2015 RRSP Thread

[darklord700]

Thanks, CaptainYoon. I calculated my IRR as being about 7% over the last 14 years.

[CaptainYooh]

Do you self-manage your portfolio?

[heep223]

Originally Posted by CaptainYooh

I opened a self-directed RRSP account in 1996. With the exception of four odd years, I've been contributing to it religiously since then and investing as best as I could in stocks, bonds and mutual funds using my own research, occasional investment advice, rumours and, sometimes, stupid impulses. This period of time included the dot-com bubble burst of 1997, a slowdown of 2000, one major recession of 2008 and oil price collapse of 2014. Since 1996, my actual (X)IRR to-date is 6%. Neither here nor there, better than CSB and a little worse than S&P500.

There is a lot of smart people here that invest. I am curious how has your RRSP portfolio been performing over the years and how do you manage it (self, bank-managed or specialized investment adviser)?

I'm really surprised there isn't more posting in this thread about how to invest your RSP contributions, particularly in light of what's going on in energy markets. There are a ton of financial planning posts but not too much discussion on the actual investing, which is IMO more important and far more interesting. After all, these are simply accounts that house your investments...it's so surprising to me that lots of people don't actually know that they can decide what to actually invest in, in their registered accounts. I blame this in large part on the bank oligopoly of mutual fund distribution in Canada and an industry that's been intentionally created with a lack of transparency (though is changing).

But I digress.

A 6pc IRR for a retail investor who self-manages their own account isn't too bad over a long period. Though it's hard to say without knowing your risk exposure and asset allocation (ie risk adjusted). For example if you were invested in purely equities during that time (which in your post you said you weren't), an annualized 6pc return might be a terrible return if the market returned 10pc. But generally speaking for traditional portfolios with meaningful bond weighting, 5-6% sounds about right. Is that after all fees, commissions, and costs?

I self-manage as well. I use a combination of ETFs and direct public holdings. I am trained and work in investment management (CFA Charterholder) and am plugged into the industry. That is not to say that I am more in the know than others by any means in terms of investing, just that I understand the inner workings of the industry.

I stay well away from mutual funds, banks and brokers (some if which are good, most of which are sub-par, some of which are terrible).

Not sure if that answers your questions or not but would love to see more investment-related questions and discussion in these types of threads.

[Righteous1]

^^I'm a full on noob, but just opened up a self-directed TFSA through my financial institution. Any information, tips, advice would be greatly appreciated!

[CaptainYooh]

Originally Posted by heep223

...

A 6pc IRR for a retail investor who self-manages their own account isn't too bad over a long period. Though it's hard to say without knowing your risk exposure and asset allocation (ie risk adjusted). For example if you were invested in purely equities during that time (which in your post you said you weren't), an annualized 6pc return might be a terrible return if the market returned 10pc. But generally speaking for traditional portfolios with meaningful bond weighting, 5-6% sounds about right. Is that after all fees, commissions, and costs?

I self-manage as well. I use a combination of ETFs and direct public holdings. I am trained and work in investment management (CFA Charterholder) and am plugged into the industry. That is not to say that I am more in the know than others by any means in terms of investing, just that I understand the inner workings of the industry.

I stay well away from mutual funds, banks and brokers (some if which are good, most of which are sub-par, some of which are terrible).

Not sure if that answers your questions or not but would love to see more investment-related questions and discussion in these types of threads.

I stopped buying mutual funds a few years ago as I find them too expensive for what they do (exception - MMFs as cash substitutes in $CDN and $US). I split my investments between dividend-paying financials and utilities, real estate, high-yield bonds and some higher-risk technology stocks. I still hold some integrated energy conglomerates (Husky, Statoil) that did very well for me in the past but are down from their peaks now. I have been gradually moving my portfolio holdings towards more $US weighting, as I think US market will outperform Canadian market in the short term (18-24 months). I look for and try buying undervalued financials in US market (AllianceBernstein, Genworth). My overall portfolio 6% IRR is net after all fees and commissions. One more thing, it was closer to 8.5% in summer before oil price collapse and will likely go up once the energy prices recover.

So, you are an educated investor. What is your own self-managed portfolio net IRR and over which period of time?

