Millionaire Teacher Adds $20,000 to Canadian Bond Index

I’ve decided to show readers what I’m buying and when, hoping that it helps the average person understand how to think about stock and bond market movements.

In May, 2012, I bought $120,000 worth of my Canadian short term government bond index.  I don’t try to forecast the direction of the stock markets, nor do I speculate on the economy.  Doing so–and basing investment decisions on forecasts–is silly, not sophisticated.

I added to my Canadian government bonds in May, 2012, and told my readers about it, because the stock market’s rise was messing with the goal allocation I set for my portfolio:  42% bonds (to match my age) with the remaining money split between U.S. and international stock indexes. 

In May, 2012, my bond allocation was far less than 42%.  The stock markets had unmercifully risen, giving me a much higher allocation in stocks than my portfolio target.  As mentioned, my target is to have my bonds represent my age.  I’m 42, so I want roughly 42% in bonds, and I’ll increase that allocation as I age to reduce my account’s volatility as I get closer to the age of retirement.

Bonds are less volatile than stocks, and safer over the short term.

 

Please look at the blue line on the graph, as it measures the price increase of my U.S. stock index from November 2011 to May 2012.  You can see that it rose slightly more than 20% during this 6 month period. 

As a result of this rise, I sold some of my U.S. stock index and bought $120,000 of my government bond index.  The bond index is represented by the green line on the chart.

This rebalancing realigned my portfolio with roughly the following allocations:

  • 42% bonds
  • 31% U.S. stocks
  • 29% International stocks

The following month, I was fortunate enough to see my international stock index fall.  In total, since the beginning of April, it dropped 17%.

My account’s dividends don’t get automatically reinvested, and they had been stockpiling for a while (because I was too lazy to reinvest them).

In June, 2012, I coupled those dividend proceeds with my monthly salary savings to buy $29,000 worth of my international stock market index.

Look at the chart again:

The red line represents the international stock index.  During much of 2011 and early 2012, I had been adding plenty of money to the international index, encouraged by the European debt crises’ effect on the markets.  The international markets were dropping, and I was rubbing my hands and greedily buying.  Of course, all I was doing was trying to ensure that my portfolio was aligned as follows:

  • 42% Bond index
  • 29% U.S. stock index
  • 29% International stock index

Since my last purchase of the international stock index (June, 2012) the index has, unfortunately, risen 13%.  With some luck, it will drop again—hopefully, a lot.

Here’s what my portfolio looked like on September 1, 2012

  • 41.3%  Canadian bond index
  • 30.4%  International stock index
  • 28.3% U.S. stock index

To bring my portfolio back to alignment (or at least closer to my goal allocation) I placed an order to purchase $20,000 of my Canadian bond index yesterday.  I didn’t sell anything to come up with the proceeds.  They came from my writing, book sales and my teaching salary.

What I’m trying to show is this:

You can build a responsible portfolio on your own, with low cost indexes.  But if you start to concern yourself with market forecasts, you’ll likely be buying when you should be selling and selling when you should be buying.

Do I know where stocks and bonds will go over the next year? No, and nobody else does either.

Stay dispassionate, invest in low cost index funds, and you’ll beat the vast majority of investment professionals. 

You’ll even put most hedge fund managers to shame.





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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83 Responses

  1. Barry says:

    Hi Andrew

    Do you have a spreadsheet that you enter index prices into to show your allocation alignment/percentages or does your trading platform do this for you?

    As for the lessons and your particular money movements, I enjoy reading them, as they reinforce the concepts

    Regards

    Barry

    • Thanks Barry,

      My spreadsheet amounts to a piece of paper, a calculator and a pencil. If my portfolio were $10,000 in total, and my bonds represented $4,500 dollars of that, I just simply work out the percentage through division. There are easier ways, but hey, this works. And I only have 3 ETFs so it's pretty simple.

      Many brokerages (perhaps most) show allocations each time you log in. But my brokerage is in the dark ages—no allocations given, no reinvestment of dividends allowed and no performance charting. But…it's what I have. And it's OK.

      I'm sorry that I'm not familiar with the Australian holdings you asked me about. I might be inclined to go with low cost ETFs in Australia.

  2. Yu Ting says:

    Hi Andrew,

    How do you track your gains over time? I can see that you have been maintaining the allocation.

    However how do you know that there is constant growth of your assets and at what yield?

    Please enlighten me. Thanks!

    Regards

    Yu Ting

    • Hi Yu Ting,

      I no longer track my growth over time. I used to, but it isn't as important to me now. I know that I will beat the vast majority of professional investors with such a strategy, and that's more than enough for me.

