Tag: personal-finance

Investment basics: Asset Allocation

RobH16 Comments

We’ve talked about asset allocation / asset classes before in this space, most recently here. But while watching a recent post1 from one of my favourite experts, The Loonie Doctor2, it occurred to me that it might be helpful to start right from the beginning.

And to me, that beginning is understanding WHAT to invest in. Broadly speaking, you can choose between three categories: “Equity”, “Bonds” and “Cash”.

“Equity” refers to stocks of publicly traded3 companies. Owning stock means you own a piece of the company you invest in. This allows you to collect dividends if and when the company pays them out. If the company fails/goes bankrupt, the stock becomes worthless.

“Bonds” are essentially loans to companies or governments4. When you buy a bond, you’re buying into a stream of interest payments that stop when the bond is paid off. If a company who issued the bond fails/goes bankrupt, bond holders legally get first dibs on whatever assets remain in an effort to get their money back, but it’s possible that there isn’t anything left to fight over. Bonds can be fully paid off in various timeframes, from very short (30 days) to very long (20 years).

“Cash” is the money that’s left. Cash can be invested in things like high interest savings accounts, GICs/Term Deposits, Treasury bills (aka T-Bills), or stuffed under a mattress5. There is definitely a grey area between “Cash” and “Bonds” since both involve lending money to an entity. Shorter duration loans are more cash like. Lending to governments and large corporate entities (like banks, which is what you’re doing when you buy a GIC) is more cash-like. Money under a mattress is absolutely cash, albeit not really an investment at that point.

Using the data tabulated here, you can build a chart like the one below to see how much the $1000 investment you made in each of these categories would be worth 50 years later6.

The chart shows that Equities outperform Bonds and Cash by a wide margin when looking at an investment time period of 50 years. Bonds also outperform Cash substantially.
Historical returns for Canadian equities, bonds, and cash (as of December 2024)

Looking at this chart, it should be reasonably obvious that equities, represented here by Canadian Stocks, over time, generate the best bang for your invested buck. The “over time” phrase is very important, because otherwise, one could rightly ask, “why would anyone ever invest in anything other than stocks?”. The reason is volatility — in any given short time period, your returns could look very, very bad indeed. Just one example (of many) — the TSX has LOST money in 3 of the last 10 calendar years per https://en.wikipedia.org/wiki/S%26P/TSX_Composite_Index.

Bonds, generally speaking7, have a much steadier and predictable return, often uncorrelated with stocks. When stocks go up, bonds often move in the opposite direction. And cash, well, its benchmark is the inflation rate. If cash is returning the inflation rate8, then at least you’re standing still.

In my investment portfolio, my target allocations are 80% Equity, 15% Bonds, 5% Cash. Using products like all-in-one ETFs and my handy-dandy multi-asset tracker spreadsheet make this relatively easy to track. In my next post, I’ll show how to identify ETFs in each of the categories.

  1. Which provides further justification that using all-in-one ETFs is really the best approach. ↩︎
  2. Which, while positioning itself as being for doctors, has a ton of useful information for those of us who are not physicians as well. ↩︎
  3. And of course it is possible to buy stock in private companies (so-called private equity) but since I don’t know very much about that world, I figured I’d keep it simple and just talk about things that are available to the general public. ↩︎
  4. And the financial stability of those companies and governments can vary a lot. That’s where bond rating services can point you to higher quality entities (with a low risk of not paying) or lower quality entities (with a higher risk of not paying, but a better interest rate — the bottom of the barrel here are called “junk bonds”). ↩︎
  5. AKA “the chequing account of most major banks”, which don’t pay any interest ↩︎
  6. For “Canadian Stocks” this is the TSX Composite index (former name: TSE 300). “Canadian Bonds” is 10 year Government Bonds. ↩︎
  7. Let’s forget 2021-2 ever happened to the bond market. ↩︎
  8. And it doesn’t always do so! ↩︎

What’s in my retirement portfolio (April 2025)

RobH3 Comments

This is a (hopefully monthly) look at what’s in my retirement portfolio. The original post is here. Last month’s is here.

