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Open Book – Married Life and Investments

This is part of our Open Book series, you can start here if you did not read our first post.

 

A few things changed since we got married last month. I will now be including my lovely wife on the journey and we will start writing some posts together. Mrs. Xyz was always on board with financial freedom but she will now start to contribute to the blog. 🙂

 

Finance-wise, I covered our basic banking structure in my wedding announcement post so I will not repeat myself but a few of my investments changed since my last Open Book post. We have a lot of different accounts at a lot of different institutions:

  • Vacation Savings Account
  • Emergency Fund
  • Retirement Account (401k) with Broker A
  • Retirement Account (401k) with Broker B
  • Tax-Free Savings Account (Roth IRA) with Broker A
  • Tax-Free Savings Account (Roth IRA) with Broker B
  • Non-Registered Account with Broker A
  • Employee Stock Option Plan RRSP
  • Employee Stock Option Plan Non-Registered
  • Checking Account at Bank A
  • Checking Account at Bank B

You can imagine how hard it can get to track all of this one by one! Thankfully, we have some amazing free platforms like Mint or Personal Capital to track all our accounts and stay on top of our finances. Having everything all on the same platform is a life saver and allows us to use the best products even if those are not necessarily offered by our main bank. Shopping around for the best financial products allowed us to eliminate all bank fees, save on trading commissions, and increase the interest rate in our savings accounts! If you have not taken the time to optimize your finances yet, head over to our suggestion page to find what works best for you.

 

Now let’s dive right in, starting with my accounts.

 

RRSP (401k) Investments

My registered retirement account is my largest account thus far. Contrary to the United States, the Canadian retirement plan is much more flexible and you do not need to do any back-door conversion to access your funds early. As long as your income in retirement is less than the first federal tax bracket of $45,282, you can withdraw from your RRSP at a 15% tax rate. It is wise to draw on your registered accounts first if you retire before the age of 65 since you will need to bridge your income needs before Old Age Security and other benefits kick in. Doing this will avoid claw-backs and higher taxes later.

Since I plan to retire about 30 years before I turn 65, I have plenty of time to empty my registered retirement account to avoid any government claws back or high taxes. I mainly invest through exchange-traded funds and hold a tiny amount of my portfolio in individual stocks. I highly suggest you invest through Vanguard given there super low costs and diversification.

 

Below is a breakdown of my RRSP (401k) portfolio, as of October 17th, 2016:

VTI ♦ 36% of this account is still invested in the Vanguard Total Market ETF since it offers great diversification at a super low cost. VTI is up since my last post and is still my main investment.

VCN ♦ 21% of this account is invested in the Vanguard FTSE Canada All Cap Index ETF since I live in Canada and I do expect to retire in Canada. The Canadian market recovered since the lows caused partly by the oil prices but it is still experiencing downward pressures.

VEA ♦ 11% of this account is invested in the Vanguard FTSE Developed Markets ETF. This was slightly down given the current tensions in Europe but I only see it as a buying opportunity.

BND ♦ 4% of this account is invested in the Vanguard Total Bond Market ETF. This holding has not moved much, as one would expect from a bond fund.

BNS ♦ 28% of this account is invested in the Bank of Nova Scotia even if that might seem like a large portion of my portfolio. This stock rose since it released earnings and has been treating me great this year. I am starting to look for an exit point and will probably invest the proceeds into VTI once I sell it.

 

TFSA (Roth IRA) Investments

In Canada, we have the Tax-Free Savings Account which is similar to the Roth IRA. I went on a little shopping spree and bought some new ETF to tilt my portfolio towards European holdings and Emerging markets. The rationale behind this purchase was simply the slump Europe makes it a great buying opportunity and my past international holdings were only focused on the developed markets rather than the smaller cap Emerging markets.