      Has my portfolio produced consistent gains over time? I'm very happy to report that it hasn't. I would much prefer to see this portfolio lose $600,000 tomorrow, and stay down for many many years. Keep in mind that if this portfolio lost $600,000, it wouldn't be because of poor management or an imploding single stock. This portfolio, after all, represents the entire market. And it's rebalanced to reduce volatility. If the markets were hammered, this portfolio would be hammered along with it (to a lesser degree because of the bonds).

      I would be very happy if it fell. I am, after all, a stock and bond market collector with at least 20 more accumulating years ahead of me. I much prefer to see sinking prices or stagnating levels to rising ones. Unfortunately, I don't always get what I want!

      Cheers,

      Andrew

      • Yu Ting says:

        Hi Andrew,

        Thanks for enlightening.

        Cheers

        Yu Ting

        • Yu TIng,

          Here's a strategy that's very similar to mine, if you want to see a decade long performance chart and the year by year returns. Please have a look and let me know what you think: http://assetbuilder.com/andrew_hallam/couch_potat

          Cheers,

          Andrew

          • Yu Ting says:

            Hi Andrew,

            Thanks for sharing this strategy. It is very impressive and is certainly in line with the virtues of index investing.

            Pardon my lack of understanding, I would like to clarify: How do you determine whether to buy/sell or inject cash to rebalance?

            Do you inject new cash when the total portfolio value falls below 100%?

            Or do you constantly only aim to buy shortfalls. I am rather confused about whether there is any point in selling positive imbalances to lock in profits.

            Hope you can enlighten me again.

            Appreciate it a lot. Googling did not help me clarify my confusion much.

            Cheers

            Yu Ting

          • Hi Yu Ting,

            The less trading you actually do, the better. If you are always rebalancing by selling and buying, it will cost you plenty of money in commissions. I have my target allocations. The targets you set aren't that important, as long as your money is diversified across stocks and bonds, and low cost (ie. no fees to pay managers). It's important to stick close to your target allocation. Mine is 42% bonds (I am 42 years old) with the remaining money split between international indexes and U.S. stock indexes. If I have fresh money to deposit, and I notice that my bond allocation is lower than 42% of my total, then I buy bonds with the fresh money. If my U.S. index is lower than my international index's value, then I add to my U.S. index. If my allocation is out by roughly 15% (because one of my markets has skyrocketed) then I sell some of the rising market and rebalance. I don't really think about "locking in profits." It's not usually the vocabulary of a long term, diversified index investor. It's more the language of a shorter term speculator. And generally, shorter term speculators tend to make a lot less money over the long haul. You may have noticed that, when looking at the results of the typical hedge fund compared to the couch potato portfolio.

      • Barry says:

        Hi Andrew

        Ref the below..

        "I would be very happy if it fell. I am, after all, a stock and bond market collector with at least 20 more accumulating years ahead of me. I much prefer to see sinking prices or stagnating levels to rising ones."

        I'm guessing another investor 20 years your senior would be looking for a different market situation, but be glad he adjusted his Bond Index northwards along his journey?

        Barry

  3. Steve says:

    Hi Andrew,

    I am a big fan of the strategy and thanks for the great read. I guess i'm looking for confirmation here. If I set up a pre-authorized contribution plan to buy the TD e series funds (through the TD brokerage therefore no trading fees) and split my contribution according to the model you have set out, then i may have no choice but to sell the indexes that are disprportionate to buy the laggards. How often should I be doing this or how much out of proportion should be tolerated before doing this?

    Thank You for your guidance and inspiration

    Steve in Canada

    • Hey Steve,

      Rebalancing just once a year would be fine. Some years, if your portfolio is only out by 5% or so, you probably wouldn't need to bother. Easier than selling, is buying the lagging index each time you invest. You would have to do this online, manually, instead of having a set amount going to each index automatically, but it could reduce the number of times you need to rebalance. With this strategy, you might only need to sell/rebalance every other year.

      Cheers,

      Andrew

  4. Barry says:

    Hi Andrew

    So once the portfolio is set up, it's "hurry up and wait"?

    Small market noise doesn't affect you, only the larger booms/busts garner some interest, that and your birthday (bond increase time), dividend re-investing and lump sum payments

    I've seen one of my indexes move up to around 5% to 5.5% on purchase price, but nothing to write home about , meanwhile a number of resource stocks i sold out of have headed south of late so its been interesting timing wise to see my indexes in green and some of the old stocks in red. The timing was right as I changed strategies..now I'm 'slowly' getting used to "set & forget",but still have to look at whats happening in the overall market

    Barry

  5. andysterdam says:

    Hi Andrew,

    I posted a more convoluted version of the message below before, but I've edited it for clarity:

    I’m a Canadian holding VTI and VEA in Questrade, as per your book’s recommendation. So here's my dilemma: ’m thinking that if I hold a Canadian bond (in CAN dollars) with my VTI and VEA holdings in the same account, I could lose big when it comes time to rebalance. How do you deal with that in your own portfolio, which as I recall holds XSB, VTI and VEA? Wouldn’t it be better for me to buy BND or BSV instead? And since we’re on topic, would you go for BSV or BND? I know you prefer short-term bonds, but BSV is paying about half what BND pays in dividends.

