense.
Thanks Jake for your comments, and I’m motivated to make changes!
Re: RBC monthly income fund – it’s been closed to new investors for years within the RSP. People can now invest in it – but only outside their RSP. The only exception is if you’ve been in it and making monthly contributions from before it closing. It cannot be moved to the D series within the RSP portfolio – ability to continue making contributions with RSP status is stopped.
No problem Amy
Not sure if others will agree but you likely can just convert the rbc monthly income fund into the rbc index funds that CCP has shown on another page and all stays within your rsp accont. cheaper fees and good performance. as well as those oshaughnessy funds can be sold and changed to the index funds.
treat all your accounts as one big portfolio