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Critique my plan, please

4060 Views 6 Replies 5 Participants Last post by  Arcaneind
At the moment I'm invested in a number of ETFs with little thought put into the allocation. I'm in my early 30s and my RRSP is currently worth about $50,000 with another $6300 in my TFSA. I work for the federal government so I have a good pension plan. I consider my pension plan to be my fixed income portion of my retirement fund. As such, I plan to invest solely in equities within my RRSP.

My planned allocation for my RRSP is as follows:

XIC 35-40%
VTI 20-25%
VEA 20-25%
VWO 15-20%

That should give a weighted MER of about 0.2%.

The reasoning behind my planning allocation:

1. I prefer XIC to XIU for my Canadian equity despite the slightly higher MER. I think XIC is better diversified and should help avoid any one holding taking up too large a percentage (like Nortel did).

2. I'm thinking of using US-based ETFs for my non-Canadian equity due mostly to lower MERs. I think I'm willing to take the currency risk as this is a truly long term investment (25 years+). Plus, the currency risk is only on about 60% of the portfolio (everything but XIC) and I'm more comfortable with that than if it was on the entire thing.

3. I'm putting a high portion into VWO because I think having a good deal of money in emerging markets now will look like the right decision 10, 15, 20 years in the future.

Like I said, I won't be using this money for retirement until about 25 years in the future and my pension is my fixed income portion.

Any comments?
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With a government pension, give some thought to whether RRSP or TFSA might be the better vehicle for the bulk of your individual retirement savings.

The rule seems to be that if your income is lower in retirement than in your working years, you are better off with RRSP. However, you might just have the opposite situation.

Combine a comfortable pension plan (70% of best 5 years?), CPP/OAS (albeit you're likely to see some clawbacks here), an RRSP fund that could be large given your track record to date (healthy amount for your age), and you could be looking at a taxable income very comparable to your working years.

Anyway, just a comment to give some thought to whether a TFSA might be a good vehicle for you, given your potential retirement income streams.
Thanks for the advice. My pension will probably be 60% maximum because I started with the public service only a couple of years ago and don't plan to work into my 60s.

I've considered my options with regard to TFSA vs. RRSP. I should be able to max out both of them in future years, so I'm considering holding mostly XIC in my TFSA and all of my US/international equity in my RRSP.

By the way, I understand from CC's post here that Canadian ETFs that simply hold US ETFs have an additional drag due to withholding tax on dividends, but what about foreign exchange every time (likely once a year) I purchase additional units of Vanguard ETFs? Couldn't that add up to more than the withholding tax drag?
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