    Thanks for any insight into this!

  6. andysterdam says:

    Hi Barry and Andrew,

    The Canadian Capitalist created a very handy spreadsheet to rebalance his portfolio. You can change the figures to suit your own portfolio, or even delete one of the rows if you've only got three indexes. I love this tool!

    Link to post:
    http://www.canadiancapitalist.com/sleepy-portfoli

    Link to tool:
    http://www.canadiancapitalist.com/spreadsheets/sl

    • Barry says:

      Thanks Andysterdam

      I did find that one recently and a version from Canadian Couch Potato from memory, I've "jigged" a couple of them to reflect my Australian Portfolio of VGB,VEU,VTS & STW and a re-balancing strategy to show when to re-balance

      I'm now trying to find a similar one to track the portfolio

      I'm looking at the annual review of an Australian Listed Investment Company and thinking I should monitor the portfolio annually in a similar style:

      http://www.edocumentview.com.au/afi3/2012/662/def

      Barry

  7. Barry and Andysterdam,

    I'm thrilled that you are sharing information on this site. Thank you. This is what it's for.

    Cheers!

    Andrew

  8. adam says:

    Hi andysterdam,

    I think most passively managed / couch potato / lazy portfolios recommend holding an ETF that tracks the home country index as well. So as a Canadian you should hold XIC or VCE to help rebalance the bond portion (XBB, XSB, VAB or VSB). About rebalancing, I think Andrew would say there is nothing wrong with doing it once a year with fresh money, so the Canadian bond funds would not incur any currency exchange fees anyway.

  9. Barry says:

    There's an interesting article here also titled "Why Panic? A Couple’s Nest Egg Better Left Alone" from the NY Times which re-enforces some of the concepts

    http://www.nytimes.com/2012/03/22/your-money/why-

    and a chart

    http://graphics8.nytimes.com/packages/images/news

  10. Daniel says:

    Hi Mr. Hallam,

    You said that the ETF version of a US bond index would be (SHY). Would (BND) be a good alterntive? It is a Vanguard ETF, so it would be commission-free for those using Vanguard brokerage accounts.

    And do bond/stock index ETFs tracking the U.S. and world markets give out dvidends or interest like regular stocks and bonds?

    Thanks,

    Daniel

  11. BCT says:

    Hi Andrew,

    Love the book and the site. I'm a teacher from Alberta originally from Victoria. Question, considering that I have a DB plan and my wife is in the oil patch, should I consider structuring our overall retirement portfolio by viewing my pension as the bond allocation? In other words, putting my wife's rrsp entirely in index efts. Perhaps just a US and international.

    • BCT, you could certainly do that. Keep in mind that the portfolio would be volatile. I may be inclined to keep 20% in bonds to take advantage of any crazy market swings (hence, opportunities to rebalance) but if you can tolerate high volatility, and have the defined benefit program in the background, you could certainly do it.

  12. ShellAlaska says:

    Hi Andrew,

    I love the book. I am 24 years old and have recommended it to every single friend I have who seems to think owning a portfolio of JUST apple stock is investing….

    I currently have the couch potato portfolio set up. TD E-series indexes: 25% Canadian Bond index, 25% Canadian Stock Index, 25% US stock index and 25% International index.

    My question is: should I own a US bond index and international bond index as well? I have been wondering this since starting my portfolio.

    Thanks!

    • Ken says:

      Hi ShellAlaska,

      I don't think you need US or international bonds. Buying US and international bonds would have currency risk, currency exchange costs, and probably tax issues.

      Don't forget one of the advantages of couch potato investing, especially with TD e-funds, is the simplicity of it.

      Ken

    • Hi ShellAlaska,

      Congratulations on setting up such a fabulous portfolio.

      As for your bond question, I'm with Ken on this one. Keep it simple, and keep a home country bias with the bonds. There's no need for international bonds.

      Cheers,

      Andrew

  13. Barry says:

    I'm looking at re-balancing quarterly with new funds, though every 12 months (+1 day) looks good also as we also have a Capital Gains Tax discount here, for assets held for 12 months or more before the relevant CGT event.

    It allows you to reduce your capital gain by 50% for individuals (including partners in partnerships) and trusts and 33 1/3% for complying super funds. Its not available to companies.

