Youngandthrifty’s Investment Owner’s Contract

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 Investment Owner's Contractit 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.

Signed:

Young and Thrifty

Date:

August 1, 2015

Witnesses:

Young and Thrifty readers

Readers, do you have an investment owner's contract?

9 Comments

  1. Phoebe on August 26, 2015 at 8:52 pm

    Hi,
    I am moving to ETFs too, so really appreciate your sharing the process. May I ask why XIC instead of VCN? Because MER is 0.01 cheaper? I am not questioning your decision, just trying to understand. Thanks, Phoebe



  2. Ben on August 27, 2015 at 11:17 pm

    The cost difference is irrelevant, even if you significant assets in the fund. They aren’t exactly the same product as they track different indices. XIC has a few more holdings, which could be seen as a benefit, and slightly less dependent on financials/oil. However, it would be pretty much impossible to say one is definitively better than the other.



  3. Ben on August 27, 2015 at 11:22 pm

    Also just a thought but you may want to put XIC in TFSA and use the bonds outside of the registered accounts. I’m well aware that interest income is the least tax efficient source of investment income, but bond yields are so low, that its not really worth sheltering. I’d shelter my cap gains and dividends before that. I know a few Investment counsellors that are using that strategy…



  4. Kyle on August 28, 2015 at 10:49 am

    Yup, that’s a good point Ben. I agree.



  5. Adam on August 28, 2015 at 1:26 pm

    Hi, just curious why you decided to go with the ETF’s rather than sticking with the TD e-series funds? As a fellow couch potato fan I know he still recommends the eseries over the tfsa due to its automated contributions.



  6. Kyle on August 28, 2015 at 7:39 pm

    Hi Adam,

    Just to be clear, TD’s eSeries is not a direct comparison to a TFSA. Both ETFs and an eSeries index mutual fund can go inside or outside of registered accounts such as RRSPs or TFSAs.

    I can’t speak for Young, but with basic ETF fees dropping so low now, and with no fee to purchase those ETFs (a major advantage for the eSeries in the past) with discount brokerages like our preferred one at Questrade, ETFs are a very attractive way to index invest.



  7. Young on August 28, 2015 at 10:59 pm

    @Adam- I’m a big fan of the TD e-series, I still have it in my RRSP. However, I wanted a way to contribute in a non registered and TFSA account.



  8. Young on August 28, 2015 at 11:29 pm

    @Phoebe- It has more assets, longer track record 🙂



  9. Neil on September 18, 2015 at 6:34 pm

    That may be worth considering with GICs or bonds trading at a discount, or at par, but VAB would be incredibly tax ineficient outside of a registered count. You would pay tax based on the coupon rate (3.5%) when the yield to maturity is only 1.9%.



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