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Discussion Starter #1 (Edited)
Hi,

I recently sold my USD holdings in my RRSP and now would like to redistribute the (+some additional) cash (about 30%).
After cashing out the USD holdings, I have about the following distribution:
30% cash
30% fixed income (mostly short term bonds)
8% Canadian Equitites
20% US Equities
8% International Equities
4% other (incl. emerging)

Now, it is my belief that markets are over stretched and we'll see a (potentially significant) down turn rather sooner than later. Hence my choice for redistribution some of the cash portion (94%) is as follows:
ZLB 23% (BMO Low Volatility Canadian Equity ETF)
ZPW 15% (BMO US Put Write ETF)
ZID 17% (BMO India Equity Index ETF)
XUT 38% (iShares S&P/TSX Capped Utilities Index ETF)

Now my thought process goes like this: With the above distribution, I would increase my Canadian exposure with stable, low beta & income payers but also get some more exposure to Emerging markets (namely India is the one I'm interested in). Please also mind this is for my RRSP but I'm 35 years old and still have 30+ years to go!

I'm wondering, Is the above idea or redistribution a "smart" choice in my situation?

Any feedback is welcome, please!

Thanks!
 

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Your new allocation seems a little weird and niche. What is a "put write ETF" and why do you prefer that over a plain US index? Why put 17% in India? And then 38% in utilities might be risky when they're saying interest rates are likely to increase. Interest rate increases normally cause utilities to go down.
 

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Emerging markets tend to be volatile investments. If you expect a global bear market, I don't see the advantage of increasing your EM allocation. More importantly, just about all sectors and countries are highly correlated (especially in bear markets). If there's a global bear market, everything is going to be hit. Personally I don't see the advantage of shifting allocations within your stock exposure.

You will get much more value from a portfolio design standpoint by adjusting your asset class weightings, rather than just adjusting the 'type of stocks' you own. For example, your target %s of stocks, bonds, gold.

I've also seen evidence that maintaining static allocation (of asset class weightings) leads to better long term performance than trying to shift exposures according to human predictions. For example, you could decide on a 60/40 static allocation, and just keep your portfolio at 60% stocks 40% bonds over time. Then this makes it pretty obvious what to do with excess cash amounts or new RRSP contributions; you just deploy to meet your allocations.
 

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Discussion Starter #4
Your new allocation seems a little weird and niche. What is a "put write ETF" and why do you prefer that over a plain US index? Why put 17% in India? And then 38% in utilities might be risky when they're saying interest rates are likely to increase. Interest rate increases normally cause utilities to go down.
ZPW has a better yield than almost any "plain US index" - but after reconsidering, yes, I probably should drop this!
17% in India as I believe, India will perform really well within the next few decades mostly due to their demographics compared to the developed world and even China may be struggling at some point.
38% utilities because I'mthinking that people will pay theit hydro bill even in a bear kamrket - this may provide some down side protection. But true, rising interest rates would definitely be a problem for them, so would suggest I break this into suggest 19% XUT, 19% XIC (TSX)? Or maybe seek income from banks 19%XUT & 19% ZEB (or ZWB?)
 

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Discussion Starter #5
Emerging markets tend to be volatile investments. If you expect a global bear market, I don't see the advantage of increasing your EM allocation. More importantly, just about all sectors and countries are highly correlated (especially in bear markets). If there's a global bear market, everything is going to be hit. Personally I don't see the advantage of shifting allocations within your stock exposure.

You will get much more value from a portfolio design standpoint by adjusting your asset class weightings, rather than just adjusting the 'type of stocks' you own. For example, your target %s of stocks, bonds, gold.

