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Discussion Starter #1
Hi Everyone,

I'm a 23 year old male currently residing in Vancouver.

I've just started my first full time job here so looking to be smarter about investing with my money. I've read a couple of posts here and I'm thinking about going with the High-Growth Coach Potato Portfolio. Please let me know if you guys think this is a good idea. Here's my current situation.

My investment goal is Mid term. Obviously I want to save up for retirement (long term) but I say mid term because I feel like once I get a better understanding of how I should invest my money, I may shift from the Coach Potato Portfolio, probably in 5 years.

I have about 30,000 to invest right now and I'm thinking about making monthly contributions of 500 (not sure what the normal contribution level is, ie, what % of your pay cheque?)

Also I have a TSFA account with about 10,000 in there, does it make sense to also apply the couch potato portfolio to this? I'm thinking about investing in more EFTs in this account since I won't be making regular contributions on a monthly basis here.

So all in all, I'm just looking for some good advise to get me started on my investments, and I'm sure many of you have been down this road so I'd greatly appreciate it if you guys could share some of your thoughts with me.

Having said this, do you guys think a Couch Potato Portfolio even make sense if I might shift things around in 5 years? Or maybe does it even make sense for me to start a portfolio like this?

Any feedback is welcomed. Thanks guys.
 

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Welcome...

I'm a new member myself, but happy to give you my two cents (so to speak).

First, well done on already having maxed out or TFSA for the two years of eligibility and already having $30k at 23 and with a new job - you're already ahead of many Canadians who at age 23 are often $30k in debt! Great job.

Just a point of correction: your growth strategy is still long-term - whether you start with the Couch Potato strategy and switch later, you're "strategy" will likely remain the same -- given you have many years you have until retirement, you can ride out ups and downs but want to grow your portfolio as best as you can, you're willing to take on more risks as a result. So it's still a long-term view.

The Couch Potato strategy is a great one -- my wife and I employ it ourselves and we're nearing 40 (I wish I had started on it at 23). The benefits of it: you're applying diversification, you're balancing on a semi-regular basis (taking profits where you're doing well, buying low where you're not), if you stick with good ETFs or Mutual Funds, you'll have low management fees, and as the Coach Potato has demonstrated, it can be just as effective (or even more) than many "managed portfolios" out there.

And yes, the couch potato is fine - even if you're only planning to use it for a few years -- who knows you may learn to love it like I do, and therefore want to stick with it. (I use it for my RSPs, and my TFSA is for slightly more riskier investments that I hope will grow or earn me good returns, and my investing account is for buying various stocks/dividends).

I'm assuming the $30k is already in an RSP - if it's not you should consider moving as much as you're allowed (based on your contribution limit) so that you can start getting that to grow tax sheltered.

As far as monthly contributions -- again, I'd say it depends... First, on what your RSP limit is. If it's, say, $12,000 this year (and you have contributed anything yet), then $500 -- if you can comfortably afford it -- would be good but getting to max-out your RSP (e.g. $1000 / month) obviously is even better. I'm sure others will tell you what an "ideal" % of your salary should be -- I'm a believer in doing what you feel you can afford NOT to miss. If you like to live a more lavish lifestyle, then tucking away 5-10% of your take-home income might be brutal to consider. If you tend to be very good with your money, then you should and can go higher.

If the amount you can set aside now is greater than what your RSP contribution limit is, that's still great - put that money into your investment account every month, and as your income levels grow (and therefore the amount you can contribute to each year), you can take some of your investment money and transfer it to your RSP for tax/sheltered growth benefits.

Last comment about monthly contributions - obviously you want to avoid paying trading fees each month if you can -- consider low-management fee mutual funds that you can use to rebalance into ETFs (if that's what you're planning to buy) but do some research to make sure that there aren't minimum periods you need to hold a mutual fund before you can sell it.

Your question about doing the Couch Potato in your TFSA - my only concern would be fees -- if you're buying ETFs in there, and you are with a discount brokerage that charges $10 per trade, then 4-5 ETFs per year with your $5k limit will cost you $50 -- or 1% (more if you decide to sell some to rebalance for whatever reason, but your contributions should be used to rebalance in most cases). That may or may not seem so bad to you, it's really up to you. You could consider lessening the # of ETFs you buy in your TFSA, but then you're not quite getting the diversification that a Couch Potato suggests.

In other words -- I don't think there's a right or a wrong here, it's what you're comfortable with.
 

