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OK hello everyone and hope you’ve had a fantastic New Year’s Eve. The Investment Workshop is back after a brief hiatus being elbowed aside by the holidays shutting all the banks down and our recent Chautauqua UK announcement. New readers, please click here to start from the beginning.
So what does our portfolio look like at the beginning of 2017?
Canadian Portfolio
On the brokerage view, it’s actually $1010, but on Personal Capital is shows $1009. I think it’s a syncing thing since this graph is showing the price for Jan 4th rather than Jan 5th. Anyway, our portfolio is already up $10, or 1%! And we’ve only been investing for 30 days!
Now obviously, don’t go and do anything stupid like extrapolate this performance out for the year (1% x 12 should be 12% YoY gain! Woohoo!) Yeah, that’s not how investing works. But that is, I have to say, a damned impressive performance given that everyone, and I mean EVERYONE, predicted market carnage after Trump got elected. It may happen yet, but I am happy to admit being wrong on this front.
Now, how did the underlying assets do? Let’s zoom in a bit by clicking on the “Portfolio -> Holdings” tab.
Again, nothing too exciting from looking at the overall portfolio. But now, let’s take a look at the underlying assets.
Here’s bonds (VAB.TO):
Interesting. Bond bubble bursting, my ass! Looks like the bond market sell-off that happened when the Fed raised its key interest rate has risen back up to its level before.
While it’s too early to draw any real conclusions out of this, the rise in bond prices and a drop in bond yields indicates money moving towards safety. Normally, this would be a sign of investor pessimism. But look what’s happening on the equity side!
First let’s start with the TSX (VCN.TO):
Wow, that is NOT pessimistic. This is likely due to oil prices rebounding that’s been happening over the last 30 days, caused either by OPEC instituting supply cuts or just plain old economic optimism.
Now let’s look at the US Index (VUN.TO)
Unbelievable, isn’t it? Wall Street certainly seems to have a hard-on for Trump.
And now Europe (XEF.TO)
Yeesh. More optimism.
And finally, Emerging Markets (XEC.TO)
More volatile, to be sure, but still currently on a positive uptrend.
So yeah. while it’s difficult (and stupid) to try to conclude anything from this short a time period, we appear to be seeing both a risk-on AND a risk-off movement. That’s very strange and likely won’t last. Eventually one side will win out and overwhelm the other, but we don’t know which one. Which beings us back to the the basic rule of Index Investing: Don’t Try To Time The Market!
US Portfolio
Over on the US side, we see much of the same strength in our portfolio, except even more so because of the relative strength of the USD.
We are up even more on the US side, 1.2% up since the start of this workshop. Amazing.
Now let’s zoom into the portfolio performance on Personal Capital:
And again, the rather steady and boring performance of the balanced portfolio hides the wild(er) swings happening below. Here’s the Bond fund (BND)
Bonds have, just like on the Canadian side, rebounded from their decline following that Fed interest rate hike. What does it mean? Wall Street is feeling pessimistic.
And yet we see the simultaneous optimism on the equity markets. Let’s look at the US Index (VTI):
And even in Europe (VEU):
Where’s all this optimism coming from? Beats me. Personally, I think all this optimism is a bit overblown and we could see a correction coming in the next few months, but again, NEVER TRY TO TIME THE MARKETS.
In fact, we here at Millennial Revolution believe that SO much, we will now put in our new market orders for our next buy.
The Buys
If you recall, last week we were scheduled to do a buy with an additional $500 in each portfolio, but we got blocked by markets being closed and banks on holiday. Well, now that everything is back online and operational again, we will now proceed with that buy. Even though I personally think a correction may be around the corner either for the equity or the fixed income markets, nobody knows for sure, and I’ve long since given up trying to guess based on the news. It just doesn’t work. The only thing that works is steady, consistent purchase in building up your low-cost Index Portfolio.
OK first, let’s do the Canadian one.
Canadian Portfolio
After we add an additional $500 to the account, our portfolio now looks like this using the closing prices from Jan 5, 2017.
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | $25.44 | 15 | $381.60 | 25.33% | 40% |
| Canadian Index | VCN | $31.42 | 6 | $188.52 | 12.51% | 20% |
| US Index | VUN | $41.96 | 5 | $209.80 | 13.92% | 20% |
| EAFE Index | XEF | $26.65 | 6 | $159.90 | 10.61% | 16% |
| Emerging Markets | XEC | $22.39 | 2 | $44.78 | 2.97% | 4% |
| Cash | – | $1.00 | 522.12 | $522.12 | 34.65% | 0% |
As expected, the additional cash has put our portfolio off balance. So now we simply calculate how many units of each type to buy to bring out portfolio back to target.