I've also seen evidence that maintaining static allocation (of asset class weightings) leads to better long term performance than trying to shift exposures according to human predictions. For example, you could decide on a 60/40 static allocation, and just keep your portfolio at 60% stocks 40% bonds over time. Then this makes it pretty obvious what to do with excess cash amounts or new RRSP contributions; you just deploy to meet your allocations.
EM tend to be more volatile but I'd expect India to outperform going forward due to demographic reasons ans they're still way earlier in the economic cycle than Western developed markets. A down turn will hit them too but they may emerge quicker and easier than we do.
I'm not interested in picking stocks but selecting the "correct" ETFs.
It's time to rebalance now, I've sold some USD holdings as I don't see the CAD going much lower from here. And this is about redistribution of cash. At my age, 30% in bonds should be plenty. So would you suggest (if I chose to go into equities only) to put it all into XIC or 50%XIC, 50% XCB (or something?)
 

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You're 35, there's no need to focus on yield. Personally I prefer to keep it simple. XIC, VUN, VIU, and VAB is my personal assortment.
 

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Discussion Starter #7 (Edited)
You're 35, there's no need to focus on yield. Personally I prefer to keep it simple. XIC, VUN, VIU, and VAB is my personal assortment.
Now,I look at yield and in terms of seeking income but much more as a cussion when things do not go so well in markets. That'll help irrespective of one's age, won't it? Your portfolio in my opinion is too NA heavy, where's exposure to emerging markets + you could add some VEF into the mix too.

I should add some XIC in a DRIP, yes! But what if markets will tank? There's no downside protection at all... XUT presumably won't tank as much as people will still be able to cover their utility bills... I however want to wait now until we get the next rate decision before pulling the trigger on that one.
 

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The low beta equities you are going into will be wiped out if a crash actually materializes quickly down south. Like it or not, USA and Canada wears the same financial pants. Just check those charts on what happened to Canadian equities during 1999~200 and 2007~2008. It's not pretty.

Maybe you wanna hold more cash (GICs) + gold?
 

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Now,I look at yield and in terms of seeking income but much more as a cussion when things do not go so well in markets. That'll help irrespective of one's age, won't it? Your portfolio in my opinion is too NA heavy, where's exposure to emerging markets + you could add some VEF into the mix too.

I should add some XIC in a DRIP, yes! But what if markets will tank? There's no downside protection at all... XUT presumably won't tank as much as people will still be able to cover their utility bills... I however want to wait now until we get the next rate decision before pulling the trigger on that one.
I am a bit older than you but started DIY a few years younger than your current age. My IPS requires each equity pays a dividend/distribution to help with the urge to panic sell in a downturn. I have since noticed I have little desire to sell a stock if it has increased its dividend.

Cheers
 

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There are many articles describing how hard it is to 'time the market'. Over 30 yrs you will not notice these 5-10% corrections from time to time so just make your investments. maybe $ avg in though over a 1-2 yr period each qrtr.

You should have some FI anyway so if you want to be a little more cautious maybe place 20-30% into a HISA or a shorter term Bond fund for a few years at ~ 2.5%

Go w the low Beta ETFs too for all equities ie ZLB Cdn, ZLH US or Power shares TLV. Their betas are ~ .4 or .5 so if there is a downturn of 10%, they will only fall 5% etc
 

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I'd be careful about relying too much on those low beta strategies. These low beta/volatility ETFs have blossomed in recent years, but they've never been tested during a true bear market like 2007-2009. Low beta or not, these are all stocks. When a bear market comes, all stocks will fall -- correlations among just about all stocks is quite high. Take a look at this chart:

http://stockcharts.com/h-sc/ui?s=$INDU&p=D&st=2008-05-01&en=2008-11-01&id=p62535159928

This is a great illustration of how when stocks fall, everything falls. The chart is showing an overlay of the Dow, TSX, emerging markets, and utility stocks during the 2008 downturn. Notice that there is no escaping the pain... they all fell in lock-step. That's despite many of these being areas we sometimes consider as 'diversification' or even 'safe', such as 'blue chips' or utilities. Nope. They all fell.