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Discussion Starter #3
Wow bogfish, thanks so much for the reply very informative and helpful :)

Firstly I have to say unfortunately I did not put my 30k into RRSPs this year as I was still a student for half the year and didn't have a net income of over 40k so I got lazy and thought it was worthless to put any money into RRSPs as I wouldn't be reaping any benefits off it, however now I know to think longer term and be smarter about things like this.

I just have 2 questions and hopefully you don't mind shedding some light on me again :)

1) How should I apply the Couch Potato strategy if I have an investing account, RRSP account and a TFSA? Is it more feasible to apply the Couch Potato strategy across all accounts, say TFSA has my Canadian Equity portion, RRSP has my US Equity portion and so forth or is it more feasible to apply the strategy to each individual account?

2) Thanks for pointing out the commission fee concern with the TFSA account, but is there a good guide on what you should invest in under these different accounts? I know you've mentioned that you have different strategies under each account but is there a specific reason to the choices you made? I can see the couch potato would be a good choice for the RRSP account since your RRSPs would be more long term investments as you probably be putting that money away for a house. However is there a good way to take advantage of TFSA with a specific type of investment?

Sorry for the lengthy questions, but I came from an Engineering background and don't have a good basic knowledge for finances, hopefully I can build that in the years to come :)
 

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You are off to a great start.

I'd be concerned with your investment time horizon - you even mention "shifting things around in 5 years" - what does that mean?

If this is definitely long term money (ie retirement) then the growth portfolio is probably a good one. Keep in mind tho that being a young un' means that things changes, families get bigger and you might want to buy a house at some point.
 

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Hi shstylo. Before you move any money anywhere, you must understand your tolerance to risk. It is better to decide this before rather than after you allocate your investments. This website has an excellent Risk Capacity Survey. It will give you a recommended asset allocation.

The site is American, so you will need to replace some of the American classes with their Canadian equivalents, and find alternative ETF products in Canada. I ended up with them recommending 60% American equities for me, so I changed it to 35% Canadian, 25% US.
 

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Firstly I have to say unfortunately I did not put my 30k into RRSPs this year as I was still a student for half the year and didn't have a net income of over 40k so I got lazy and thought it was worthless to put any money into RRSPs as I wouldn't be reaping any benefits off it, however now I know to think longer term and be smarter about things like this.

If I understand correctly, you have $30K RRSP room, but didn't use it because you didn't want to "waste" the deduction because your income is currently low. You need to read up more on RRSP rules. You do not have to claim the income tax deduction right away. You report the contribution(s) in the year they are made, but you can carry forward the deduction to use in a future year or years.

What to do with your TFSA depends on your likelihood of needing that money in the next few years. If you are planning to use it to buy a car, make a down payment on a house, etc., then the time horizon is not the same as for your RRSP, and you want a different asset allocation for it.
 

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Discussion Starter #7
Thanks for the reply guys.

I guess I wasn't too clear in my previous post so let me clarify. My plan for my RRSP account is to save it for retirement. I may need to dip into it for a house but definately not for anything else. I say this to leave myself some wiggle room, ideally I wouldn't want to touch anything in here. I know there's the HBP but just scared I might need a little more.

Now that leaves my TFSA and non-registered investment accounts. I would like to take more risk with these accounts so do you guys have any suggestions on what I should look to invest into? Is a 80/20 portfolio full of ETFs a good way to go?

So thank you guys for getting me to this point, I think I'll probably go with a growth portfolio for my RRSP account, just not sure what I should do with my other accounts. Any suggestions would be wonderful :)
 

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The RSP has the longest time frame and is tax protected. So you can put your more volatile equities as well as income instruments there. From reading posts on this board I gather that the RSP is the best place to put your American dividend payers because by treaty the US recognizes the RSP as a retirement vehicle.

The TFSA is a good place to put your emergency money. It is tax protected so you can have income trusts, REITS and bonds there, and the TFSA portfolio should ideally have low volatility. You could put a large chunk of your bonds here. Maybe make the TFSA 50-50, and have your other bonds in the RSP.

You can put growth stocks and Canadian dividend payers in an unregistered account because they have the lowest tax rates. But don't be trading it too often or you will be paying capital gains as you go. Use your relatively stable TFSA income if you need some mad money.

Do your re-balancing in one of your tax free accounts.
 

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Discussion Starter #9
Hey guys, thanks for all your replies, after some thought here's what I think I'm going to do.

I'm going to buy the 4 index funds in my RRSP from TD since I already have a TD account.

In my TFSA and my non-registered I'm planning to buy some riskier ETFs and stocks.

