tag:blogger.com,1999:blog-5465015914589377788.post1036440259403125167..comments2024-02-17T11:07:06.232-05:00Comments on Michael James on Money: My Asset AllocationMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger47125tag:blogger.com,1999:blog-5465015914589377788.post-27852716793560813322015-11-27T16:45:26.024-05:002015-11-27T16:45:26.024-05:00@R: If you run portfolios starting every year over...@R: If you run portfolios starting every year over the last 100 years, the 100% stock portfolios will hit a target portfolio size sooner than a 90/10 portfolio (that includes rebalancing) most of the time (but not all of the time). No guessing required. The average delay in reaching financial independence will depend on the pattern of contributions, tax assumptions, and the portfolio target.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-12277162097053330352015-11-27T15:45:06.055-05:002015-11-27T15:45:06.055-05:00Just so I understand, you're suggesting that b...Just so I understand, you're suggesting that by adding a small Bond ETF to your portfolio, it'll increase the time for you to obtain Financial Independence. Do you know how many months or years it'd add? Specifically, is this a thought-out exercise or are you guessing?Rhttps://www.blogger.com/profile/03606117402650452168noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-62765734705823426962015-02-05T13:30:26.606-05:002015-02-05T13:30:26.606-05:00Sure Michael, I know there is a certain ammount of...Sure Michael, I know there is a certain ammount of risk included in my plan. Let say it's my risk/reward bet...<br /><br />For the emergency/cash portion, I use to hold an average of 10k$ buffer in HISA or TFSA (depending of rates) but as you, I do not consider this like as part of my investment portfolio.<br /><br />I forgot to tell you, being Mustachians, our spending is less than 50% of collaterals and we could stretch this a bit more if needed.<br /><br />Thank you for this inspiring blog and feed back.<br /><br />-Le BarbuAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-78569918181497797152015-02-05T13:11:16.097-05:002015-02-05T13:11:16.097-05:00@Anonymous: You're right that having leverage ...@Anonymous: You're right that having leverage and fixed income at the same time makes little sense. An exception might be for some emergency cash, but I don't even think of emergency cash as part of my portfolio. It appears you have the emotional strength to handle at least your modest amount of leverage. Even if you don't panic sell, another danger would be being forced to sell at low prices due to a job loss. If this isn't a concern, then your plan seems to suit you.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-63374791497846886252015-02-05T12:14:23.757-05:002015-02-05T12:14:23.757-05:00Thank you for quick answer,
I'm not a fan of ...Thank you for quick answer,<br /><br />I'm not a fan of hedging neither but this was the only international index fund at RBC banking, as long as I know :-(<br /><br />I can handle market drop, in fact, I invest since 1995 and went trough all ups and downs without any emotion...<br /><br />I think that owning fixed income AND leverage would be a wash, doesn't it? To me, leverage is the NEXT step after dropping fixed incomes. My leverage is 95k$ over a total holding of 650k$ so I feel pretty comfortable with this. I can drop this strategy after I'm retired since the tax advantages will drop because of lower income.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-47334818687614383572015-02-05T11:41:06.797-05:002015-02-05T11:41:06.797-05:00@Anonymous: The first thing that jumps out at me i...@Anonymous: The first thing that jumps out at me is no fixed income investments along with some leverage. This is a high-volatility portfolio. I have an all-stock portfolio, but with no leverage, and I get job offers on a fairly regular basis and I didn't flinch through the financial crisis. You need to be sure you could handle, say, a 40% drop in stock prices (which means a more than 40% loss for you due to leverage). I don't know enough about you to say if your allocation is suitable for your family or not, but this volatility issue is something to think about. Certainly, any money you think you need in less than 5 years (RESP maybe?) needs some thought.<br /><br />After that, the allocation seems quite reasonable to me. There are no guarantees in life, but you're well-diversified. I'm not a fan of currency hedging (RBF559), but to each his own.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-31498108717463337992015-02-05T11:19:44.924-05:002015-02-05T11:19:44.924-05:00Michael, what do you think about my A.A.