    To work out the applicable CGT you subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage

  14. KC Chan says:

    Hi Andrew,

    For a Singapore citizen or PR are there any withholding tax on the dividends or the profit that one may make on the sales of the Vanguard ETF funds like VGK or VOO ?

    Also are the Vanguard ETF funds like VGK or VOO plain vanilla ETFs or are they synthetic ETFs?

    Thx for any advice thart you can give. Rgds.

    • Hi KC Chan,

      These aren't synthetic ETFs, they're the real deal. For Singaporeans, there's a 30% witholding tax on dividends, but no capital gains taxes on price appreciation. If you made 10%, roughly 8% of that would come from capital gains and 2% from dividends. You would pay 30% of your dividends in tax, amounting to 0.6% (0.6 is 20% of 2)

      So if you made 10% pre-tax, you would make 9.4% post tax. It's still a great deal, especially considering how cheap the funds' expense ratios are. In contrast, a typical Singaporean unit trust has internal costs of 1.75%. In this case, if the markets made 10%, you would only make about 8.25%. Over the long term, this all adds up.

      Oh, also…if your unit trust has some U.S. holdings, the fund company will deduct 30% witholding tax from the fund profits.

      Cheers,

      Andrew

  15. Daniel says:

    Hi Mr. Hallam,

    I am currently taking a gap year in Singapore, before going to college in the U.S. next year. Because I do not have a U.S. address, I cannot make a Vanguard account.

    Would using a friend's U.S. address be a practical solution? And is the address used for anything other than mailing statements? (If that's all, then I can receive statements online so it wouldn't be a problem)

    Also, is there a profit amount that one must make before being taxed in the U.S.? (I heard $8000, but I'm not sure)

    Thank you,

    Daniel

    • Hi Daniel,

      Unofficially, you could use a friend's address if you're an American. But officially, you can't. It's your address, not your friend's address, right?

      And yes, the tax system in the U.S. is laddered. There's a lower end exemption.

  16. Jack Kerr says:

    Hi, I just found out about your trading "style", and like it!

    I was wondering with a 1.7M$ portfolio how you have allocated your funds.

    DId you "really" put e.g. 500K$ in one ETF, and 400K$ in another, and so forth, for about 5 ETFs?

    Isn't it putting all your "eggs in one (very large) basket?"

    Thanks for clarifying.

    Jack

  17. K.F. says:

    I have been looking at Vanguard Index Funds too. I am 29 years old living in Canada. I worked for the Canadian federal government with a solid pension plan so my risk tolerance is quite high. I am planning to divide my portfolio as follows:

    40% Vanguard MSCI Emerging Markets Index ETF

    40% Vanguard MSCI U.S. Broad Market Index ETF (CAD-hedged)

    20% Vanguard Canadian Aggregate Bond Index ETF

    Do you think that the portfolio above is diversify enough or should I take it one step further and do this:

    20% Vanguard MSCI Canada Index ETF

    20% Vanguard MSCI EAFE Index ETF (CAD-hedged)

    20% Vanguard MSCI Emerging Markets Index ETF

    20% Vanguard MSCI U.S. Broad Market Index ETF (CAD-hedged)

    20% Vanguard Canadian Aggregate Bond Index ETF

    Your input is much appreciated.

    K.F.

  18. Lucas K says:

    Hi Andrew,

    I really enjoyed the book. Over the past few weeks I've been learning as much as possible, been through the Wealthy barber (1&2), Automatic Millionaire, Millionaire Teacher, rich dad poor dad, and parts of a couple others. I'm in college, studying to be an accountant, so I don't have a ton of money. But through paying myself first I found I'll be able to put away about $300/month. Right now the plan is to go all $300 into a TFSA ($5000 a year cap) since I won't cap it out in the next few years atleast (Until Im done school).

    I'm going in on Tuesday to set up my TFSA, at Scotiabank, what I'm having trouble with is how I will contribute monthly. Is there a way that I won't have to pay a trading fee for each index every month? Also I'm 19 years old so I was thinking something like, 25% Canadian Bond Index, 25% Canadian Stock Index, 25% International Stock Index, 25% US Stock Index.

    Thanks for all the writing you do.

  19. Hi Jack,

    Even putting $5 million into a single ETF, like VT (the world stock market index) would give you more quity diversification than a dozen actively managed mutual funds. Understanding where the money is going is important. And with the ETFs I own, the money is getting spread (with each ETF) into thousands of little baskets.

    Cheers,

    Andrew

  20. Young says:

    Lucas,

    Scotia iTrade offers 50 commission free ETFs.

    You can buy only one share of those ETFs commission free!

