Occupation: IT data and sales
Location: Hamilton, Ont.
TFSA total: $61,000
Andrew loves a good excel spreadsheet and even admits that his mind thinks like one. “I work with database spreadsheets all the time so it comes second nature to me,” says the 42-year-old information technologist who works out of his home in Hamilton, Ont. Andrew started investing in his TFSA in 2013 and total contributions to date are $50,550. The account is worth $61,000 the last time Andrew checked—and he checks quite often.
Andrew made his first TFSA contribution back in 2013, and with his wife’s advice, he began investing in the Couch Potato Portfolio. “My wife got me on the Couch Potato bandwagon and then advised me to move to Wealthsimple, where I am today,” says Andrew.
But between 2014 and 2017, Andrew used a different approach—one that used an asset allocation described by blogger Garth Turner (www.greaterfool.ca) which is 60% equities and 40% fixed income. “The slight difference from the ordinary allocation was that a large portion of the fixed income allocation was invested in preferred shares,” says Andrew. “With interest rates going up at the time, the strategy was a good one.”
In March of this year, Andrew made a change and moved his TFSA account to Wealthsimple where he uses Wealthsimple ETFs and has an asset allocation that reflects the company’s Standard Growth Portfolio. That Portfolio includes 20% fixed income (ZFM and XSH), 22% Canadian Equity (using XIC), 33% U.S. Equity (using VUS and VTI), and 25% International (using IEFA and IEMG). Returns for 2017—before he moved his money to Wealthsimple—were good with an aggregate year-end rate of return of 12.5% and “I’m now completely in ETFs in my TFSA,” says Andrew. “Plus, Wealthsimple rebalances the account for me annually so I don’t have to worry about that.”
For Andrew, transparency is key. That’s why he took a tip from Canadian Portfolio Manager Blog when a blogger on the site wrote about the Modified Dietz Method, showing how investment return calculations are done. (Learn a bit about the technically challenging Modified Dietz Method here.)
Using this mathematical method, Andrew registered an aggregate year-end rate of return of 12.5% (MWRR in Dietz’s method and explained here) and 12.47% (TWRR in Dietz’s method and explained here.) “I track my own mathematically correct Modified Dietz Method measures and retain each month’s percentage values,” explains Andrew. “I do this for individual accounts as well as for the aggregate set. It’s amazing what you can do with an excel spreadsheet with appropriate tabs for different accounts.”
In fact, Andrew doesn’t know if any investment brokerage services provide this service but he feels it would just need to be a dashboard view on a website. “I spent what felt like a painstaking effort getting these calculations baked into my excel sheet, but it’s awesome!” says Andrew. ” I measure both of these for each investment account, and also on the aggregate of all our accounts together. I really can’t understand how brokerages or investment firms don’t provide dashboards like this. The way some of them present the data on the movement of your investments isolates you from really understanding where your investments are at. ” Still, Andrew admits that Wealthsimple has some great charts that let you choose the span of time for your investments in your account “and you can easily see the ups/downs and it gives good context of how well you are doing,” explains Andrew.
Andrew has some words of advice for other TFSA investors. “You can optimize returns by putting investments in the right account, be it RRSP, TFSA or unregistered investments. pay attention to taxes, which adds more complexity but a good excel spreadsheet can really help with this.’
Still, Andrew, who ran a half marathon earlier this year, knows how to relax. He likes jogging, bike-riding and spending time with his toddler and teenager, and believes there’s still lots he can learn. “I’d love a couple of tips on how to use the TFSA in the most tax-advantaged way—both while working and into retirement.”
Andrew’s TFSA holdings
|Investment type||Ticker||% of Portfolio|
|Fixed Income||(ZFM, XSH)||20%|
|U.S. Equity||(VUS, VTI)||33%|
What the pro says
“There are many times when experts are asked to weigh in on accounts to offer their thoughts and they cannot help but marvel at how dysfunctional some people’s investment strategies are but this is not one of those situations,” says John DeGoey, portfolio manager with Industrial Alliance Securities Inc. “Andrew seems to be covering all the bases here.”
DeGoey notes that Andrew is diversified well (i.e. both within and throughout asset classes), managing his costs in a meaningful way (all ETFs) and re-balancing prudently. “To me, there is very little to add or change. While I would not specifically recommend that Andrew change anything, here are a few thoughts for him to weigh, depending on what he has in mind for the money” says DeGoey.
1. Depending on his risk profile and timeframe, DeGoey questions whether Andrew even needs income products in his TFSA. He made no mention of what the money is for, so obviously, if there are short-term purchases on the horizon, the answer ought to be “yes.”
2. One geographical asset class that’s conspicuous in its absence is emerging market equity. DeGoey notes that this is the one part of the world that is growing at a reasonable clip, has a burgeoning middle class and still has modest valuations. “It’ll be a bumpier ride, but if Andrew’s time horizon is as long as I suspect it is, it’ll likely be worth a 10% to 15% allocation,” says DeGoey.
“In total, I think Andrew is doing a fine job. I once had a colleague tell me that any client’s eyes would glaze over if an advisor tried to explain Modified Dietz. It should be obvious, therefore, that Andrew’s case is not a typical one.”
John De Goey is a Portfolio Manager with Industrial Alliance Securities Inc. and the author of The Professional Financial Advisor IV. Industrial Alliance Securities Inc. is a member of the Canadian Investor Protection Fund. The opinions expressed herein are those of Mr. De Goey alone and may not be aligned with the opinions and values of Industrial Alliance Securities Inc. or any of its affiliated companies.
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