Canadian PP?

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bluedog
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Canadian PP?

Post by bluedog » Fri Jan 06, 2012 1:22 pm

Hi,

I am new Canuk to your site and have been reading all I can on the PP.

I am looking to re:model my current RRSP portfolio with Canadian components as it is my understanding that you hold your investments in your own country's.

I will not have to withdraw any funds for 16 yrs, when at 71 I believe Canada Revenue requires a mandatory 4% withdrawl annually.

Current Portfolio:

    Bonds: XBB: 56%

    Stocks: CPD:  4%
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Re: Canadian PP?

Post by AdamA » Fri Jan 06, 2012 2:02 pm

bluedog wrote: Current Portfolio:

     Bonds: XBB: 56%

     Stocks: CPD:  4%
What's the other 40% in?
bluedog wrote:
I am looking to re:model my current RRSP portfolio with Canadian components as it is my understanding that you hold your investments in your own country's.
MediumTex has said that he thinks it might be a good idea for Canadians to hold some US long term treasury bonds because Canadian bonds may not give you the protection you want in a deflationary environment.

Jut something to think about. 
"All men's miseries derive from not being able to sit in a quiet room alone."

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Re: Canadian PP?

Post by Gosso » Fri Jan 06, 2012 2:15 pm

Hey Bluedog,

I have been running a Canadian PP for about eight months now.  Here is what I do:

Cash (25%): - 50% of my cash is in short term Canadian government bonds (2-3 years)
                 - 50% in CIBC savings account, which is great for the liquidity (make sure you have less than $100,000 because of the CDIC)

Long Bonds (25%) - 100% 2041 Canadian Government Bonds (I'll be buying the 2045 next time)

Gold (25%) - 45% Gold Maple Leafs in a safe deposit box (do NOT buy Krugerrans or Eagles since sales tax are applied in Canada to coins less than 99.99%)
               - 40% GTU.UN which is handy for rebalancing
               - 15% CEF.A, just because I want a little silver even though it has only hurt me so far

Stocks (25%) - 85% XIC
                  - 15% XWD to give me a little unhedged US and International stocks

And that is it.  At first I had to check everything daily to make sure I hadn't placed a curse on the PP strategy.  But after the portfolio reached the 5% gain level I started to calm down, and now barely think about it.

If you want to keep it really simple then:
25% XIC
25% GTU.UN (or IGT/CGL.C if the NAV for GTU.UN is over 5%).
25% ZFL
25% ZFS (be careful here since it has a lot of Canadian Housing Trust Funds...not sure how these would handle a housing crash??)

Good Luck!
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Re: Canadian PP?

Post by bluedog » Fri Jan 06, 2012 2:40 pm

Hi all,

This post was sent before i finished it by mistake.

Pls look at my second post for details.

Thanks,
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Re: Canadian PP?

Post by CA PP » Fri Jan 06, 2012 2:42 pm

Here are my two cents for canada based investors interested in CA PP:

Stocks: XIC (and possibly a zest of XCS).

Bonds: Canada bond maturing -1 DEC 2045 (nothing else).  By the way it is performing well (volatility). The Canada 2041 returned some 26% in 2011, compared to funds like XLB: 17.7%.

Cash: Ladder with canadian treasuries 1-3 years (6 * six months rung). No savings account except for grocery money.

Gold: Maple leaf & IGT (for rebalancing purposes). Not CGL as it is USD-hedged.

For consideration: I am also thinking to have a bit of assets in a US PP (15 to 25%).  I have a sense it gives a welcomed extra protection in extreme events.  For example, in 2008 a CA PP (CAD) would return some 0.2% but a US PP (CAD) 26.4%. Although this should increase overall volatility.

For past performance, try www.stingyinvestor.ca (check Tools for a simulator and a periodic chart of returns per asset classes).
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Re: Canadian PP?

Post by AdamA » Fri Jan 06, 2012 2:47 pm

Bluedog--

Check out this link.

Pay close to MediumTex's comments.
http://gyroscopicinvesting.com/forum/ht ... 216#p18216
"All men's miseries derive from not being able to sit in a quiet room alone."

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Re: Canadian PP?

