[Blush]

Hi All

I posted this earlier but somehow deleted it by accident so posting again.

Update to my investment dilemma from previous thread. I took the advice provided on this forum and went with rbc direct investing. Thank you all so much your input and knowledge, much appreciated. My portfolio still needs a lot of balancing, as I am heavy in cdn funds but I did go with some very good "d" series funds as suggested. I have been thinking about etf's but to be honest my knowledge is limited. Please feel free to offer advice on balancing my portfolio. Here is my situation.

50 yr old single Female, annual income of $55,000 with govt pension at age 60. Small mortgage pAyment of $700 mth and no other debt. Contributing $2000 annually to rrsp. Consider myself a moderate risk investor who is planning for retirement in 10 yrs. I am now an rbc direct investing client, simply because the bank set me up in one fund, a select balanced mutual fund ($73,000) at a 1.95 MER fee and I wanted more diversification with a lower mgmt fee.

Here is my portfolio now:

$50,000 cash in high daily interest savings acct of 1.5%

Tfsa $27,000 ph & n cdn equity series "d" fund
Lira - $8500 - ph & n balanced series d fund

RSP:
$25,000 ph& n cdn equity "d" fund
$34,000 - ph&n balanced series d fund
$10,000 - rbc u.s. equity
$10,000 - rbc cdn index fund

Any advice offered is greatly appreciated. Tks

 

[Spudd]

Why are you holding both PH&N Canadian equity and RBC Canadian index fund? These should have very similar holdings- I would simplify to whichever one has the lower MER.

Also, I'm not sure why you're holding a balanced fund AND all these equity funds. The balanced fund is a mix of stocks (equities) and bonds, so really you mostly have equities with a pinch of bonds coming from the balanced fund.

I'm not an RBC DI client, so I don't know what options you have over there.

The first step is to figure out your desired asset allocation (how much do you want to have in bonds vs stocks vs cash), and then look for the lowest-fee funds that will provide you with that.

 

[AltaRed]

I agree with Spudd that you have overlap between PH&N and RBC in your RSP. You only need to have one of those (also you don't mention "RBC series D" in either of your RBC listings but hope that is what you mean. As Spudd suggested, start with determining your desired asset allocation and go from there. I would have normally suggested that your equity allocation is rather high but with a good government pension starting in 10 years, that will be equivalent to a Fixed Income component in your overall asset allocation.

I recognize the list http://fundinfo.rbcgam.com/mutual-funds/phn-funds/overview/default.fs and http://fundinfo.rbcgam.com/mutual-funds/rbc-funds/prices/default.fs can be daunting but start with looking at 3,5 and 10 yr performances of certain D series funds and compare the MERs of the D series of each family of funds. "Generally" go with the lowest MER equivalent, all other things being generally equal.

Your choices for your LIRA and TFSA seem reasonable although I may have picked the RBC or PH&N Canadian Dividend fund rather than the PH&N Canadian Equity fund for possibly less volatility and/or slightly higher performance. I would simplify the RSP into only 3 funds, Cdn equity, US equity and Fixed Income..... or 2 funds, a US equity fund and a Cdn balanced fund.....

 

[Blush]

I am a novice at this direct investing so when I switched over the funds I chose the d series funds as recommended on this forum. From there I chose funds with low MER and decent rate of return over 5 to 10 yr period. I will make these changes as suggested. I was thinking of etf's for my Tfsa or lira fund? Perhaps vanguard and ishares...thoughts? Appreciate your knowledge, input and expertise, thanks very much.

 

[Blush]

Thanks very much for the advice I will certainly make these changes. Contemplating etf's, vanguard or ishares but my knowledge is limited....is there higher risk with etf's vs mutual funds? I know the fees are much lower with etf's. Also what would u suggest for $50,000 sitting in cash?

 

[cainvest]

Also what would u suggest for $50,000 sitting in cash?

Spudd already suggested a first step, determine your asset allocation as well as your own tolerance to risk. Once you've got those numbers, distribute to your portfolio accordingly. You may want to look into GICs, you'll get a better return over a HISA but you'll be locked in for a period of time if you go for the higher rates.

 

[AltaRed]

ETFs carry no more risk than mutual funds in terms of their security. The major difference is most ETFs are passively managed against a reference index while most mutual funds are actively managed (index mutual funds excepted). Sometimes actively managed mutual funds outperform ETFs (particularly in down markets) but most do not over longer periods of time due to the burden of higher MERs. With an ETF, the performance tracks that of the index on which it is based.

ETFs have the benefit of stock exchange trading and should be preferred over mutual funds most of the time. The primary downside is that ETFs incur a commission to buy/sell (e.g. $10 or so per trade) but that should not be an issue when purchasing more than $5-10k worth of an ETF at a time. You need to become familiar with how to buy/sell equities on the stock exchanges via your brokerage website, when to use market pricing versus limit orders, etc. Learn about that before doing trading for real. Consider using the practice account within RBC DI first to buy/sell before doing it for real.

 

[the-royal-mail]

Although I do like your fund choices, I wonder why you are not buying any company stocks? I know you will have to do some research and yes that will take time and effort but it would be nice to have some stocks in your account as well rather than just funds. Funds cost annual MERs also, whereas stocks are just charged trading fees when you buy and sell. Better deal IMO.

That said, of all the funds you like that CDN Index is a very good one. I have some of that as well as stocks.

 

[AltaRed]

A lot of people do not like to do the research necessary to buy/sell stocks or have the desire and/or acumen to pick stocks. I've never advised anyone I have known over the years to buy stocks. The vast majority of the population should stick to a couch potato of 2-5 index mutual funds/ETFs and get on with the things that really matter in life. Stock picking amongst the non-professionals is more rare than one thinks.

