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James,
You deserve a tip of the hat from all of us for your willingness to experiment and to report your reults to the readers of CMF.
I'm not aware of anyone else who is as inquisitive a financial DIY'er, one who builds 'test' porfolios and then diligently tracks and report their results. KUDOS. :applause::applause:

Cash drag - bingo. That is why in spite of having to track ACB in non-registered accounts (not really a big deal), I am a proponent of synthetic DRIPs. Having cash dribble in through the year and sit there until it is sufficient and I am prepared to reinvest it is just too inefficient for us.
 

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Discussion Starter #142
Thanks OnlyMyOpinion. I really would have just used ETFs if I could, but these international tax complications push me towards individual securities instead.

Normally in a non-reg account, I would hold GICs and ZDB (the BMO Discount Bond ETF) which are both tax efficient. I still really like that my small coupon, individually held bonds are more tax efficient in non registered, but I'd probably be better off in ZDB. Inside a tax shelter, obviously XBB or VAB.
 

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Very good information, james4beach. I often think of investing more in VAB or XXB but haven't pulled the trigger. My portfolio is currently about 28% cash and only 7% in diverse bond funds. One reason I can't have all my fixed income go into bonds is that I have significant cash outside of registered accounts. I don't think it makes sense to invest in bonds funds outside of a registered account due to the taxes. I do have some bonds in a non-registered account (ZDB), which is more suitable for non-registered accounts. In the few years I've had it, my return in ZDB has been higher than what I've got in GICs and HISAs, so it may be worth buying more. You've certainly given me something to think about!

John
 

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I don't think it makes sense to invest in bonds funds outside of a registered account due to the taxes.

John
Well actually, it can. An issue is people focus on rates of taxation rather than the actual amounts payable. Bonds are tax inefficient, but offer small returns and therefore, small taxable amounts. Using space in registered accounts for low yielding investments displaces potentially higher returning assets. Wouldn't you rather shelter the investments with the highest potential return? Nearly everyone has this backwards, and you even find professionals, giving this poor advice.
 

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Using space in registered accounts for low yielding investments displaces potentially higher returning assets. Wouldn't you rather shelter the investments with the highest potential return? Nearly everyone has this backwards, and you even find professionals, giving this poor advice.
But don't we have to also consider the inability to claim a capital loss of those potentially higher returning assets that's exclusive to the taxable account? Not an issue if things are going well, but when they aren't it's a different matter.

ltr
 

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... Bonds are tax inefficient, but offer small returns and therefore, small taxable amounts. Using space in registered accounts for low yielding investments displaces potentially higher returning assets. Wouldn't you rather shelter the investments with the highest potential return? Nearly everyone has this backwards, and you even find professionals, giving this poor advice.
I don't think you can say unequivocally that having FI in registered accounts is "backwards" and "poor advice". The magnitude, makeup and current income needs of everyone is different. Particularly so for those busy accumulating versus those living off their income.

For example, holding a large FI component outside of a registered acc means a large taxable amount that is payable each year on accrued interest. As LTR notes, holding equities inside a registered account means a loss of the dividend tax credit and ability to claim any losses.

Disclosure: I have FI and equities in both registered and unregistered accounts.
 

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Well actually, it can. An issue is people focus on rates of taxation rather than the actual amounts payable. Bonds are tax inefficient, but offer small returns and therefore, small taxable amounts. Using space in registered accounts for low yielding investments displaces potentially higher returning assets. Wouldn't you rather shelter the investments with the highest potential return? Nearly everyone has this backwards, and you even find professionals, giving this poor advice.
Actually if you have room in your RRSP and TFSA, you are better off to put the lowest yielding assets in your RRSP and the highest (stocks, ETFs) in your TFSA. This will reduce the amount of tax on the gains when withdrawn from either.

TFSA's will pay no tax on the gains. RRSP income from withdrawals is taxed at your marginal tax rate ( in ON min 20% combined). So you want assets w the highest gains in the TFSA.
 

