[Bunny]

Hello all

This is my first post, but I've been reading the forum for quite a while now and really appreciate all the knowledge I have picked up along the way.

My question is regarding portfolio allocation....I was once with an advisor who had me in all equity....big mistake expecially in the late 90's early 00's. Then I went to another advisor who was a 60/40 type gal. That was ok. Then I got wiser and was tried of all the fees so now I have a TD Webbroker account and do it all myself. I've become somewhat skeptical on equities, especially US and foreign as it would seem to me at least in the time period I've been investing (15 years little $ in the early years, more in the later years) that I'd have been better off in Cdn Equity and bonds.

So for now I am invested in 50% bonds, 25% Cdn equity, 15% Foreign Equity and 10% US equity. I'm a fairy low risk type person expecially now as I'm 42. I have about 130K in RRSP's and have just opened a TFSA which I plan to max out (5K) all bonds by the end of the year.

Lately I've been purchasing strip bonds with any extra contributions, am waiting for the markets to improve some more and then plan to sell some of my mutual funds in equity and replace them with ETF's. Neither of my FA's would hear tell of my purchasing ETF's which personally drove me nuts and is another reason I'm going it alone these days.

Some additional info - no kids, living commonlaw but we keep all money separate as he doesn't really have investments. Annual salary 80K. Have been maxing out RRSP's for say last 10 yrs or so.

So...any advice/comments would be most appreciated especially perhaps your collective opinions on strip bonds

Thank you

 

[MoneyGal]

These are retirement savings, yes? Do you plan to continue to live with your CL spouse in retirement? Is he going to start saving money at some point, or does he have another plan for funding his retirement?

What risk do you bear for funding his retirement expenses when you are retired, and how are you going to hedge that?

I don't have enough info on your strips (principally the date to maturity and the original length) to provide any comments.

 

[Bunny]

These are retirement savings, yes? Do you plan to continue to live with your CL spouse in retirement? Is he going to start saving money at some point, or does he have another plan for funding his retirement?

What risk do you bear for funding his retirement expenses when you are retired, and how are you going to hedge that?

I don't have enough info on your strips (principally the date to maturity and the original length) to provide any comments.

Thanks for the reply. Yes these are retirement savings. We will probably still be together in retirement - at least that is the plan. He is not the saving type and will probably continue to work at least part time while in "retirement" as he is self employed.

We are also somewhat planning on a large inheritance ($500K) which will also help fund the retirement. So I guess you could say that is the hedge.

I have been buying a number of strips which on average yield 5% anywhere from 12 years on up to 24 years.

 

[leslie]

I don't understand why you are waiting to sell your funds for the markets to improve. Why not do the switch to ETFs now?

Be aware that strip bonds will react MORE to a change in interest rates than a normal coupon bond with the same maturity. That is because their 'duration' is larger (look up on wikipediea). You have to decide whether you think inflation or deflation is likely now. If inflation, then long-maturity strip bonds will perform the worst.

You seem to be making decisions based on where you got burned in the past. Before you do that, you have to determine WHY you got burned, and whether those reasons will hold in the future. The markets have no memory.

Your asset allocation is personal to you. Could you sleep last year?

 

[Bunny]

I don't understand why you are waiting to sell your funds for the markets to improve. Why not do the switch to ETFs now?

Be aware that strip bonds will react MORE to a change in interest rates than a normal coupon bond with the same maturity. That is because their 'duration' is larger (look up on wikipediea). You have to decide whether you think inflation or deflation is likely now. If inflation, then long-maturity strip bonds will perform the worst.

You seem to be making decisions based on where you got burned in the past. Before you do that, you have to determine WHY you got burned, and whether those reasons will hold in the future. The markets have no memory.

Your asset allocation is personal to you. Could you sleep last year?

You are right about the switching to ETF's. I don't know why I'm waiting - lack of experience I suppose. As this will also be my first fortey into ETF's. Was going to sell my cdn equity mutual funds and buy 1/2 XIC and 1/2 XIU.

The reason the strips appeal to me is the yield appears "lock-in" as long as I hold them until maturity which is what I plan to do. The other reason for the appeal is you know exactly the rate you will be getting as long as they are held to maturity. So far I've only purchased provincial bonds and one Bell Canada which I probably won't buy any more Bell, but I couldn't resist the 8% rate.

I slept ok last year but could have slept better

 

[OntFA]

You are right about the switching to ETF's. I don't know why I'm waiting - lack of experience I suppose. As this will also be my first fortey into ETF's. Was going to sell my cdn equity mutual funds and buy 1/2 XIC and 1/2 XIU.

Makes sense to do the switch as soon as you've made the decision. But I'd be concerned about your choices. XIU and XIC are very similar. Why not just use XIC since it's the more diversified fund? Look, the beauty of indexing lies not only in its low cost but in its simplicity. Pick one fund for each asset class - period. I can't remember who wrote it but there was an article earlier this year in late March or early April (in Financial Post or Globe and Mail) that talked about this. If anybody else recalls it maybe they'll link it (don't have time to search for it).

[added later: try googling for "ETF keep it simple" or something like that.]

The reason the strips appeal to me is the yield appears "lock-in" as long as I hold them until maturity which is what I plan to do. The other reason for the appeal is you know exactly the rate you will be getting as long as they are held to maturity. So far I've only purchased provincial bonds and one Bell Canada which I probably won't buy any more Bell, but I couldn't resist the 8% rate.

This is a valid line of reasoning. The yield to maturity of a traditional bond is not the yield that you will get. Instead, it's a theoretical figure. But that doesn't mean you should shun traditional bonds. You can always take your coupon interest payments and reinvest them in a cheap bond fund or a high interest savings account. But strips are convenient in that you know exactly what you're going to get and you don't have any interim cash flow to try and reinvest.

It's true that strip bonds are relatively more sensitive to interest rates (comapred to an otherwise identical bond paying semi-annual interest) but if you hold to maturity that doesn't really matter.