tag:blogger.com,1999:blog-5433839636644874439.post8727947291816643617..comments2024-03-04T13:37:11.022+00:00Comments on Canadian Financial DIY: Major Portfolio Renovation, Canadian StyleCanadianInvestorhttp://www.blogger.com/profile/05645767559302303541noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-5433839636644874439.post-39802023313656915452007-05-30T10:45:00.000+00:002007-05-30T10:45:00.000+00:00Ah yes, when is the market peak?, the $64 million ...Ah yes, when is the market peak?, the $64 million dollar question. Maybe it was May 23 when I made all my buys - now my overall portfolio is down. The problem is we just don't know, cannot know, according according to all the research on markets. The upward cycle could continue for years or it could stop today. If you wait to invest, what will you do with the money in the meantime and how will you know when is the time to buy in? <BR/><BR/>I remember selling all of my Nortel at around $90, (my single largest trade ever!). thinking that it was over-priced. When it dropped back to $65, I thought it had gone down enough and bought some back, then more at $50, then more at $20 (a fine example of downward dollar-cost averaging, huh?). Finally I gave up and sold it all again at $8-9. Then it kept going down to ... what was the lowest low? $1.77 or something? At $1.77 who could tell it wouldn't go under? One friend actually bought quite a bit at that level and made excellent profits he says. <BR/><BR/>All we know is one thing: the price/market level at any given time is an unbiased estimate of future expectations. It could be exactly right, high or low but that no one can tell reliably enough to make money consistently.<BR/><BR/>All that to say, you could be right but I don't know. My expectation is that by being diversified, some areas of the portfolio will do well and offset areas that do poorly. If equities go down then bonds or real estate or commodities should (if that negative correlation kicks in) go up.<BR/><BR/>Good luck with your investments.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-41860043017298335242007-05-30T00:01:00.000+00:002007-05-30T00:01:00.000+00:00One more thing,I am definitely moving to a very si...One more thing,<BR/><BR/>I am definitely moving to a very similar portfolio in the very near future. I am just concerned that all equity indices are at record high after a ~4 year strong rally. I know most academics and researchers argue against market timing, but weren't you concerned?<BR/><BR/>this might not be directly related to the post, but couldn't help ask :).<BR/><BR/>All the bestAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-58481763549994585722007-05-29T23:56:00.000+00:002007-05-29T23:56:00.000+00:00Thanks a lot for the response.Haven't read Ferri's...Thanks a lot for the response.<BR/>Haven't read Ferri's book but I sure will soon.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-19592198652904056362007-05-28T15:49:00.000+00:002007-05-28T15:49:00.000+00:00Good questions...The data for indices comes from v...Good questions...<BR/><BR/>The data for indices comes from various sources, depending on the index used. For those using MSCI indices like most of the ETFs of iShares and Vanguard, the MSCI.com website shows how they are created. moneychimp.com is a good website is for comparisons of the meaning of "value" and small cap by different ETFs.<BR/><BR/>My exact portfolio does not have past performance numbers but I am expecting it will give me 5-8% compounded in real terms with standard deviation of 9-12%. This is based on reading tables of historical results from Ferri and Gibson books.The IFA Canada wesbite shows a roughly similar portfolio as mine with backtested data. For the 70% equity portfolio the before-inflation return is anywhere from 8.6 to 12% p.a. for any period of 10 years or more while the sd varies from 9.3 to 10.6. <BR/><BR/>As to the choice of small vs large cap for the value holding, there are several reasons:<BR/>1 - a desire to limit the number made me eliminate several extra holdings I had selected in draft form, large cap value among them;<BR/>2 - small caps have a higher expected return - 3% according to Ferri (and volatility / std. dev.) - so I'm hoping this will increase portolfio returns;<BR/>3 - Ferri relates on page 99 how the value benefit is stronger for small caps than large caps;<BR/>4 - Ferri also discusses on p.102-107 how small cap value diversifies a total market fund (i.e. reduces volatility) ... though I recognize that I have transgressed and not bought the total market fund VTI, only the large cap fund VV, I am hoping the diversification effect will still work.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-75510718916529454892007-05-27T21:02:00.000+00:002007-05-27T21:02:00.000+00:00This is an excellent post. Thanks a lot of sharing...This is an excellent post. Thanks a lot of sharing.<BR/><BR/>Out of curiousity, are there data for all the underlying indices? Do we have any information on the return and std-dev of this portfolio for the last 1/3/5/10 years?<BR/><BR/>Another question: your choice of US Value ETF is VBR, which is a small index. Any reason why you did not chose a large CAP value index?