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This is just a feeling, but knowing how brokers work and considering their history in ripping off people in bonds, my gut tells me that the practice account quotes don't have the spread. At the end of the day you might have to place a real bond trade with say 10K and see what happens with real money.
I placed a real order early today and it's filled now. You are right, RBC did charge as high as 1.79% spread/mark-up in bonds!!! I was cheated by their practice account. I called the client service today and was told that the practice account is just for "DEMO" purpose. I would say this is not demo but cheating!!! I'll never ever believe RBC. So pissed off.

My order in RBC DirectInvesting:
20380


Bond Price
20381


iTrade Bond Price
20382
 

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Discussion Starter · #342 ·
I placed a real order early today and it's filled now. You are right, RBC did charge as high as 1.79% spread/mark-up in bonds!!! I was cheated by their practice account. I called the client service today and was told that the practice account is just for "DEMO" purpose. I would say this is not demo but cheating!!! I'll never ever believe RBC. So pissed off.
Thanks for sharing what you found, this is very helpful. I hope others can find this thread, in fact, I added some keywords at the end of this post to help search engines find this later.

Don't feel bad. Those practice or simulation accounts really can't account for realism, and bid/ask spreads are hard to simulate. I doubt that RBC made the practice account deliberately misleading. I've found bugs in their practice account over the years and had to stop using it because it just wasn't realistic.

It's possible that RBC will tell you that the spread would have been lower for a larger face value, but I'm not sure I would believe them.

I'll add this caveat. Even though I really like iTrade, I have sometimes place bond orders and it has filled (very slightly) higher than the price shown. So the quote iTrade shows you is not exactly what you will get a fill at. All bond trades become "market" orders, which means they wiggle around slightly. I can't recall the exact numbers but I think the last time I placed a buy, it was pretty close to the quoted number.

Canadian fixed income
Discount brokers for bond trades
Government bonds at discount brokerages
Buying bonds at RBC Direct Investing
Individual bond prices and fees for RBC DI
Fees for bonds at RBC DI
 

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Thanks for sharing what you found, this is very helpful. I hope others can find this thread, in fact, I added some keywords at the end of this post to help search engines find this later.

Don't feel bad. Those practice or simulation accounts really can't account for realism, and bid/ask spreads are hard to simulate. I doubt that RBC made the practice account deliberately misleading. I've found bugs in their practice account over the years and had to stop using it because it just wasn't realistic.

It's possible that RBC will tell you that the spread would have been lower for a larger face value, but I'm not sure I would believe them.

I'll add this caveat. Even though I really like iTrade, I have sometimes place bond orders and it has filled (very slightly) higher than the price shown. So the quote iTrade shows you is not exactly what you will get a fill at. All bond trades become "market" orders, which means they wiggle around slightly. I can't recall the exact numbers but I think the last time I placed a buy, it was pretty close to the quoted number.

Canadian fixed income
Discount brokers for bond trades
Government bonds at discount brokerages
Buying bonds at RBC Direct Investing
Individual bond prices and fees for RBC DI
Fees for bonds at RBC DI
Thank you again for warning me in previous post. This is not the first time that I am disappointed by RBC. Anyway, it's worth spending $100 to find out the truth.
 

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Discussion Starter · #344 · (Edited)
Thank you again for warning me in previous post. This is not the first time that I am disappointed by RBC. Anyway, it's worth spending $100 to find out the truth.
Depending on how much time you have, you might want to send them a sternly worded letter saying that the practice account clearly did not show a bid/ask spread, and whatever the agent told you before -- if it was misleading.

You could ask for the fee to be refunded, or a credit, considering you have been a long term customer etc. Maybe at least it will scare them a bit... my cynical side suspects they just keep increasing the spreads until they either get complaints or lawsuits. That's probably how they know they went too far.

Edit: when contacting RBC Direct Investing Client Care Centre, also show the iTrade quote and ask RBC to explain what the same bond costs 1.79% more through them, and say that if you can't get a satisfactory explanation then you could also ask the RBC Office of the Ombudsman to explain it.

Sadly, it's probably not worth the effort. They have taken much larger fees from much wealthier people than you, and gotten away with it. They milk large clients like pension funds the same way.
 

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Depending on how much time you have, you might want to send them a sternly worded letter saying that the practice account clearly did not show a bid/ask spread, and whatever the agent told you before -- if it was misleading.

