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Discussion Starter #1
Hello!

I've been implementing a Smith Manoeuvre using Dollar Cost Averaging (DCA) over the past few months, and have been rather satisfied with it (with the market doing what it is currently, who's to complain?).

That said, I'm reading more and more about Value Cost Averaging (VCA), studying findings and seeing that it statistically does better, and I'm thinking about switching over.

The one caveat I worry about, and I'd love some opinions on, is the tax implications/drag-effect-on-return that any selling that VCA may incur.

My current DCA plan had me confident that tax filings and what not should be simple, and relatively free of opportunity for error, but I'm concerned that selling and buying against a leveraged investment may cause me more tax grief, and perhaps incur some drag against the actual growth of the investment, long term.

Details in specific:

- I'm investing in a a set of three mutual funds (All TD eFunds: CDN Index, US Currency Neutral Index, International Currency Neutral Index).
- Approximately 15k, book value (18k market)
- I currently invest about 500-800$/month towards it, my VCA goal would be approximately 500$, or so is my plan.

Any opinions would be appreciated.
 

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I think you are just wasting your time fretting about this stuff. Since "Financial Advisors" took over from brokers, investors have been completely sold on the idea that a set of procedural rules will determine their results. It is no coincidence that the Advisors don't claim to know anything about actual investing. Procedural rules are all they know.

All the arguments you have been looking at come down to the presumption that "the average effect calculated in past history will be the effect on your investments going forward".
* First: averages are just math calculations. US investors have averaged 10.1% over the past 86 years. But that did not save the investors in the past 10 years from a NEGATIVE 1% return.
* Second: history does not repeat itself economically. There are always differences in certain factors that will change the outcomes. History is not a predictor.

KISS
 

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Discussion Starter #3
Are you thereby saying you don't advocate DCA nor VCA? If so, what do you advocate?

I wouldn't say that I'm presuming past history will effect the future - apologies if I gave that impression. I am however presuming that at some day in the future my investments will be worth more than the average cost of my purchases, and at that point I will attempt to sell.

Therefore, by using DCA or VCA I'm attempting to lower my entrance price into the market, such that the future sell-off point will have a larger profit margin. Whether that's a year from now, ten years from now, or fifty doesn't matter.

As such, I'd like to know if VCA is viable within the bounds of the Smith Manoeuvre. I imagine it's not a problem, but I wonder about the constant buying and selling causing a drag on the 'savings' I may be incurring by doing VCA over DCA.
 

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I admit I don't really know what VCA is but you mention constant buying and selling.
Since this is a non reg account AND a SM (meaning proper paper trail is an absolute must) it seems too much of a headache.
Plus with the SM you want to be as tax efficient as possible so that the refund can pay down the mortgage rather than cover your taxes.

I agree and disagree with Leslie

Sure history is no guarantee. There are no guarentees in investing only reasonable assurances.

Will BMO continue to pay dividends or will they stop?

The fact that BMO has been paying a dividend since before Canada was even a country leaves me reasonably assured, not a sure thing.
 

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Discussion Starter #5
Thanks for your reply bean:

In short, VCA is a slightly more involved (but not truly complex) way of deploying funds into investments than dollar cost averaging (i.e,. simply investing the same amount each month). Give it a quick Google if curious, it's quite a neat idea, and statistically does no worse than DCA, and usually better.

Your advice echoes what I'm thinking: given the tax efficiency of this, I may just allocate according to VCA philosophy, but without strictly adhering to my allocation scheme. Instead I'll attempt to rectify my allocation scheme from month to month, but without selling.

Thanks again.

-e-
 
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