[heep223]

Originally Posted by CaptainYooh

I stopped buying mutual funds a few years ago as I find them too expensive for what they do (exception - MMFs as cash substitutes in $CDN and $US). I split my investments between dividend-paying financials and utilities, real estate, high-yield bonds and some higher-risk technology stocks. I still hold some integrated energy conglomerates (Husky, Statoil) that did very well for me in the past but are down from their peaks now. I have been gradually moving my portfolio holdings towards more $US weighting, as I think US market will outperform Canadian market in the short term (18-24 months). I look for and try buying undervalued financials in US market (AllianceBernstein, Genworth). My overall portfolio 6% IRR is net after all fees and commissions. One more thing, it was closer to 8.5% in summer before oil price collapse and will likely go up once the energy prices recover.

So, you are an educated investor. What is your own self-managed portfolio net IRR and over which period of time?

That all sounds logical for the most part. Though IMO the best investment strategy for 99% of retail investors is to use a disciplined passive strategy (ETFs) as their core and the mess around with the human desire to beat the market around the edges of the portfolio. If you actually looked at it, you probably did not beat the market over that period of time - so why not just buy the market. The big macro question in the market right now of course is when interest rates will rise in the US. When they do start rising, investors need to be very careful in sectors such as utilities, REITs and pipelines (companies with lots of debt that have some qualities of bonds). And of course fixed income, including high yield which looks particularly overvalued given the hunt for yield. Spreads are at all time lows and they could blow out with any kind of interest rate hike. There is a lot of risk in bonds right now and the high yield market is insane even with recent sell off.

I don't know what my IRR is. I have a few different accounts, lots of transactions and cash flows, I've never really looked. You should know that IRR typically isn't the best return metric to use for this application. When you have multiple cash flows and changes of sign it can screw with IRR. IRR is typically used for single investments, projects, private equity, and real estate where the cash flows are more logical and defined. That being said, given that we're talking about an RRSP account, I suppose if there were no cash flows out of the account and you treated the entire account as a "project" and the mark to market value as the terminal value it could work. But for example in a non-reg account, when I've been withdrawing and depositing multiple times per year, it really makes IRR irrelevant and possibly misleading.

In terms of sectors I'm mostly invested in industrials, energy, financials, technology and health care. I have a core passive strategy. Definitely been weighted more towards the US over the last few years. I own some international and emerging market stuff as well. Apple was my best investment last year (common and options), I bought a bunch when it was beat up after the huge run to 700. I own PPL and IPL, ARX, CTRX, McKesson. Telus and Rogers small positions. ETFs I own SDY, VIG, CLU, CDZ, EEM, CEW, XGI ( I think ). With my contribution this year I'll be changing my strategic allocation to a more significant weighting in Europe and EM, and also quality Canadian energy names. I invest for the very long term and so as a general principle I move cash from markets that have done very well/look overvalued (bonds, high yield and investment grade fixed income, US equity) into markets that haven't (Europe, EM, Energy). It's impossible to time the market but that's not my goal - even if energy continues to go down and be weak, I'll keep chipping away at it (again with quality stocks with good balance sheets, long declines and good mgmt teams). I sold all of my high yield and fixed income (ie I owned some prefs) exposure over the last year. I carry a relatively large amount of cash because I like the optionality of it. My worst investments have been Blackberry (years back), few junior energy names, I had a thing for covered call ETFs that was silly in hindsight.

The hardest part of investing is to have the courage to buy when everyone is selling which is what pays off in the long run. The key again is that it only works if you have a very long time horizon. We haven't seen the capitulation in energy yet but when we do it could be a massive buying opportunity.

[darklord700]

Originally Posted by CaptainYooh

Do you self-manage your portfolio?

Yes I self-manage. Like you back in the summer, my IRR will probably be 1% higher before my oil stocks dropped.

I buy mostly low cost board based ETFs in CAN and US. I only hold about 20% in bonds to use them to time the market (if there's a crash, I will sell the bonds and buy equities).

Because I have a lot of holdings in seg funds which are what Group RRSP often requires, they zap some of my returns. I'm in the process of selling all my seg funds and buy board based ETFs instead.

It's funny that both my TFSA and RESP have better returns than my RRSP. Shows that it really depends on how and when do you do the IRR calculation and you can come up with different results.