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Discussion Starter #149
After the BoC decision, I bought 2028 Government of Canada bonds (10 years to maturity) at 2.26% yield. These have a 2% coupon and will produce 2% interest income per year even though they guarantee a 2.26% return.
 

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After the BoC decision, I bought 2028 Government of Canada bonds (10 years to maturity) at 2.26% yield. These have a 2% coupon and will produce 2% interest income per year even though they guarantee a 2.26% return.
Meaning you bought at a discount to $100.
 

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Discussion Starter #151
Meaning you bought at a discount to $100.
Yes, a discount bond that will give me a capital gain. This is the same trick used by ZDB to get the bond exposure while staying tax efficient. This bond is taxed more lightly than an equivalent GIC, for example. And it's taxed much more lightly than the bonds in XBB.

(A complication is that GICs offer higher yields, but there are other factors at play such as liquidity, credit quality and ability to roll down the yield curve)
 

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Well actually, it can. An issue is people focus on rates of taxation rather than the actual amounts payable. Bonds are tax inefficient, but offer small returns and therefore, small taxable amounts. Using space in registered accounts for low yielding investments displaces potentially higher returning assets. Wouldn't you rather shelter the investments with the highest potential return? Nearly everyone has this backwards, and you even find professionals, giving this poor advice.
If you have no more room in your registered accounts and assuming that you've hit your asset allocation target of equities within such accounts, I can see the logic of putting the lower yielding assets in a taxable account; this being said, in such a case, I still think it'd be better to put your money into HISAs or GICs than in bond funds in non-registered accounts. The exception would be discount bonds (e.g., ZDB ETF), which would be more tax-efficient in a non-registered account.

John
 

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Discussion Starter #154
Update: for the first half of 2018, my portfolio made up of individual bonds + GICs is exactly tracking VAB's total return. So far, it looks like the cash drag was my big problem, but I resolved that in January.

If you're interested, see this post for my illustration of how a bond fund price moves in the long term. I've gotten these insights through running this bond portfolio and seeing these effects first hand.
 

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Discussion Starter #155
Checking up on performance/tracking.Year-to-date total returns to end of July are
Code:
VAB (NAV)    -0.23%
My portfolio -0.13%
So I'm still precisely matching VAB.
 

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Discussion Starter #156 (Edited)
I took a look at my fixed income portfolio to see how the ladder looks. The numbers below are the years to maturity, and the goal is to fill the ladder out over 10 or more years.

Code:
Type	Years
----	-----
gic	0.8
gic	1.9
gic	2.2
bond	4.6
bond	7.2
bond	7.6
bond	8.6
bond	9.6
It's looking a bit thin in the upcoming years. Ideally, I want to fill this out so that something is maturing regularly. In the coming weeks, I'm going to buy a 3 year and 5 year GIC.

Any other ideas for next steps?
 

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Discussion Starter #157
I've filled in the ladder a bit more (below is a graphic of the maturity schedule in years). Every few months, I'll buy a new 5 year GIC, and this will fill in the gap seen between 5-7 years. I'll also occasionally buy bonds, which are needed for liquidity.

maturity.png
 

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Discussion Starter #158
My 2018 performance so far to end of November is +0.65%, compared to -0.07% for VAB (based on NAV reported by Vanguard)

It hasn't been a great year for bonds, but I'm happy that I'm now outperforming VAB. Looking forward to seeing the full year result.
 

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Discussion Starter #160
My 2018 fixed income portfolio performance was 2.62% as a money-weighted rate of return, and 1.82% as (approx) time weighted rate of return using Justin Bender's calculator. The 1.82% figure is more useful for benchmarking.

I don't think the official numbers are out yet, but Morningstar says VAB returned 0.96% in 2018. iShares says XBB returned 1.28%

It seems that 2018 was a good year for my fixed income portfolio, slightly outperforming VAB/XBB.
 
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