Investment Q&A

Q: Hello
I recently read the following,
Warren Buffet flatly endorsed a simple portfolio of inexpensive index funds for his own survivors. My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.

If a Canadian was to follow this advice, and allocate some to a Canadian index fund, a U.S index fund and short term government bonds. What would your allocations be and what Canadian Index fund would you recommend? If you where to periodically rebalance the portfolio how often would you do that. Would you use this strategy in RRSPs, TFSAs and RESPs?
Also should the investor protect him/herself from U.S dollar currency risk?
Use the assumption that this is for long term investing.

thanks, looking forward to your comments.
Bryon

Q: Most of my investments are in SDRSP,RIF & TFSA accounts. I have started to build a trading account for dividend paying stocks in order to take advantage of the dividend tax credit. Currently my holdings are:
Aston Hill (AHF) 7%
BMO Eql Wgt Reit Index ETF (ZRE) 24%
Gamehost (GH) 21%
Ishares US hi Yld Bnd ETF (XHY) 26%
Valener (VNR) 20%
Cash 2%
Some of the percentages are high, but I prefer buying board lots. I have additional funds to put in which should reduce the percentages by half. I am ok with some risk. What would your suggestions be for adding to and/or changing the existing mix.
Great job on completing the bike ride dream & contribution to an important cause plus many thanks for all 5i does.

Q: Today, Reuters (Mike Dolan) published a piece "Financial Market Storm Brewing.." and the last paras stated:

"If investors are surprised by financial storm, it won't be because they weren't warned. Financial watchdogs have been waving a red flag about overstretched markets for the past year and stressed concerns again this month.

"There are increased signs of complacency in financial markets, in part reflecting search for yield amidst exceptionally accommodative monetary policies," the Bank governor Mark Carney said last week, citing conclusions of the G20's Financial Stability Board which he chairs.

"Volatility has become compressed and asset valuations stretched across a growing number of markets, increasing the risk of a sharp reversal."

Particularly because of Mark Carney's comments, this caught my attention. Any thoughts on how this might play out?

Q: hello 5i
my question pertains to rebalancing ones portfolio. I have done this usually once a year in Jan./Mar. Would there be a preferential time to do this?
thank you

Q: Hello Peter
Before I sign up for 5i Research my portfolio was made of 3 ETFs HSU.TO , SSO.N US and UPRO.N US.
My buying and selling was done based on Daily frame of S&P 500 and 3 EMAs. I my say that I was pretty successful with this technical approach and this method save me from loosing about 50% of my portfolio in January 2008 when EMA50 made "dead cross" with EMA 200.
My question is since from last September I follow your model portfolio (with small changes of stocks) will you be able to issue warning us if big correction like 2007/2008 will be coming on the horizon or should we go through correction like 2007/2008 without selling entire portfolio.
Id like to add that I still have separate portfolio of HSU ,SSO and UPRO based on three EMAs unfortunately this technical approach method does not work with individual stocks .
Thanks Andrew B.

Q: Would you have any recommendations for the most cost effective method of protecting an all equity portfolio from 10%-15% downside market risk? Specifics would be appreciated.

My non-registered portfolio primarily consists of large cap US and Canadian companies.

Q: Since we are having a correction, I need to free up some cash to buy stocks I have been waiting for to pull back. Do you recommend selling a partial position of a winning position or selling a losing position(precious metals of course).The new positions I want will help diversify my portfolio. I am tempted to sell the losing position. Also, could you guys give any recommendations on a course of action with this correction and any possible future outlook of the economy etc..... Or any nuggets of wisdom you wish to throw out there.
Thank you

Q: Waiting for an entry point on your A rated stocks. Held on to excess cash for this reason. Should I just go with A rated or lower? I know you don't like to time the market but what might be the turning point clue?

Q: The Russell 2000 index is now negative for the year and looks (to me) like a topping pattern. Is this likely to be an early warning?

Q: I need to add US and International Exposure to my locked in account. It is currently 60% cdn equity and 40% bonds and gics. I want to have fixed income remain at 40%. I want to reduce Canadian equity to 40% and add 12% US Equity and 8% other international equity.
1 Would ishares Core S&P Index (XSP) and ishares MCSI EAFE (XIN) index be appropriate?

2 Both are hedged to the Canadian $. Is that the best way to go? If the Canadian $ strengthens by 10% what effect can I expect to see?

3 Should I make this change in equal purchases of 1/3 of each index over 12 months?

Thanks for your help and great service

Q: My TFSA makes up a tiny portion of my overall portfolio and I have maxed my contributions to date. I have to sell about 1/2 of the portfolio within the next few weeks to pay for a wedding (life can get in the way of long term investing!).

