tag:blogger.com,1999:blog-5433839636644874439.post634171855967407583..comments2024-03-04T13:37:11.022+00:00Comments on Canadian Financial DIY: Real Return Bonds Correlation and Current PricesCanadianInvestorhttp://www.blogger.com/profile/05645767559302303541noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5433839636644874439.post-39046226117502889852008-12-17T09:10:00.000+00:002008-12-17T09:10:00.000+00:00I am a bit torn between XRB and individual RRBs. O...I am a bit torn between XRB and individual RRBs. On the one hand there's no need for diversification to lower default risk by holding an individual Canada RRB and that saves the 0.35% MER on XRB, a significant number when RRBs are currently yielding about 2.5%. When holding the RRB long term, maybe even to maturity, the individual RRB is therefore much better. On the other hand, XRB permits rebalancing a portfolio much more easily and cheaply than holding just one RRB. You would need to have very large amounts in a portfolio to make the buy-sell spread (which is how the dealers get their commission) reasonable on rebalancing trades of one RRB - e.g. the min purchase is usually around $5k.<BR/><BR/>So far I've only bought an individual RRB (prov of Quebec 01Dec2021) but I intend to replace more of my bond ladder with some Canada RRBs) and not buy any XRB. I intend to hold them forever. I am hoping the rebalancing I will have to do will mean buying more not selling - if equities recover I should be ok.<BR/><BR/>Re inflation, I've seen comments that government inflation numbers are suspect, a prime and visible proponent being http://www.shadowstats.com/. It is on my list of "investigate and post" but I don't know for sure either way. Don't know either if TIPS and /or Canadian RRBs have any special extra restrictions that result in an investor not even getting the full official CPI. Have you seen that? If so, any sources? For now I am taking the attitude that they are better than nothing.<BR/><BR/>Finally I don't see a reason to buy US TIPS instead of just Canadian RRBs. Maybe if one has significant US spending to do it's good to have USD. Otherwise, one is just adding in exposure to exchange rate risk. The equity side of an internationally diversified portfolio usually already has lots of that so more isn't desirable.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-64875175665851947762008-12-17T00:28:00.000+00:002008-12-17T00:28:00.000+00:00Sorry I meant the iShares Real Return Bond Index X...Sorry I meant the iShares Real Return Bond Index XRB not XSR.Jordanhttps://www.blogger.com/profile/14261191417363201262noreply@blogger.comtag:blogger.com,1999:blog-5433839636644874439.post-15376033875046241882008-12-17T00:26:00.000+00:002008-12-17T00:26:00.000+00:00Thanks for following up my question with great res...Thanks for following up my question with great resources on real return bonds.<BR/><BR/>So would you suggest buying the real return bond directly or through the XSR even though it has a fairly high MER.<BR/><BR/>A commenter Phil S <A HREF="http://www.canadiancapitalist.com/2008/12/14/the-amateur-investor-manifesto-part-3#comment-173708" REL="nofollow">recently posted about Real Return Bonds</A> on a guest post I wrote. Noting that they might not reflect real inflation. I've read very similar comments before that US TIPS (which I understand are equivalent to Real Return Bonds) have been subject to some manipulation to understate real inflation down there. Do you think this is a significant problem?Jordanhttps://www.blogger.com/profile/14261191417363201262noreply@blogger.com