    So you won't have any problem investing $300/month to buy 4 ETFs you wanted.

    ex)

    Canadian Index: CRQ, HXT, XMD, HUT (I prefer CRQ or HXT)

    US Index: CLU, HXS (I prefer HXS)

    International Index: CIE, VEF (I prefer VEF)

    Canadian Bond Index: CLF, CBO, CAB (I prefer 50% CLF and 50% CBO)

  21. Lucas K says:

    Thanks for the tips guys, much appreciated. I ended up going with a TFSA at scotiabank with investments into their index funds. So no commission when buying.each month which worked out well. Very exciting to start my.investment journey.

    Lucas K

  22. kulvir says:

    Hello Andrew,

    Loving the site and resources.

    Getting ready to set up as a Canadian in Canada. In terms of bonds do you have an opinion of short term vs a mix of terms. I believe in your book you mentioned XIB which i believe is a mix of terms. However in your globe and mail portfolio you went with VSB rather than XIB.

    Would you kindly comment on say VSB vs VAB (which i think is essentially XIB)?

    Also should it bother me at all that Vangaurd is so new in Canada and thinly traded compared to say ishares?

    Thanks in advance!

    kulvir

  23. Bernard Lee says:

    Hi Andrew,

    What do you think about United Emerging Markets Bond Fund. Apparently there is a 7%pa dividend promo till Aug thereafter it's around an average of 5% of so that's what they claim. But there is a one time fee of 5%, no subsequent fees later on.

    Regards

    Bernard

    • Hi Bernard,

      To be honest, great investments don't really advertise, so I would be wary. What is the fund's expense ratio? Keep in mind that this sounds like an actively managed bond fund. The odds of beating a bond index over a long period of time (especially with an actively managed bond fund) will be very low indeed. I would give it a miss.

  24. Pierre-Luc says:

    Hi Andrew,

    Great website, your story is very inspiring!

    From a taxation point-of-view, I know that it is preferable to hold bonds and high yield equities in a registered account, but on the other hand, to keep my investments balanced, shouldn't the composition of the assets in the different accounts be affected by the possible need to rebalance the portfolio using existing assets in the advent of important market changes? For example, if an index drops by 50% like in 2008, I would need to sell a large fraction of my bonds to keep my portfolio balanced. If my bonds are located in an RSP and my index ETFs in a non-registered account, I would have to pay full taxes on the transferred assets, while this could be avoided if I had the same composition of assets in each account, although I would have to pay full taxes on the bond interests from the non-registered accounts.

    Is there a clever way to deal with taxation vs portfolio balancing?

    Thank you!

    • Pierre-Luc,

      The idea of keeping your fixed income in a tax deferred account is a great idea. If it's any consolation, studies have shown that annual re-balancing reduces volatility, but doesn't always improve returns. In fact, not re-balancing at all can be (and has been during many historical periods) even more profitable than re-balancing. For this reason, John Bogle (founder of Vanguard) doesn't do it himself. This might help your dilemma somewhat.

      Cheers,

      Andrew

  25. Barry says:

    Hi Andrew

    Just having a look at the Australian Bond Index ETF available from Vanguard and thier respective size/holdings….which would be a better bond index and why?

    https://www.vanguardinvestments.com.au/retail/ret

    https://www.vanguardinvestments.com.au/retail/ret

    Vanguard® Australian Fixed Interest Index ETF (VAF) or Vanguard® Australian Government Bond Index ETF (VGB)

    • Hi Barry,

      The first one listed above is broader. It owns government and corporate bonds. As such, it will likely yield a slightly higher return over time. It won't yield more every year, nor during every five year period, but the addition of non government bonds will add some juice over time. Keep in mind, it is very safe. Most of its holdings are government bond holdings. The second one you listed is purely a government bond index. Both are excellent choices.

      Cheers,

      Andrew

  26. Pierre-Luc says:

    Hi Andrew,

    Regarding your advice about avoiding to re-balance, I guess this is particularly true for taxable accounts, due to taxation on capital gain. Is it something that you would also recommend for registered accounts as well though, particularly in the context of the market since ~1997 where the S&P 500, for example, has peaked only ~2.25% higher in 2007 compared to 2000? Nobody can obviously predict the future, but I was wondering if there is a method of balancing a portfolio that can do better on average regardless?

    For example, I have been reading different articles and papers about value averaging vs dollar cost averaging lately and there seems to be some consensus that value averaging might do better when only considering the equity part of a portfolio, but I have not read anything satisfying about the performance of value averaging in the context of a portfolio that also contains bonds…

    I was also wondering if you have any particular thought regarding low cost ETFs that follow a value index, such as VTV that follows the MSCI US Prime Market Value Index ?