Post by Shadow » Fri Jan 06, 2012 4:15 pm

Hi Guys,

Here's my breakdown

Cash 25% -  combination of CLF and a HISA for my cash component 
IGT - 25%
XIC - 12.5%
XWD -12.5%
ZFL - 25%

I love the idea of using short and long term bonds, as suggested by CA PP to me earlier, just haven't had the stones to implement yet. Maybe next year. For now I am quite comfortable with the ETF's and will take what the market gives me. Bluedog - I also have 16 years left to ride this out in my RRSP. Good Luck to all :-)
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Re: Canadian PP?

Post by CA PP » Sat Jan 07, 2012 10:38 am

Hi Shadow,

A few considerations:

XLB has a duration of 13.9 (6JAN 2012) compared to CAN 3.5% 01 DEC 2045 with about 21.5.

XLB has CAN DEC 2045 already within but only to the level of 0.9%.  The rest of XLB is comprised of only 26% of other CAN bonds with younger maturities (not so interesting), but worst, it is then comprised of provincial bonds (about 46%), followed but other stuff, corporate, etc. (check the 2010 annual report).

Another deal breaker are fees (0.37%, 2010).  So for CAD 10,000 someone pays 37 CAD annually while holding CAN DEC 2045 if free. You would also have to account for turnover within the fund (could nt find the figure in the report) and eventual capital gains to be taxed.

...  So XLB is an imperfect/poor substitute to CAN DEC 2045, in my opinion.
Last edited by CA PP on Sat Jan 07, 2012 12:14 pm, edited 1 time in total.
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Re: Canadian PP?

Post by CA PP » Sat Jan 07, 2012 3:14 pm

Hi Shadow,

Sorry I misread your post and replied on XLB while you mentioned ZFL. 
ZFL is practically all government bonds. Much better than XLB.
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Re: Canadian PP?

Post by Shadow » Sun Jan 08, 2012 5:57 am

Hi CA PP,

No problem, I do eventually plan on converting all my ZFL to the long bond as you suggest :) Thanks
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Re: Canadian PP?

Post by metta2006 » Wed Jan 25, 2012 2:30 pm

Would you not think CLF (1-5 yr laddered gov't bonds) as too volatile for cash? It is certainly very liquid though. Because we don't have a 1-3yr gov't bonds ETF, I'm tempted to use it for cash. It is also free at itrade.

What do you think would be good options for TFSA? REITs seems to be best in TFSA but it is not part of a pp. Would you include REITs?

If you want to have cash in TFSA, would you have it at the place paying the highest interest such as People's trust or at a brokerage paying 1% for easy access?

My TFSA is 100% cash at People's trust (3%), but it can take over a month to transfer it to a brokerage firm to purchase securities. So it is not easily accessible for rebalancing. I could always withdraw it but I won't be able to put it back in TFSA until the following year.

How would you rebalance with Long and short term government bonds you directly own? The selling and purchase would have to be minimum $5000 face value. Is it practical or should I keep a small portion in ZFL?

Would you use CDZ (dividend paying stocks) instead of XIC. We are supposed to use a more volatile index to help boost the return of pp but CDZ seems to go up higher and go down lower than XIC in addition to the juicy yield plus the dividend tax credits.

Thanks a lot!
Last edited by metta2006 on Wed Jan 25, 2012 2:39 pm, edited 1 time in total.
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Re: Canadian PP?

Post by CA PP » Wed Jan 25, 2012 3:44 pm

Hi Metta,

Cash: CLF has all sort of bonds from provincial and public services sector, in a significant way at a glance.  My preferred approach is a 3 years ladder direct ownership of canadian gov bonds (3 or 6 rungs). 6 rungs is interesting because you can shovel semi annual interest payment from all your bonds together with the maturing bond, into a new 3 years bonds.

Are you sure 5,000 CAD face value is the min purchase? if the amount is then an issue your idea of bonds and top off with ETF would work, perhaps consider ZFS.

Cash in the PP= government short term treasuries.  These would fit, together with long bonds in TFSA?

Bonds: same comment as above, I would say it is a good option to top off CAN 2045 with ZFL.

Stocks: not sure about CDZ.  I looked at it briefly and did not appear superior to XIC for the purpose of the PP. It is more expensive, less components.  I personally prefer to total markets: XIC or MSCI Canada.
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Re: Canadian PP?