Portfolio Construction

The retirement portfolio is spread across a bunch of accounts:

  • 7 RRIF accounts (3 for me, 3 for my spouse, 1 at an alternative provider as a test)
  • 2 TFSA accounts
  • 3 non-registered accounts1, (1 for my spouse, 2 joint)

The target for the overall portfolio is unchanged:

  • 80% equity, spread across Canadian, US and global markets for maximum diversification
  • 15% Bond funds, from a variety of Canadian, US and global markets
  • 5% cash, held in savings-like ETFs.

The view as of this morning

As of this morning, this is what the overall portfolio looks like:

Overall retirement portfolio by holding, April 2025

The portfolio, as always, is dominated by AOA and XGRO which are 80/20 asset allocation funds in USD and CAD, respectively. The rest are primarily either cash-like holdings in two ETFs: ZMMK in CAD and ICSH in USD) or residual ETFs held in non-registered accounts for which I don’t want to create unnecessary capital gains just for the sake of holding AOA or XGRO.

The biggest month over month change was a small decline in AOA and a small uptick in XEQT, about a 1% shift overall. This was because I shifted some of my USD assets to CAD assets in the RRIF using Norbert’s Gambit2. I chose XEQT over XGRO because the contribution of bonds in the portfolio was slightly over my asset allocation target3. XEQT is essentially XGRO, minus the bond holdings (it’s a 100% equity fund).

There was also a noticeable reduction in the contribution of ICSH to the portfolio; this was largely due to the unfavourable change in the USD/CAD exchange rate over the course of the month, and not due to any change in the holdings there.

Plan for the next month

The asset-class split looks like this

Overall retirement portfolio by market, April 2025

This looks to be pretty close to my target percentages which haven’t changed:

  • 5% cash or cash-like holdings like ICSH and ZMMK
  • 15% bonds (almost all are buried in XGRO and AOA)
  • 20% Canadian equity (mostly based on ETFs that mirror the S&P/TSX 60)
  • 36% US equity (dominated by ETFs that mirror the S&P 500, with a small sprinkling of Russell 2000)
  • 24% International equity (mostly, but not exclusively, developed markets)

So, the plan for next month is, do nothing out of the ordinary. Reinvest cash (dividends, TFSA contributions) in one of AOA, XEQT/XGRO, ICSH or ZMMK depending on the asset category most in need on the day of the reinvestment. All these ETFs are covered on my ETF All-Stars page.

Overall

My retirement savings declined 5.75% over the month (down 7% since January) due to the continuing meltdown in the equity markets. It’s not a pretty picture!

Net worth of retirement savings compared to start of retirement

This has not translated to a the same degree of change in my monthly salary. Why? My retirement payouts are calculated by Variable Percentage Withdrawal (VPW), which I cover here. VPW has a built-in cash cushion, which serves to dampen month to month swings in my net worth, either up or down. As you can see in the chart below, my monthly salary has stayed within a 1% band of the first salary I drew in January.

Month over month salary, as compared to start of retirement

  1. Since Questrade combines USD and CAD assets under the same account umbrella, I was able to reduce the number here. ↩︎
  2. I shift funds from the USD to the CAD side of the RRIF more or less quarterly since all RRIF payments are currently coming out of the CAD side of the portfolio. ↩︎
  3. That’s the optimistic point of view; it’s perhaps more accurately stated as “bonds haven’t melted down quite as much as the equity portion of my portfolio”. ↩︎

Rebalancing the portfolio: A real-life example

RobH1 Comment

If you adhere to asset-allocation strategies (as I do) then rebalancing your assets to reset them back to your targets is a way to make sure you stay on track1. Some people do this on a regular basis (monthly, quarterly, annually) but I try to do it whenever the drift becomes noticeable (more than 1% off of my targets2). The targets for my portfolio are

  • 5% cash
  • 15% bonds
  • 20% Canadian equity
  • 36% US Equity
  • 24% International equity

Given the week we’ve just had, it’s not really a surprise to see that I’m overweight in cash, and underweight in foreign equity. Some of my cash is untouchable because it’s the built-in cushion that Variable Percentage Withdrawal (VPW) requires3, so that’s out. The majority of the cash in play is found in my RRIF accounts, and most of that is found in USD.