You could ask for the fee to be refunded, or a credit, considering you have been a long term customer etc. Maybe at least it will scare them a bit... my cynical side suspects they just keep increasing the spreads until they either get complaints or lawsuits. That's probably how they know they went too far.

Edit: when contacting RBC Direct Investing Client Care Centre, also show the iTrade quote and ask RBC to explain what the same bond costs 1.79% more through them, and say that if you can't get a satisfactory explanation then you could also ask the RBC Office of the Ombudsman to explain it.

Sadly, it's probably not worth the effort. They have taken much larger fees from much wealthier people than you, and gotten away with it. They milk large clients like pension funds the same way.
Good idea. I have plenty of time these days since I am in a period of early-retirement(aka. out-of-work). I will send a complaint email to RBC next week. Someone has to scare them a bit for the interests of all the investors. They can't just jeopardize the trust and rip off clients like that.
 

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Discussion Starter · #346 ·
Good idea. I have plenty of time these days since I am in a period of early-retirement(aka. out-of-work). I will send a complaint email to RBC next week. Someone has to scare them a bit for the interests of all the investors. They can't just jeopardize the trust and rip off clients like that.
Great, if you have the time it's good to scare them a bit. Personally I find that I'm taken more seriously when I send postal mail so if the emails don't work, follow up with a paper letter.
 

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Discussion Starter · #347 ·
You're probably right on sticking with the once a year rebalance plan and, my guess, it'll probably work out well at the end of 2020.
Going back to this question about rebalancing strategy. Rebalance right away? Or do it only periodically?

I thought I'd calculate the two methods for this year, just curious if there's much of a difference. Using the portfolio: 15% XIU, 15% ZSP, 50% XBB, 20% MNT which is my stock/bond/gold allocation.

Option (A) Year to date with no rebalancing, just passive holding: +11.9%

Option (B) Rebalance on April 20. At this point gold was much stronger than stocks, so rebalancing back to targets would have meant selling gold and buying stocks. Net result: +11.9%

Interesting! I didn't expect (A) and (B) to be so similar despite the crazy movements and swings in the constituent assets.

Myself... I've ended up doing some rebalancing by adding new money. I haven't touched my gold or bond allocations, but I added new money into stocks, getting me back near the 30/50/20 allocation targets as of today. I love these asset allocation plans... so simple.
 

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The past July was one of the best months for PP. I am very glad that I chose this portfolio. The only regret is I still have a big portion of money sitting in GIC. I was trying to time the market...gold and stock are so high recently!

The below chart is the return of US PP(See the full chart here: Allocation - Lazy Portfolio ETF). The Canadian PP's performance is quite similar. Just by now today, it's daily %P&L has reached 0.86%! Crazy~ When many government central banks are printing money and stimulus their economy, too much money is chasing too little value perserve assets.

From the below chart, it seems that best perform months were usually followed by recorrection months though.

20437
 

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Discussion Starter · #349 ·
The past July was one of the best months for PP. I am very glad that I chose this portfolio. The only regret is I still have a big portion of money sitting in GIC. I was trying to time the market...gold and stock are so high recently!
I agree, it's been just a crazy time. We are now seeing the advantage of diversifying into the gold asset class. As you can see, it only takes a small weight (and I'm only 20% gold) to get a benefit of being in a bull market. The whole idea of the PP is to maximize your chances of at least having a toe in the "winning" bull market. Pure stock investors live or die by a single market: stocks. In a stock bull they do great. In a stock bear, they're ruined.

Going stocks + bonds improves things as you are not solely dependent on a stock bull market. You benefit from bull periods in bonds too.

But the PP, including gold, improves things even more. If gold happens to be in a bull market, we benefit from it. So what we're seeing play out now is exactly the theory of the PP in action. You spread your bets across the primary asset classes (stocks, bonds, gold) and hope that one of your asset classes is in bull mode.

The numbers on my variation of the PP are ridiculous. I'm up 15% year to date and up 19% for the trailing 1 year. Even more crazy is that the trailing 4.4 year return (since I started this) is now 8.5% CAGR.

With 8.5% CAGR and barely any drops, even during this latest crash, my risk adjusted return is through the roof. People should love this kind of portfolio. It really does not get better than this, in financial markets. My maximum drawdown during the March crash was only about 14%.

