YAInvestingT: Long Term Asset Allocation

[Stunt]

I am somewhat new to investing and now have a steady cashflow out of university looking for a place to park it. In 2004 I predicted the run in oil/gas from a prospective iraq war, growth in china, india, europe and the US. I doubled my money in a year, and decided to take the money off the table at the height of katrina. I read everything I could about investing and decided on a warren buffet style approach to investing. Needless to say the end result was high trade fees (bought 7 stocks) and an 18 month return of 3% (18% without currency change). The stocks were largely US and the US$ run had a significant effect but I missed out on some good opportunities and the amount of work required to pick stocks is intensive. I sold a few holdings not seeing much more upside and paid off my car (my only outstanding debt).

I have looked into several investing strategies: focus value investing (a la buffet), gurufocus.com's top picks, robtv's frequent top picks, moneysense's couch potato method, dogs of the Dow/TSX, mutual funds, stock screeners, best of breed by sector, value rating (PE/yield), etc.

I've come to the conclusion that ETF indexing is the best for me; high diversification, low transaction fees, low managment ratios, and minimal effort.

The ETF's I have picked are listed below. I plan to rebalance once a year in October (tends to be the cheapest time to buy) and shift XIN to IEV and VPL as I feel the Japanese and European markets are very different animals and I'd like to take advantage of the buy low/hold high benefit of the rebalancing. The emerging markets weighting will slowly transition to bonds (weighting representing my age minus 10%) and increase my Canadian holdings as I get older.

XIC - TSX Composite (25%) [aka EWC in US]
XIN - International - Europe, Asia (25%) [aka EFA in US]
XYY - US Total Market (25%)
EEM - Emerging Markets - Asia, Latin America (25%)

I have a lot of confidence in the global economy given the population size and growth relative to Canada. I also see Canada as an emerging market in itself with the high weighting towards energy and materials. The international indexes have more exposure to technology, healthcare, industrials, utilities. I do however have concerns that I am too heavy towards large caps with global revenues anyway; this could be reason for all indexes roughly moving in the same direction over the last few years (interdependent).

I will be starting with $20k for this strategy and would like your opinions on the ETF's I have proposed. Any other advice would be appreciated as I am only 23 and new to this game.

Thanks 🙂

 

[vi edit]

Personally I think 25% in emerging is a little *too* agressive for my liking.

EDIT: How do you plan to keep reinvesting? If you are doing it monthly with marginal amounts of money (like under $1000) the commissions will slaughter you.

 

[Stunt]

Originally posted by: vi_edit
Personally I think 25% in emerging is a little *too* agressive for my liking.

EDIT: How do you plan to keep reinvesting? If you are doing it monthly with marginal amounts of money (like under $1000) the commissions will slaughter you.

Lump sum in october; moneymarket and high interest savings account until then. Unless I see a good opportunity to get in.

As for emerging markets...it sounds risky due to questionable regimes and whatnot, but here's the allocation:

SK 16.47%
Taiwan 10.72%
Brazil 10.25%
Russia 9.91%
China 9.81%
South Africa 9.16%
Mexico 7.64%
India 5.49%
Israel 4.01%
Indonesia 2.69%
Thailand 2.5%
Hungary 2.01%
Chile 1.97%
Czech 1.92%
Philippines 1.52%
Turkey 1.02%
Argentina 1.02%
HK 0.99%
Peru 0.33%
Egypt 0.3%
Malaysia 0.07%
US 0.05%

I have no problem with the top 8 (representing 80% of the ETF).

 

[Triforceofcourage]

Hey Stunt,

I am fairly conservative when it comes to investing so I just stick to S&P 500 index funds with low expense fund ratios from the likes of Vanguard & Fidelity. I am around your age also at 24.

 

[Stunt]

Originally posted by: Triforceofcourage
Hey Stunt,

I am fairly conservative when it comes to investing so I just stick to S&P 500 index funds with low expense fund ratios from the likes of Vanguard & Fidelity. I am around your age also at 24.

I don't want to be more than 25% in the US; it opens me up to currency issues and I miss out on a lot of the global growth. Canada and the US struggle to get 2% and 3% respectively. Emerging markets are growing much faster and Japan, Europe are excellent with efficient use of resources and limitd waste (I believe this is why European industry is kicking ass in the days of high energy prices).

I looked at vanguard and will use their pacific ETF with time (as mentioned) but the funds are offered through Barclay's iShares; the expense ratios are all very low.

XIC 0.25%
XIN 0.15%
XYY 0.20%
EEM 0.75%