The notion that 'blue chips' or 'dividend stocks' are somehow safer makes me laugh... they're stocks.

If you're trying to make your portfolio safer, you need to diversify into different asset classes: bonds, savings accounts, GICs, gold. This is the only way to do it.
 

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Discussion Starter #12
There are many articles describing how hard it is to 'time the market'. Over 30 yrs you will not notice these 5-10% corrections from time to time so just make your investments. maybe $ avg in though over a 1-2 yr period each qrtr.

You should have some FI anyway so if you want to be a little more cautious maybe place 20-30% into a HISA or a shorter term Bond fund for a few years at ~ 2.5%

Go w the low Beta ETFs too for all equities ie ZLB Cdn, ZLH US or Power shares TLV. Their betas are ~ .4 or .5 so if there is a downturn of 10%, they will only fall 5% etc
Now, TLV seems to be a good idea only that it doesn't do DRIP with RBC DI. XIC has almost consistently performed worse but its MER is way lower (0.06% for XIC vs. 0.34% for TLV) and it does DRIP which is attractive esp. as I'm looking at a longer term hold. With DRIP I could ultimately get 360 shares over 30 years "for free" (given the yield stays the same-ish) which equals out to about $8600 - at today's prices, not too bad..
I have also looked into ZLB, but the same here, it doesn't do DRIP and it comes with an MER of 0.39%. ZLH doesn't look as attractive either, it has significantly under performed the S&P 500, e.g. XSP (S&P 500 CAD HDG), doesn't do DRIP & comes at MER 0.33%.
I however do have a small position in ZWH, too.

I'm confused now to say the least.

Over 30 yrs you will not notice these 5-10% corrections from time to time so just make your investments.
I might just do this and take positions in XIC, XID, ZWE & VGG
 

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Now, TLV seems to be a good idea only that it doesn't do DRIP with RBC DI. XIC has almost consistently performed worse but its MER is way lower (0.06% for XIC vs. 0.34% for TLV) and it does DRIP which is attractive esp. as I'm looking at a longer term hold. With DRIP I could ultimately get 360 shares over 30 years "for free" (given the yield stays the same-ish) which equals out to about $8600 - at today's prices, not too bad..
I have also looked into ZLB, but the same here, it doesn't do DRIP and it comes with an MER of 0.39%. ZLH doesn't look as attractive either, it has significantly under performed the S&P 500, e.g. XSP (S&P 500 CAD HDG), doesn't do DRIP & comes at MER 0.33%.
I however do have a small position in ZWH, too.

I'm confused now to say the least.


I might just do this and take positions in XIC, XID, ZWE & VGG
Those all sound good.

Yes the S&P 500 has done well since the crash. If you look back further though for 10 yr returns for ex XSP S&P 500 hedged you will see more realistic, long run avg returns of ~ 5.68%. This is in line w what ZLH will do in good times and bad. What I like about the low vol funds are teh mixes are better too. S&P 500 is still heavy w IT at 22% and financials at 14%.

I find The low vol funds are much better at sector weighting diversification which I think is important. They are all ~ 10-15% for all sectors - including utilities and consumer defensive which do well in any economic cycle.

Certainly for Canada anyway as the TSX is really heavy in the financial 40% and energy 20% sectors, same for many dividend funds.

Here is a good article showing how you should try and get your sectors as well as your geography diversified, see the % category chart

http://www.taxtips.ca/stocksandbonds/recommendedstocks.htm
 

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Discussion Starter #15 (Edited)
Those all sound good.

Yes the S&P 500 has done well since the crash. If you look back further though for 10 yr returns for ex XSP S&P 500 hedged you will see more realistic, long run avg returns of ~ 5.68%. This is in line w what ZLH will do in good times and bad. What I like about the low vol funds are teh mixes are better too. S&P 500 is still heavy w IT at 22% and financials at 14%.