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference |
|---|---|---|---|---|---|---|---|---|
| Canadian Bonds | VAB | 40% | $25.44 | $381.60 | $602.69 | 15 | 23.7 | 8.7 |
| Canadian Index | VCN | 20% | $31.42 | $188.52 | $301.34 | 6 | 9.6 | 3.6 |
| US Index | VUN | 20% | $41.96 | $209.80 | $301.34 | 5 | 7.2 | 2.2 |
| EAFE Index | XEF | 16% | $26.65 | $159.90 | $241.08 | 6 | 9.0 | 3.0 |
| Emerging Markets | XEC | 4% | $22.39 | $44.78 | $60.27 | 2 | 2.7 | 0.7 |
| Cash | – | 0% | $1.00 | $522.12 | $0.00 | 522.12 | 0.0 | -522.1 |
So our ACTUAL buys (since we can’t buy fractional units) will look like this
| Asset | Ticker | Unit Price | Action | Units | Proceeds |
|---|---|---|---|---|---|
| Canadian Bonds | VAB | $25.44 | BUY | 9 | $228.96 |
| Canadian Index | VCN | $31.42 | BUY | 3 | $94.26 |
| US Index | VUN | $41.96 | BUY | 2 | $83.92 |
| EAFE Index | XEF | $26.65 | BUY | 3 | $79.95 |
| Emerging Markets | XEC | $22.39 | BUY | 1 | $22.39 |
| Total | $509.48 |
Again, make sure before you put in your orders that your total doesn’t exceed the cash you have in your account. You don’t want to go into margin here.
And…that’s it! We’re done! Orders have been put into to the exchange and will be filled throughout the day.
US Portfolio
Now let’s do it for our American Portfolio.
As of Jan 5, 2017, this is what our portfolio looks like after adding in an additional $500 USD.
| Asset | Ticker | Unit Price | Units | Market Value | Allocation | Target Allocation |
|---|---|---|---|---|---|---|
| Bonds | BND | $81.07 | 5 | $405.35 | 26.76% | 40% |
| US Index | VTI | $116.90 | 2 | $233.80 | 15.43% | 30% |
| International Index | VEU | $45.27 | 7 | $316.89 | 20.92% | 30% |
| Cash | – | $1.00 | 558.72 | $558.72 | 36.89% | 0% |
Surprise, surprise, the cash has knocked us off target. So we again calculate what we have to do to bring us back on.
| Asset | Ticker | Target Allocation | Unit Price | Current Market Value | Target Market Value | Current Units | Target Units | Difference |
|---|---|---|---|---|---|---|---|---|
| Bonds | BND | 40% | $81.07 | $405.35 | $605.90 | 5 | 7.5 | 2.5 |
| US Index | VTI | 30% | $116.90 | $233.80 | $454.43 | 2 | 3.9 | 1.9 |
| International Index | VEU | 30% | $45.27 | $316.89 | $454.43 | 7 | 10.0 | 3.0 |
| Cash | – | 0% | $1.00 | $558.72 | $0.00 | 558.72 | 0.0 | -558.7 |
And finally, rounding our units to whole numbers to come up with our actual buy orders.
| Asset | Ticker | Unit Price | Action | Units | Proceeds |
|---|---|---|---|---|---|
| Bonds | BND | $81.07 | BUY | 2 | $162.14 |
| US Index | VTI | $116.90 | BUY | 2 | $233.80 |
| International Index | VEU | $45.27 | BUY | 3 | $135.81 |
| Total | $531.75 |
And that’s it! Orders have been entered and will execute once markets open.
That’s it for this week, everybody! Hopefully you’re starting to get what investing feels like in practice:
- We NEVER market time
- We do our buys, sells, and rebalances very methodically and without emotion
- We keep things simple.
Peace out.
Or…continue onto the next article!
WORKSHOP TOOLS
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Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.
Thanks again for this amazing tutorial. For first time nervous investors, nothing beats this handholding. I’m wondering if one week, you could hold my hand through an ETF’s market performance summary (is that what it’s called?) and point out what we should be looking for, what makes it an interesting ETF, how to understand it’s yield, etc… I keep going to Yahoo Finance and entering tickers but I am not fully grasping the info. Thanks!!!
The only ETFs you should be worrying about should be essentially tracking indexes. There’s not really much to look at other than yearly performance and yield. You can check the 12-month distribution yield for any ETF on the issuer website. For my equity ETFs (XAW, VCN) they’re around 2% which is an extra cash flow into your account and should be considered part of your total return. I have filled out a form on Questrade to reinvest these as soon as they are received. Bond ETFs usually pay monthly, while equity ETFs pay 2-3 times a year I think? All in all this type of investing should be a set it and forget type thing, although it is interesting to keep track of progress and watch the markets.
If you are attempting to buy ETFs that arent in line with the CCP or approach shown here you’re likely playing a game as risky as stock picking. I seriously wouldn’t bother especially when you require hand holding. There’s thousands of ETFs that track all sorts of things, insane leveraged ones, inverse ones. It’s crazy, I’d seriously just worry about the index ETFs, decide on an asset allocation that is diverse and forget it. Mine is simple;
20% VAB
30% VCN
50% XAW
Toss in money whenever I can, rebalance as a buy, reinvest the dividends. Rinse and repeat for at least 10 years..the challenge comes as time passes. Play around with maybe 5% of your net worth if you’re young and want to take some risk. It ain’t worth it for most otherwise.