Post by bluedog » Wed Jan 25, 2012 9:20 pm

Hi Metta,

I'm in the same boat w/ our 2 x TFSA's.

I am thinking I should convert each to its own individual CA PP.

Presently there is approx $12.5K in each, and I will add the max $5K 2012 contribution to each once we are back in Canada.

I'm up against the same situation w/CIBC Investor's Edge; min $5K face for each bond to buy/sell.

If I buy an individual bond, either ST or LT at $5K, I'd be overweight in each, even with the new 2012 max contribution bringing the total to approx $17.5K and have no room to re-balance.

I think I'm stuck with going w/ the ETFs (ZFL and ZFS) until the balances are higher.

Does anyone know of any other options?

Thank you all.
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Re: Canadian PP?

Post by NewPPer » Thu Feb 02, 2012 4:38 pm

Hi Guys,

After learning a lot about Harry Browne and the Permanent Portfolio last year I just started my Canadian PP using our Tax Free Savings Accounts (TFSA) here in Canada.

Using Scotia iTrade which has commission free ETF trading on select Claymore and iShares products I put together the following $20K portfolio.

12.5% CRQ - Claymore Fundamental Canadian Index
12.5% XMD - iShares Completion Index
25% CGL.C -Claymore Gold Bullion (Non-Hedged)
25% CLF - Claymore 1-5yr Laddered Government Bond
25% ZFL - Long Federal Bond Index

Thanks to the commission free aspect the only trading expense was the ZFL which had a $19.95 commission. Overall though I'm pleased that I was able to set up the portfolio for only $20 and I believe it hits the necessary PP targets. I used CRQ and XMD for my stock allocation as I do find the Fama-French research on small cap and value stocks to be compelling. I haven't quite decided how I am going to add new money to the portfolio as the fact that I have to pay commission on ZFL prevents regular additions. Perhaps I will just let the cash allocation build until 35% and then rebalance at that point.

Just wanted to share my approach to the Canadian PP.
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Re: Canadian PP?

Post by Shadow » Fri Feb 03, 2012 5:40 am

Hi NewPPer,

Thanks for sharing your PP construction, my only criticism of your holdings is the equity portion allocation. Cost and diversification. IMO opinion you can slash your costs in half with a XIC/XWD split and gain exposure to thousands of stocks in multiple countries across multiple sectors. ISTM, that you only have less than 300 stocks comprising your equity portion through XMD/CRQ.

I also find CGL.C a bit expensive @ .56 when you can buy IGT and hold for 25 basis points. Again you can slash your costs in half which is what Harry advocates in keeping costs down.
Just my take, only trying to take you through my train of thought and how I would interpret Harry's teaching on broadly diversified and cheap. I wish you nothing but investment success :)
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Re: Canadian PP?

Post by Gosso » Fri Feb 03, 2012 12:43 pm

Shadow wrote: I also find CGL.C a bit expensive @ .56 when you can buy IGT and hold for 25 basis points. Again you can slash your costs in half which is what Harry advocates in keeping costs down.
Hmmm, that's interesting that IGT costs only 0.25%, did they recently lower the MER?  I was under the impression that the costs were similar to CGL.C and GTU.UN.  If that is the case then it would make sense for NewPPer to build up their gold holdings in CGL.C because of the free trades and then once the the gold value reached ~$7,000 switch over to IGT.  This gives you a payback of one year on the $20 trade, and no tax consequence since this is in the TFSA.

Having said that, I'd still recommend going with the physical gold Maple Leafs...they're so beautiful!! ;D
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Re: Canadian PP?

Post by NewPPer » Fri Feb 03, 2012 4:04 pm

Shadow, Gosso,

Thanks for the views. As Gosso notes, the reason I chose CGL.C over IGT is because of iTrade's free commissions. I'm giving up .31% on the MER but saving between $10-$30 on commissions (depending on which brokerage is being used). Since I plan on adding smaller amounts as I put more money into my PP it will make sense to continue using CGL.C. At some point though it will make sense to transfer over a chunk to IGT.

I thought long and hard about my equity allocation and decided against putting in any foreign allocation. It seems that there are split views on whether foreign holdings are appropriate for a PP. In my older more traditional passive portfolio my stock allocation was 40% Canadian, 30% US, 20% International, and 10% EM. But many forum members believe that the Gold allocation is suitable to comprise the foreign diversification.