    I am 32 and I finished school one year ago. I got rid of my student debts and managed to save about $65k (I finished my degree while working full-time). The part that gives me the hardest time regarding how to invest my existing savings is how to initially split this money between a low cost index ETF and bonds, and also what is the best way to keep the portfolio balanced in the future. I can see how it will be probably possible to initially keep it balanced by injecting new savings, but it will not be the case once the value of my investments becomes much larger than my yearly income. Also, the stock markets have been growing since 2008, so it is not obvious to me if investing most of my existing savings into the stock market is the best move for now.

    The last thing that I am not sure about is if investing my age in bonds is the best for me since I am older as a new investor. I noticed that some of the Vanguard Target Retirement funds keep only 10% of assets in bonds for quite a while before ramping it up when approaching retirement. Do you have good literature to recommend regarding the optimisation of asset allocation as a function of investment duration?

    Thank you!

  27. Joe says:

    Hi Andrew,

    I am following your investing model and after re balancing my portfolio I need to make additions to my bond allocation. Currently I have XBB, although I am noticing a lot of people are recommending XSB now due to interest rates rises in the future?

    What's you thoughts on which Bond ETF I should go for, stay with XBB or move to XSB or another bond?

    Joe

    • Hi Joe,

      I don't pick indexes based on speculation. I own XSB because it's a short term index, and over the long haul (as I mentioned in my book) short term government bond indexes have higher odds of continually beating inflation because they renew their bonds faster. Ignore other people's moves that are based on speculation, however. If you stick with XBB, you will invest the pants off most people who are switching from XBB to XSB, based on their interest/inflation forecasts. People who are pulled around by speculation will always be pulled by speculation. Stick to a solid plan, ignore speculation, the economy, interest rates etc. And doing so will ensure that you beat the returns of those who lack that discipline.

      Cheers,

      Andrew

      • Oh, and since you did specifically ask, buy VSB.To. It's the same as XSB but it has a lower expense ratio.

        I own XSB still because it will cost me thousands of dollars in commissions to switch out of it. I own a lot of it. When I add bonds now, I add VSB.

        • Joe says:

          Thanks Andrew as always. I just re-read page 87 to recap on your advise 🙂

          You mention that selling your XSB will incur thousands of dollars in commissions, is this because your brokerage charges commissions on bond sales?

          My brokerage says no commissions are charged on selling bonds, so with this, would it make sense for me to sell my XBB and move all over to VSB or are the factors that I haven't taken into account with selling the XBB?

          As you can see, I am still learning, and think I always will, but feeling a lot more confident by adapoting your model over the last year.

          • Hi Joe,

            You will pay commissions to sell your bond ETF….but not if you owned individual bonds.

            You will likely pay between $9.99 to $25 to make your sale. My brokerage account is a foreign one. And I own more than one million dollars of my Canadian bond ETF. The brokerage I use charges much higher fees than Canadian brokerages do (I live in Singapore) and the sale sum, of course, is large.

          • Joe says:

            Hi Andrew,

            Me again. Ok, so this is a real novice question, here I go.

            If VSB has a yield to maturity of 1.6% would I not be better of putting my funds in a high interest savings account offering a higher interest rate than 1.6% ? Or maybe I am missing something on how I can gain more over the long term with VSB than a savings account offering 2% for example.

            Thanks again.

        • kulvir says:

          Hi Andrew,

          I was thinking for me to go from XBB to XSB or VSB would just cost $9.99 to sell and $9.99 to buy. Why should it cost thousands? Am i missing something?

          thanks,

          kulvir

          • Kulvir,

            I live in Singapore, where the brokerage commissions are much higher than they are in Canada. Also, I own more than one million worth of my bond ETF. Often, commissions are higher when moving around sums that are that large. A Canadian brokerage would be much kinder to me, however.

            Cheers,

            Andrew

          • Jeff says:

            Hi Andrew,

            I'm not trying to drag this out, I just want to understand as much as possible.

            I have a CIBC online trading account. Here are the posted MER rates for the 3 funds in the recent discussion

            XBB – .33%

            XSB – .28 %

            VSB – .69 %

            That said I personally don't think the .05% difference is enough to jump to XSB even though it would only cost me $6.99 for a sell and buy, unless of course you could give me a good reason to switch. Now the VSB has a much higher MER so has little interest to me.

            Your thoughts as usual are much appreciated.

            Thanks

            Jeff

          • No problem Jeff,

            The expense ratio on VSB is actually 0.15%
            https://www.vanguardcanada.ca/individual/etfs/etf

            Cheers,

            Andrew

          • Jeff says:

            Hmmm…….. I will call CIBC for an explanation as to why they have it at .69

          • Jeff,

            CIBC has nothing to do with Vanguard's ETF. They have no need (nor any desire) to post it. So you must be looking at something else instead…some kind of CIBC product, perhaps?