 

Historically, small-cap stocks have outperformed large-cap stocks, but they also have been more volatile. From 1926 through 2012, small-cap stocks averaged an annual return of 12.28 percent, compared to 10.08 percent for large-cap. – Morningstar Ibbotson

 

I contributed a lot into my TFSA (Roth IRA) since my last post so the ratios have greatly changed. Furthermore, since I did not have any small cap holdings in international markets, I contributed a small portion of my this account to Vanguard FTSE Emerging Markets ETF.

 

VTI ♦ 50% of this account is invested in the Vanguard Total Market ETF. This used to be a very large portion of my TFSA but my new contributions lowered the total ratio of this holding.

VCN ♦ 1% of this account is invested in the Vanguard FTSE Canada All Cap Index ETF. I have not invested any new funds into the Canadian market given my already-too-large holdings in Canadian banks. This holds a far from a perfect correlation but it keeps my asset allocation in line. The optimal solution would be to sell all of my individual stocks and invest solely in index funds but I still like to play around a bit. 🙂

VEA ♦ 13% of this account is invested in the Vanguard FTSE Developed Markets ETF. This invests internationally, in the developed world and although it does invest in all capitalization, it does not have any exposure in the Emerging Markets.

VGK ♦ 10% of this account is invested in the Vanguard FTSE Europe ETF. I know this complicates my portfolio and tilts it towards Europe but I count this as my little gamble to beat the US market over the long-term.

VWO ♦ 15% of this account is invested in the Vanguard FTSE Emerging Markets ETF. I am trying to tilt my portfolio towards smaller caps and invest in countries such as China, Brazil, and Taiwan that might offer more growth than the US over the long-term.

VRE ♦ 8% of this account is invested in the Vanguard FTSE Canadian Capped REIT Index ETF. I previously did not hold any REIT funds since our house is a large portion of our net worth. However, holding this highly diversified real estate fund does extend my reach into shopping malls, retirement homes, apartment complexes and office towers. Again, this might not be necessary but it is another little tweak I made to (hopefully) increase my returns. The American version of this ETF is symbol VNQ.

TD ♦ 3% of this account is invested in the TD Bank. I did not purchase any new shares but it did show good growth. I do not suggest you buy individual stocks, you should stick to indexing.

 

Non-Registered Accounts

Currently, I maxed out my registered retirement account and still have some room in my TFSA (Roth IRA). I invest all my new contributions into it and have my automatic investment plans directly investing in it. However, my Employee stock option only offers RRSP (401k) or non-registered accounts so I had to invest these new shares into a non-registered account. I try to sell off these shares every 3 or 4 months and invest in ETF to minimize my exposure. Currently, these shares represent only about $1000.

 

The Grand Totals

Even with my little shopping spree and my individual shares, I try to keep a strict asset allocation and rebalance yearly back to that allocation. I always re-invest dividends and automated most of my investments at each pay. (In the totals below, I did include my bank shares in the Canadian Market ratio.)

 

Current Asset Allocation Desired Asset Allocation
  • 42% ♦  US Market
  • 37% ♦  Canadian Market
  • 19%  ♦  International Market
  • 2%    ♦  Bonds
  • 40% ♦  US Market
  • 40% ♦  Canadian Market
  • 15%  ♦  International Market
  • 5%    ♦  Bonds

 

Mrs. Xyz

My wife has a very similar asset allocation than me and has kept is very simple. She holds only 4 index funds and only invests in her TFSA (Roth IRA).

 

Mrs. Xyz Current Asset Allocation Desired Asset Allocation
  • 39% ♦  US Market
  • 41% ♦  Canadian Market
  • 11%  ♦  International Market
  • 9%    ♦  Bonds
  • 40% ♦  US Market
  • 40% ♦  Canadian Market
  • 10%  ♦  International Market
  • 10%  ♦  Bonds

 

This concludes the October update of my Open Book series, I know it has been 6 months since my past post 😛 I will try to post more often than bi-yearly! Xyz.

 

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2 Comments

  1. Thanks for sharing your insights. I’m always curious how other countries handle their retirement accounts. Thanks for sharing your insight!!!

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