[natalie_d]

Hi everyone,

I'm a recent university grad and I've been working for almost a year now. I'm thinking about starting my first RRSP account. I'm leaning towards ING Direct's Street Wise Balanced Income Fund, due to its zero (supposedly) fee and advertised low risk. The fund invests 70% in the DEX Universe Bond Index, and the rest in Canadian, U.S. and global equity indices. Can someone please explain to me how the value of the DEX Universe Bond Index is calculated?

Thanks!

 

[CanadianCapitalist]

Check out this website for more info on the DEX Bond Universe index:

http://www.canadianbondindices.com/default.asp

 

[DrStan]

If you are looking at the Streetwise Fund, make sure you also look at the TD e-Series funds. Their expense ratios are about half of what the Streetwise Fund charges (which is a 1% a year expense ratio, still much lower than other balanced funds out there) and they also are index investments. They should provide about the same returns in the long run, plus .5 % per year because of the lower fees. You can easily assemble a very similar portfolio.

As an aside, you should also evaluate your risk tolerance and how long you plan on holding these investments (I assume you are young since you have been working for a short time). Going 70% in safe bonds seems very conservative for someone with a long timeframe before retirement. It's still a good start if you are risk-averse, but since you presumably won't be touching the money for decades, stocks could provide better long-term returns.

 

[humble_pie]

speaking as one who is bemused by the uproar and confusion this weekend over the gigantic ING restructuring that's going on overseas, with shares, splits, rights, debts, discounts, spinoffs, sales and rumours in a state of total chaos, i don't think that now is the time to be buying any ING product when stable comparables are available. We don't even know whether ING canada will be sold or not. Or whether ING usa will be sold or not. Furthermore it appears that even amsterdam has not yet decided upon all these fates.

the td suite of products suggested in the previous post is a stable, efficient, low-cost offering, one i'd choose over the dutch bank at this point in time.

 

[natalie_d]

Thanks for the link CanadianCapitalist.

Based on my partial understanding of the methodology mentioned in the link, it seems that the return on the bond index is calculated as the sum of capital gain, accrued interest, and coupon payment (this may be a gross simplification of how it actually works.) So if interest rates rise in the next few years, wouldn't the capital gain portion of the bond index become losses?


The reason I'm planning to open a RRSP account is to take advantage of the Home Buyers Plan, as my boyfriend and I would like to purchase a condo within the next 4-5 years. Hence, I'm looking for an investment that will preserve my capital and earn a bit of return. Do you think a GIC laddering approach would be suitable for my goal?

Thanks for the advice!

 

[HaroldCrump]

So if interest rates rise in the next few years, wouldn't the capital gain portion of the bond index become losses?

Yes

The reason I'm planning to open a RRSP account is to take advantage of the Home Buyers Plan, as my boyfriend and I would like to purchase a condo within the next 4-5 years. Hence, I'm looking for an investment that will preserve my capital and earn a bit of return. Do you think a GIC laddering approach would be suitable for my goal?

4 - 5 years is short duration.
Either stick with GIC laddering or buy a bond with a maturity date within the next 5 years and hold till maturity.
If there is a significant upward movement of interest rates just before you need the cash, your bond fund will incur losses.
If your plan to purchase home after 5 years is pretty solid, you could even go for a non-redeemable 5 year GIC and get the best possible rate (3% or so these days).
I'm not sure the DEX Bond Index will give you singificantly higher return relative to the risk.

 

[CanadianCapitalist]

Bond mutual funds and ETFs are low-risk investments. But low risk does not mean no risk. Bond funds are sensitive to interest rate fluctuations and if interest rates spike up they could show capital losses.

Therefore, if you need money at a certain point in the future within the next 5 years, it is best to buy GICs that matures when you'll need the money.