[pseudoreality]

Originally Posted by Righteous1

^^I'm a full on noob, but just opened up a self-directed TFSA through my financial institution. Any information, tips, advice would be greatly appreciated!

I've recently put TSFA into a blend of ETFs. For newbies, I think the model portfolios on Canadian Couch Potato are great.

http://canadiancouchpotato.com/model-portfolios-2/

CIBC Investor's Edge has a deal on right now where there is no fee on several popular ETFs (normally $6.99/trade) and TSFA accounts have no annual fees. I went for:

40% Vanguard Canadian Aggregate Bond Index ETF - VAB
20% Vanguard FTSE Canada All Cap Index ETF - VCN
20% Vanguard US Total Market ETF - VUN
20% Vanguard FTSE Canada All-World ex Canada Index ETF - VXC

My plan is to rebalance if one ETF is more than 5% off the model (i.e. VUN goes to 25%).

[heep223]

Originally Posted by Righteous1

^^I'm a full on noob, but just opened up a self-directed TFSA through my financial institution. Any information, tips, advice would be greatly appreciated!

Nobody can you give you advice, without knowing your full financial picture, your return expectations, your willingness and ability to take risk, anything unique to you. You are on the right track IMO, open a direct brokerage account and educate yourself.

My personal opinion in regards to investing for those who aren't in the industry (and most that are), is to use ^ strategy and buy broad-based, low cost ETFs. The only things that you can control in investing are your asset allocation, your emotions and fees/taxes. ETFs are the best vehicle to manage all of these things and typically over long periods of time outperform any active strategies anyways. Stay away from bank funds. The classes of funds that you would access are designed to part you from your money with high costs and commissions to their sales people. Not only that, the funds banks recommend typically under-perform the market anyways so you're losing on all sides. You can own direct stocks, but given that you're a rookie, and that even the pros have a hard time outperforming with access to the best research and teams of analysts, you are outgunned. You could get a broker to assist you obviously but how are you going to determine what to do when he/she calls you and says "hey, you should sell CP Rail and buy CN Rail"? The commissions-based system is designed with an obvious inherent conflict of interest in that the broker needs to generate trades to stay in business even if it's not in the best interest of their client. I saw someone post earlier in this thread that using a passive strategy is "leaving money on the table", I'd be really interested to hear the rational behind that for the average retail investor. Maybe leaving money on the table for the advisors who want to recommend higher cost products that under-perform.

Educate yourself, use Google. Look up ETFs, passive vs. active, asset allocation, modern portfolio theory.

EDIT: The poster above me is definitely the direction you want to go. And educate yourself along the way. Keep it simple.

[Slava]

I think I probably said that and while I don’t have time right now for a full response the fact is passive strategies require active decisions. Look at your own holdings where you're deciding how much and when to invest in the US, EM, Europe etc. Those are all active decisions. A truly passive strategy would buy the global equity market and a global bond market.

I understand your point about mutual funds as well, but here again its an oversimplification. There are things mutual funds can do that an average retail investor simply cannot; between tax and currency strategies the higher fee can be quite justified. That doesn't mean that you should invest every dollar in a fund, but you could be making a good choice depending on the specific situation and requirements.

Lastly, you're a charterholder, so you know that with good analysis and review you can find mispriced securities. Big funds and managers can't always invest there because the businesses are too small for them to take meaningful positions and things like that, but an average retail guy can. Also buying securities is cheap than any ETF. You have the transaction fees which are a wash and no MER at all. So to suggest its all or nothing is simply an oversimplified view in my opinion.

[CaptainYooh]

Originally Posted by heep223

...If you actually looked at it, you probably did not beat the market over that period of time - so why not just buy the market. ...

What's the fun in just buying the market?

Kidding aside, your guess is correct for today, because of how well S&P500 has performed since 2008. However; I was well ahead of it back in 2009 after the market collapsed. I was on par with it back a year ago. As a reminder, my IRR is net after all fees and commissions have been paid. If my portfolio was in mutual funds, I'd have to get an 8.5% to 9% return to cover for their fees. If it was privately managed, the portfolio return would have had to be 9 to 10% to have the same net.