My RRSP:...Michael, what do you think about my A.A.<br /><br />My RRSP: 30%VTI, 40%VBR, 30%VXUS<br />Wife RRSP: 35%ZCN, 35%VTI, 30%VXUS<br />RESP: 35%RBF556, 35%RBF557, 30%RBF559<br />Non-Registered account: 100%ZCN<br /><br />Overall: 29%Can. (ZCN+RBF556), 28%US (VTI+RBF557), 18% US Small Cap Value, 25% Int. (VXUS+RBF559). Average MER 0.15% (mostly because of RBF serie in RESP)<br /><br />This is only 10 "positions" over 4 accounts, pretty simple to manage.<br /><br />I plan to switch RESP into RBC Direct Investing to buy ETFs and lower MER because this account is over 75k$ now. I intend to buy ZCN, VUN and VDU to replace the RBC Index funds I own now. About 400$/year fee saving...<br /><br />The Non-Registered account was invested with HELOC money (our leverage is 20%) and plan to fill the TFSA (empty now) for the end of mortgage repayment (2019) or if a big chunk of money comes in (bonus, inheritance, any other unexpected windfall). We put 20k$/year on mortgage principal, this will fill the TFSA room pretty fast anyway.<br /><br />Any comments?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-28944315899263838752014-11-01T18:59:33.217-04:002014-11-01T18:59:33.217-04:00@Just: If I were investing in individual stocks, I...@Just: If I were investing in individual stocks, I'd agree with you that it's important to be diversified in a few different ways, including geographically and by industry. However, what I own are exchange-traded funds that each hold many stocks. My portfolio holds (indirectly) about 9000 different stocks. This is more than enough to be diversified by industry.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-7739071533849578462014-11-01T18:41:51.655-04:002014-11-01T18:41:51.655-04:00It is my opinion that you are not diversified the ...It is my opinion that you are not diversified the way you think. Take a stock like Johnson and Johnson which is considered a US stock and really is an international stock if you look at the companies revenue. A stock in Europe, Unilever, is really more of an emerging market stock than a European stock. I don't believe you should diversify by country. You should diversify by industry.<br /><br />Just my opinion.<br /><br />Regards<br />JustAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-57892097403425015702014-11-01T12:05:43.744-04:002014-11-01T12:05:43.744-04:00Ah, Michael, that is an interesting distinction be...Ah, Michael, that is an interesting distinction between US- and CDN-domiciled ETFs. I didn't know about the withholding tax difference.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-86304838750403731512014-10-31T16:36:48.293-04:002014-10-31T16:36:48.293-04:00Makes sense - thanks! I have an irrational overly-...Makes sense - thanks! I have an irrational overly-sensitive-dislike of incurring "extra" commission charges, but of course it makes sense to do so to realize the benefits of rebalancing, and the commission-free alternative – terrible mutual funds – of course represents a far worse financial outcome.Dave Liggathttp://liggat.orgnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-38152738731574915372014-10-31T15:06:13.292-04:002014-10-31T15:06:13.292-04:00@Dave: Good question. Sometimes I have to make e...@Dave: Good question. Sometimes I have to make extra trades. For example, if no one RRSP account has enough VCN to cover the amount I want to sell, I might rebalance in two different accounts. It can be difficult to cover all possibilities in the abstract, but if you look at each case, you can find some way to make a sequence of trades that gives the desired change. Of course, if all your non-registered accounts and TFSA accounts are already full of VCN, you have little choice but to buy some VTI in a non-RRSP account.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-31525806572259747832014-10-31T14:56:15.956-04:002014-10-31T14:56:15.956-04:00Thanks for sharing Michael. Awesome overview.
One...Thanks for sharing Michael. Awesome overview.<br /><br />One thing I'm curious about is how you handle rebalancing given that the single logical portfolio is spread over nine accounts. I've struggled with this somewhat myself. If, for example, you find yourself with a surplus of VCN and a deficit of VTI - how do you reconcile this given that they are likely in different accounts for tax-optimization reasons? Presumably it's not as simple as selling one and using the proceeds to buy the other? Or do you simply tolerate the tax-inefficiency for a short period until, for instance, RRSP room/suitability opens up?Dave Liggathttp://liggat.orgnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-34601020457316422202014-10-31T13:23:55.600-04:002014-10-31T13:23:55.600-04:00Thanks for sharing your asset allocations. It'...Thanks for sharing your asset allocations. It's good to know that you're holding the US ETF's in your RRSP accounts as much as possible. Tawcanhttps://www.blogger.com/profile/17163696730038583040noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23324012590635103142014-10-31T11:29:57.330-04:002014-10-31T11:29:57.330-04:00I agree, there's a lot more to consider. 50k m...I agree, there's a lot more to consider. 50k may be to high but 5k still look pretty low. In my own portfolio, I often use RBC index funds with no transaction fee and 0.7% MER to invest my contributions or rebalance. Once a year, I do all the transactions to buy the ETF I need. Usually, it means 10k-25k chunksLe Barbunoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-45130993007713669382014-10-31T10:37:27.722-04:002014-10-31T10:37:27.722-04:00@Jason: You're right that the link I gave wasn...@Jason: You're right that the link I gave wasn't directly relevant. It's just that the tax treaty with Canada allows Canadians to be treated similarly to Americans. There is no reason to trust that this will stay the same in the future, though. I periodically confirm that I'm not subject to U.S. estate taxes.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-67183416188263657562014-10-31T10:20:44.315-04:002014-10-31T10:20:44.315-04:00Hi Michael,
