Canadian Money Forum banner

1 - 7 of 7 Posts

·
Registered
Joined
·
14 Posts
Discussion Starter #1
Hi, I am now setting up my mutual fund portfolio and I have some question regarding concept allocation... It may be basic, or even stupid, but I'd appreciate some insight.

I'm 28 this year and I have about $30K of RRSP that I don't plan to use until I retire. Right now I put them in TD E-series account and in E-funds.

Here are the questions:

1) According to what I read about in the couch potato portfolio, it suggests that people put 80% in equity (40% CDN, 20% US, 20% Global), and 20% in bonds. I wonder if the bond portion is really necessary, or even appropriate, in my portfolio as now I'm still young and have a relatively higher risk tolerance. Should I take advantage of my situation and go for the maximum possible growth (100% in equity)?

2) Regarding the 80% equity spread, I understand that it is set up this way so that the allocation is diversified to all major markets and therefore reduces the risk. However, according to my research, the international E-fund offered by TD is not doing so great. Will it be a problem if I take out the global component entirely and do say, 60% CDN and 20% US?

How much risk is too much risk? I guess 100% in CDN equity is a little too risky?
 

·
Registered
Joined
·
15,839 Posts
hello,

1) bonds & cash can be used even by young people as a hedge against market downturns. So the answer boils down to whether you believe the bull will continue. Otherwise, it's my personal belief that young people do not need bonds.

2) you're right about the td internat'l fund. It's pretty near always been like that. A big blah. I believe that if you could poll the members of this forum, most would say that their plain vanilla internat'l funds have performed on the weak side.

here's a thought from stephen jarislowsky, although believe he's modified it in recent years. Jarislowsky used to say he'd avoid many or most foreign stocks, on the grounds that a significant number of canadian companies are, in reality, "foreign" companies. Plus there's the advantage that these pseudo-canadian foreign companies are subject to north american accounting rules, ie are more transparent. Plus there's the extraordinary advantage that their dividends bestow the marvellous canadian dividend tax credit, because their nominal head offices & corporate structures are located in canada even though the bulk of their business is outside the land of the beaver & the maple leaf.

a good example is CN rail. This is, i believe, the biggest US railway company in terms of kilometres of track, possibly also in terms of tonnes hauled. CN rail has little to do with how its business fares in canada.

other examples of canadian companies whose principal businesses are situated overseas or at least outside canada are bombardier, snc lavalin, barrick, goldcorp, cameco, thomson-reuters ... the list just goes on and on.

another advantage is currency hedging. These companies do their own hedging. So far, i am confident that they carry out this function far better than i ever could.
 

·
Banned
Joined
·
424 Posts
Bonds are at the end of a thirty year run. Macroeconomics are against them now. In 1979, Canada Savings Bonds paid 19%, and it has been a long way down since then. As the interest rates dropped, longer term bonds saw significant capital gains. Interest rates cannot go down much more.

You still need diversification, and there is significant correlation between TSX, SP500 and EAFE large caps. Since you are in TD anyway, I would recommend putting some into TD908, the Nasdaq one, because the tech stocks will introduce uncorrelated risk.

But NASDAQ is not exactly safety either. Look for an opportunity to add defensive stocks (utilities, consumer staples, health care), or exposure to real estate. There are some ETFs that will do this: XRE for REITs, ZUT for utilities. Think of this portion of your portfolio as a proxy for bonds.
 

·
Registered
Joined
·
12,737 Posts
I would also point out that going 60% Canadian means you are going to be overweight financials (Canadian banks), energy and materials, and underweight most of the other sectors.
 

·
Registered
Joined
·
274 Posts
I would also point out that going 60% Canadian means you are going to be overweight financials (Canadian banks), energy and materials, and underweight most of the other sectors.
And this is a problem?

As has been pointed out previously diversification is only for those who lack conviction.
 

·
Banned
Joined
·
424 Posts
Conviction is more appropriate for some active investors. The O.P. is clearly interested in passive investing. Diversification of risk is an important component of passive investing.
 

·
Registered
Joined
·
12,737 Posts
And this is a problem?

As has been pointed out previously diversification is only for those who lack conviction.
Lacking conviction is a bad thing? Seems to me like conviction is how people blow their brains out when playing russian roulette.
 
1 - 7 of 7 Posts
Top