Originally Posted by Master-Classter Warning: Spoiler! (Click to show)
I'm a little new to this personal finance thing so in the span of two years have gone from holding cash in a TFSA to GIC's to RBC MF's and now just opened a Questrade account and will be shifting over my RRSP (like your 401K?) and TFSA (I think that's like your Roth?) to invest in some bonds and equities (ETF's). So feeling pretty good about getting a handle on this stuff for the first time.
I know you guys are usually posting about individual stocks but with a ~$50K portfolio and minimal income for the next 6 months (I break even day to day with some emergency $ set aside but waiting to qualify before working again) and both minimal interest or knowledge in the market I'm curious about stocks but smart enough not to play that roulette game just quite yet so while I read about your amazing trades I'm looking for the safe basics at this point...
My info sources are Canadian Couch Potato and the Greater Fool (Garth Turner's blog). The plan is to start out with a 40% bond and 60% ETF's (mostly TSE Vanguards) split as per below.
RRSP: (40%) Canadian Bonds – VAB
I figure long term, stable, and as I put $ into TFSA over time, I’ll lower bond allocation to about 30% to match my age, but for now since I’m just stepping into this world and I also won’t have much income for 6 months or so, I’d rather keep 40% of ‘stable’ stuff. Plus dollar wise it’s almost exactly a 40% chunk so works out nicely that way.
?(10%) Canadian REIT– ZRE or maybe VRE
(20%) Canadian equity – VCN
(20%) USA equity – VUN
(20%) International equity – 2/3 XEF (international) + 1/3 XEC (emerging))
1. With all this talk of doom and gloom bubble popping of the RE market, should I avoid 5-10% allocation in REITS and just wait it out for an unknown period until there's a dip and then buy in? So for example put the 20% evenly into all Cad/USA/International and if in the next 6-12 months there’s a REIT dip, then I can adjust and put 5-10% in there, or maybe around January if I add the $5.5k into the TFSA I can just buy the REITS then…
Or should I buy in now and keep reassessing every 3-4 months and at the slightest sign of a pop reallocate away from it? So buy in and ride this wave up and sell when it’s time. I see writing on the wall like Garth Turner’s blog, Moodys apparently just downgraded Canadian banks, etc so just worried there's something big coming. Then again worst case it's what like a 30-50% market crash that affects 10% of my portfolio and some overlap into Cad equities and bonds?
2. If I'm holding 40% Cad bonds (RRSP) and then 20% Cad large cap equities (TFSA), and potentially adding 10% Cad REITS, (20% left each for USA and International), isn't that too heavily biased towards Canada?
2b. Lastly, if there's such a RE pop about to happen, what will be the impact of the 40% Cad bonds I own? Is that good or bad for my bonds? Should I be buying USA bonds instead or something?
3. Oh just one more random question… Greater Fool Garth is recommending putting some of that bond money into preferred share index ETF’s (like CPD, ZPR, XDV)… thoughts?
Fellow Canadian here.
1)You're trying to market time here with REIT, and no one will know when the Canadian RE bubble will pop. And even if it pops, does it make sense to wait for VRE to drop 5%, 10% or 20% before buying it? Are you able to tell when it bottoms? My feeling is that it's a lot simpler to set up an initial allocation, and then stick with it.
2) 20% allocation to Canadian stock market is heavy, since our market is only 4-5% of the world's market.
In Canadian Couch Potato's portfolio, it's evenly split between Cad, US and international. The reason is because no one knows which will out perform in the future, so it's just simpler to split them evenly in a 60/40 portfolio. Personally I'm keeping mine at 10-15% of my stock portfolio, and heavy in the US. You'll have to decide for yourself on how much your Canadian stocks will weight, and also depending on your outlook as well.
2b) Again, no one knows for sure what'll happen to Canadian bond when the RE market tanks. If a snake oil salesman tells you otherwise, run in the opposite direction.
3) I had some CPD, about 5% of my portfolio, but I'll be switching out of it when I'm investing new money. CPD is good because the dividend are eligible dividends, thus you can qualify for Canadian dividend credit. If you have no other income, you can potentially earn $40-50k in eligible dividends while paying little tax. For me, I'm still in the accumulating phase and I have no need for income stream, thus I'm moving the CPD money into other stock ETF's
Lastly, 40% in bond ETF is good when you're starting out, it keeps volatility low. Since you're just starting out, it'll be disheartening to see your net worth drops 30-50% in a severe bear market, and turning you off from stock market for the rest of your life, so having a portion in bond will keep you invested for the long term. You might tell yourself that you're ok with 50% drop of your stock, but you won't know until the real thing happens. It's like a pilot practicing crash in a flight simulator is different than in an actual crash, there are just something you can't describe to a virgin.