Canadian Mutual Fund, ETF, and RRSP Advice | |
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News and information on RRSP's, mutual funds, exchange traded funds, and Canadian personal finance. Efficient Market Canada advocates using indexed mutual funds and indexed exchange traded funds (ETF's) to build a low-cost, efficient self-directed RRSP. We analyze RRSP asset allocations, tax strategies, and review the financial literature as it relates to RRSP and non-RRSP investment, and personal finance for Canadians.
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Investment Research
Articles in this series explain what the modern theory of investment means for your portfolio. Fifty years of solid research into investing has produced a well tested, proven theory of investment. No magic here: What's known is that the market is highly efficient, and that to earn a higher return you must take on additional risk. We will examine what this means for your portfolio, as well as look into some of the rare inefficiencies in the market, and how you can exploit them in the long run.
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Contributed by: martingale
 Last year I recommended building your RRSP with low cost efficient global indexed ETF 's by allocating funds in your RRSP to index ETF's based on global market capitalization. In my opinion there isn't much more to say about equity investment--that's still what most people should do with their RRSP. However, it's time to update the data a little. What's the market cap breakdown look like in 2007? Also, there are three new low cost Vanguard index ETF's available to track foreign markets: VGK, VPL, and VWO. We'll have to revise our approach slightly to work out how to fit VGK and VPL in. |
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Contributed by: martingale
According to modern financial theory capital is allocated efficiently to global markets overall. That is, the total market capitalization of both companies and countries is roughly optimal. This is the theory behind index funds that are weighted by market capitalization. The overall maximally efficient RRSP portfolio would be to hold a global portfolio of equities roughly in proportion to global market capitalization. How would one go about doing this in and RRSP in a cost efficient manner? In this article I'll look at the breakdown of global market capitalization and discuss the factors that would affect your own particular global equity RRSP allocation. We'll conclude with a list of Exchange Traded Funds (ETFs) that would suit this allocation, and the proportion of your portfolio that you could consider allocating to each of ETF. |
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Contributed by: martingale
Most people believe that buying stocks on margin is a silly thing to do: Everybody knows you might get a margin call that turns your heavily margined position into pocket change. The guys who jumped off buildings in the 1929 market crash were mostly margin traders--not smart, right? You'd never do that, right? Yet many of you are closet margin traders! You've mortgaged your home to the hilt, and you've risked the borrowed money in the equity market. You pretend it isn't margin trading, but it is: You are taking on the same risks that sent people hurtling from buildings in 1929. This is a wake up call: Please understand the risks you are taking. This is an especially urgent call at a time when many suspect we're in the midsts of a real estate bubble. |
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Contributed by: martingale
How much money should you invest in foreign markets? A recent study in the Journal of Finance examined the extent to which mutual fund investors tend to put their money in their home country. This is called domestic bias. In every country, investors are biased towards investing in their own country. In this article we'll look at the market capitalization of global markets, and discuss how much money you should invest overseas. Given that the Federal Govt. just eliminated the foreign content restrictions in RRSP's, it's a good time to review your global asset allocation! |
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Contributed by: martingale
The original stock markets evolved from coffee houses where investors would meet and swap paper over coffee. Gradually, as volumes grew, the participants at the coffee tables became agents for others. Eventually, the coffee houses were replaced with full scale trading floors which evolved into the sophisticated web-based trading systems we use today. Well, you can still do it the old way, and I sometimes do. It's a slow, somewhat painful process which instills (in me anyway) a sense of nostalgia and history. Trading shares directly over the table with family and friends can save you a little money (no transaction costs!) and it can be fun. |
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Contributed by: martingale
A reader recently wrote asking whether the allocation of ETF's I recommended in RRSP Foreign Content Rules Scrapped overweighted
investment in the United States--wondering in particular if perhaps there is risk that the US dollar might be devalued soon. How much foreign content should you hold in a self-directed RRSP? |
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Contributed by: martingale
Suddenly I love our Finance Minister. Effective immediately the foreign content restrictions on RRSP's have been eliminated. This is a huge and wondeful change: You can now own as much United States, European, and overseas content as you like in your RRSP.
So how much should you buy? This article will take a look at how you should structure your investments under the new rules. |
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Contributed by: martingale
Many people think that you should only invest in the things you know well. Famously, Peter Lynch wrote in books like One Up On Wall Street that you should be able to pick great stocks by reflecting on things you see in your job and in your daily life. Accordingly, computer programmers tend to invest in software firms, doctors in drug companies, and bankers in financial services, each believing that their expertise in their industry will help them earn an improved return.It sounds like common sense, but it's dead wrong. Investing in what you know is the last thing you want to do. To understand why, we will have to think a little on the nature of risk. |
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Contributed by: martingale
Will a mutual fund that has been a winner for the last five years
more likely be a winner next year? Will the stock of a company that
has been rocketing up for the past few weeks continue its ascent?
Will returns in an S&P-500 index ETF over the next twenty years be roughly
what it has been on average over the last hundred? Absolutely not. The
past performance of a fund, stock, or even stock market as a whole is
no indication of the future return.
It's not just some lawyer's disclaimer that you can ignore,"Past
performance is no indication of future returns" is a fundamental
principle of investment. In fact, good past performance is more often
associated with poor future returns, for reasons that go to the very
heart of the theory of investment. In this article we'll explore what
you can learn from looking at historical data, and what you can't. Let
the buyer beware.
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Contributed by: martingale
When should you sell a stock? The answer may surprise you.If you browse the investment literature you are sure to find a lot of advice on when to sell. The news wires buzz with analysts recommendations to buy, hold, or sell an investment, or to underweight or overweight it. Or you'll hear that you should periodically rebalance your portfolio--exchanging growth stocks for values, or blue chips for bonds when the market is up or down, or depending on where interest rates are said to be going, or how confident the Canadian or American consumer is said to feel this month. Is there any merit in the common sense advice to buy low and sell high? How do you know when it's high anyway? And who knows where interest rates are going to go? |
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| Full Disclosure | |
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No securities or mutual funds are bought or sold. We are not associated with any RRSP, mutual fund, exchange traded fund, securities dealer, personal financial advisor, or other financial institution. We may hold some of the securities mentioned in our own portfolio. No guarantees as to accuracy of information are provided: always read the prospectus for any security before investing.
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