So the problem to solve for is to find a low-cost International Equity ETF that sells on the US market. Let’s walk through the steps I go through for that.

Copy what’s in my USD all-in-one ETF

Long time readers will know that most of my USD holdings are invested in AOA. (What’s the deal with AOA? Asked and answered here.) Since AOA is an all-in-one ETF, and since I know that AOA has international holdings (around 28%), and I know that AOA is inexpensive to hold, I can just do what AOA does, right?

So that is certainly a possibility, but as it turns out, AOA invests in TWO international ETFs, namely:

  • IDEV, which is a broad international ETF that tracks the developed world (you can see the Sector and Geographic breakdown here)
  • IEMG, which is a broad international ETF that tracks emerging markets (Sector and Geographic breakdown here)

IDEV and IEMG are both excellent funds, but I don’t really want to buy two funds if I can help it. AOA holds these two in a roughly 3:1 ratio, and I am too lazy to keep that straight.

So time for plan B.

Google for an appropriate ETF

So I type “international ETF USD” into Google and see what I get.

The first hit is linking to etfdb.com which isn’t my favourite website. They always list 100 ETFs when I want to choose from maybe 4. So I skip that link.

Then I get a hit for IXUS, which is an iShares product. This one I’ve heard of, and it has a clever name (ex-US, get it?). On IXUS’ overview page, I see three promising factoids:

  • It provides “exposure to a broad range of international developed and emerging market companies4“
  • It has a MER of 0.07%, which is acceptable.
  • It’s not clear to me how much is in emerging markets, but the geographic exposure breakdown includes some non-G7 economies, so that’s good.

So that’s pretty good, but I want to look at least one more ETF to be a good comparison shopper.

A little bit further down I get a hit for VXUS, a Vanguard product. Like IXUS, it has a clever name (ex-US, get it?) and so I feel compelled to look closer.

And I see three factoids again:

  • It provides “Broad exposure across developed and emerging non-U.S. equity markets”
  • Its MER is 0.05%
  • The geographic exposure breakdown looks an awful lot like IXUSes, even though the underlying index it’s tracking is different5

And so, with that, the decision is made: we go with VXUS because it’s 0.02% cheaper than IXUS.

Actually DOING the rebalancing

This will be new ground for me, because it will be using my new provider for the first time (Questrade). My old provider let me sell one ETF and immediately buy another, and I assume that Questrade will also allow this, but until I try it, I’ve learned not to assume things.

Oh, yes, the “cash” in my USD RRIF is actually also an ETF, namely ICSH, which is because Questrade doesn’t provide any other means to earn money on “cash”.

So anyway, on Monday, a few hours after the stock market opens, I’ll take a look and see if trading is still a advisable — has the market suddenly recovered? Is it so volatile it warrants sitting on the sidelines? I’m guessing both of those will be a solid “no”, but I will wait until Monday to follow through.

Rebalancing (Somewhat) Complete

I signed in yesterday to my brokerage account around lunchtime so I missed all the morning’s excitement. After everything I wrote above, I didn’t buy VXUS after all — since my US equity portion was also significantly below target, I bought AOA instead, thus increasing both my US and International equity positions at the same time. I used a limit order since the bid/ask spread was like 20 cents, far higher than I’m used to seeing.

When markets are this nutty, I don’t like making all purchases at once. Since Questrade trading of ETFs is now totally free, I can take my time and incrementally shift the portfolio back to targets.

  1. Long time readers may wonder why rebalancing in my portfolio (which is dominated by asset allocation ETFs) is required at all — one of the reasons to invest in an all-in-one is BECAUSE it rebalances automatically. The answer is simple — although MOST of my portfolio is in all-in-ones, not ALL of it is. As I prepared my portfolio for retirement (read more about that here), I couldn’t justify selling assets and attracting capital gains in my non-registered account just to make the portfolio simpler. ↩︎
  2. I track those targets using the Multi-Asset tracker found here ↩︎
  3. VPW is how I get paid in retirement. You can read about the method here. ↩︎
  4. Closer reading of the product page shows IXUS tracks the MSCI ACWI ex USA IMI Index ↩︎
  5. VXUS tracks the FTSE Global All Cap ex US index ↩︎

I’m retired and the market is tanking. What do I do?

