Tag: ETFs

What’s in my retirement portfolio?

RobH14 Comments

So what’s in my retirement portfolio these days? A fair question. My portfolio is 100% in ETFs excepting the cash position. For historical reasons, a lot of my retirement savings are in US dollars. As as result, you’ll see ETFs listed here that trade on the US stock exchange, in US dollars. It’s not an approach I’d recommend for most people as it adds a lot of complexity to the mechanics of moving money around, which is really what decumulation boils down to!

The pie

The chart shown below is the summary of all my accounts: personal and spousal RRIFs in CAD and USD, TFSAs for me and my spouse, and non-registered accounts in USD and CAD. It comes pretty close to my target of 80/15/5: 80% equity, 15% bonds, 5% cash. Let’s visit how that comes about.

Summary of funds held in my retirement portfolio

What’s in the pie?

AOA: This is what I call an “All-in-one” ETF that trades on the US stock exchange. It’s an 80/20 fund, 80% equity, 20% bonds. Its US weighting is pretty high, its Canadian weighting is pretty small (about 2.4% by my calculation).

XGRO: This is the Canadian sibling of AOA. An “all-in-one” ETF that trades on the Canadian stock exchange. It’s also an 80/20 fund, with a much stronger tilt to the Canadian equity market.

HXT: Is a fund that I only hold in my non-registered account. Through behind-the-scenes accounting and swap contracts, it provides no-dividend access to the S&P/TSX 60. This is useful from a tax perspective if you’re still earning a salary since it effectively defers any tax impact until you sell shares.

XIC: A variant of the S&P/TSX 60 that caps the contribution of any one company to prevent the “Nortel effect” seen in the late 1990s. I’ve been too lazy to clean this out of the account.

DYN6004/DYN6005: Are Scotiabank HISAs in Canadian and US funds (High Interest Savings Accounts). On my provider’s trading platform, they look like mutual funds, but are just savings accounts that pay a decent interest rate, monthly. They have consistently provided the best rates of all the HISAs available on my provider’s platform.

SCHF: A very low cost equity fund that trades in USD. It provides exposure to international developed markets except the USA. It has about 8.5% weighting for the Canadian equity market. I used to have this in my registered accounts, but dropped it in favor of AOA. It’s still in my non-registered accounts so I don’t have to take an unnecessary capital gain.

HXS: The sibling of HXT, but it covers US markets. Only held in non-registered accounts.

VCN: Provides broad exposure to the Canadian market including smaller companies.

In an ideal world, my portfolio would just hold AOA/DYN6005 for US funds and XGRO/DYN6004 in Canadian funds. Eventually, as I decumulate my holdings, that’s what it will look like. Simple is best.

So why is my portfolio not aligned with my ideal model? Three main reasons:

  • Some of the “extraneous” holdings are in my non-registered accounts and I don’t want to incur a capital gain just to make the portfolio simpler.
  • I want a little bit more Canadian market exposure since I do live and spend money here.
  • No pressing need to. The splits between Canada/US/International equities are fine where they are. I try to trade only when necessary.

I’ll revisit this post from time to time as I go through decumulation to see how it evolves. Prior to hitting the button on retirement, I had a lot more ETFs in the list, basically attempting to build the equivalent of XGRO and AOA through other ETFs. For a small cost, (roughly 0.15%) AOA and XGRO rebalance their holdings quarterly so I can just let them run on autopilot, confident that they will always be close to my desired 80/20 splits. That’s why these two ETFs make up the lion’s share of my retirement portfolio.

My rules for retirement investing

RobH3 Comments

I provide some rules here to help you understand some of my own biases. They may not align with yours. But at least you know where I’m coming from.

Retirement investments are distinct from savings and day-to-day expenses

I have always maintained a firewall between investments and all other money. “Investments” for me always meant “money to be accessed only in retirement”. Whether that money was in an RRSP, TFSA or non-registered account made little difference. I never mixed the two. My rationale was that by keeping things separate, I made it much more difficult to “borrow” from retirement to fund today’s expenses. And it allowed me to take on the appropriate level of risk in my long-term investments, which helped boost my returns in the long run. I had another rainy-day cache of money to deal with unexpected expenses, and this money had to be absolutely liquid (no GICs, for example). My long term investments were always in place for “future me”.

