Asset Allocation 

Doing my second watch thru of them now.

@@I..cast..fireball Same!

I put him on .75 speed even though .50 would be better but he sounds drunk then and I can’t take investment advice from a drunk guy😂😂😂

Thanks Eric!

he has a podcast?

I find that funny because other videos he posts about fallacies and the psychology behind mistakes made, and as a social worker with a background in psychology/counselling I agree that the approach is easy for me to understand. I guess he's just good at explaining things!

@@BenFelixCSI hi Ben, my allocation atm is 30% Australian Vanguard ETF, 30% US Vanguard US total market, 30% Vanguard world excluding US, 10% bonds. Interested in your thoughts? Also I'm contemplating whether I should add some global REITS and emerging market. If so, at what allocation? Thankyou

@@jimmyzhang0305 This is a hard question to answer because it depends on your risk tolerance, time horizon, and goals. Not to mention considerations such as investment vehicle, tax status, etc.

You're not alone. Feels like a Masterclass in Stock Market Econometrics. What I do, is get a pen and paper, headphones, and listen slowly, taking notes, stopping and replaying many times. I actually created a playlist from all the videos (81 so far), and listen to two at a time. There are also quite great gems in the descriptions and comments. You learn a few things from others too. It has revolutionized my DIY investing. Ben is doing passionate public service. And we are very grateful for that.

@@wesleydonovan4262 that’s dope

Keep reading and researching until you are fluent in the language.

On his podcast, the rational reminder podcast, he recently had an episode on why the availability of investment information is not a replacement for financial advice and financial advisors, highly recommend it

That’s at least somewhat productive procrastination I hope!

Yes true, I have been in touch with a financial advisor. With an initial starting reserve of $80k, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550k.

@@sheltonPston how do I Meet this Lady?

Thanks for sharing, I just looked her up on the web and I would say she really has an impressive background in investing. I will write her an e-mail shortly.

FYI this is a classic spam-bot interaction

Agreed.

Thanks for watching!

Also becoming popular in Israel! Best investing channel period.

Don't add up to 100%

@@junliang7965 he said he is American don’t be so harsh on the guy

Excellent! I decided early on that I did not want to cover entry level material. It’s great to know that you have stuck with me long enough for things to make more sense.

Ben Felix I attribute that to my stubbornness aka perseverance. Once again good job.

Yes please

Thank you! Momentum is certainly a legitimate factor in terms of explaining the difference in returns between diversified portfolios, but it is not a factor that I would add into a portfolio. I wrote about it here www.pwlcapital.com/trend-following-with-managed-futures/

Time frame, goals, and tolerance to loss.

Thank you! I think 100% equity is fine. That’s what I do personally. More here if you want: www.theglobeandmail.com/investing/personal-finance/gen-y-money/article-for-young-investors-a-100-per-cent-allocation-to-stocks-can-yeild/

at your age, that makes a lot of sense since you are looking at 60+ years of investing, just remember to get more conservative as you get closer to retirement

Exactly my situation but I'm now 20.

LOL DUDE SAME. I am also in my 20s and literally just jumped into the markets

There is no reason to add a dividend focused product to a diversified portfolio. A dividend fund gives you maybe some exposure to value stocks and maybe some exposure to profitable stocks, both of which have higher expected returns. However, this exposure is accidental. As a category, dividend paying companies do not necessarily have higher expected returns. You should also not have a preference for income vs. Capital gains.

60% global developed equity, 10% emerging markets, 10% global small cap, 20% currency hedged global fixed income. That is a well designed portfolio. My only feedback is that WSML has meaningful exposure to mid caps and small growth. You have mid caps in IWDA. Small cap growth stocks are generally not great to own over the long-term. Paying 35 bps for overlapping mid cap and potentially detrimental small cap growth may not be sensible. If you want small you might want to look for a small value fund. I have a video coming soon on small cap stocks.

Ben Felix thanks for your response. Looking forward for video regarding small cap stocks. I have two questions/comments to you: (1) How do you know that IWDA and WSML are overlapping? According to description of these ETFs - IWDA covers 85% of market capitalization of each 23 developed countries, and WSML covers [remaining] 14%. So I guess these ETFs don't overlap. Please correct me if I'm wrong. (2) regarding small cap stocks - MSCI world small cap index had 14.27% annual return during the last 10 years, while MSCI World had "only" 11.57%. Same result (small cap vs large cap) is for the last 18 years (MSCI World small cap index has a statistics starting from December 29, 2000). Again looking forward for video regarding small cap stocks. I'm sure it will be well grounded opinion as usually.

