Feel free to comment on this Canadian Money Forum thread.
Your eponymous Raven is mid-40s, with no spouse or dependents. No house or mortgage currently - previous residence sold.
Of the model portfolios at the Canadian Couch Potato site, this most resembles Canadian Capitalist's Sleepy Portfolio. The bond portion is bumped from 20% to 30% (and in time probably towards 40%) to befit a more elderly and conservative raven, while the equities have been tweaked downwards. A largish cash component will likely be allocated to other categories. Alternative possibilities for some asset classes come from the Uber-Tuber portfolio created by Dan Bortolotti (aka Canadian Couch Potato) to try and recreate to the extent possible the value/small-cap features of the Dimensional funds.
| Canadian Equity | 20% | iShares S&P/TSX Capped Composite (XIC) |
| US Equity | 20% | Vanguard Total Stock Market (VTI) |
| International Equity | 15% | Vanguard Europe Pacific (VEA) |
| Emerging Markets | 5% | Vanguard Emerging Markets (VWO) |
| Bonds (30%) | 10% | iShares DEX Long-Term Bond (XBB) |
| 15% | iShares DEX Short-Term Bond (XSB) | |
| 5% | iShares DEX Real Return Bond (XRB) | |
| Real Estate | 5% | iShares S&P/TSX Capped REIT Sector (XRE)? |
| Cash or undecided | 5% |
Alternative ideas from the Über–Tuber
Canadian Equity - 12% Claymore CRQ and 8% iShares XCS.
US Equity - 8% Powershares PRF, 4% Vanguard VTV, 4%Vanguard VB.
International - 8% VEA, 4% iShares EFV, 4% Vanguard VSS.
Real Estate - 4% Claymore CGR.
Bonds:
There seems to be some sentiment out there that the shorter-term bonds may be preferable. However, I already own the 10% long bond position in XBB, so I'll likely leave it and go forward with XBB. I'm considering deferring part of the XBB purchase and keeping the funds in medium-term GICs or high-interest savings for a year or two, to avoid too large a purchase at one time, and to see what bond prices do over the next while. Future bond purchases would seem an especially good fit for popping into new RRSP room as it is created.
Canadian Equity:
Some people seem to prefer XIU instead of XIC, but I think I prefer the broader coverage. I might allocate a few of the percentage points devoted to Canadian dividends in some form. Another possibility is breaking the big 20% lump into some split between XIC and the small-cap XCS, or substituting Claymore's CRQ for the XIC.
US Equity:
The two schools here seem to be the "hedge US currency exposure" (for instance iShares XSP) or not (VTI or iShares IVV). Given the Canadian dollar near parity now, the higher returns and better tracking of the US-denominated funds like VTI should provide a cushion against a fairly hefty rise in the Canadian dollar. There's a thread here, and I have a calculator to try and get a rough sense of the figures involved.
Real Estate:
Canadian Capitalist's idea of holding 1-3 of the top REITs from XRE is interesting, or there is ZRE, BMO's Equal Weight REIT fund. There are also a pair of Vanguard funds, VNQ (US REITS) and VNQI (ex-US REITS). Pairing these up might be worth shaving a couple of points off the US and International equities. In any case I'll be holding off making a call on any real estate component for awhile, and this allocation will be parked in cash until then.
Allocation:
As I had many years in a job covered by the federal civil-service pension plan, my available RRSP room has been only a portion of what it would be otherwise. I can likely fit 30-35% of the portfolio into the RRSP. It seems for my case it would be most efficient to stuff the bonds into my TFSA, then put the rest into the RRSP. The remaining RRSP room can take a portion of the US Equity (VTI), and everything else will be unregistered. As new RRSP room opens up, I can either put new contributions in, or move existing equity chunks into shelter (although there would be capital gains issues on deemed sales when doing the swap).
TFSA - XBB Bonds
RRSP - Bonds (XBB, XSB, XRE), US Equity (part of VTI)
Non-registered (everything else).
Example:
For easy math with nice round numbers, I'm using a portfolio size of $400,000 in these examples, with 35% ($140,000) of RRSP room and 4% ($16000) for TFSA as of 2011. Sadly this does not necessarily reflect your friendly Raven's actual circumstances, although they are of sufficiently similar scale. A separate chunk for bank accounts, rainy days and so on is not considered here. Based on the target portfolio above, things would wind up as follows:
| TFSA | $16,000 XBB bonds | 4% |
| RRSP | $24,000 XBB, $60,000 XSB, $20,000 XRB, $36,000 VTI | 35% |
| Unregistered | $44,000 VTI, $80,000 XIC, $60,000 VEA, $20,000 VWO |
61% |
Foreign Exchange:
One of the quirks in converting an existing large portfolio like this is $US exchange rates. Instead of building up the $US ETF funds in small pieces, there will be one large conversion, which allows for significant savings on the exchange rate spread. TD Waterhouse would normally change 1.5% for converting a few thousand dollars, but for amounts over $100,000 you can call in directly for a much better rate, potentially in the range of 0.1%-0.3%. The VTI/VEA/VWO in this example would require converting $160,000 into $USD, and a low enough rate might be easier than doing gambits with interlisted stocks.