However, I am stuck on what to sell. I hold AVO, AYA, BDI, CGI. DHX, CF, ESL, STN in a fairly balanced portfolio. I am trying to determine a strategy of what is best to sell. I am comfortable with all of them, long term. Do I sell 50% of each (even the couple I am down on), are there some that you expect to grow a lot sooner than the others (it will take a couple of years to probably replace the withdrawals), is CF anticipated to declare a special dividend, etc?

Any assistance as to how to orient my thinking would be appreciated.

As a caution to others, I should add that I did trim a bit earlier but I became complacent with the high valuations and didn't prepare for this September drop in the markets.

Appreciate your assistance and I hope you are transitioning well from all your riding. I did the Ride to Conquer Cancer and it took me a few days to slow myself down!

Paul F.

Q: I appreciate the wealth and wonderful information you have been accumulating on your site. I have a general strategy question. On building just a dividend income portfolio, using Canadian blue chip companies, there is a sense that the rise and fall in stock market price becomes back ground noise. These tend to be very long term holds however some of these companies can get some bad press which exaggerates a fall in price and then it bounces right back. Is there a critical no return price to watch for in these blue chip long term hold companies? For example would a fall of more than 15% in price be a trigger for something more than just stock market noise?

Q: Great work Peter ... I am now retired and am about to allot my funds into their proper allocations. RRSP,RIF,and LIF ... I had chosen 7 stocks from the Income Portfolio for my LIF but having read comments from other investors I am not sure if I am heading in the right direction. You and Ryan have been so supportive so I must ask How would you allot 400K(RRSP), 200K (RIF) and 210K (LIF) ...right now I am completely covered 400K in the Model Porfolio. If this is to much to ask I completely understand , I do have a plan but would like to allow your expertise to weigh in. Thanks for all you do and post this at your discretion.

Q: Pardon my lack of knowledge, but what do you mean by "half position" and "full position" for an investor's holdings. More generally, I cannot find a glossary of terms on the web site.

Thanks for all the great info.

Cyril

Q: Sometimes we investors need to be reminded why we invest for the long term and avoid the temptation to trade in and out. John Heinzl in the Sept.17 Report on Business gives a perfect example to validate this philosophy: "If you had bought 100 shares of TD at the start of 1983 and never purchased another share, today – thanks to stock splits – you would have 2,400 shares. What’s more, those shares would be spinning out annual dividend income of $4,512 – more than the $4,000 cost of those original 100 shares."

You could probably replicate this example with many others. What he doesn't specify is the value of the original $4000 is now $137,000. Try matching that return with any piece of real estate in Canada. The full article is here:

http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/dividend-investing/dividend-growth-an-investors-best-friend/article20632553/#dashboard/follows/

Q: Hello Peter,

What a difference a month makes! In August you wrote an article on reasons to be bullish and a short month later you identified reasons to be bearish. It is now up to us to navigate in those cross currents. At the end of August, I had decided to raise some cash in my RRIF portfolio (I’m 71); it now stands at 15%. If a correction occurs and some of my holdings pull back, I will take advantage of opportunities.

But what worries me are the doom and gloom scenarios that some pundits elaborate and that forecast cataclysmic crashes. So I decided to research for the principal reasons that caused the tech bubble in 2000/01 and the more recent 2008/09 crash. I found out that the answer lies in the bond market, specifically in the yield curve. In the period prior to the tech bubble, the yield curve had flattened and reversed and in the period prior to the recent crash, the yield curve had flattened.

Why is that fact significant? Financial institutions borrow money on the basis of short term bond (lower) rates and, in turn, lend out on the basis of long term bond (higher) rates; they make their money on the differential. But if the yield curve flattens or reverses, these institutions will cease to borrow and lend; as a result, the liquidity in the economy will dry up leading to stagnation and crash.

Knowing very well that there must be other reasons for the downturns, I take comfort in falling back on the KISS principle.

So, I routinely (daily) make it a point to take a look at the yield curve and then move on.

I appreciate your comments,

Tony

Q: re: Mitigation Strategy (MS)and lagging equities

Saw your answer for Rita re the MS and your comment to reallocate into stocks that "are lagging."

Could you give us a few examples of your opinion re which equities you would consider are lagging?

Thanks for all your do

Gord

Q: When you mentioned that a stock is good for a long term hold.What time frame you do mean by this? 2 years? 5years?
Thanks
Dolores

Q: The stock market have had a nice run for the past 3 years. Is it a time to implement some sort of exit / risk mitigation strategy? If so, what will that be? Thank you as always!

Q: BYD, SJ, LNR & VET are all currently below their ascending trend line as well their 50 day moving average. Is this a good opportunity to increase my positions in these companies? Is their a reliable technical indicator to take out some of the guess work of adding to good companies? Please do not reply that this is not a factor to someone with a long term perspective. Thank you for your insight.