As discussed in a previous post that explains the change or makeover to my investment portfolio, this investment owner's contract is long overdue. I had meant to create one (well, five years ago) when I initially read The Intelligent Investor, but never got around to it.
The investment/ diversified portfolio comes from one of my favourite go-to sites, by Dan Bortolotti (an author of Moneysense magazine among other publications), Canadian Couch Potato. The dollar amount I am contributing will vary, but I am aiming for $500 to $1000 a month. I will also plan to rebalance once a year to make sure that the asset allocation continues to pertain to my investment portfolio.
I will continue to have some dividend stocks, and will continue adding to them, but I will be cognizant of not adding too much Canadian exposure to my investment portfolio.
The weighted MER is 0.19%. With Questrade, buying ETFs is commission free (any ETF that is traded on the North American market) but selling ETFs incurs a commission. Unfortunately I will have to do this manually because it is an ETF but this will be okay as I will make sure I contribute regularly on a monthly basis (e.g. set up a reminder for myself for the second Friday of the month).
Here's a little more detail about the ETFs:
- VAB- Bond aggregate index, invests in public and investment grade Canadian bonds, top holdings are government bonds.
- XIC- 100% are Canadian holdings, with the top holdings to be RBC, TD Bank, Valeant pharmaceuticals, BNS, Canadian National Railway. The MER is 0.05%
- VXC- Approximately 50% of the holdings are in USA, with the top holdings to be Apple (I'm a little hesitant about this being the top holding), Microsfot, Exxon, Wells Fargo, Johnson and Johnson, GE, and Berkshire Hathaway. The rest are 23% Europe, 15% Pacific and just under 10% to be Emerging Markets. It has a 2.3% dividend. The other concern is that it is just over 1 year old.
Likely the VXC All-World Ex Canada will end up needing to be outside my RRSP, maybe my TFSA… this will be more tax inefficient but there is no other choice as I will have maxed out my RRSP and I do not want to sell my TD e-series at present.
Therefore, as quoted/ slightly modified from The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham Revised Edition (2006), on page 225:
I, Young, Hereby state that I am an investor who is seeking to accumulate wealth for many years into the future.
I know that there will be many times when I will be tempted to invest in stocks or bonds because they have gone up in price, and other times when I will be tempted to sell my investments because they have gone down.
I hereby declare my refusal to let a herd of strangers make my financial decisions for me. I further make a solemn commitment never to invest because the stock market has gone up, and never to sell because it has gone down. Instead, I will invest $500 per month, every month, through a dollar cost averaging plan into the following diversified portfolio:
- 25% into VAB (Vanguard Canadian Aggregate Bond Index ETF)- into TFSA
- 25% into XIC (iShares Core S&P/TSX Capped Composite Index)- non-registered account
- 50% into VXC (Vanguard FTSE All-World Ex Canada ETF)- RRSP
I will also invest additional amounts whenever I can afford to spare the cash.
I hereby declare that I will hold each of these investments continually through at least the following date (minimum 10 years) after the date of this contract: August 1, 2015.
The only exceptions allowed under the terms of this contract are a sudden, pressing need for cash, like the loss of my job or an emergency, or a planned expenditure like a down payment for a house or a tuition bill.
I am, by signing below, stating my intention not only to abide by the terms of this contract, but to re-read this document whenever I am tempted to sell any of my investments.
This contract is valid only when signed by at least one witness and must be kept in a safe place that is easily accessible for future reference.
Young and Thrifty
August 1, 2015
Young and Thrifty readers
Readers, do you have an investment owner's contract?
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