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Retirement Portfolio for Canadian Early Retirees
Old 09-12-2016, 06:39 AM   #1
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Retirement Portfolio for Canadian Early Retirees

I am getting close to retiring (next couple months) and am looking for recommendations on a portfolio. Being in Canada, I am looking for recommendations for equities trading primarily on the TSX.

A am about 45 Years old and have an investment portfolio of about $3 Million with an annual after tax spending budget of $100K.

I would like to ideally, not touch the principal and live off dividends and capital gains. I would like to leave behind something for the kids.

I currently have 1/3 invested in Vanguard ETFs (VCE 50%, VFV 25% and VI 25%). Considering adding a Bond ETF like VAB or VSB.

The other 2/3's is individual stock picks consisting of 15% preferred bank shares (for fixed income), 75% equities (50% of which are financial - big 5 banks, 10% industrials, 7% utilities, remaining 8% is mixed between consumer discretionary, consumer staples, health care, high tech, and materials stocks.) and the final 10% is cash. This part of my portfolio is managed by an investment adviser, who I'm considering leaving due to the high fees.

I know I'm heavily weighted in the TSX, specifically in financials, but they have served me well with growth while I was working. As I approach retirement, I would like to simplify thing, maintain a healthy dividend stream but be less volatile.

I am leaning towards a Canadian Couch Potato portfolio based on Vanguard ETFs as explained here: Model Portfolios | Canadian Couch Potato
and here: Couch Potato Portfolio: Introduction

I would be interested in others recommendations and am curious to find out what other Canadian Early Retiree's portfolio's look like. Please share as much about your situation and portfolio as you feel comfortable.

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Old 09-12-2016, 02:00 PM   #2
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Location: Toronto, Ontario
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I don't have as much as you, but I am in the 2 comma club and plan to retire next year. My portfolio is 60% equity and 40% FI. Some people say that's conservative, some say it's crazy risky. It's based on low cost indexing principles espoused by Jack Bogle, Andrew Hallam, Cdn Couch Potato, William Bernstein, Rick Ferri and similar authors. I take a total return approach as advocated by Larry Swedroe and don't try to live just on dividends. (I want to spend most of it, not leave it behind.)

Here's my portfolio:
20% 5 yr GIC ladder
20% VAB
20% Cdn Equity (VCN, ZCN)
20% US Equity (VUN, XUS)
15% global developed (XEF)
5% emerging (XEC)
minimal cash (<1% ignoring emergency funds)

It is allocated across accounts according to the Finiki Tax-Effective Investing principles. Tax-efficient investing - finiki, the Canadian financial wiki

The GIC ladder gives certainty of income for several years, regardless of market conditions. You might ask why two each of Can and US equities. Because my funds are spread across multiple accounts (taxable, TFSA, RRSP and 2 LIRAs), that were invested at different times. I only have one fund of each asset class in any account, so it is no extra work, and very slightly more diversification (VUN vs XUS = US Total Market vs S&P500). I used to have some ZRE, VSB and VSC, but sold them to simplify my portfolio.

I ditched my adviser and went to an indexing approach several years ago and my only regret is not doing it earlier. I do have a fee-only planner that created a very detailed plan for me, but I don't foresee any need to return to her on a regular basis, or maybe ever unless my situation changes dramatically. The 2 main benefits I achieved from her are the assurance that I was not using mistaken assumptions in my own analysis, and recommendations on tax-effective investing and withdrawal strategies (like spending down some of my RRSP to minimize OAS clawback and when to take CPP/OAS)

I have thought about taking a portion of my Canadian equity and switching it into individual dividend paying stocks (my IPS includes this as an option). Every time I look seriously at it I think that it would not add diversification but rather portfolio duplication and concentration, and what if dividend stocks are over-priced because of all the yield chasers.

You mentioned Cdn Couch Potato - excellent site. A couple of good Canuck links if you have not seen them:
finiki, the Canadian financial wiki
Financial Wisdom Forum - Index page
The first principle in speculating is never give anyone advice to buy or sell shares, because, where perspicacity is weakened, the most benevolent advice can turn out badly.
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Old 09-12-2016, 03:16 PM   #3
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Posts: 228
Depending on your tax bracket and whether your savings are mostly unregistered (I'm guessing they are with such a high number at a young age), Canadian dividends may be a great deal tax-wise or they may not be. If they are, I think it's a valid reason to overweight Canadian. For example, in Ontario, the first 45k in income has a negative tax rate on dividends! You can look up your tax rates here: - Ontario 2015 and 2016 Personal income tax brackets and tax rates

I retired at 42 with a nest egg of about 1M and no real estate holdings. I then bought a building which took just over 250k of my nest egg, and provides about 1.2k/mo in net income. Planning to move into the building once we have spend an additional 100-150k renovating it, which will leave us with around 600k to live off in addition to the rental income. At 55, my pension of 16k/year kicks in, and then I will likely take CPP at 60 and OAS at 65. With annual expenses of 35k we should be all set although it does make me nervous having a nest egg of <1M especially when I come to this board, haha.

Asset allocation-wise I set myself up like this:
Canadian 25% XIC
US 20% VUN
Intl 20% ZEA
Real estate 10% (this is REIT's, not my building, thinking maybe I should get out of these now that we have the building)
Bonds 25% VAB

Don't know if this helped much but hey! Hope so!
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Old 09-12-2016, 04:02 PM   #4
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Originally Posted by fire161007 View Post
I am leaning towards a Canadian Couch Potato portfolio based on Vanguard ETFs as explained here: Model Portfolios | Canadian Couch Potato
and here: Couch Potato Portfolio: Introduction

I would be interested in others recommendations and am curious to find out what other Canadian Early Retiree's portfolio's look like. Please share as much about your situation and portfolio as you feel comfortable.
Been discussing this with my SIL and recommended CCP to them. Basically they are going to go with the vanguard ETF approach with:

25% VAB (can bond ER 0.13%)
25% VCN (can all cap index ER 0.06%)
50% VT (total world stock ER 0.14% -- roughly 50% US, 50% world)

For VT they are using US denominated funds and plan to manage the USD/Can conversion with norbert's gambit.

It's possible to get lower ER than VT by using a combo of VTI and VXUS. Another alternative is VXC but it has higher ER (0.27)%
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Old 09-13-2016, 10:40 AM   #5
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Location: GTA
Posts: 1,686
Currently also planning on early retirement in Canada (Ontario). Am 43 and aiming for age 45. I effectively Semi ER'ed last September by cutting my own hours back to about 24 hours a week on average. As detailed elsewhere on this forum.

In regards to our portfolio, here is where it actually sits at current. This is not ideal as it hasn't yet reached our target percentages but I am fairly happy with it. We are complicated by holding 2/3rds of our assets in a holding company and also by a bunch of legacy holdings from before I found indexing religion.

cdn etfs 10% (mostly VCN and ZUT)
cdn dvy 12% (banks/ins. cos./telcos mostly)
us 5% (mostly VTI)
intl 5% (mostly VXUS)
private eq. 8% (funds loaned to our OpCo)
f.i. 55% (GIC ladders)
cash 5%

Goals prior to full ER include moving the cash and private equity into VTI and VXUS as opportunity presents and the funds are freed up. Possibly also to convert some of the GICs into VAB or similar. Depends on interest rates over the next two years.
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canada, couch potato, early, retire, vanguard

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