At this point I was wondering whether to go with a 50/50 split between Canada and US stock allocation. I decided to go with all Canada to follow what HB and others state about holding the assets of the country you live in. I would say that since the stock allocation is there for prosperity, then my value and small cap index options should do well in those cases. Over the past decade XMD has done much better than XIC (although of course that could change) and I chose CRQ over XIU/XIC because, as I said in my initial post, I find the 4 factors argument to be a valid one.

In future additions I might throw XIC in there to balance things a bit more. Also CRQ and XMD were commission free while XIC or XIU would have commissions. HXT (which is very similar to XIU) would be commission free though. 
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Re: Canadian PP?

Post by bubulac » Sat Dec 21, 2013 5:57 pm

NewPPer wrote: Hi Guys,

After learning a lot about Harry Browne and the Permanent Portfolio last year I just started my Canadian PP using our Tax Free Savings Accounts (TFSA) here in Canada.

Using Scotia iTrade which has commission free ETF trading on select Claymore and iShares products I put together the following $20K portfolio.

12.5% CRQ - Claymore Fundamental Canadian Index
12.5% XMD - iShares Completion Index
25% CGL.C -Claymore Gold Bullion (Non-Hedged)
25% CLF - Claymore 1-5yr Laddered Government Bond
25% ZFL - Long Federal Bond Index
It's a terrible waste of money to buy a gold ETF instead of gold bullion.
I made a simple calculation based on the current prices and I found that investing in gold bullion I would pay a total fee of about 2.8% of my original investment over 30 years, while if I were to purchase shares of CGL I would pay over 25% fees and for IGT 14% fees.
Yeah, I would have to receive the gold coins, store them, sell them if needed (any bank takes them, so no big deal) but the difference in fees is compelling
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Re: Canadian PP?

Post by eDeslauriers » Wed Jan 22, 2014 11:04 pm

Here is what I have worked out:

12.5% iShares Gold Trust IGT (liquidity/rebalancing ease/low MRE)
12.5% Physical Gold (held in an allocated account with Questrade in my RSP account)

25% BMO Long Federal Bond ZFL

12.5% BMO Short Federal Bond ZFS
12.5% ING Savings Account (1.25%) (liquidity; re-balancing ease; doesn't take up room in my registered accounts; I also use it as my own personal "bank" and loan myself money from this pool if I need it...one of the unsung benefits of the PP cash allocation)

25% iShares S&P/TSX Capped Composite XIC or BMO Canadian Dividend ZDV (boasts a really well constructed passive indexing methodology for capturing dividend value stocks within the S&P/TSX Capped Composite index; well diversified and balanced)

***

A Variable Portfolio version of the above would be to swap out some or all of the domestic stock for an Emerging Markets index...I've done a lot of backtesting and it delivers (going back to 1985) around 12% annualized BUT, obviously, with significantly more volatility. I would never use this allocation for my core wealth accumulation pool of capital.

***

I should also note that, if done properly, I incur zero trading fees. I don't pay commissions when I buy any Canadian ETF, only when I sell. And since I have a steady stream of income coming in every month to invest, I am able to use value averaging to "buy-up"  my portfolio to a balanced 25/25/25/25 allocation rather than "sell-down" (and incur fees).

I suppose if there were some massive, sudden market swing, an asset might cross the 35 band, forcing me to "sell-down", but generally the portfolio remains quite well balanced by "buying up" the under-performing assets to bring the portfolio into balance.

The only exception is the allocated gold bullion...that costs a flat $40 to trade, which is why you have to wait until your gold allocation is large enough that $40 flat amounts to a small fraction of the transaction (i.e. <0.05%).
Last edited by eDeslauriers on Wed Jan 22, 2014 11:25 pm, edited 1 time in total.
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Re: Canadian PP?

Post by Gosso » Thu Jan 23, 2014 5:28 pm

eDeslauriers,

Welcome to the forum!