            Cheers,

            Andrew

          • Jeff says:

            Andrew,

            Part of the CIBC online account is to provide the details you need for any fund that you might buy. Their site clearly states an incorrect MER for the Vanguard VSB fund. I brought it to their attention and received this reply. Just so you know I'm not crazy 🙂

            Good morning, Mr. Kowalsky,

            Thank you for bringing this matter to our attention. I apologize for the discrepancy between the MER displayed on our website and that displayed on Vanguard's website.

            I have forwarded your concerns to our technology partners who are currently working on resolving this issue. In the meantime, please accept the MER posted on the Vanguard website as the correct MER to use when basing your investment choices.

            Once again, thank your for reporting this matter, and for providing us the opportunity to rectify this situation. We greatly appreciate your business and trust you will continue to count on CIBC for all your future financial needs. If you have any questions, please do not hesitate to reply to this mailbox or call our Contact Centre at 1-800-567-3343 (Monday to Friday, 8 AM to 8 PM ET).

            Sincerely,

            Adrian Ramsahoye

            Client Escalation Representative

            CIBC Investor Services Inc.

          • Nice work Jeff,

            I wonder if any of the others were posted incorrectly.

            Cheers!

            Andrew

  28. Albert says:

    Hi Andrew

    Im about to open an account with Vickers.

    My question is, if i have around $30k to invest, should i invest in a lump sum, divided by the proportions in equity and bonds, or is it better to invest monthly (ie $1000/mo+ whatever extra i might have to invest) to achieve some $ cost averaging?

    Cheers

    Albert

  29. R. Mohan says:

    Andrew:

    Since Vanguard announced that they are going to have an International Bond Index fund/etf, how could this be fit into the strategy that you explained in your book? Diversification yes…

    Complete US Stock Market Index Fund – checked

    All World Stock but US Index fund – checked

    Complete US Bond Index fund – checked…% roughly one's age

    Where would a Complete International Bond fund fall into our mix, and if any, what would be the guideline for percentage allocation?

    thanks!

    • To avoid taking global capitalization risk, you could split your bond component 50-50 with domestic and international, just as you would do with the stock indexes. This would still give your portfolio a domestic bias, while keeping you very very diversified. A wonderful product to add!

      • R. Mohan says:

        Andrew:

        Hi! thanks for the reply…! I was wondering, I know from your book and your posts that U R against market timing…but since the US is facing the the well-known "financial cliff" part 2…would you consider it an opportunity to push fresh money into our current index funds portfolio at a lower cost? Since looks like markets are sliding down a bit since we are approaching the March 1st deadline…or let's just ignore the temp market movements, and keep putting fresh money (when possible) into our index fund portfolio at regular intervals in order to reap the benefits of dollar cost averaging?

        thanks!

  30. Albert says:

    Hi Andrew

    Im about to open an account with DBS Vickers.

    My question is, if i have around $30k to invest, should i invest in a lump sum, divided by the proportions in equity and bonds, or is it better to invest monthly (ie $1000/mo+ whatever extra i might have to invest) to achieve some $ cost averaging?

    Cheers

    • Hi Albert,

      Studies show that investing it all at once gives higher odds of success. That said, if you would be upset to see your $30K drop to $27K after just a few months, then you may be psychologically better off dollar cost averaging.

      Cheers,

      Andrew

  31. Daniel Kim says:

    Hi Mr. Hallam,

    Would investing every month to buy the laggard be better, or investing once a year be better? (assuming no brokerage fees)

    Thanks,

    Daniel

  32. sundar says:

    Is Vanguard Long-Term Bond Index ETF (BLV) good to buy? I live in Singapore

    • Hi Sundar,

      Great question: With interest rates so low, I would consider twice before buying a long term bond index. When interest rates rise (and they almost surely will) you'll be making less than inflation.

      Cheers,

      Andrew

  33. Tristan says:

    Hi Andrew,

    I'm a 30 year-old Canadian who, after reading your book and those of other like-minded investors, is interested in setting out on an ETF/index fund investment program. I have roughly 30k to invest which is to be followed by regular monthly purchases thereafter. I am looking at the following and was wondering if you would have any input:

    30% CDN bond – VSB

    20% US equities – VTI or XSP

    20% CDN equities – XIU

    30% International equities – XIN

    I was also considering whether to carry CDN indexes at all (gasp), instead dividing its 20% allocation between more US or INTL equities. Any thoughts on my index choices/portfolio allocations? They would be most welcome.

