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Discussion Starter #1
Hi All,

My wife and I currently have the entire balance of our RRSPs invested in the "RBC Balanced Fund", which has a MER of 2.36%. We're both 30 years old and putting $325 a month into our individual RRSPs. Our research and planning so far consisted entirely of consultation with our RBC advisor (who, I've read, is essentially just a salesperson for RBC products, and not really invested in what's best for us).

I'm thinking I should get out of the single Balanced Fund (which has a pretty high MER) and diversify. I'm new to investing and long-term savings plans, so I'm gunshy when it comes to moving our investments outside of RBC to other banks or brokers (but I'm trying to stay open to the idea).

At the moment, I'm considering taking our entire investment out of the RBC Balanced Fund and putting it into the following:

1) RBC Canadian Index (20%)
2) RBC US Index (20%)
3) RBC International Index (20%)
4) RBC Canadian Government Bond Index Fund (40%)
5) (Should I take 5% or 10% of the total and move it into some sort of cash account?)

Those funds all have better Morningstar ratings and far lower MERs (averaging about .95%, instead of the Balanced Fund's 2.36%).

Would this make a considerable difference in what we earn, especially over the next 30-35 years? What would you change? Would you fine tune this plan, or do something completely different?

Thanks for any input - at times, I feel like we're thinking of these things 5 years too late already. But better now than in 10 or 20 years, I figure... :)
 

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I was working on something very similar to this with my parent's RBC portfolio; see
http://canadianmoneyforum.com/showthread.php/14964-Looked-at-my-parent-s-mutual-fund-portfolio

Yes - you should get out of the Balanced Fund. Reason is that it totally duplicates several other funds. For example the simplest replacement, you could hold 50% bond fund, 40% Canadian index, 10% US index ... resulting in lower MER, with effectively the same investment. You're on the right track for sure!

One tweak: diversify the fixed income portion more. I like the "RBC Canadian Short-Term Income Fund" due to its shorter duration bond exposure. Also ask the broker about what GICs they offer, as the rates may be better than current bond fund yields (which are around 1.5%). For example instead of your current 40% gov bond index, maybe you could have 30% gov bond + 10% short-term, or some portion GIC.

On the stock side, I would put less in International - it's had poor long term performance. Maybe Canada 30%, USA 20%, International 10%
 

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I had those US and INT MFs (along with a global energy fund) for a while and found they were bringing down the entire portfolio. I've since sold them and the rate of loss has slowed down. I still have the CDN Index (and Precious Metals that you didn't ask about) and am currently running at a 2% loss. I am waiting to recover the lost money so I can sell all remaining MFs. So much for a balanced portfolio.

If I had of ignored those who say that investing must be done at all costs and stuck with HISA or GIC I would now be ahead by about 4%.

MFs suck. Better off to stick with cash alternatives and save the fees. Remember the bank collects fees from you EVERY YEAR, regardless if you lose or gain.
 

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Yes, the difference between 1% MER and 2.3% MER is massive. Huge.

Say you had $100k today, and had market returns of 7% per year for 30 years.

1% MER (6% return) gives $574k ending value. 2.3% MER (4.7% return) gives $396k. Lower MER results in 44.8% more assets.

By the way, getting it down to 0.3% MER with ETFs gives $700k ending value. Worth learning a bit, no?
 

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I currently hold the RBC Managed Payout Solution M/F They have 3 funds under this category. I have the Enhanced Plus which strives to keep the payout to 7% per annum or .58% per month. It holds mostly Bank stocks, with some short term bonds in there to provide some income. Most of the return I have found is ROC so my biggest concern, when it is time to cash out, is the Capital Gain accumulated during holding period.
 

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@jmrudow: How comfortable are you with managing your own RRSP investment or any other investments? If you are comfortable and don't want to pay high MER, then (as others have suggested) you should invest in ETFs. You can only invest in these if you have your own brokerage account. As you mentioned, you are comfortable with RBC. Maybe you should consider opening a brokerage acct with RBC. You will only find cheaper options if you become "do-it-yourself".

However, if you are not comfortable and would like to continue dealing with a "financial advisor", then your plan is sound. How you choose to allocate Canadian, US, Int'l, and bonds is really up to you b/c there's no right or wrong.

