My 70/30 Portfolio with Excel Rebalance Tool

The portfolio I recommend

If you are stuck in choosing a portfolio I have created a sample portfolio below. This portfolio over the long term should yield you at least a 10% average return while minimizing fees and taxes and being extremely well diversified (Invested in over 7,500 different companies around the world). In addition this portfolio will out perform over 95% of active mutual funds over a 3 year time period. Best part the average fees (MER) for this portfolio is 0.23% compared to the average mutual fund fees in Canada of 2.49%!

But first where to put the money? 

If you are just starting your savings journey, and have not maxed out your TFSA and RRSP, then for now put non foreign assets (VCN.TO VAB.TO and XRE.TO) into your TFSA and foreign assets (VUN.TO and XEF.TO) into your RRSP.  Don’t put any investments into a taxable account yet. As your savings grow we can optimize your account “buckets” later. If you have the fortunate problem of a maxed out TFSA and RRSP, I have briefly highlighted below the best place to put each index allocation below.

RRSP

Any international indexes should go here. Foreign tax is not deducted when foreign equites are held in this account.  Additionally, most of your bonds and real estate income (fixed assets) should be held in the RRSP because this is the first account that will be strategically withdrawn during early retirement, so we want to keep the volatility low here.

TFSA

This is a great account to keep equities and some fixed assets  for short term needs. Do not keep foreign equites in here as you will not be able to claim the foreign tax credit.

Regular Taxable 

This would be a great account for foreign equities such as the US total market index (VUN.TO) because we can claim the foreign tax credit here. Also about 90% of the income from VUN.TO is produced in the way of capital gains which are not realized until retirement. During early retirement we can realize approximately $24,000 a year in capital gains without paying any taxes.

Okay so now that you have some idea of where to put your money what should I invest in?

 

A good hypothetical portfolio and allocation percentage (70/30) I recommend if living  in Canada:

  • Bonds (Vanguards total bond index, VAB.TO) 20%
  • International developed market index by Black Rock (XEF.TO) 5%
  • Vanguard US equities total market index (VUN.TO) 60%
  • Canadian commercial and residential real estate by Black Rock (XRE.TO) 10%
  • Vanguard Canadian exposure total market index (VCN.TO) 5%

After you invest in these funds above it is important to stay relatively close to your target asset allocation. By rebalancing you are forced to buy low and sell high.

To help rebalance I have created a simple tool in Excel. For this tool, I have chosen the same 70 equity and 30 bonds and alternatives portfolio above. However, feel free to adjust the tool to your chosen allocation. If you are retired I would recommend  increasing your bonds and real estate holdings by 10% to 20% (60/40 to 50/50 asset mix). However, if you are still working and contributing actively to this portfolio then the 70/30 portfolio will work well for you.

Screen Shot 2019-08-26 at 8.31.55 AM.png

Link  to the above rebalance tool:

Template to Rebalance a portfolio (preset to a 70% equities and 30% bonds and alternatives)

Okay so there you have it. A robust portfolio that can withstand any recession. By rebalancing you are forced to sell high and buy low. In addition to this portfolio you should have at least 1 year of living expenses saved up in a high interest savings account. I’ll explain why in future posts.

As a bonus I will be investing $1,000 every 2 weeks starting today to show you how to use this portfolio to invest and rebalance as we move along in this investment series. So here are my buys for Monday, August 26th 2019 at 815 am local time.

Screen Shot 2019-08-26 at 8.31.55 AM

The broker I use to make my individual buys is Questrade. Why do I use Questrade? Index funds are free to buy and they are a member of the Canadian Investor Protection Fund.

Happy Sunday

 

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