Overall, as you are well aware likely, not many fund managers can beat S&P500 consistently. I am not sure any fund was ever able to do it consistently in the long run (not on a spot good-year basis). So, yes, investing in SPY ETFs should do better then most smart active investing in the long run, I agree. The problem - as you get older, the risk of needing to cash your investment during a bad market is more intolerable than in it is when you're younger.

[darklord700]

Originally Posted by CaptainYooh

What's the fun in just buying the market?

That's true. Beside board based ETF, I also like to buy and hold household names like Potash, Rogers, Suncor etc. Just so that I can corelated what's happening in the news to my portfolio for fun.

[heep223]

Originally Posted by Slava

I think I probably said that and while I don’t have time right now for a full response the fact is passive strategies require active decisions. Look at your own holdings where you're deciding how much and when to invest in the US, EM, Europe etc. Those are all active decisions. A truly passive strategy would buy the global equity market and a global bond market.

I understand your point about mutual funds as well, but here again its an oversimplification. There are things mutual funds can do that an average retail investor simply cannot; between tax and currency strategies the higher fee can be quite justified. That doesn't mean that you should invest every dollar in a fund, but you could be making a good choice depending on the specific situation and requirements.

Lastly, you're a charterholder, so you know that with good analysis and review you can find mispriced securities. Big funds and managers can't always invest there because the businesses are too small for them to take meaningful positions and things like that, but an average retail guy can. Also buying securities is cheap than any ETF. You have the transaction fees which are a wash and no MER at all. So to suggest its all or nothing is simply an oversimplified view in my opinion.

Agree with everything you're saying and in particular your first point in regards to the global market. In a sense any deviation from the global passive portfolio is in fact active. Lots of research and ideas coming out about this lately given the ease of which we can access said global market.

It's such a complex topic with many nuances, and I again agree with what you're saying. However I think over-simplification for the average retail investor which is the majority of people on a Calgary Flames forum, keeping it simple and managing fees and emotions is the way to go. People are looking for a place to start. You can't go wrong with setting your own asset allocation and using a disciplined, diversified, low cost, passive approach. You can go very wrong with other approaches.

I should note that I'm in the institutional space and don't deal with retail.

[Slava]

Originally Posted by heep223

Agree with everything you're saying and in particular your first point in regards to the global market. In a sense any deviation from the global passive portfolio is in fact active. Lots of research and ideas coming out about this lately given the ease of which we can access said global market.

It's such a complex topic with many nuances, and I again agree with what you're saying. However I think over-simplification for the average retail investor which is the majority of people on a Calgary Flames forum, keeping it simple and managing fees and emotions is the way to go. People are looking for a place to start. You can't go wrong with setting your own asset allocation and using a disciplined, diversified, low cost, passive approach. You can go very wrong with other approaches.

I should note that I'm in the institutional space and don't deal with retail.

I deal with retail and am totally biased because I'm an advisor. I definitely see your points as well. I use passive strategies and active in my practice for clients, so I obviously see the value in both. I just find that for the 'average guy' he has no idea about any of this and as a result they could learn it themselves or pay someone to handle it. This applies to a lot of things in life.

[mrkajz44]

Originally Posted by pseudoreality

I've recently put TSFA into a blend of ETFs. For newbies, I think the model portfolios on Canadian Couch Potato are great.

http://canadiancouchpotato.com/model-portfolios-2/

+1 for Canadian Couch Potato. Has some good solid advice for simple investing if you don't want to be too hands on. I personally don't think I can beat the market, and don't want to commit the time to trying to do so. Using these model portfolios (or close to it) is an easy way to buy in and not worry too much about it.

[heep223]

Originally Posted by Slava

I deal with retail and am totally biased because I'm an advisor. I definitely see your points as well. I use passive strategies and active in my practice for clients, so I obviously see the value in both. I just find that for the 'average guy' he has no idea about any of this and as a result they could learn it themselves or pay someone to handle it. This applies to a lot of things in life.

I suppose the truth is somewhere in the middle of the active vs. passive debate. That's the conclusion we've come to anyways, it really depends on the asset class. So it makes sense that you use both and could hopefully take active advantage of some of the inefficiencies that you see in the market in a sustained, long-term way. I have seen very, very few retail mutual funds that make any kind of sense. If you go to an institutional class pooled fund where you're paying 30 bps for the same fund, that makes more sense. But obviously that is not how it works in our system.