When many government central banks are printing money and stimulus their economy, too much money is chasing too little value perserve assets.
It's possible that's what's going on, but I try to not get too wrapped up in the story of the day. I think the PP is a great investment whether we're in an inflation or deflation mode, and I still think either one (including deflation and depression) could happen.
 

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Discussion Starter · #351 ·
It should also be noted that diversified balanced funds are doing reasonably well over the last 5 years, including through this recent crash.

Mawer Balanced fund: 6.5% CAGR
Tangerine Balanced: 4.9% CAGR
BMO Monthly Income D: 5.1% CAGR

Most of these good balanced funds are around 5% to 6% CAGR for the last 5 years. The permanent portfolio is doing a little bit better, and with less volatility (smoother experience).
 

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Discussion Starter · #352 ·
Here are some visualizations of the Permanent Portfolio up to now. In Portfolio Visualizer, I entered: 25% XWD, 25% CGL.C, 50% XBB. The equity component can be done many different ways, just thought I would keep the number of ETFs small here (only 3). Short+long term bonds are rolled into the generic XBB.

Link to the Portfolio Visualizer. Since 2013, the performance of the above is 7.22% CAGR. These years have been a very good stretch of time for the PP.

The chart of annual returns is also pretty amazing. In fact 2020 year to date is the strongest year in recent history... imagine that.

20495
 

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The PP has done well but part of that has been the 50% weighting in bonds and the bond bull market for the past nearly 3 decades. I don't know about the PP going forward or bonds for that matter given that we are now in a rock bottom low interest rate environment. Most advisors accordingly are recommending a lower wt for bonds - 30% vs 40% and other assets to fill the balance.

Not sure gold is going to hold up that well either once all these crisis times pass. People flee there only during a crisis and gold is at record highs. Once the crisis passes people will shift more back to equities and could dump their gold which looks like a hockey stick.
 

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Yeah, in addition to what Jimmy says, the returns aren't that great James. It all hinges on 2020 gold, and even then it doesn't appear to me at first glance to beat the XIC over the same period.

ltr
 

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The rationale behind the bond part of PP, in my opinion, is sound. The function of fixed income is to stabilize the portfolio and provide opportunities for rebalancing. If a 50/50 portfolio was appropriate last year or 10 years ago, it would still be appropriate today using these same premises. The only reason to deviate would be if one believes stock volatility would be lower. With stocks close to all time highs, it is unlikely that is the case.

The issue of gold is a bit more nuanced depending on how you look at it. Nevertheless, gold prices could fall, but so could stocks. Those who are in the PP should be committed to rebalancing from whatever goes up to whatever goes down.
 

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Discussion Starter · #356 ·
First off I just want to say that I really LOVE the negative reactions this strategy gets. There are very few ways to invest today that are still contrarian, and the PP seems to be one of them. I would be very nervous if everyone agreed with me.

I love that this is considered a strange way to invest. I love that people have a million complaints about it. I love that the actual track record is amazing, but people with equity biases can still find things wrong with it.

The PP has done well but part of that has been the 50% weighting in bonds and the bond bull market for the past nearly 3 decades. I don't know about the PP going forward or bonds for that matter given that we are now in a rock bottom low interest rate environment.
Bond funds are very misunderstood. If interest rates go up, bond funds will continue to do well going forward -- after some short term volatility. The bond portfolio performs at whatever the yields of the day are. Today yields are around 1% so the bond funds perform at around 1% for the next few years. That is just one snapshot in time. If a few years from now we're seeing 5% yields, then XBB will be doing quite well going forward.

Try visualizing it this way: the forward 10 year performance of XBB is roughly today's yield. Now draw a chart of what happens if rates rise, and keep rising. What happens? The answer is that the performance of XBB increases over time in terms of "10 year" time steps. Shorter term, there will be volatility.

But we're not short term investors. I thought we were all long term investors?

Rising interest rates are a good scenario for bond investors in the long term. The fact we have rock bottom interest rates today is not a reason to avoid bond funds.

Not sure gold is going to hold up that well either once all these crisis times pass.
Gold has been in a 20 year bull market, and much of those were 'good times' or 'OK times'. I don't see any particular reason it would end now, unless we get some severe deflation. And by the way, in that deflation scenario, the bonds will do great.

Oops but I forgot. You don't like bonds either.