<BR/><BR/>Thanks, and much appreciatedAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-80808736164421301292007-05-25T08:47:00.000+00:002007-05-25T08:47:00.000+00:00I haven't posted before regarding RRBs or high-yie...I haven't posted before regarding RRBs or high-yield bonds. Ferri (love that book!) does recommend both as part of the diversified fixed income portfolio for the same reason - it lowers risk. Though he says to buy passive index funds, the argument for it seems less compelling to me in the case of the RRBs as there seems to be little issuer / default risk. On the high-yield side, it's the opposite - I'd never want to buy individual company high-yield bonds.<BR/>(though I did once do a chancy thing and buy Telus bonds after they had a bad quarter and downgrade). A fund is the only way. Isn't PH&N's fund one that is actively managed? Maybe the diversification benefit is still worth it if there are no other alternatives - have you found any high-yield index funds in Canada?<BR/><BR/>Re the foreign exchange in RRSP isn't it only a question of the enforced US$ buy-sell spread (1.095 vs 1.075 the day I called)? If an ETF/fund is quoted in C$ but is European for instance, isn't there still the foreign exchange risk of the movement of European currencies vs the C$? If the fund is quoted in US$ with the same European holdings, the fund value will change with the US$ vs European currencies but the US$ is also changing relative to the C$ and the US$ is washed out. Hmmm, reading this over it isn't too clear how that works. Probably should do a simple numerical example to illustrate and do a post.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-26535430104339194652007-05-25T03:24:00.000+00:002007-05-25T03:24:00.000+00:00Makes me feel better that there is at least one ot...Makes me feel better that there is at least one other nut out there doing this to themselves and their portfolios.<BR/><BR/>I have been doing mine in steps as my confidence increases and currently am almost entirely in CIBC Index funds (MER .32% with rebate) spread over 2 registered and 2 non-registered accounts.<BR/><BR/>My next step will be moving towards some ETFs and possibly diversification of fixed income.<BR/><BR/>I find the foreign exchange issues in the RSP annoying and difficult to quantify, so am leaning toward the CIBC funds and Canadian ETFs only in these accounts and Vanguard funds in the open accounts.<BR/><BR/>At the moment I am debating/thinking about inflation-protected (RRBs) and junk bonds (PH&N High Yield). Have you posted on these before? If not, what are your thoughts on them.djhttps://www.blogger.com/profile/16170352853017782328noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-67243116256062211762007-05-24T22:07:00.000+00:002007-05-24T22:07:00.000+00:00The 70/30 equity/ bond split is one I've had for a...The 70/30 equity/ bond split is one I've had for a couple of years and it is comfortable. I went through the high-tech meltdown and saw my portfolio drop 40% so the possible drop with this new, well-diversified portfolio is likely to be a lot less. The other reason is that several books with drawings of the desirable efficient frontier show that a portfolio with 20-50% bonds is almost always there.<BR/><BR/>As for the bonds being mostly Canadian, my fear of being caught in US dollar currency shifts is part of the reason. There isn't a lot of choice for non-US or Canadian bond ETFs though DBC or GLD could fit the bill. One of my bonds is maturing in August so it is likely part of that will end up in one of DBC or GLD.<BR/><BR/>Re the US equity holding, I consider that the Canadian holding is almost the same asset class - correlations I've seen for the TSX300 and the S&P500 range from 0.6 to 0.9. <BR/><BR/>Yes, BNS, RY were in the old portfolio. At one point I was considering forming my own version of XFN by adding TD and MFC but then the anticipated difficulties of rebalancing with even more holdings made me decide against it.<BR/><BR/>Formerly, I had (partial) commodity exposure through XEG (energy) and XGD (gold) so the DJP accomplishes that with one holding and is broader to boot with agriculture and minerals.<BR/><BR/>One other thing I didn't mention is that the 1% not allocated in the table is a placeholder for a mutual fund (Saxon World Growth) that I have yet to cash in and consolidate with the portfolio. It illustrates that there are always exceptions and delays in implementing changes but I thought it better to move ahead now and invest the funds later.<BR/><BR/>Good luck with your effort. I'll look forward to seeing yours. There are always thiungs to learn from others facing the practical task of carrying out an investment plan.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-64940886684368733932007-05-24T12:55:00.000+00:002007-05-24T12:55:00.000+00:00Wow, what a post. I'm in the process of doing som...Wow, what a post. I'm in the process of doing something similar with my portfolio. It's great to hear that you have adapted a strategy and have implemented it completely.<BR/><BR/>I'm planning to write about my portfolio as well but not all in one post since there are many interesting topics in a portfolio construction.<BR/><BR/>This could be several more posts but I'd be interested to hear about your reasonings behind some of the asset allocation choices with respect to your situation.<BR/><BR/>For example, why did you choose 70/30 as your equity/bond split? <BR/><BR/>Why are almost all your bonds Canadian?<BR/><BR/>Your US equity holding is much smaller than the world US equity weighting - what were the thoughts behind that?<BR/><BR/>In the second part of the spreadsheet in Cdn Financial you have RY, BNS listed - is this from the old portfolio? How did you get the commodity exposure?Anonymousnoreply@blogger.com