I've just seen some of the portfolios that "advisors" put together for retail clients before (ie. my family and friends) and am appalled. There are retail products out there that have a 2% trailing commission to the advisor, plus 2.5% MER, plus trading and admin costs baked in. And the fees aren't immediately apparent. That's almost 5% off the top, in an environment where interest rates are at historic lows due to ZIRP and equity markets are starting to look full value. Obviously I am quoting an extreme case here. I realize and hope that's becoming less and less the norm which is great, and in large part it's due to the emerging of passive strategies that are accessible to the public via ETFs which are forcing banks, fund companies and advisors to lower fees and increase transparency.

Another thing I would point out is that the qualifications for selling investment advice in Canada are appallingly low. Look at any job posting for an "investment advisor" from any major bank and many advisory companies. They want the applicant to be licensed to sell mutual funds in Canada, and they want the applicant to have sales experience and a willingness to cold call. I repeat that the qualifications required to become licensed in our country are very simplistic. It makes it doubly difficult that in retail most clients don't know the difference between qualifications and designations and don't even know the questions to ask.

Now I'm certainly not looking to demean advisors themselves. Just like any industry, there are many people who have their clients interests at heart and many others who are looking to take care of themselves. So I just want to make that clear. And if somebody finds a good advisor, hopefully such as yourself (which you seem to be), the extra costs can be well worth it for the average guy as you say. Many people don't have the time or the desire to deal with it at all. I just wish the whole industry was more transparent and that there weren't so many conflicts of interest.

Anyways I hope for those following this thread I have provided something worth thinking about, as you contribute to your RRSP, and am happy to continue to discuss with anyone or with Slava if ppl find value in that. Actually investing in your registered accounts is extremely important and doesn't seem to get as much attention as the tax/financial planning aspect. I don't want to come across as knowing all the answers because I don't and these are all just my opinions. Others could have totally valid opposite views.

[Sylvanfan]

Okay, so today I want to stop putting my voluntary contributions into a RRSP and start moving that money into a TFSA. Being poor, I don't have a large sum of money lying around that's very liquid. So I'll be building it up $200 per week at a time. At $200 a week you really can't open up a online trading account and cost average your way in. Honestly, I'm happy to put it all in a S&P 500 index fund and leave it there for the next 25 years. Hopefully it will be worth something some day. What's the best way for poor people to get started.

[Lil Pedro]

Originally Posted by mrkajz44

+1 for Canadian Couch Potato. Has some good solid advice for simple investing if you don't want to be too hands on. I personally don't think I can beat the market, and don't want to commit the time to trying to do so. Using these model portfolios (or close to it) is an easy way to buy in and not worry too much about it.

Also agree with this, as I use it myself. The TD e-series funds are super easy to get set up and have benefitted me thus far (had them for about a year now). Strongly recommend the CDN bond index, CDN index currency neutral, US index and the international index. The bank will set up pre authorized deposits for each depending on what you want. Now watch them grow! Sell your best selling ones once a year and re-invest them in your lagging ones.

[firebug]

Originally Posted by Sylvanfan

Okay, so today I want to stop putting my voluntary contributions into a RRSP and start moving that money into a TFSA. Being poor, I don't have a large sum of money lying around that's very liquid. So I'll be building it up $200 per week at a time. At $200 a week you really can't open up a online trading account and cost average your way in. Honestly, I'm happy to put it all in a S&P 500 index fund and leave it there for the next 25 years. Hopefully it will be worth something some day. What's the best way for poor people to get started.

Tangerine.ca (formerly ING Direct) can handle contributions like this. As well, their portfolio's are very low cost (check the couch potato links for opinions). http://canadiancouchpotato.com/recommended-funds/

I have some Tangerine accounts as well as TD E-series and the Tangerine funds are a wonderful way to start into something like this.

Also, don't sell yourself short - $200/week is a healthy contribution, no shame in that!

[darklord700]

Originally Posted by Sylvanfan

At $200 a week you really can't open up a online trading account and cost average your way in.

$200 a week is 10K a year. Nothing to be sneezed at.