    Thanks for the excellent information you provide on this site.

    Regards,

    Tristan

    • Hi Tristan,

      Choose VCE for your Canadian equities (if you choose to own them) and perhaps VEA for your international, instead of XIN. They are newer, cheaper, ETF options.

      Also, Vanguard has offered a new S&P 500 ETF which isn't hedged to the Canadian dollar, and it's cheap. So it's a better option than XSP. Here it is: https://www.vanguardcanada.ca/individual/etfs/etf

      Cheers,

      Andrew

      • Pierre-Luc says:

        Hi Andrew,

        could you comment about holding VFV vs VOO in a portfolio that also contain US-listed ETFs? Is VFV advantageous compared to VOO if I convert currency using Norbert's Gambit. With VFV, currency conversion fees are part of the extra 0.10% in MER, right?

        Thank you!

        • Hi Pierre-Luc,

          Currency conversion costs and management expense ratios are different animals. If you are Canadian, you could solely use Vanguard Canadian-listed ETFs, ensuring that you don't have to worry about currency conversions.

  34. Oliver says:

    For bonds, should one take into account the country he is located in for consideration? Does it make sense to spilt the bond allocation into 2 or more countries to balance currency risk as well?

    Assuming one lives in Singapore with SGD seeming to continue to strengthen against most major currencies. It seems buying a Singapore based bond makes the most sense. It might not always be the same. I asked this as I am still trying to wrap my head around how currency could play a part in index investment in the long term.

    • Hi Oliver,

      I don't make speculations betting where a currency is headed based on where it has been. If forced to speculate, I would do the opposite: run towards a lagging currency rather than a strengthening one. But I'm a value guy at the core.

      If your portfolio is properly diversified globally, you won't need to worry about what currencies are doing well and which ones aren't. By the time you retire (assuming you have a couple of decades) the "favorable" currencies would have flipped many times. It's best not to speculate. Invest, diversify, and leave the fortune telling to the folks at the fair.

      Cheers,

      Andrew

  35. Rahim K says:

    Hi Andrew,

    Greetings from Montreal. I just bought your book and I'm excited to read it!

    I've been following your blog (as well as others advocating low-cost index funds) and recently switched my actively managed portfolio (2.1% MER) for index funds instead (avg. 0.7% MER). All of my accounts (chequing, savings, RRSP, TFSA, line of credit, VISA) are with RBC so I decided to stick with them to keep my accounts consolidated. I'm starting small with my RRSP investments until I fully pay off my student debt. Here's what I've decided for my index fund portfolio mix: 34% Canadian bond index (I'm turning 34 this year), 33% Canadian stock index, and 33% US stock index.

    My question is: do you recommend adding an International stock index into the mix? When I have some additional money to invest regularly, I'm planning on adding it to my portfolio. Thoughts?

    Thanks in advance!

    Rahim

  36. David says:

    Hi Andrew,
    I met you at a book signing where you hail from here in the Comox Valley. I read your book and really enjoyed it, passing it along eventually to my grown up kids. I followed your recommendation and invested 40-20-20-20% each in XBB, XIN, XSP, XIU. My current average for around 15 months invested so far is an average gain of 11.80% not counting dividends. I know, I’m supposed to be disappointed they are up. I haven’t rebalanced yet because I’m lazy.

    I’m going to rebalance now though (and reinvest my dividends) and use the opportunity to switch to vanguard which was not available in Canada when I bought your book. I plan to switch from XBB to VSB, XSP to VFV, XIU to VCE, but here is my question, I don’t see a Canadian Vanguard equivalent to XIN? Just some emerging market variations, not international equities index etf like XIN (which has been doing well)

    I read a post you made somewhere else that the i shares funds are currency hedged which put a drag on gains. That’s another reason I am making the switch. Thanks again for this great site and it was cool to meet you in person.

    David

  37. Jamie says:

    Hi Andrew,

    I was wondering how you feel about the interest rates rising and the impact it will have on bond indexes such as the TD e series Canadian Bond Fund?

    It’s a simple question but at the same time it’s significant if you consider the implications on someone’s portfolio.

    Looking forward to hearing about how we tackle this new and upcoming investing environment.

    • Hi Jamie,

      The rising yield was partly due to a drop in world bond prices. I like to see that. Rising prices irritate me, although they’re inevitable, and over the very long term, we certainly want them for stocks. But I’m thrilled to see that my bond index price has dropped, resulting in a higher yield on the bonds I have yet to buy. I’m a collector Jamie. And I want to collect my products at cheaper prices. If I were 70 years old, I might be disappointed to see my bond prices drop, but as a 43 year old, I celebrate.

      Cheers,

      Andrew

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