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Discussion Starter #1
Hi all

I am a new member to the money forum and just had a question about asset allocation.

I am in the process of opening up a TD e series account and was working out my asset allocation. In much of the reading material it discusses about diversifying your equity allocation e.g. Between large, mid and small cap indexes.

Given that TD e series does not cover many of these indexes e.g. US small cap index, you would need to put your money in a mutual fund with a higher MER.

My question, is there a benefit to investing in large, mid, small cap within a single market e.g. say Canadian equities? Is it worth paying higher MER to get that exposure? It would certainly increase the number of funds you would need if you want to cover your fixed income, cdn, usa and international equity.

Just a bit about my situation I have 50,000 to invest but its all divided up between two RRSP accounts, two TFSA and a RESP account.

Thanks

Del
 

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Hi all

I am a new member to the money forum and just had a question about asset allocation.

I am in the process of opening up a TD e series account and was working out my asset allocation. In much of the reading material it discusses about diversifying your equity allocation e.g. Between large, mid and small cap indexes.

Given that TD e series does not cover many of these indexes e.g. US small cap index, you would need to put your money in a mutual fund with a higher MER.

My question, is there a benefit to investing in large, mid, small cap within a single market e.g. say Canadian equities? Is it worth paying higher MER to get that exposure? It would certainly increase the number of funds you would need if you want to cover your fixed income, cdn, usa and international equity.

Just a bit about my situation I have 50,000 to invest but its all divided up between two RRSP accounts, two TFSA and a RESP account.

Thanks

Del
First, welcome to the forum !

There no absolute needs to diversify between small/mid/large cap.

If you want to have more diversification you could also decide to build your portfolio using ETF instead of TD e-series. With a portfolio of 50k, using ETF would be cheaper and provide the ability to better diversify.

I recommend you look at the following allocation on the very great Canadian Couch Potato website:

http://canadiancouchpotato.com/model-portfolios/
 

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There are plenty of smallcap and value ETF's to choose from.

These two categories generally outperform over the longer term albeit with potentially more volatility.

Buy, hold, and prosper.:cool:
 

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Discussion Starter #4
Thanks for the information and the welcome

I had a look at the Canadian Couch Potato great website.

I like the advise of moving to ETF's. The only problem I found is cost.

If I had the total 50,000 in one account it would make sense but since this money is spread between 5 accounts (2 RRSP, 2TFSA and an RESP) I would get killed with all the transaction costs.

I am also looking at getting a spousal RRSP account as well which would make 6. Unless I can just contribute to my wife's existing RRSP, haven't worked that out yet.


Del
 

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If I had the total 50,000 in one account it would make sense but since this money is spread between 5 accounts (2 RRSP, 2TFSA and an RESP) I would get killed with all the transaction costs.
Are these accounts with the same brokerage firm?
If so, they should qualify you for lower trading commissions based on total assets held.
Have you asked them?
 

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If I had the total 50,000 in one account it would make sense but since this money is spread between 5 accounts (2 RRSP, 2TFSA and an RESP) I would get killed with all the transaction costs.
Is there a reason you cannot consolidate all these accounts? If you did, you would qualify for reduced transaction costs at some accounts.

Even if the accounts stay at different institutions, I don't believe you would get killed by transaction costs.

Assuming no account fees, $29 / transaction, rebalancing quarterly, and a 4 product couch potato portfolio = 16 transactions /year = $464 in transaction fees. On a $50k account, this is less than 1% in transaction fees per year. Or, you could rebalance 3 times per year, or semi annually, and reduce your transaction costs to 0.5% (of your account worth) per year. Nothing outrageous.

Best would probably be to move everything into something like Scotia's iTrade where your $50k would qualify you for $10 trades. Assuming the same scenario as above, if you rebalanced quarterly, your transaction fees would represent only 0.32% per annum.
 

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I don't understand why your transaction costs would be too high. Treat your various accounts as one overall portfolio. You don't have to have a Couch Potato formula set up for each and every account.

You only need to buy each ETF investment once and then hold each one forever trading in the future only for rebalancing purposes.

In the grand scheme of things, you will be minimizing your trading costs by only investing in broad-based, low fee ETF's in the first place and you only really need to hold one bond fund, one Canadian equity fund, one U.S. equity fund, and one international equity fund. Hold as many of the equity funds in the non-registered accounts as possible.

In other words, you will end up with ONE Couch Potato portfolio spread over all of your accounts.

And, by the way, you are correct about concerning yourself about fees which you do want to keep as 'little' as possible to minimize their impact on your long term returns.
 

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I don't understand why your transaction costs would be too high. Treat your various accounts as one overall portfolio. You don't have to have a Couch Potato formula set up for each and every account.

You only need to buy each ETF investment once and then hold each one forever trading in the future only for rebalancing purposes.

In the grand scheme of things, you will be minimizing your trading costs by only investing in broad-based, low fee ETF's in the first place and you only really need to hold one bond fund, one Canadian equity fund, one U.S. equity fund, and one international equity fund. Hold as many of the equity funds in the non-registered accounts as possible.

In other words, you will end up with ONE Couch Potato portfolio spread over all of your accounts.

And, by the way, you are correct about concerning yourself about fees which you do want to keep as 'little' as possible to minimize their impact on your long term returns.
having your different assets split between registered and non-registered account can also help you minimize tax by keeping your less tax efficient assets in registered account.

aka: buy all your bonds in your registered account :)
 

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Discussion Starter #9
Currently the money is with my financial adviser. I am in the process of developing a plan and hopefully will be transferring the money shortly.

I was originally thinking of using TD asset management instead of TD waterhouse as I would be using the e funds.

All the money I can save will be going into registered accounts.

Belguy I like your idea of thinking about all my accounts as one portfolio. The transaction costs I was calculating was based on each accounts individual portfolio e.g. A number of funds per account.

After thinking on it a bit I think it may be difficult to do as I want to max out all my registered accounts and the amounts I can put in each account is different for example I can put $5000 per year in each of the two TFSA but I can only put $3000 in my RRSP and $2500 in my wifes RRSP because of defined benefit pension adjustments.

Given this if I put just one asset class in each account it would make re balancing difficult as the amounts I can put in each account is very different. With my current savings plan I can max out each of the accounts.

Let me know if this logic makes sense.

Del
 

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@delboybc: I am kind of in the situation. Trying to max out the RRSP and TFSA, allocating the assets by tax efficiency (bonds/foreign in RRSP, etc.) Yes, there's a little bit of a hassle when rebalancing, but the tax savings is worth it for me. And as your portfolio grow, the relative size of your contribution will dminish.

Also, you don't have to stick to your allocation that close all the time. I'm giving mine a 25% margin for now.
 
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