My Investment Approach Account Breakdown Asset Class Breakdown The Funds I Use Takeaways
My Investment Approach
If you’ve been here long, you know that I am an index ETF investor.
Index ETF’s provide the greatest chance of investment success with the least amount effort. Their low fees reduce drag on your investments and you can easily build a globally diversified portfolio.
I purposely keep my investment approach simple. I use index ETFs, contribute regularly, and buy and hold for the long term. The rest is just market noise that can be ignored.
What is an index fund?
An investment fund constructed to track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500), which is the top 500 companies in the U.S.
These funds follow their benchmark index regardless of the state of the markets.
Related post: How to Start DIY Investing in Canada
Account Breakdown
I have three (3) main investment accounts. 1) My work pension, 2) an RRSP, and 3) a TFSA.
I also have a small rental property which I’ve included below along with some much smaller accounts I include for entertainment.
The majority of my portfolio is in my pension and RRSP with real estate and TFSA being quite small portions in comparison.
My pension (60.6%) and RRSP (30.2%) add up to 90.8% of my investments. My TFSA makes up only 3.4%. This is not where I want to be. I want my TFSA to be much healthier so that I have more flexibility to draw money from different accounts and choose my yearly income (and tax rate) when I decide to leave the workforce.
The net worth of my rental property makes up 5.5%. I don’t have any plans to buy additional properties so this will remain relatively unchanged as I slowly pay down the mortgage. I may sell it one day as it’s not providing the value and return that I would like – but that is a topic for another day.
It has been a number of years since I’ve put together the numbers of my portfolio in this way. This has been a great exercise to see where I am at and give myself a chance to recalibrate.
This year I stopped making RRSP contributions as I knew I needed to focus on my TFSA. I just didn’t realize how much my portfolio was skewed towards pre-tax accounts (RRSP and pension).
The concept of balancing between my pre-tax (RRSP/pension) and post-tax (TFSA) accounts is not something I’ve given much thought to in a number of years. I had previously decided to focus on my RRSP to receive the tax refund and capitalize on being in a higher tax bracket. The tax refund was a big driving factor. But I’ve recently updated my opinion on this as I realized the need to focus on my TFSA to bring up its allocation.
My focus over the next few years is to contribute heavily to my TFSA (post-tax account) to better balance this out. My pension contributions are mandatory so that part will continue to grow regardless. In order to make my tax season easier so that I don’t owe money, I may need to speak with my payroll department to take additional tax off. I’ve always uses my RRSP contributions to counter paying taxes.
To reinforce my change in stance on this topic, I recently came across a rule of thumb for allocations across pre-tax and post-tax accounts. Use your age plus 20 in the pre-tax. This means I should have 60% in my RRSP/pension instead of 90% and a new target of 40% allocation to my TFSA. I’ve got some work to do.
TFSA: Age + 20% Rule
Implement the (age + 20)% into your TFSA (pre-tax accounts). This means you’ll be more focused on your RRSP (pre-tax) as you near retirement and be more focused on your TFSA (post-tax) account when you are younger.
See this paper for more information. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2799288
Asset Class Breakdown
When it comes to my asset class breakdown, I’ve been keeping closer track of that for awhile. My target allocation is to be between 75% and 80% in equities, preferably closer to 80%. As you can see from the graph below, I again am not where I want to be. I realized this when I included in my real estate portion into my overall asset allocations. I consider real estate to be similar to bonds.
Currently my equity allocation, across all accounts, is 74.1% with my “bond” component being 25.6%. My crypto allocation (0.3%) is exactly where it should be – under <1% of my portfolio.
I included my crypto allocation purely for fun as I find it funny to see it’s not even a sliver. I have some Bitcoin ETFs and a Crypto.com account that I’ve been using to learn. I’ve dabbled in Crypto an educational investment and curiosity only. I don’t think it is a good investment, but is speculation which is an investment strategy I stay away from.
Real estate makes up another small portion at 5.4%. When my wife and I bought a house, I converted my apartment-style condo into a rental in 2014. The value has dropped significantly since then. This 5.4% is what remains of my estimated condo value minus the mortgage.
The Funds I Use
Updated August 2022: – Swapped out VGRO for XAW to reduce Canadian exposure as I have a rental property and a Canadian dividend ETF (XDIV) I’m trying out.
For 99% of my portfolio, I use only 6 ETFs and two investment funds available through work.
- XIC – Canadian Equity ETF
- VTI † – Total US Stock Market ETF in USD
- VXUS † – Total International Stock Index ETF in USD
- VAB – Canadian Bond ETF
- XAW – All Country World ex Canada Index ETF
VGRO – All-in-One Asset Allocation ETF (80/20 Equity/Bond split) - XDIV – Canadian Dividend ETF
- Pension Equity Fund
- Pension Bond Fund
Pension
Updated September 2022: Changed my pension allocation from 75/25 to 80/20.
My pension is currently a 80/20 split of equity and bonds.
My pension companies investment strategy is active management with a focus on value. Both the equity and bond funds are globally diversified across Canada, US, International, and Emerging Markets.
| Account | Fund | Account % |
|---|---|---|
| Pension | Equity Fund | 80% |
| Pension | Bond Fund | 20% |
RRSP
My RRSP is based on a Model Portfolio of 4 ETFs. It is already in an 80/20 split of equity and bonds.
I started this account in 2012 based on the Canadian Couch Potato’s model portfolio. It has served me well. I don’t actively add funds to this account but I monitor to rebalance if necessary.
| Account | Fund | Account % |
|---|---|---|
| RRSP | XIC | 27% |
| RRSP | VTI † | 28% |
| RRSP | VXUS † | 25% |
| RRSP | VAB | 20% |
This is another view showing how these Model Portfolio funds break down into global equities.
| Canadian Equities | U.S. Equities | Developed Markets | Emerging Markets | Canadian Bonds | |
|---|---|---|---|---|---|
| ETF | XIC | VTI † | VXUS † | VAB | |
| Allocation | 27% | 28% | 25% | 20% | |
† VTI and VXUS are U.S. listed ETFs that are traded on the U.S. Stock Exchange and are traded in U.S. dollars (USD).
TFSA
My TFSA is made up of an All-in-One ETF (VGRO) which is an 80/20 equity and bond split that is auto-rebalanced. I also have a Canadian Dividend ETF (XDIV) which I am putting some money into to build up a holding so that one day I can break it out to learn more about dividend investing.
The allocation in my TFSA is another area that I’ve realized needs attention. The combination of VGRO and XDIV is giving me more Canadian equities than I want. Since my TFSA is small, this is not much a problem, but its good to recognize my Canadian bias exists.
| Account | Fund | Account % |
|---|---|---|
| TFSA | VGRO | 69.6% | TFSA | XDIV | 30.4% |
Takeaways
I’m really glad that I took the time to analyze my portfolio and combine my stock, bond, and real estate assets. It has given me clear direction on what I need to focus on moving forward to get to the desired allocations and risk level I want for my portfolio.
Next Steps
- Update my pension allocation from 75/25 to 80/20 equity/bond split.
- Focus on contributing to my TFSA (post-tax) account to hit a 40% allocation.
- I may switch from VGRO to XAW to remove duplication of Canadian equity in my TFSA.
I hope you found this useful as I did. Let me know in the comments if you have questions about my portfolio, investment strategy, or just want to say hi.
Related Posts:
How I Become a DIY Investor
How to Start DIY Investing in Canada
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