More return requires more risk which requires holding more of your investments in stocks (aka “equities”)

If you want more return on your investments, you have to take on more risk. “Risk” doesn’t (or shouldn’t) mean “my money may go to zero” (that’s called “gambling”), but it does mean that in a given short-term period (one quarter, one year, three years) your money may not grow or even shrink. I have always maintained an 80/20 portfolio — 80% equity, 20% bonds. As I neared retirement, I moved to 80% equity, 15% bonds, 5% cash. Here’s my portfolio in real time (love Google Sheets for this).

Portfolio breakdown
The 80/15/5 portfolio, with breakdowns of Canadian, US, and International Equity Shown

Diversification helps mitigate risk

I don’t pick stocks. I only buy indices. You can certainly build a great portfolio at rock-bottom prices by buying individual stocks but I’m too lazy to do the necessary research. I’ve always spread my investment equity in different markets: Canada, USA, International. You can do this all through ETFs purchased on the Canadian stock market. Did I say “ETFs”? You can actually buy the 80/20 (or 60/40…or 40/60) portfolio in exactly ONE (1) ETF. More on that in a future post.

Dividends are nice, but total return is what really matters

I think a lot of the literature out there focuses on dividend stocks because they generate income. I think this is seen as attractive because many people can’t bear the thought of selling their holdings to pay the hydro bill. (“I want to just live off my dividends”). And while you can certainly be successful by buying into dividend stocks exclusively, I think you can miss out on maximizing the total return of your portfolio this way. And you may end up with a larger-than-intended estate when you die. The overall yield of my portfolio is somewhere around 2.5%, which is pretty paltry, but the total return is much higher.

Demystifying ETFs

RobH3 Comments

I’ve built my investments using Exchange Traded Funds (ETFs). In years before ETFs were commonplace, I invested in mutual funds instead. But why have I used ETFs?

Attribute 1: They are easy to buy and sell.

They list on the stock markets, meaning that buying and selling (should be) easy and cheap.

Attribute 2: They are portable.

Because they list on stock markets, you can buy them using any self-directed investment platform. Whether it’s one of the bank’s platforms (e.g. CIBC’s Investor’s Edge, BMO’s Investorline) or one of the independents (e.g. Questrade, QTrade, Wealthsimple), it shouldn’t matter who you do business with.

Attribute 3: ETFs offer a passive, inexpensive way to invest in an index.

As stated elsewhere, I am not a stock-picker, and I don’t worry about sector analysis. I buy, and I hold. A “passive” ETF is one that simply follows the makeup of a given stock index. Some of the more common indicies you’ll come across are the TSX 60 (for Canadian stocks), the S&P 500 (for US stocks) and MSCI EAFE (for everywhere else). The easiest way to judge the priciness of a given ETF is to look for the MER, which is the “Management Expense Ratio”. Canadian passive index ETFs should be at or below 0.20% MER, meaning that they should cost you less than 2 dollars for every thousand dollars you have invested, per year.

But not all ETFs are created equal.

As the ETF market has exploded, companies have launched all manner of kooky ETF products that adhere to attributes 1 and 2, but break attribute 3. They are typically not passive (and have highly paid money managers pulling levers behind the scenes), not cheap (because of the money managers, pay attention to the MERs). So the blanket statement “ETFs good, mutual funds bad” is not universally true.

Many ETFs copy each other.

A quick google search for “TSX 60 ETF” reveals a bunch of ETFs, that, on the face of it, all look to track the S&P/TSX60 index.

  • Blackrock’s iShares XIU
  • BMO’s ZIU
  • GlobalX HXT (this one is quite different1 from the other two from a tax perspective, but otherwise, it mirrors the makeup of the other two).

Picking one ETF over the other may be a matter of seeing if your provider treats them differently. For instance, my provider (QTrade) allows HXT to be bought and sold at no fee. Not so for XIU/ZIU. On the other hand, BMO Investorline clients can buy/sell ZIU at no charge. Avoiding unnecessary fees, no matter how small, is an ongoing hobby.

ETFs: The simple, portable, inexpensive way to build a diversified portfolio at a risk level that’s appropriate to you

ETFs are what I have used to build my retirement portfolio at an average cost of around 0.2% of the overall value. A typical financial advisor will charge 5 to 10 times as much. For me, that math doesn’t work.

  1. This is a gross simplification, to be sure. I’ve used HXT in my non-registered accounts because of its unique tax treatment, but don’t use it elsewhere. ↩︎