I find The low vol funds are much better at sector weighting diversification which I think is important. They are all ~ 10-15% for all sectors - including utilities and consumer defensive which do well in any economic cycle.

Certainly for Canada anyway as the TSX is really heavy in the financial 40% and energy 20% sectors, same for many dividend funds.

Here is a good article showing how you should try and get your sectors as well as your geography diversified, see the % category chart

http://www.taxtips.ca/stocksandbonds/recommendedstocks.htm
Thanks for this, VGG is missing from the charts on this page but here's a break down of the sector weightings: https://finance.yahoo.com/quote/VGG.TO/holdings?p=VGG.TO
VGG doesn't have much exposure to utilities nor consumer cyclicals but is otherwise nicely diversified, isn't it?
Another important thing for me is, I want to hold US exposure in CAD. Now, since VGG is listed on the TSX, I presume it's in CAD but it seems like it directly holds the underlying securities and hence is not hedged (i.e. if the value of the securities stay the same but the CAD rises, the price of this ETF will shrink), is that correct? Wouldn't a hedged ETF serve me better in these times (low CAD vs. USD)?
A potential hedged candidate might be XHD? but XSP has performed much better (last 12 month)
Oh and then there's this: http://www.moneysense.ca/columns/why-currency-hedging-doesnt-work-in-canada/ - so following them, I should not be looking for hedging anyways (there's another article I've read a while back on coucxh potato:http://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/ and then there's that too: http://canadiancouchpotato.com/2016/03/07/ask-the-spud-is-it-time-to-hedge-currency/)

Looking at a few options, I got:
Code:
                			hedged	 MER 	Yield	DRIP	yield-MER
VGG        US div appr idx 	        no	0.30%	1.92%	no	1.62%
XSP        S&P500		        yes	0.11%	1.52%	yes	1.41%
XHD        US hi div eq idx	        yes	0.33%	2.66%	no	2.33%
CUD        US div grwrs idx 		no 	0.66%	1.76%	no	1.10%
ZSP        S&P500	 	        no 	0.10%	1.66%	no	1.56%
VFV        S&P500	 	        no 	0.06%	1.48%	no	1.42%
Comparing them on a 1 year chart, it looks like XHD is the loser and ZSP the winner. ZSP also seems attractive in terms of yield & cost...
Any further input on this one?
Thank you,
 

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Thanks for this, VGG is missing from the charts on this page but here's a break down of the sector weightings: https://finance.yahoo.com/quote/VGG.TO/holdings?p=VGG.TO
VGG doesn't have much exposure to utilities nor consumer cyclicals but is otherwise nicely diversified, isn't it?
Another important thing for me is, I want to hold US exposure in CAD. Now, since VGG is listed on the TSX, I presume it's in CAD but it seems like it directly holds the underlying securities and hence is not hedged (i.e. if the value of the securities stay the same but the CAD rises, the price of this ETF will shrink), is that correct? Wouldn't a hedged ETF serve me better in these times (low CAD vs. USD)?
A potential hedged candidate might be XHD? but XSP has performed much better (last 12 month)
Oh and then there's this: http://www.moneysense.ca/columns/why-currency-hedging-doesnt-work-in-canada/ - so following them, I should not be looking for hedging anyways (there's another article I've read a while back on coucxh potato:http://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/ and then there's that too: http://canadiancouchpotato.com/2016/03/07/ask-the-spud-is-it-time-to-hedge-currency/)

Looking at a few options, I got:
Code:
                			hedged	 MER 	Yield	DRIP	yield-MER
VGG        US div appr idx 	        no	0.30%	1.92%	no	1.62%
XSP        S&P500		        yes	0.11%	1.52%	yes	1.41%
XHD        US hi div eq idx	        yes	0.33%	2.66%	no	2.33%
CUD        US div grwrs idx 		no 	0.66%	1.76%	no	1.10%
ZSP        S&P500	 	        no 	0.10%	1.66%	no	1.56%
VFV        S&P500	 	        no 	0.06%	1.48%	no	1.42%
Comparing them on a 1 year chart, it looks like XHD is the loser and ZSP the winner. ZSP also seems attractive in terms of yield & cost...
Any further input on this one?
Thank you,
I would go w the hedged one XHD and it looks to have a nice diversification or XHU (unhedged). Usually any performance difference to ZSP for example is from the exchange rate. I like the hedging concept but have read conflicting articles too.