Yeah, in addition to what Jimmy says, the returns aren't that great James. It all hinges on 2020 gold, and even then it doesn't appear to me at first glance to beat the XIC over the same period.
The PP does not require gold to be strong; all it needs is a bull market somewhere (stocks, bonds, gold). That's the whole idea of PP and 'risk parity' in general: you don't make a concentrated bet in a single asset class. Instead you spread your bets evenly across several asset classes, so that you are not dependent on any single one.

I started using the PP strategy in 2016. Gold was a huge disappointment in 2016, 2017, 2018... the first 3 years of my investment in PP.

The performance of PP was fine through all of that. The performance has always been fine, since I started. Low volatility, mild response during crashes, and a solid real return.
 

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Discussion Starter · #357 ·
The issue of gold is a bit more nuanced depending on how you look at it. Nevertheless, gold prices could fall, but so could stocks. Those who are in the PP should be committed to rebalancing from whatever goes up to whatever goes down.
This part is very important. The portfolio should be rebalanced at least annually. I just rebalanced (on my recent withdrawal) back to target weights. As a result, I sold some gold (sell high).
 

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Since 2013, the performance of the above is 7.22% CAGR. These years have been a very good stretch of time for the PP.
Gold depends on bad times to do well. These bad times usually occur about once a decade I suppose.

If we weren't in bad times your year-to-date might not look so good and your 7.22% CAGR since 2013 might not be so high.

Why take such risk when I can simply invest in the index of XIU and enjoy a 7.59% CAGR since 2013. I used today's date, but if I used Jan 1/2013 I would have made more, but I want to align with your assertion - and no re-balancing required.

ltr
 

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Bond funds are very misunderstood. If interest rates go up, bond funds will continue to do well going forward -- after some short term volatility. The bond portfolio performs at whatever the yields of the day are. Today yields are around 1% so the bond funds perform at around 1% for the next few years. That is just one snapshot in time. If a few years from now we're seeing 5% yields, then XBB will be doing quite well going forward.

Try visualizing it this way: the forward 10 year performance of XBB is roughly today's yield. Now draw a chart of what happens if rates rise, and keep rising. What happens? The answer is that the performance of XBB increases over time in terms of "10 year" time steps. Shorter term, there will be volatility.

But we're not short term investors. I thought we were all long term investors?

Rising interest rates are a good scenario for bond investors in the long term. The fact we have rock bottom interest rates today is not a reason to avoid bond funds.
Not really. XBB has returned 5.16% /yr over the past 20 yrs as interest rates fell from 6% to .25%. If interest rates rose 2%, XBB loses 14% in price right away and wipes out 7 yrs of gains. Who needs that in their portfolio? We are in a different market now that you haven't seen before in fact. MT bonds are simply a bad investment period. Not even worth looking at until yields get back above 2%. Just forewarning you too the PP has much higher interest rate risk than before.

Gold has been in a 20 year bull market, and much of those were 'good times' or 'OK times'. I don't see any particular reason it would end now, unless we get some severe deflation. And by the way, in that deflation scenario, the bonds will do great.

Oops but I forgot. You don't like bonds either.
Gold looks like a bubble and you can't be calm looking at its hockey stick rise. It peaks when there is a crisis in the world or expectations of high inflation and the $ falling. Again once the crisis passes gold will tank. look at after the crisis of 2008 when gold peaked in 2011 and crashed. I do hold some though maybe 5% in ETFs . Just be wary of buying anything at the absolute top.

I can see how rebalancing will help before though as you would have been dumping gold and buying equities in the crash. Now it just seems why own 2 risky categories in a recovery?
 

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Discussion Starter · #360 · (Edited)
Why take such risk when I can simply invest in the index of XIU and enjoy a 7.59% CAGR since 2013. I used today's date, but if I used Jan 1/2013 I would have made more, but I want to align with your assertion - and no re-balancing required.
There is much more risk in what you suggest (just investing in XIU). This way, you are concentrated entirely in a single asset class. If stocks decide to go down for the next 10 or 20 years, you will get a horrendous return.

The PP diversifies across multiple asset classes, so it's less risky. It doesn't depend entirely on the fortunes of a single asset class. It has given pretty good returns in most years, whether or not stocks are strong.

Think of the first decade of this century. Global stocks returned something like 2% CAGR. Adding ANY other asset, whether bonds or gold, improved returns. People who were fully concentrated in equities (especially US) suffered big time, that decade. And 10 years is not a short time.
 
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