 

[cainvest]

A lot of people do not like to do the research necessary to buy/sell stocks or have the desire and/or acumen to pick stocks. I've never advised anyone I have known over the years to buy stocks. The vast majority of the population should stick to a couch potato of 2-5 index mutual funds/ETFs and get on with the things that really matter in life. Stock picking amongst the non-professionals is more rare than one thinks.

100% agree with that.

 

[Blush]

Much appreciate you sharing your knowledge of ETF's. I will absolutely take your advice and setup that practice account. Overtime when I think the ETF's are definitely the way to go. Again your expertise is greatly appreciated.

 

[Blush]

Thanks so much. I have made the switch as suggested and will continue to read my investing for dummies book.

 

[Blush]

Your choices for your LIRA and TFSA seem reasonable although I may have picked the RBC or PH&N Canadian Dividend fund rather than the PH&N Canadian Equity fund for possibly less volatility and/or slightly higher performance. I would simplify the RSP into only 3 funds, Cdn equity, US equity and Fixed Income..... or 2 funds, a US equity fund and a Cdn balanced fund.....

Another question: I plan to switch out my TFSA/LIRA to an ETF as the MER is fairly high. This fund: RBF1150 - PH&N Dividend Income Fund with MER of 1.16 Which would you suggest? VDY-T - vanguard high dividend or XIC for Canadian market as they have dropped fee to 0.05%.

ALso, in my RRSP in RBC US Equity Class Series D with a high MER 1.18; any suggestions as to a switch with lower MER.

Many thanks for all advice.

 

[AltaRed]

I don't have any firm recommendations because I have not done performance comparisons.

Have you done a performance comparison over a 1,3,5,10 year period of RBF1150 vs XIC or XIU? On a calander year basis over 10 years? The difference in performance may not be the difference in MER. That said, the Dividend fund (and VDY or XDV) may be disproportionately oriented towards dividend paying stocks and a higher yield than XIC, and may also be a little less volatile over the years. That said 2, without any further investigation and information available to me, I would go for XIC because of its low MER and because it is a broader slice of the Canadian market.

There are BMO and Vanguard ETFs that can substitute for the US equity fund. You have to also decide whether to go hedged or unhedged. I always go unhedged because hedging costs money and over the long run of 10-20 years, USD/CAD currency exchange rates tend to balance out.

 

[Ben1491]

Hi Blush,
I can't help and wondering the reason of having $50,000 in saving while you still have a mortgage. For emergency ? I would put all this towards your mortgage and hold cash only in TFSA to a high interest saving account, for emergency.
As for other investments, open a self-direct investment account if you do not have one. I agree with Royal-mail that you could buy some stocks. One or two blue chip dividend stocks, buy and hold, DRIP if you want. You do not need to spend too much research to find those stocks.

 

[Blush]

Hi Blush,
I can't help and wondering the reason of having $50,000 in saving while you still have a mortgage. For emergency ? I would put all this towards your mortgage...

My mortgage is joint with BF so don't wanna throw all my cash in at this point. I have a SD RRSP and a TFSA. Low balanced ETF's is what I'm planning as per advice from this forum. Again thank you your advice, much appreciated.

 

[richard]

Even the 10-year performance doesn't necessarily tell you what will happen for the next 10 years. It's not unusual for a market to do really badly for 10 years and then reverse itself. Same goes for things like growth vs value or dividend stocks vs broad market funds. A dividend fund is not a bad choice, it's just like having a slightly higher weighting in bonds (more income, less volatility, possibly slightly lower long-term returns). Having a broad fund like XIC plus as much as you want in bonds will give you similar results.

The best way to do this is to decide on your overall asset allocation and then make sure all your accounts together add up to give you that. If you look at each account separately it's easy to have overlapping choices or get a risk exposure that's very different from what you really want. 2 - 4 ETFs is enough to give you a very reliable portfolio.

 

[Blush]

ETFs carry no more risk than mutual funds in terms of their security. The major difference is most ETFs are passively managed against a reference index while most mutual funds are actively managed (index mutual funds excepted). Sometimes actively managed mutual funds outperform ETFs (particularly in down markets) but most do not over longer periods of time due to the burden of higher MERs. With an ETF, the performance tracks that of the index on which it is based.

Your feedback is appreciate on my planned etf portfolio:

iShares S&P/TSX Capped Composite Index ETF (XIC) 30% 0.05%
iShares High Quality Canadian Bond Index ETF (CAB) 30% 0.12%
Vanguard US Total Market (VUN) 20% 0.15%
iShares MSCI EAFE IMI (XEF) International equity 20% 0.20%

 

[AltaRed]

It depends on your risk profile and your longer term goals. On the premise you ARE happy with a 70/30 equity/fixed income split, I like XIC and VUN specifically.

I am guessing you picked XEF because it has a lower MER (0.20) than BMO's ZEA (0.30) but just remember XEF simply invests in its US counterpart EFA while BMO's offering is mostly stand alone securities (with curiously a component of iShares EAFE ETF in the mix). Also, there will be some tax withholding leakage from International (ex-USA) securities that is not recoverable via XEF. Whether the lower MER of 0.20 makes up enough of the difference from BMO's MER of 0.30 is a bit unknown. Perhaps we are just splitting hairs here... Others may be able to offer more technical insight into XEF vs ZEA.

On the bond side, there are so many variables on the gov't vs corporate mix, quality, and variations in duration, it is sometimes hard to stick handle through these. What you have picked seems reasonable if you want to stick with higher rated bonds AAA (39%), AA (31%) and A (27%). I am more of a fan of BMO's ZCM (medium term corporate bond ETF because of higher yield and shorter duration BUT there is more risk since the bond rating mix is AA (11%), A (39%) and BBB (50%). But again, an MER of 0.12 is much better than BMO's MER of 0.30 for ZCM.