One Family’s Personal Finance Tale: September Edition

Posted by admin on September 30, 2008 in Mom2KG Columns

Our regular columnist, Mom2KG, is back for her usual monthly check-up. As usual, she appreciates any comments you may have. Her columns are now collected in her own category; if you are a new subscriber, I encourage you to read all her posts.

A number of your comments have asked for numbers as to my budget. I’m way too embarrassed for that, but here’s something almost as much: my investments, in percentages. TMW has already spat on them [TMW note: I didn't spit on them, more like kicked dirt on them- see below], but here’s your chance to put your own knowledge to the test.

Of my investments (not including home equity), the percentages are:

Cold hard cash (sitting in a bank account waiting for your suggestions) – 35%

The rest is held inside an RRSP account at an investment house, classified as follows:

Short Term Fixed Income

“Stable Income” fund – 10%

Cash

Actual cash – >1%
“Money” fund – 7%

Canadian and Foreign Fixed Income

5-year GIC @ 4.47% – 10%

Foreign Equity

“American Growth” fund – 2%
“Growth” fund – 10%

Canadian Equity

Corporate stock – 1%
Bank stock – 8%
“Select” fund – 4%
“Equity” fund – 13%

Well, have at it and enjoy. What are your preferred weightings? What’s missing (e.g., there are no REIT’s)?

Also, I’m going to begin a monthly direct deposit lump sum into my investment portfolio each month. I’ve decided to put 66% of that into safe, low-risk investments, and the rest (33%) into ETFs and stocks, just for the fun and risk of it, and for learning purposes. Comments on that plan are also appreciated.

Looking at the above, I realize to some chagrin that I understand all of the above, with the stand-out exception of the mutual funds – 46% of my total investments! That’s a pretty big gap in knowing where my money is and what it’s doing. I have no idea what’s held in those funds (except some are foreign/American and some are Canadian) or what their purposes are. And those funds are where most of my money is – and, of course, what the investment advisor recommended. The MERs, however, are low: mostly about 0.5%.

When I mentioned to the advisor my plan to put money into ETF’s, he gravely warned me of the (flat) trade fee – made a big deal about it. Turns out such a fee would be 0.029% of my overall portfolio (including the cash outside his domain in my bank account). Hm. Doesn’t seem like that big a deal – was he trying to scare me off investments that wouldn’t make him any money?

Thanks in advance!

P.S. I went to the Crate & Barrel opening in Toronto with TMW himself. I want you to know he was fomenting marital discord by insisting I buy things that would wreck the family budget. Bastard convinced me, too [in my defense, the opening was for charity and I merely remarked that the bed-sheets were nice so if you need to have bed-sheets, you may as well aid charity as well. That's my story and I am sticking to it!]

TMW says- as for the “spitting” on the portfolio remark, I mentioned there may be some overlap in the mutual funds and there is a large under-exposure to foreign equity. I also thought that her advisor was unnecessarily pushing her into mutual funds without sorting out potential redundancy issues.

3 Comments on One Family’s Personal Finance Tale: September Edition

By Potato on September 30, 2008 at 4:53 pm

So between cash, bond funds (“fixed income fund”), money market funds, and GICs, you have roughly 62% of your savings in cash or near-cash/fixed income, 38% in equities. The rules of thumb vary, and it depends on your risk tolerance as much as your age… but my opinion is that if you’re ~20 years away from retirement, and have no other short term needs for this money (e.g.: education, house, etc), then ~90% of it should be in equities. Of course, your plan for your monthly direct deposit investing is to maintain that ratio, so perhaps you’ve determined that’s what suits your risk tolerance.

As it turns out, you lucked out and missed some rough markets this last year, so it’s not a bad time to shift into more, though the markets will be a real rollercoaster; a real test of that risk tolerance.

Do you pay your financial advisor? If not, it may be that he’s pushing the mutual funds because that’s where he makes his money — though a 0.5% MER is quite reasonable (is that for the equity funds or just the fixed income funds?). The trade fee for ETFs shouldn’t be much of an issue — I think Four Pillars and Canadian Capitalist have some posts on when it makes sense to switch from a mutual fund (a low cost one, such as TD’s e-series) to an ETF; if you’re doing regular contributions then the trade fees can bite you, but in that case you can buy no-load mutual funds every month, then rebalance once a year into the ETFs, or some variation on that plan.

I agree with TMW: you’re pretty underweight in foreign equity. I’d worry about getting the cash/fixed income/Canadian equity/foreign equity balance down first, settle on ETFs vs. other low-cost funds, and get that working for you before worrying about the last few percent of your allocation (commodities, REITs, etc).

By Potato on November 7, 2008 at 3:17 am

No October update from Mom2kG?

By admin on November 7, 2008 at 6:10 pm

Unfortunately yes. But I am bugging her about November…