I wont ever advise for timing the market, yet the current imminent US-Canada trade war and political storm inspired me to reassess my investing strategy.
Context : Mid 30, kids, mortgage, stable job but no retirement plan with the job.
I favour a diversified mix of low cost index fund but being a nerd i enjoy the Rational Reminder podcast and understanding the smallest details. An evidence based approach to risk and expected returns will guide my choices.
I started with 20 % bond and 80 % stock. The problem with bond : can exhibit volatility if interest rate change especially over longer time horizon, will limit growth if too high %, uncorrelated to stock but sometimes move in the same direction than stocks in recent downturn… I can put some extra payments on my mortgage and consider this a bond for a few years.
I want home country bias : no withholding taxes on dividend and at the opposite i get a tax credit for taxes already paid in Canada. In a conflict i can’t ever be expropriated from my own country stocks and use the Canadian currency for my spending. Let’s make Canada 25%.
Next is the US allocation. It’s two thirds of the investable world by market weight (see the VT etf if you want references) it’s had incredible returns in the last decade with p/e multitude going higher. Currency and country are uncompensated risk (random) and i won’t put myself in a place where 2/3 of my retirement is subject to random results. I choose 35 %.
That leaves 20 % for International developped market. I would like this to be higher than US but i will wait for the actual market weight to tell me that International merits a higher than US %. I leave developing market alone : i want an efficient market with free flow of information snd rules of law properly enforced.
Total 100% (20-25-35-20) close to VGRO.to No single stock, no gold, no crypto. What are your asset allocation plans and most importantly why?
If there is enough engagement here, i will make a future post about asset location, favourite etf to achieve my goal, small cap value and insured US allocation with deep itm options on SPY.
Here are my two cents
I can put some extra payments on my mortgage and consider this a bond for a few years.
I think it worth some calculation about mortgage vs bond. When you pay extra mortgage, you’re saving your after-tax money from interest. When you invest in bonds, your interest earn is pre-tax. As you have kids, I assume you have some tax credit so your marginal tax rate is not so high.
Next is the US allocation.
I just learned that VOO in RRSP are exempt from 15% tax withholding. [1] Is your RRSP contribution enough for the US allocation you expect?
For me, I have some high PE, big cap stocks for Canadian market. My US allocation use for hedging CAD/USD, as my income is in CAD
[1]: Some ref links
https://modernmoney.ca/investing/voo-and-rrsps/
https://www.reddit.com/r/Wealthsimple/comments/1co90hn/vfv_or_voo_in_rrsp/
All US dividends are safe from the 15% withholding taxe in the RRSP but not in the TFSA.
Also an international stock within an etf on the US stock market is subject to two layers of withholding taxes in the TFSA but only one in the RRSP.
Briefly to use this to my advantage TFSA : VGRO RRSP : VT, AVDV, AVUV, no Canadian etf Taxable: ZCN, ZEA, dec 2027 500 SPY call N.B. Everything VGRO wouldn’t be an issue.