I like the majority of your Canadian PP; it looks well thought out.  The only suggestion I'd make is to include some foreign or at least some US stocks (you hint at this with your VP, but I'd just make it a staple and not stress yourself out).  I'd personally avoid dividend stocks, but that's just me.  You could breakout the stock portion as follows:

10% - Canadian stocks
10% - US/Developed markets
5% - Emerging markets

Remember that the US economy has a huge impact on the Canadian economy and our interest rates, so it makes sense to include some US stocks.  Europe and emerging markets also have an impact on the Canadian economy.

The Canadian PP has had the crap kicked out of it over the past year (unless you were holding some US stocks), so you are definitely buying low (although it's up 4% YTD).
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Re: Canadian PP?

Post by Gosso » Thu Jan 23, 2014 9:54 pm

I just noticed this: "Open Season on the Loonie"

What the heck happened to the Canadian Dollar!?  It's now 0.90 USD per 1.00 CAD.  That's a 4% move down over the past month.

So that's why the Canadian PP has moved 4% higher YTD.  Gold is up almost 10% YTD in CAD!  But if we convert the Canadian PP into USD then we are roughly even for the year...

Weird.  But that's why we hold gold (and unhedged US/International stocks also help protect from a falling CAD).
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Re: Canadian PP?

Post by christina » Fri Jan 24, 2014 2:59 pm

Check the fees for iTrade. I think under a certain amount, they charge you an astronomical annual fee to hold with them (like $120, or somewhere in that range). Plus trades are $20 each, so rebalancing gets expensive.

I use Questrade. ETF trades are free. Sweet. There's no annual fee. Sweeeet.
(User interface not as good, and bond buying not as easy. Oh well.)

I use HXT for stocks. Now they do some weirdness with options and stuff (and I think there might be some risks to it), but the MER is 0.07%. Wow!

Basically, at this stage, I'm trying to keep my fees really low. You lose a lot of money trading and holding ETFs.
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Re: Canadian PP?

Post by christina » Fri Jan 24, 2014 3:06 pm

Gosso wrote: I just noticed this: "Open Season on the Loonie"

What the heck happened to the Canadian Dollar!?  It's now 0.90 USD per 1.00 CAD.  That's a 4% move down over the past month.

So that's why the Canadian PP has moved 4% higher YTD.  Gold is up almost 10% YTD in CAD!  But if we convert the Canadian PP into USD then we are roughly even for the year...

Weird.  But that's why we hold gold (and unhedged US/International stocks also help protect from a falling CAD).
It's a good think we don't have to convert the Canadian PP into US dollars!
I guess this means US stocks will be a lot more expensive to buy now. So I guess that's the downside.
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Re: Canadian PP?

Post by Gosso » Fri Jan 24, 2014 4:39 pm

christina wrote: Check the fees for iTrade. I think under a certain amount, they charge you an astronomical annual fee to hold with them (like $120, or somewhere in that range). Plus trades are $20 each, so rebalancing gets expensive.
If you have over $25,000 with iTrade or complete at least 12 trades over the past year then the $100 annual fee for the RRSP is waived.  If you have over $25,000 then trades are $10, otherwise they are $25.  http://www.scotiabank.com/itrade/en/0,,3694,00.html

The 12 trades per year is news to me.  Still expensive for people with accounts less than $25,000.
christina wrote: It's a good thing we don't have to convert the Canadian PP into US dollars!
I guess this means US stocks will be a lot more expensive to buy now. So I guess that's the downside.
You are correct.  The Canadian dollar has had it's value eroded by about 6% over the past two months.  I hope those exporters are happy!
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Re: Canadian PP?

Post by Gosso » Sat Jan 25, 2014 9:35 am

For those interested, here is how the Canadian PP performed over 2013:

Standard 4x25% Canadian PP = -6.0%

Blended Canadian PP = -2.3%

60% Canadian Stock / 40% Intermediate Canadian Bonds = +6.7%


Canadian CPI for 2013 = 0.9%

The blended Canadian PP is built as follows:
20% Gold
15% Canadian Stocks
10% US/International Stocks (unhedged)
5% Emerging Stocks (unhedged)
25% Short Bonds
25% Long Bonds

Edit: Rebalanced the Blended PP to give a more accurate CAGR for 2013
Edit2:  Added 60/40 and CPI
Last edited by Gosso on Sun Jan 26, 2014 4:47 pm, edited 1 time in total.
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