Personal opinion on the allocation you suggest... For fixed income, perhaps consider GIC instead of gov't bonds, which are low yielding these days and carry a higher interest rate risk. If you do open a discount brokerage acct, you should find a list of GICs available to invest.
 

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However, if you are not comfortable and would like to continue dealing with a "financial advisor", then your plan is sound. How you choose to allocate Canadian, US, Int'l, and bonds is really up to you b/c there's no right or wrong.
If you are uncomfortable I would say get comfortable because if you don't you're just throwing money away. It's not that hard.
 

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Discussion Starter #11
Thanks everyone for the feedback!

@james4beach and @leeder: I'll take a look at doing more with the fixed income than just government bonds. Looks like it should be part or all GICs...

@the-royal-mail: What have you chosen to invest in instead of mutual funds? You mentioned "cash alternatives" like HISA or GIC - aren't those relatively low-interest earning compared to mutual funds / ETFs?

@fatcat: .09 and .15 are really attractive rates...

@indexxx: the Series D funds would be great - but we don't quite have enough yet (we each have $9000 put away so far, which I want to split across several funds, so I think we're a ways away still). As I said, I feel like we're starting on our retirement savings too late (but better than never). I've been pressuring everyone I work with who's younger than me to start their retirment savings NOW, lol...

@LOST: I'll check out the "RBC Managed Payout Solution". (And what is "ROC"?)

@Cal and @none and @andrewf: Lower MER is definitely a case for investing some time in learning how to trade ETFs. Any good tutorials / articles / other resources you'd suggest for a newbie? And my temptation now is to make my above-outlined mutual fund changes now, but investigate ETFs and possibly move to that method in the next couple years. I figure that's better than nothing - unless it'll do me more harm than good to make that many changes to our portfolio in such a relatively short time. Aside from delaying the benefits of ETF over mutual fund, do you see any drawback to making a gradual transition?

Again, thanks for all your feedback and help - I can't believe how much a difference these relatively simple changes will make for us. After this, I'm on to wills and life insurance (fyi, I'm also reading The Wealthy Barber for the first time...haha).
 

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Or have a realistic sense of what your comfort costs you in terms of $ per year. Then decide if you're comfortable paying that amount for comfort.

For instance, I know people who are paying $6,000 to $10,000 in annual fees (MER) for the "comfort" of dealing with an advisor. He gives them cookies and pens once in a while.
 

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That's the shame about the way investment advice is sold in this country. If should be possible to buy that comfort for a reasonable fixed cost.
 

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That's the shame about the way investment advice is sold in this country. If should be possible to buy that comfort for a reasonable fixed cost.
Truth. It;s ridiculous that everyone has to teach themselves these things to have a financially secure retirement.

Banks are bastards.
 

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Discussion Starter #16 (Edited)
So I've made the following changes to my mutual fund portfolio (thanks for everyone's input, it helped inform my decision):

RBC Canadian Index - 20% of bi-weekly contributions; 20% of overall portfolio
RBC US Index - 20% of bi-weekly contributions; 20% of overall portfolio
RBC International Index CN - 20% of bi-weekly contributions; 20% of overall portfolio
RBC Cdn. Short Term Income - 20% of bi-weekly contributions; 15% of overall portfolio
RBC Canadian Gov Bond Index - 20% of bi-weekly contributions; 15% of overall portfolio
RBC GIC @ 2.25% interest - 0% of bi-weekly contributions; 10% of overall portfolio

I plan to level things out every year (e.g., make sure the amount invested in GICs is still 10%). Any comments / suggested changes / criticisms are welcome!

I'm researching ETFs so that I can consider them in the future. It seems that, if you're investing in ETFs, you should make infrequent (e.g., annual), lump-sum purchases, instead of regular (e.g., bi-weekly) purchases, as there are commissions of $5-20 with every transaction. Is this correct? If so, what do you recommend doing with the regular contributions throughout the year, while you're waiting to buy ETFs?
 

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I think you need to check your math. Although I'm a big fan of giving 110% it is empirically impossible.
 

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Discussion Starter #18
haha - I should amend that:

RBC GIC @ 2.25% interest - 0% of bi-weekly contributions; 10% of overall portfolio
 

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Regular contributions can be made into your MF until the amount is large enough to represent a small % of your ETF purchase where it makes sense to do (considering MER difference). Verify your EFT transaction costs so you can do this calculation.
 
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