Portfolio Changes Coming Up
Motivated by the limits of certain types of registered accounts as well as a growing portfolio that is now large enough to access new options, I’m planning to make a few portfolio changes this year:
1) We’re moving from TD e-Series funds to ETFs. The commission-free ETF purchases at Questrade provide one good way to do this and we’ve already opened a couple of accounts there. I’m not sold on Questrade yet so we’re changing the TD accounts over to give us access to online trading, which will let us move those to ETFs. That will leave less than 10% of our portfolio in traditional index mutual funds.
I’ll work with both Questrade and TD for a while to see which one seems like the best option. Questrade is definitely cheaper but there are a few potential concerns. TD offers some options to help reduce the trading costs so it may win out in the end.
2) Now that we have access to more options I’m starting to look at fundamental indexes. I can see the danger of ETFs since I’ve already had to restrain myself to only buying a few. However I’ve been interested in fundamental indexes for a while. I’m currently reading Rob Arnott’s book on the topic and it adds a lot of evidence to the basic idea that I’ve always liked.
I’m not completely convinced that they can keep doing as well as they have in the past. The fact that you can invest in a fundamental index now may change market behavior. But the basic idea is rooted in investors making simple mistakes that seem likely to continue. Whenever I hear about how the average investor under-performs by making a certain type of mistake, I try to do the opposite of that. Fundamental indexes may be a good way to do that. I’m looking at using them for a portion of the portfolio at first.
3) We’re running into the limits of the current tax shelters we’re using. There are some that I don’t want to use fully, particularly on the RRSP side, because they can turn out to be false savings for various reasons. This year I’ll be looking at a few including variations of the Smith Maneuver and corporately-held investments, which can work similar to RRSPs in many ways but don’t have the same low limits. The only potential issue with corporate investments is that they may require a tradeoff between higher fund fees and higher taxes.
As a last resort we can turn to regular unregistered investments. A lot of people talk about long-term returns there being close to 0 after tax but I’m not sure if that’s very accurate. It may look that way at the moment due to the generally low returns available, but it’s still better than not investing.