Hello! and brand new Canadian PP

[Bunchi]

Hi! I decided to join. Finally. I came across the PP concept about 6 months ago. I've done quite a bit of research on the topic. I also read Roland and Lawson's book. I don't need any more convincing.

Coming from a Latin American country I know how important it is to diversify.

Now I live in Canada. I'm starting my career and starting to have leftover money at the end of the month. I opened an account with Questrade and intend on building a PP portfolio based on ETFs.

Here's my tentative portfolio:

25% IGT for gold. GTU.UN seems to add extra risk by introducing a premium/discount into the equation. However, is GTU.UN more reliable than IGT?

25% ZFL for long term bonds. I haven't come across a better solution, cost or convenience-wise.

25% ZFS for short term bonds. Identical situation as ZFL

Now, for stocks, should I stick only to the Canadian market to maintain the risk strategy of the PP? What if I add US/foreign stocks via VXC? Would splitting 12.5% VCN and 12.5% VXC skew the risk profile? I see VXC as an outlet for market diversification, given how overweight the TSX is in energy, finances and commodities.

All feedback will be appreciated. Thanks!

[Stunt]

Welcome to the forum.
I've been using the Canadian PP for a few years now. I don't like how the TSX is mostly oil, mining or financials, very few tech, health, utilities, retailers in the index. I have split the stock portion between TSX and S&P500, if you want you can hedge the currency.

For bonds, I use XLB and I buy physical gold instead of ETF so I don't have any suggestions for you there.

[Bunchi]

Thanks for replying. I'd like a bit of currency diversification since our CAD is mostly a petrodollar.

I'll look into XLB. How do you buy gold? My current concern is that my account is so small that the commissions for physical gold would eat any gains. Once I reach a more sizeable portfolio then for sure I'd move into physical as well.

[Mike59]

Welcome fellow Canadian, hope you're not shoveling out of heavy snow like I did earlier!

My canadian permanent portfolio is:

Gold: 12.5% GTU.UN, 12.5% CGL

Bonds: 25% XLB

Stocks: 25% VXC

Cash: Spread across some HISAs yield around 1.00% if I'm not mistaken

A few considerations:
- why are you holding short terms bonds? The long term duration will give you the volatility you need to offset bad market days, and I've found I'm mostly even when the stocks tank thanks to the long term bonds going up so much. This is a tricky time to start fresh of course, my XLB is up over 10% over my book and I'm even nervous to buy more at these levels, but an automated approach to new contributions can help with that.
- I was in heavily involved in emerging markets and the TSX until last year and realized both are too volatile, got out with my shirt around the time oil started crashing. As you said, the PP is already weighted toward commodities given you have 25% in gold already, I personally don't want or need the nausea of holding more commodities. I'd stick with a broad world index fund with low MER. I like VXC because it's plays off the currencies of the countries the fund, you're essentially exposed to the entire world and are not hedged to US or Canada only. Even though it's 50% US, I find the European and Asian exposure have it holding up pretty well even on days when the S&P is in the red.

[Stunt]

Thanks for replying. I'd like a bit of currency diversification since our CAD is mostly a petrodollar.

I'll look into XLB. How do you buy gold? My current concern is that my account is so small that the commissions for physical gold would eat any gains. Once I reach a more sizeable portfolio then for sure I'd move into physical as well.

You have currency diversification with gold, this month alone has been up 19% in CAD terms.
If you are dealing with small amounts, might be cheaper to buy TD eFunds or other index mutual funds to avoid the trade fee of an ETF. I also agree with Mike - lose the short bonds.

I buy gold from a local coin dealer, do not buy any denominations less than 1 ounce or you will get killed on price.

[CanPP]

Hi Fellow canadian,
I rigourously stick to Browne's philosophy. I had the same preoccuppations as you did with gold holdings and international divesification in stocks. I did my research and decided to go for the level 1 portfolio. I hold different segments, for RRSP, TFSA and a other a smaller accounts.

I hold these funds:

XIC (15%): for basics.

XSP and XCH (10%): no more, if you stick to Browne's philosophy.

ZFL (25%): I found no other good option in Canada, other than directly hold the bonds. XLB holds a good chunck of Canada's provinces bonds and a bunch of gouvernment related organisms, wich I'm not sure would react in all economical context (like Canada Housing Trust). I think XLB is not suited for the PP.

ZFS (25%): I dont' agree with Mike. I like to hold my cash and have a decent return, wich no ordinary cash fund will rise. Last year, my portfolio gained 2.6% in dividends, wich ZFS returns good money. I put my fresh cash in a savings account (NBC100, with no fees), and when it holds 2000$, I move it into the 4 assets. But the monthly pay-off is very low.

CGL.C: I dont' understand the mathematics of a trust fund, so I bought CGL in canadian dollars. Next step is to buy physical gold. If you want to move in that direction, look for a dealer on internet. Some are international dealers and are recommanded by Graig Rowland. But it's difficult to buy one once at present price if your gold allocation is a small amount.


My portfolio did 5.6% of nominal return in 2014, and I was happy to hold US stocks. But with US stocks you have strong international diversification, with good dividends. Europe is of no interest for me, with no economical growth in site. And VXC is less than one year old, and had 33 millions of holdings. Before I put my hard earned money in such a fund, I'll invest in a savings account.

Hope it helps!

[Bunchi]

Thanks for all your responses.

Mike and Stunt, I concur with CanPP in using ZFS to hold cash instead of keeping it in a HISA. Well, I'd keep a reserve fund in a HISA, but my intent is to park the rest in ZFS.

For long term bonds, I looked into XLB and I'm intrigued by it. Yet, I feel it deviates from the PP philosophy. Currently is carries 24% of corporate bonds (correlated risk to stocks), plus almost 50% of provincial bonds (which can't print money, though I wouldn't be really worried in provinces going bankrupt). Also, only ~35% of its holdings are AAA.

Mike and Stunt, are you comfortable with those added risks with XLB for the potential of better yield?

For stocks, there is indeed a risk with VXC for being so new. Though, since Canadian Couch Potato endorsed it, it's been growing significantly ($57.9m per TMXmoney).

For gold, I crunched some numbers and the spread for physical, plus commissions won't do me any good for now. So for the time being I'll stick to GTU.UN (currently at ~4.5% discount) and IGT (0.25% MER vs 0.56% for GLC.C)

Thanks again for your feedback. All in all I'm happy to see all of you have tweaked the PP to suit your needs. 

[Mike59]

Great discussion,the difference of opinions is healthy and interesting. In the grand scheme these differences will probably be small when looking out over decades.

Bunchi, I don't lose sleep about XLB. We're seeing insanely low yields on European bonds from countries much closer to default. This fund does its job and I've seen many volatile market days  where it offsets my VXC gains and losses point for point, which is what I'm after.

My problem cash in ZFS is that you are taking bond market risk with something that should be a constant. A 2.6 percent yield in this market is not without risk , a run of down years would be difficult to make up in short bonds. Personally I'd be very frustrated to not be at least even in my cash portion.