RobHLeave a comment

TL/DR: Look at your asset allocation and rebalance if needed. Otherwise go for a nice run.

Yesterday was pretty ugly. My retirement holdings, dominated by AOA and XGRO took a huge hit this week. And today will likely bring more of the same. Before Friday’s open, AOA is down 3.31% for the week, and XGRO is down 3.64% for the week. No doubt about it, I’m quite a bit poorer than I was on Monday1. What actions am I taking?

As always, I keep an eye on my asset allocations

In market downturns, some asset classes (e.g. Canadian equity, Bonds, International Equity) will suffer more than others, typically. This allows for effective asset rebalancing, possibly. (If you want to better understand how I think about asset allocation, this article might shed a bit of light on that.)

If the asset class allocation drifts too far from my targets, then that’s an indication to make a move out of one class and into another. A 1% drift off my target is usually enough for me to make a move. That hasn’t happened in my portfolio as of this morning, but I notice that the percentage of US equity is quite a bit down from the last time I looked.

As an aside, I track my asset allocations using my own Google Sheets tool, which you can find here.

If you do place trades in markets like this, do it wisely

If prices are swinging wildly, it might make sense to wait for a quieter day. But if not, then do use limit orders so you’re getting a price for the asset you can live with, either on the buy side or the sell side2.

Oh, and if you trade in ETFs (as I do), the start and end of the day are not good times to do that. Read more about why here.

In retirement, use a withdrawal scheme that helps you weather storms

I use “Variable Percentage Withdrawal” (VPW), a scheme that is designed to make sure you only spend what you can afford based on your age, your net worth, and your current (or future) pensions. And it comes with a built-in shock absorber so that even though the market looks like a roller coaster, the payout of VPW is considerably less wild. You can read about VPW over here.

Don’t do anything silly

I read all the time about people “moving to cash” at times like this. This will lock in your losses, and cause you to miss the inevitable gains that will return. Gains have a habit of showing up very quickly, and trying to “time the bottom” is not a winning strategy.

Case in point: per https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_S%26P_500_Index two of the worst days on the S&P 500 in recent history (March 12, 2020 and March 16, 2020) were followed by two of the best days (March 13, 2020 and March 24, 2020).

If all else fails

Step away from the news feed. Go for a nice long walk/run/bike.

  1. I was also going to write something about the USD/CAD exchange rate, which yesterday was really NOT in my favour, but it already appears to be recovering. A lot of my retirement holdings are in USD, so if the CAD gets stronger, those holdings are negatively impacted. ↩︎
  2. During the COVID meltdown of the markets (remember March, 2020?), my online broker started posting warnings on their trade screens to use limit orders. Guess they had too many angry traders. ↩︎

The HISA table April 2025

RobHLeave a comment

Summary: High Interest Savings Accounts (HISAs) are a way for cash to earn half-decent, risk-free interest. These “Series F” HISAs are likely available through your online broker, but you may have to ask how to get at them, exactly.

We talked about HISAs in February over here if you need a quick reminder: https://moneyengineer.ca/2025/02/14/earn-money-with-your-cash-the-hisa-table-february-2025/

On March 12, the Bank of Canada reduced their overnight rates by another 0.25%.1 Unsurprisingly, this had a knock-on effect to the interest rates provided by the series F HISAs I track.

Equally unsurprisingly is that the US Federal Reserve didn’t touch their rates, and as a result, there were no changes in the HISA rates paid out for USD accounts. Here’s the full breakdown:

Current HISA rates for HISAs available via QTrade

There’s also a Google Sheets version with a bit more detail (source links) if you prefer.

For Canadian Dollar HISAs, B2B bank remains top of the heap: https://b2bbank.com/advisor-broker-rates/banking-rates.

For those of you who hold US cash in your brokerage accounts, you can benefit from the much higher US interest rates, and you have multiple choices since multiple providers are paying the same rate.

  1. You can also say “25 basis points” if you want to impress your friends ↩︎