While i don't believe in ETF's being the best tools for investors i have to admit that they are by and large a better option for most. As more investors switch to ETF investing it will hopefully make it easier for active managers to beat the markets.
I am going to outline a couch potato portfolio in this post for which i am to adhere to and compare to my actively managed account and my handful of hand picked mutual funds.
The mutual funds i mostly hold are non-index like (similar to TSX.HAV) and usually have a value tilted style. The fund managers are usually invested alongside clients and have only smaller funds so they have a greater investing universe to choose from.
I started with the plain vanilla 25% US equity 25% CDN equity and 50% bonds/cash. I then started to tweak the percentages a bit and then started to add small portions of DGS and XRB. This turned into a disaster as i got carried away and started to add to many ETF's and it looked actively managed.
I then gave myself a mandate, which i will keep here to remind me what ETF's are supposed to be, my written portfolio statement for the potato so to speak.
Because ETF's are about low costs i will hold no more than 4 index funds. Since most stock markets across the world fell together i will try to use all encompassing ETF's like VT.
I want the bonds portion to be weighted between 20-40% and equities 60-80% since my time horizon is longer than 20 years. The smaller percentage moves can be ignored thus removing excess trading and fees by rebalancing less.
Bonds: XBB (0.32%), XRB (0.35%) and VAB (0.20%)
Equites:
United States; VTI (0.07%), VBR (0.23%), VTV (0.12%)
Canadian; VCE (0.09%),XCS (0.55%)
Overseas; VT (0.25%), VSS(0.33%), DGS (0.63%), VEF (0.37%)VEE (0.49%)
Because i am seeking value and small cap stock selections via managed mutual funds i will stick to traditional low cost ETF's. Vanguard has the lowest fees by far so i will likely use them. I want to keep a healthy dose of Canadian as this is likely the currency i will retire with. The US fund is fine for worldwide exposure since many of the companies are global and likely benefit from worldwide growth anyways.
My couch portfolio will be:
VAB 30%
VTI 35%
VCE 35%
I wanted to keep fees low and the above have a blended average of 0.116% MER. VTI also has some small cap exposure.
I had to laugh a few months back when i did some rough calculations using some all star picks in a US magazine from a few years back. A blended ETF beat the pants of the equally weighted all star picks. Which started me on this current post. That and a lack of time to do a good job managing the active portfolio...
Sunday, February 12, 2012
Your CPI?
While reading today i watched a short youtube video on inflation.
Many of our inflation statistics seem to compare things we don't need or use and others we rely heavily on are thrown out. I vaguely recall a few years ago reading about someone who created their own inflation index using groceries and a few other items.
To personally do this i would need to look at my budget and break out where my must have expenditures are. I will leave out my Iphone, HD TV and other non necessary purchases, but instead focus on food and shelter and the monthly fees associated with the aforementioned items once purchased.
A semi-quick laundry list of things to cover would be:
1. Interest rates. Mortgages and other credit (my personal loan rates will be tracked here) as most of us (including me) have debts. Any and all debts will be here since these erode our purchasing power which could be directed to growing net worth.
2. Food. I will only cover here groceries as eating out is not a requirement, but something i do enjoy. Create a common basket of goods in food quality and quantity.
3. Gasoline. I am a commuter and rely heavily on my car and fuel to get me there. While i love the idea of an all electric (I am rooting for Tesla to make an affordable car soon) the battery life in my climate during winter (-20C averages not unheard of) months would likely make it unusable for my current trips (90km each way). The cold temperatures make the 100 mile estimates by the Nissan Leaf fall to half or below.
4. Insurance. While my life insurance policies are stable my house insurance has jumped considerably. Car insurance is certainly not going down.
5. Taxes. My property tax, income tax, EI, CPP all should be included as this have to be paid.
6. Hydro (electricity and natural gas).
7. Water. A requirement for all. Use city, bottled water and 18.9L bottle to compare.
8. Almost must have items. TV, internet, telephone and cell phones.
9. Minimum wage increase vs. my own salary increases.
10. Health. Dentists, optomatrists, and massage therapists are commonly used in our home.
11. Tim's coffee. Its a habit of mine, but one i often use to compare other items. "That's gonna cost me how many coffees?" or "I could save two Tim's coffees if i buy this!".
12. Clothing. This is really tough because you can't really compare apples and oranges from the same grocery store. Plus a lot of what we have is want not need clothing.
13. Bricks and mortar. Most of us live in homes or apartments which need repairs or paint every few years. Shingles, toilets, paint, light bulbs and water fixtures.
14. Alcohol. Case of Budweiser beer or 40 Oz of Crown Royal.
While some on the above list are easy to calculate (i track my fuel mileage and how much is spent and fuel prices are not hard to find on the web) others like food will take considerably more time. I hope to find some time to get these numbers tracked and maybe have some crude estimate as a start within 2012.
Yikes suddenly this looks like lots of work. Some of these will probably not get done, but the top 10 should be a pretty good start.
Many of our inflation statistics seem to compare things we don't need or use and others we rely heavily on are thrown out. I vaguely recall a few years ago reading about someone who created their own inflation index using groceries and a few other items.
To personally do this i would need to look at my budget and break out where my must have expenditures are. I will leave out my Iphone, HD TV and other non necessary purchases, but instead focus on food and shelter and the monthly fees associated with the aforementioned items once purchased.
A semi-quick laundry list of things to cover would be:
1. Interest rates. Mortgages and other credit (my personal loan rates will be tracked here) as most of us (including me) have debts. Any and all debts will be here since these erode our purchasing power which could be directed to growing net worth.
2. Food. I will only cover here groceries as eating out is not a requirement, but something i do enjoy. Create a common basket of goods in food quality and quantity.
3. Gasoline. I am a commuter and rely heavily on my car and fuel to get me there. While i love the idea of an all electric (I am rooting for Tesla to make an affordable car soon) the battery life in my climate during winter (-20C averages not unheard of) months would likely make it unusable for my current trips (90km each way). The cold temperatures make the 100 mile estimates by the Nissan Leaf fall to half or below.
4. Insurance. While my life insurance policies are stable my house insurance has jumped considerably. Car insurance is certainly not going down.
5. Taxes. My property tax, income tax, EI, CPP all should be included as this have to be paid.
6. Hydro (electricity and natural gas).
7. Water. A requirement for all. Use city, bottled water and 18.9L bottle to compare.
8. Almost must have items. TV, internet, telephone and cell phones.
9. Minimum wage increase vs. my own salary increases.
10. Health. Dentists, optomatrists, and massage therapists are commonly used in our home.
11. Tim's coffee. Its a habit of mine, but one i often use to compare other items. "That's gonna cost me how many coffees?" or "I could save two Tim's coffees if i buy this!".
12. Clothing. This is really tough because you can't really compare apples and oranges from the same grocery store. Plus a lot of what we have is want not need clothing.
13. Bricks and mortar. Most of us live in homes or apartments which need repairs or paint every few years. Shingles, toilets, paint, light bulbs and water fixtures.
14. Alcohol. Case of Budweiser beer or 40 Oz of Crown Royal.
While some on the above list are easy to calculate (i track my fuel mileage and how much is spent and fuel prices are not hard to find on the web) others like food will take considerably more time. I hope to find some time to get these numbers tracked and maybe have some crude estimate as a start within 2012.
Yikes suddenly this looks like lots of work. Some of these will probably not get done, but the top 10 should be a pretty good start.
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