Admittedly I am not intimately familiar with the ETFs. I concluded that there was an overlap after reading the index description and cross referencing some other posts online. Here's the info I saw for IWDA showing that it tracks an index with mid cap exposure. The MSCI World Index captures *large and mid-cap representation* across 23 Developed Markets (DM) countries*. With 1,634 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. www.bogleheads.org/forum/viewtopic.php?t=213693 www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb WSML, according to Morningstar, has meaningful exposure to midcaps www.morningstar.com/etfs/xlon/wsml/quote.html Based on that info it seems like there is overlap in the midcaps between the two holdings, but again I am not familiar with these ETFs other than the brief research above. You are correct that small has outperformed large overall for the last 18 years. However, the outperformance of small as a whole is barely statistically significant and quite weak. When you remove small growth the size premium becomes stronger in terms of magnitude and also statistically significant to a higher confidence level (higher t-stat). Based on this I am a little bit skeptical that a small (including small growth) fund will add value after fees over time. I'd go for small value if any small cap exposure.

Ben Felix thank you! Looking forward for your video regarding small cap stocks

Just to let you know - I checked the largest holdings in WSML on whether IWDA has it. No. There is no overlap between these two ETFs. So now the only question - does it make sense to hold shares of small cap companies in long term portfolio? Hopefully you upcoming video will throw light on this😊

Yes- pensions are annuities/ bonds. Due to their low risk you can invest more in equities.

YES! There are so few options for RDSPs and the rules around parts of them (like what happens if the beneficiary loses their DTC status) are changing, so explanation and clarification would be good. I have kids who qualify, and if I start RDSP now, they'll be in their 40s when our 20 years of contributions plus 10 years of waiting have gone by. So can they start withdrawals without penalty then?

I’m wondering this too… I think it’s the latter because he calls out small cap stocks and value stocks specifically.

@@nickdiplacido7383 Thank you!!!!

Hello Chris, I am wondering if you had any answer to this ? I was just considering going for VTSAX - total stock market index. Would I be able to ask what funds did you get into and what allocation ? Thanks

I prefer 60% - US Equities (VTI) 20% - Developed Markets (VEA) 20% - Emerging Markets (VWO)

I'm not an expert, but was wondering, are Bonds against inflation a better option than a high-interest savings account these days? As the interest rate is so low now (with hardly any more room to drop further), wouldn't you expect that bonds will reduce in value once interest rates rebound back up over the coming 5-10 years?

Heavy VNQ, I like it :)

60/40 USA stocks & bonds

I am always skeptical of factor products that come in an ETF wrapper. DFA has been as successful as they have due to their daily implementation. ETFs are not managed this way. I believe that many people have an asset allocation that is far too conservative for their time horizon due to a lack of understanding of the relationship between capitalism and long term returns. I think robo advisors are exacerbating this problem by systematically recommending overly conservative portfolios.

I wish. Here is an excerpt from the product description: _A portfolio that seeks to capture the premium associated with the value factor by investing in stocks that appear inexpensive relative to company fundamentals. The value factor has been shown to provide long-term outperformance. *An actively managed ETF with a flexible investment strategy that can adapt to changing market conditions and achieve targeted exposure to undervalued stocks*. Applications: This product may be suitable for investors with a long-term perspective and can be used as a satellite component to *add alpha to a portfolio*._ You will note that this is an actively managed product. This means that it is not purely targeting the value factor, but it is trying to use security selection to achieve better performance. As great as Vanguard, the data are not in their favor on this one.

@@BenFelixCSI reading www.vanguardcanada.ca/advisors/mvc/loadImage?country=can&docId=16011, it seems that the process that vanguard uses to choose the components of the portfolio is just rules based; does this count as the bad type of active management?

you can invest in Canadian stocks and receive dividend payouts as an American. The Canadian tax system poses favorable to out of state investors by having a smaller tax rate of 15% for long term capital gains investments. With dividends, Canada collects 30%, but due to the tax treaty between USA and Ca, the tax rate is reduced to 15% with a possibility that US investors can claim a tax credit on their tax return.

Thanks! Good question Charles. You will run into some issues with Norbert's Gambit in your situation. The issues are: 1. XAW does not have a US listed counterpart. You would instead need to break up your portfolio into the three US listed ETFs that replicate XAW (ITOT, IEFA, IEMG). This increases the mental overhead to manage the portfolio, and depending on your brokerage it may also increase the costs of implementation due to having to place multiple trades. 2. Norbert's Gambit is a relatively cheap way to convert money, but it still has costs. The trading commission on small amounts will eat away at the tax savings very quickly. For example, ITOT has a 1.8% trailing yield. Holding ITOT as opposed to a Canadian listed US equity fund in an RRSP eliminates the 15% withholding tax that the US government imposes on dividends leaving the country. So your savings are approximately 0.27% per year, or $2.70 per year on $1,000. It would take a few years for the tax savings to outweigh the costs if you convert each $1,000 contribution. You could wait until you have a larger sum in cash before converting, but then you would be missing out on expected returns while you wait. You could also invest in XAW in your RRSP for now, and then break it out into the US listed components when you have accumulated a large sum in XAW.