Thanks Braj, that’s helpful. I am not looking at picking stocks at all, as I’m fully committed to index ETFs and own mainly the ones suggested in this Investment Workshop (and a couple recommended by Canadian Couch Potato). But I find myself having to justify why these particular ETFs to family members and I’d like to understand the numbers a bit more. I can’t figure out if the yield is the total increase in capital + dividends, or if there are separate lines for capital increase vs. dividends. I guess I just don’t know what I’m looking at and would like to speak to it with a bit more authority.
Oh, I’ll have to fill out that Questrade form to reinvest the dividends automatically! Thanks for the tip!
Great comments. I will pencil in a future upcoming workshop to talk about how to read over a prospectus and figure out an ETF’s performance, as well as what kind of distributions they generate (Interest, dividends, etc.) as a number of people have asked me that.
A question about VEU (I’m in the US): Do you lose 20%+ of the dividends due to foreign tax withheld? Qualified dividends in the US are not treated as earned income and, for early retirees whose income are below a certain threshold, not taxed at all. Do you think that make allocating a higher percentage to US stocks a better strategy?
Others have made this argument (like Jim “The GodFather” Collins) that because such a large percentage of income is derived internationally, there’s an argument for not having any International exposure at all.
My personal thinking is that with the current political climate, I’m not sure whether it will be the US or International equities that end up outperforming, so I’m taking a neutral stance by making them equal. If you believe the US will outperform feel free to shift 10% or so towards the US.
As for your tax question, yes there will be foreign tax withheld but this should get credited back to you when you do your taxes. For example, as a Canadian when I get tax slips that say I already paid foreign taxes, it gets subtracted off my tax bill so I get it back.
Can any Americans confirm this also happens with you guys/gals?
Hey guys, I just wanted to drop by to say you have created an amazing blog. I actually did binge read your entire blog from the beginning and shared it with my wife and sister. It reinforced a lot of things for me and made me want to follow in your footsteps (ie, don’t buy a house, invest, travel and have an adventure). Keep up the good work!
Thanks, Frugal Muscle! Welcome to the blog and glad it was helpful!
As a Canadian, would it be bad for me to go along with the US portfolio of 3 funds? It seems like less balancing compared to the CA one. Other than currency rate risk are there any other downsides?
Also what do you guys think of roboadvisors such as wealthsimple? Is there anyway to automate this so I don’t have to go in every 2 weeks to buy the funds?
Wanderer/FIRECracker,
Where do you keep your cash position?
Some posts ago you mentioned having a significant cash position (few years of expenses). Is it a GIC? savings account?
Is anyone else having trouble linking their Personal Capital account to their Questrade Brokerage account?
When I sign up, it doesn’t have the option to link with Questrade.
Any tips would be appreciated…
Does anyone want to share their “refer a friend” code? You get $25, and I get $25-$75 depending on how much I deposit! I’d rather have that then $50 in free trades ;-).
Hi all. Thanks again for the workshop for first-timers! Question concerning questrade: after initiating a ‘buy’, I often get a response that says ‘failed’, obviously meaning that my purchase hasn’t succeeded. Anyone have an idea what causes this?
I have sufficient funds in my account, definitely not going into margin. I am using the same indexes that are indicated in the workshop although my allocation is slightly different (75 – 25), and not linked to Personal capital.
Thanks for your thoughts!
I see you are teaching about the U.S. angle and the Canadian angle…
… As a fellow Canadian … do you think it would be easier to retire in the States or back in Canada … seeing taxes, *health care costs* and maybe cost of living …. and investment costs?
God Bless, China
It WAS equally easy as a Canadian vs an American until Trump got elected, and now I think it’s swinging back towards it being slightly easier as a Canadian because we don’t have to worry about health care. There’s a lot of uncertainty right now for American early retirees but we’ll have to wait to see what they replace Obamacare with. Hopefully it’ll be fine.
Thanks for your thinking on the issue … it is always nice to get another perspective … if I were to relocate back to Canada from China …. I have been checking out a few places like … probably Sarnia, Southern Ontario (sandy beaches and a verrrrry big lake … ) …. The Kitchener-Waterloo-Guelph-Cambridge area you hail from is nice too … but more expensive and no sandy beach lakes …. on the far-out side … I was checking out B.C. … namely Nanaimo (Vancouver Island) with its ferry boat connect across the strait to Vancouver … has water and mnts … The Penticton – Kelowna – Vernon area has lakes and mnts … mild climate … … zillions of fruit trees .. and the odd Grizzly that might eat you?! 🙂 …. but no ocean … the choices are toooooo many and endless … but I am just window shopping for now … 🙂 God Bless, China 🙂
Thanks so much for posting the investing workshop, I think it’s amazing. I’m in the learning process and I want to get it right!
Is there a formula for calculating the correct number of units – when adding money – to bring the portfolio back to its target? Many Thanks.
Ah figured it out – target market value/unit price = target units
But how do you determine the Target Market Value? I appreciate the help!
Thanks so much! The chart you show, is that from your brokerage account or is that something you put together? How do you view current allocations & how does it fluctuate when you put in more cash?