Based on the 4 index funds I'm going to purchase,
TD Canadian Index – e (TDB900)
TD US Index – e (TDB904)
TD International Index – e (TDB905)
TD Canadian Bond Index – e (TDB909)

what types of ETFs would you guys think make sense for me to invest in to fill out my portfolio? Some sector based ETFs, commodities, or emerging markets?

I was aiming towards a 80 equities / 20 income type of portfolio but certainly don't mind taking on more risk and edge closer to the 90/10 or even 100/0 types.

Thank you.
 

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TDB908, the NASDAQ index (tech and health) would be better than the US S&P 500 one because it correlates less with Canada (financial, energy, materials). TDB908 is better than TDB905 for risk management, which is the whole point of diversification.

After you have a good set of inexpensive market index funds like these, my next recommendation would be to look for etfs that give you:

1. value
2. small or mid caps
3. access to emerging markets

More often than not, value stocks outperform growth stocks. For Canada I would pick XCV or CDZ. CDZ is a dividend etf but MorningStar puts it in the mid cap value box.

Backtesting suggests that fundamental, or FTSE RAFI index funds will outperform their cap weighted equivalents 8 to 10 years out of 10. In Canada we can get CRQ (Canada), CLU (US hedged to C$), CLU.c (US unhedged), CIE (international). I like FTSE RAFI funds because you get access to most of the index, but the holdings are weighted to the value side.

Small caps are risky and can be volatile but historically outperform large caps, especially if they are value. XMD gives you Canadian small and mid caps, or you might prefer XCS which is small only. XSU gives you C$ hedged access to the US Russell 2000 index.

Emerging Markets are also risky, but have been on a tear the last ten years. BMO offers ZEM. Claymore offers CWO.

Disclosure: I hold CWO, CIE, CLU, XSU, TDB908.
 

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Discussion Starter #11
Firstly I'd like to thank you all for your kind advise. Combined with advice I've received from friends, family and colleagues I've constructed the following portfolio for myself and would be grateful if you guys could provide feedback whether it's positive or negative.

I've formed the portfolio based on a couple of criteria. I feel that I'm still young so if I don't take risks now I'll probably never get a chance to. I've also decided to take a "not too" passive approach as I have discovered that I do have a passion for investing and would like to learn as much as I can about the stock markets (might go for some courses later on) and I feel if I followed the typical Couch Potato Portfolio I'd steer away from that. Furthermore my investment horizon is still long term 10-15 years, and I'll probably be monitoring my portfolio weekly/monthly.

Canadian Equities (35%)
ClaymorETFs FTSE RAFI Canadian Index Fund (CRQ)
iShares CDN S&P/TSX Completion Index Fd (XMD)

US Equities (35%)
Vanguard Total Stock Market ETF (VTI)
iShares Dow Jones US Pharm Indx (IHE)
iShares S&P NA Tech. Sec. Idx. Fd. (IGM)

International Equities (20%)
Vanguard Europe Pacific ETF*(VEA)

Emerging Markets (5%)
CLAYMORE BROAD EMERGING MKTS (CWO)

Real Estate (5%)
iShares CDN S&P/TSX Capped REIT Index Fd (XRE)

I decided to go with the non-hedged approach as I've heard in the long run the hedging cost is not worth it coupled with the fact that the C dollar is almost on par with US so now's probably the time to buy US dollars. Also I come from an engineering background so I wanted to buy some Technology stocks as I typically follow Apple news quite frequently and plus I could use the diversification as the other funds are heavy in Financial sector. My reason for picking the pharma fund is for diversification purposes as well. I was also thinking about S4P's suggestion on the Nasdaq index fund so I could swap it out for that, just not sure which approach is better.

I've built a simple spreadsheet to track my portfolio, not sure if there's a standard template around somewhere that everyone's using, if there is does someone mind linking it for me? I did a search on the forum and didn't find anything. Thank you all!
 

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I would ignore the TDB908 for now. If you are buying those US etfs, about $16,500 worth, you can save some expenses using Norbert's Gambit in lieu of currency exchange. It is considered too much bother with less than $10,000. It is a bit of a hassle, so I would get all my US funds in USA or I wouldn't bother.

After you have invested you $16,500 in US based funds, you should do your quarterly or annual rebalancing on the Canadian side. If you need to increase your US exposure, you can create small holdings of US TD e-series funds or US etfs issued in Canada, until there is another block of $10k that needs to be moved.

Needless to say, it would be best if all the US based etfs were all in the same account.

BTW if you are going to USA funds anyway, you might as well hold VWO instead of CWO. CWO simply holds VWO but has a higher MER.
 
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