I have exactly the same question!! Ben, what do you think?

I take notes and rewatch and pause

What does that mean?

Channel your inner John Lennon and it will come to you.

So much info coming at you that you can only absorb a tiny part of it. Like only being able to take a few sips from all the water flowing out of a big fire hose.

@@Cs-hp7ru appreciate the answer.. English isn't my first language

100% of my investments are in this global equity fund. It is not available to the public for direct purchase. ca.dimensional.com/en/funds/global-equity-portfolio-f

@@BenFelixCSI What's the next best choice for us normal folks lol?

Correct vtsax is doing good , and vtiax and bond is dragging my portfolio making me think if 100% vtsax is the best going forward.

While I understand favoring the US market I want at least some diversification, so I'm about 80% vested in VASGX, 20% in VIOV for small-cap value exposure. It seems unlikely being 100% vested in the US market will hurt you much, and of course there are tax advantages for those of us in the US, so again there's a strong case for your approach too.

I think that it is important to understand that factor exposure is exposure to risk. It is not a free lunch. For example value stocks have higher expected returns because they are riskier. If factors are risk-based, then there is little concern for them being arbitraged away. Higher valuations (lower expected returns) might be expected if the higher expected returns were a free lunch, but they are not. In an efficient market we would expect different types of securities to have different expected returns. I suggest trying this video to get a better handle on how factors relate to market efficiency ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-yco0sC7AJ2U.html

Sounds like a great asset allocation to me.

@Dave - can you suggest which etfs you use please ? Thanks

I would be a bit hesitant to include the principal residence in your asset allocation. It is an asset for sure, but excluding REITs based on the home is like excluding US equity because you own a bunch of Google shares. I don't think it's sensible to assume that a single asset within an asset class will have similar characteristics to the asset class as a whole. In any case, you probably don't need REITs anyway. XWD would be easy, but it's just EAFE, TSX 60, and S&P 500. You miss out on any small and mid cap exposure. XAW at least gives you total market, and you just need to add in Canada. VGRO is nice too but obviously not 100% equity. Great to know that you enjoy the channel! I'll try for some more post-retirement content.

Why not just VTI and VXUS?

We are in Canada. If you are in the US then that’s a good portfolio.

Ben Felix My bad. For a second I was just another ignorant American failing to acknowledge the world is not only The U.S. 😁

Personally, all index funds.

S&P 500 is 80% of US market (according to S&P). So US market would be more like 80% S&P 500 + 20% Wilshire 4500. In terms of the amount of tilt, it's subjective. Whatever you feel comfortable with. Dimensional Fund Advisors does 50% large, 25% mid and 25% small in some of their model portfolios. I think that's a reasonable tilt. One of the challenges with tilting using something like the Wilshire 4500 is that you end up with exposure to small cap growth stocks. In general small growth are not great assets. They drag down the small cap return. It would be better to be small value as opposed to just small when tilting toward small. Yes it might be better to have a value tilt, but if value isn't available then it is what it is. Yes there is data on large value. It has beaten large growth over the long-term in every country that we have data available to observe. VXUS is 20% emerging markets so unless you want a tilt I don't see why you need VWO as well. VTI is 2% small value. VBR is not 100% small value. It has mid and small exposure, and not all of the small is value (according to Morningstar) portfolios.morningstar.com/fund/summary?t=VBR&region=usa&culture=en-US The split between the two to achieve a tilt is again subjective.

@@BenFelixCSI Forgot to mention my 401k does have a small/mid value fund with expense ratio of 0.65... not sure if that is worth it... Separate note- It's interesting that vbr will end up giving you a weight in mid cap and small cap, since vbr is 42% small and 55% mid. So it's more like a small/mid value tilt!

For 65 bps compared to 10 or less I would not go for it. I agree, VBR also has some small cap growth in there. It's not easy to get clean factor exposure from ETFs.

It’s working for me.

@@BenFelixCSI Thanks, maybe it's blocked in the UAE for some reason ..

They're heavily weighted towards large caps, which is representative of the whole market.

Yes. This is coming up two videos from now.

This should answer the question www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf

Oh and also this is a better place to ask questions community.rationalreminder.ca/

@@BenFelixCSI Noted. Thanks, Ben.

In the one-decision asset allocation video, Ben describes the differences between XEQT and VEQT, and then says the differences are so insignificant that it doesn't matter.