There are some tax issues and another adv of XHD or XHU is they hold the stocks directly. VGG, ZSP and other S&P 500 index funds hold a US based ETF of teh S&P 500 or another US ETF and there are more withholding taxes.

here is a good article. generally just make sure Cdn ETFs of US or intl equities hold the stocks directly or it can add ~ .2-.5% more in fees

http://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/
 

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Discussion Starter #17 (Edited)
I would go w the hedged one XHD and it looks to have a nice diversification or XHU (unhedged). Usually any performance difference to ZSP for example is from the exchange rate. I like the hedging concept but have read conflicting articles too.

There are some tax issues and another adv of XHD or XHU is they hold the stocks directly. VGG, ZSP and other S&P 500 index funds hold a US based ETF of teh S&P 500 or another US ETF and there are more withholding taxes.

here is a good article. generally just make sure Cdn ETFs of US or intl equities hold the stocks directly or it can add ~ .2-.5% more in fees

http://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/
Great info, Thanks! But it says "A 15 per cent withholding tax applies to dividends if stocks are held via a TSX-listed ETF.", so since HXD is listed on the TSX, i'll still have to pay the withholding tax, don't i?
And VUS would fall into the same category and seems to have outperformed XHD over various time frames, too.
There's some more info on this too, if you're interested: http://www.firstasset.com/resources/education/?article=Reference+Guide:+Foreign+Withholding+Taxes+on+ETFs+for+Canadian+Investors
 

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Great info, Thanks! But it says "A 15 per cent withholding tax applies to dividends if stocks are held via a TSX-listed ETF.", so since HXD is listed on the TSX, i'll still have to pay the withholding tax, don't i?
And VUS would fall into the same category and seems to have outperformed XHD over various time frames, too.
There's some more info on this too, if you're interested: http://www.firstasset.com/resources/education/?article=Reference+Guide:+Foreign+Withholding+Taxes+on+ETFs+for+Canadian+Investors
Yes. You will always pay that for any US equity etfs in a TFSA. It is called the level 1 tax it is 15% x the dividends only so 15%x 2% say or ~ .3%.

But There is another layer of tax - level 11- that you wont have to pay though as you own the stocks directly - about another .2-.5%. Click on the 'withholding taxes' link in the first line of the couch potato article for a pdf explaining the taxes in detail if you want to learn more.

VUS owns a US based etf (not the stocks directly) so you would pay that level 11 tax unfortunately

So the dividend etfs or any that just hold stocks are the best. Lots to learn I know
 

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Vix is low stocks bubbled up not a time to be write puts. Though with governments bonds bubbled up even more money might go into stocks seeking home before stocks crash & burn.

Stick with AAA corporate short term bonds do not fall for the propaganda government bonds are safe.

Consider physical gold & silver below 2015 lows as well as gold silver stocks.

Even if cycles invert & stocks double cash will be king when the bubble bursts

India will be looking to go long next several years
 

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Vix is low stocks bubbled up not a time to be write puts. Though with governments bonds bubbled up even more money might go into stocks seeking home before stocks crash & burn.

Stick with AAA corporate short term bonds do not fall for the propaganda government bonds are safe.

Consider physical gold & silver below 2015 lows as well as gold silver stocks.

Even if cycles invert & stocks double cash will be king when the bubble bursts

India will be looking to go long next several years
If I was going to try to profit from lonewolf :)'s advice I would do the exact opposite of what he says.
 
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