The way I read it (I am not a residen...Hi Michael,<br /><br />The way I read it (I am not a resident or a citizen of the US) for non-residents it is a threshold of only $60,000USD - (http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States#Non-residents) <br /><br />I also read something similar directly on the IRS website (http://www.irs.gov/Individuals/International-Taxpayers/Some-Nonresidents-with-U.S.-Assets-Must-File-Estate-Tax-Returns)<br /><br />BUT now after doing a bit more research I see that Canadian residents benefit from a tax treaty that puts you under the 5.3 million umbrella. <br /><br />(http://www.pwc.com/en_CA/ca/estate-tax-update/publications/pwc-2009-04-13-us-tax-exposure-canadians-2013-02-19-en.pdf)<br /><br />and<br /><br />(http://www.bdo.ca/en/Library/Services/Tax/Documents/Tax-Bulletins/US-Estate-Tax-Issues-for-Canadians.pdf)<br /><br />That's a nice one. Like you said - pay attention.<br /><br />Thanks<br /><br />JasonAnonymoushttps://www.blogger.com/profile/11272210617136284717noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-36024839691230157422014-10-31T09:54:26.397-04:002014-10-31T09:54:26.397-04:00@Le Barbu: I think you may be answering a differen...@Le Barbu: I think you may be answering a different question. You are looking at whether to use U.S. or Canadian-domiciled ETFs. There are other things to consider in your analysis. For example, Canadian-domiciled ETFs holding U.S. stocks will have dividend withholding taxes in RRSPs, but the U.S.-domiciled ETF would not. Another thing to consider is that the MER difference is a cost difference for one year. The number of Norbert Gambits may be more or less often than once per year.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-49587791289026288502014-10-31T09:48:49.478-04:002014-10-31T09:48:49.478-04:00@AnatoliN: I use BMO Investorline. @AnatoliN: I use BMO Investorline. Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-6310492654304402752014-10-31T09:33:36.545-04:002014-10-31T09:33:36.545-04:00I was not clear. I meant to ask, what channel do y...I was not clear. I meant to ask, what channel do you use to perform your transactions? Some brokerage account or several, I suppose?AnatoliNhttps://www.blogger.com/profile/07937984526970646627noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-54363899478635731972014-10-31T09:32:56.638-04:002014-10-31T09:32:56.638-04:00Victoria, assuming a Norbert Gambits cost 50$ (4 t...Victoria, assuming a Norbert Gambits cost 50$ (4 transactions + bid/ask spread), here's the way you can estimate the thresold.<br /><br />VTI is 0.05% MER and VUN is 0.15%, the difference is 0.10%<br /><br />50$ / 0.10% = 50,000$<br /><br />You can also buy VDU to match VXUS<br /><br />I used to Norbert Gambits for 25k but with Vanguard Canada low on US and international ETF, I will reconsider my threshold higher.Le Barbunoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-64410685935050577132014-10-31T08:31:43.527-04:002014-10-31T08:31:43.527-04:00@Jason: I do consider estate tax. There is more t...@Jason: I do consider estate tax. There is more than one threshold. If your worldwide estate is below a threshold you don't have to pay U.S. estate taxes. According to Wikipedia (http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States), this threshold is US$5,340,000 in 2014. However, this threshold seems to change a lot from year to year. Pay attention.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-81980305856455607162014-10-31T08:25:22.547-04:002014-10-31T08:25:22.547-04:00@Victoria: I use the cash balances in my trading a...@Victoria: I use the cash balances in my trading accounts as my emergency fund. I use a threshold of between $4000 and $5000 for investing without any currency exchange. My threshold is higher for performing a currency exchange. So, what I do probably isn't much help to you.<br /><br />I do allow my allocation to Canadian vs. U.S. ETFs to get out of line up to a threshold. I described the details in the following post:<br /><br />http://www.michaeljamesonmoney.com/2012/03/portfolio-rebalancing-based-on-expected.htmlMichael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-13090219783956755112014-10-30T23:18:18.436-04:002014-10-30T23:18:18.436-04:00Hi Michael,
Great Blog. I do have one question th...Hi Michael,<br /><br />Great Blog. I do have one question though regarding using US ETF's. Have you considered estate tax? As I understand it, should you meet an untimely demise any US holdings are subject to an estate tax on values greater than $60K. I myself have a very similar portfolio to you and it's all held in the US (NYSE). That is why I am considering moving to TSX traded ETF's (VUN, VDU etc) where the estate tax is not applicable. What are your thoughts? <br /><br />Cheers<br /><br />JasonAnonymoushttps://www.blogger.com/profile/11272210617136284717noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-62349514942912202212014-10-30T23:08:55.744-04:002014-10-30T23:08:55.744-04:00Good evening,
I also own vti and vxus, and I'...Good evening,<br /><br />I also own vti and vxus, and I've always wondered what is the minimum transaction size that justifies using Norbert's gambit. Is it $5k?<br />If there is such a threshold, do you invest the funds in a $CAN ETF until you reach that amount?<br />Thanks,<br />VVictoriahttps://www.blogger.com/profile/07527959392182268941noreply@blogger.com