I've been a DIY investor for 3 decades now -- long enough to know what to do when too old to remain fully invested in stocks. My DIY portfolio has always had two major, and unambiguous, categories - (1) risk-free assets and (2) risky assets -- with the market value ratio between them (portfolio risk/return slider) tied to a formula based on age. I have held strip bonds to maturity, and GICs to maturity -- but have never bothered with bond funds. For terms under 5 years, GICs work better than bonds held to maturity because bond holders accept a lower yield to get the better liquidity I really don't need. As for bond funds, why pay management fees inside a bond fund just to have a basket of essentially risk-free assets arbitrarily bought and sold in ways that increases volatility and make them less risk-free? If I am ever going to pay fees for management of risk-free assets, I'd expect to at least get something useful in return.
Fantastic video! Thank you for finally allowing me to understand how a bond fund operates. You explained it so simply that I feel dumb for not understanding the concept sooner, lol.
Thanks for this great video Ben. I just put quite a lot of money that I had in a GIC for several years into a Bond Fund. My new financial advisor convinced me this is a good move. I'm not so sure. I'm quite worried and really don't understand how a bond fund works and how it will benefit me. You're right, GICs did help me sleep better. I definitely - at this point - prefer a GIC. I have to wait 90 days before I can make any more big decisions about my next step. I'm hoping that I don't lose money. Oh dear.
In the current environment bond funds will also be more tax efficient than GICs. Sounds like this is more of an issue of education and having a long-term plan, both of which an advisor should be providing to you.
Hi Ben, I prefer bond funds over GIC's as per your question. I prefer the liquidity and generally longer duration provided by bond funds. I do not try to overanalyze things, all fixed income purchases are in XBB, a low risk portfolio of Canadian provincial and federal government bonds. A year ago, I took over management of my investment portfolio (about 70/30 equity: fixed income ) from my financial advisor and transferred all my investments to my self directed brokerage account. My financial advisor held my fixed income exposure in individual government bonds over a 15 year income ladder. Even though collectively, the weighted average YTM and duration of my individual bonds was almost identical to that of XBB, I determined that to sell all my government bonds and to purchase XBB would cost me about 0.2% in commission costs. I have therefore decided the best course of action is to hold my individual government bonds to maturity and simply reinvest the proceeds at maturity into XBB.
it really depends on the risk present in the market. I feel GIC is a lot more secure in times of uncertainty, whereas bonds/stocks are better in times of growth/recovery.
I agree. I really love this channel and Ben’s advice but it feels like this video is too technical for me who is just learning about investments. For a channel focused on Common Sense Investing I believe this video was above the average viewer. Anyways, I’ll take another look at this video later on to see if i can follow along better. Regardless though thanks for the vid Ben and team!
I was holding a GIC as a sort of "emergency fund" but as you said, not being able to liquidate it is what got me into heavier into bonds. Although I did have to wait for the GIC to mature in order to not pay an early withdrawal fee.
@@xavierdube5025 actually I switched the cacheable GIC a ISA INVESTMENT SAVING account which is a hisa giving me 3.5% actually better than the cashable GIC rate now
Hi Ben, Love some of the animations that companied the video, especially the scales weighted by the GICs on one side and bond funds on the other! The slope of the curve on the recurring yield curve graphic always has my mind venturing into the gutter, which does also prompt a smile or smirk, but to keep this G-rated, I won't go there. ;) Good rationale for bond index funds or ETFs in portfolio. I hadn't considered some of the aspects in the early part of the video, as I tended to only think about GICs being illiquid and not affording annual rebalancing opportunities to long-term investment portfolios. I also was pleased to hear about the lower risk profile and potentially greater long-term returns of a globally diversified, hedged-to-CAD bond portfolio. I was going to ask you if there was an ETF that tracked the Bloomberg Barclays Global Aggregate Bond Index, hedged to CAD, but you named a couple new-ish Vanguard ETFs that are worth further study. For the reasons you outlined, that is the currency volatility negating the de-risking and negatively correlated aspects that bond index funds or ETFs provide to portfolios, I imagine you're (like me) also not a fan of LEMB (emerging market bonds in local currencies). What about low cost, investment grade emerging bond ETFs hedged-to-CAD? Do they have merit in some portfolios and what you recommend as a model allocation in, say, an 80/20 or 70/30 model portfolio? The discussion on CDIC insurance was also interesting, and I was particularly intrigued on your comment about it generally providing a government-subsidized arbitrage opportunity for higher risk deposits. It might be a bit outside the scope of your investing videos, but I wonder if you might also talk about credit union deposit insured GICs and what, if any, additional risk(s) those carry and to what degree? By all or most indications, each credit union deposit insurer has the backing of the provincial government. Provincial governments are more highly levered than the federal government, thanks mainly to federal government cuts to transfer payments and downloading of responsibilities, as evidenced in the S&P report that came out yesterday or the day prior to yesterday showing provincial & municipal debt topping $1 trillion. However, the federal government would never let a provincial government fail, so by default (no pun intended), provincial governments effectively have the de facto backing of the federal government. By extension, credit union deposit insurance corporations, being owned and backed by their provincial governments, have an indirect federal government backing, no? (For the same reason, it's completely disingenuous and misleading when the federal government looks only at the total federal debt or, worse, "federal net debt" of the country! The "own," albeit indirectly, provincial and municipal debt, too!) As for me, though, I agree with you with you on the preference for bond ETFs and you have successfully made the case for a mix of short and longer term maturities even if rates continue to rise in the near- to medium-term (I tend to think that's not likely to be the case). I DO use GICs (with each of Canada Deposit Insurance Corp.-insured Coast Capital Savings Federal Credit Union* and Deposit Guarantee Corp. of Manitoba-insured Sunova Credit Union Ltd.), but only for cash I have sitting on the sidelines waiting to invest or that is relatively short-term and for which has a specific purpose. Cheers, Doug * As part of transitional CDIC insurance coverage, unlimited CDIC insurance is provided on my existing GICs to maturity in or around December 2020 (the rate of which is a very generous 4%).
At present I use ZAG per the CCP model portfolios, but I am seriously contemplating for any new investments to go with VGRO/XGRO for simplicity, then buy more VBAL/XBAL as I shift towards a more conservative risk tolerance.
What is the best portfolio setup for retirement then? I thought a 5-year GIC ladder + a conservative portfolio was the ultimate solution to pacing retirement income.
As a long term investor I just perceive my bond allocation as a holding account for when equity markets take a once in a decade type nose dive. Yes it’s true the bond fund could be down too however it likely will be nowhere near the drop in the equity market.
Hey Ben, Very basic question here: If you own a bond ETF do the interest payments go back into/reflect in the price of the bond ETF or are you actually paid interest directly. If you own an all in one solution like XGRO -- how does the bond ETF interest work there? Thank you!
Paying minimal fees inside a broadly-based ETF makes sense because diversification reduces the risk, for a given expected return, in the risky (stock) portion of an investment portfolio. Paying fees inside a bond fund makes no sense because the assets it holds are already risk-free. With bonds and GICs, diversification isn't needed and buying and selling them before maturity merely adds risk to the portion of an investment portfolio that should be and stay risk free. If an overall portfolio doesn't have a high enough expected return (increases with risk level) then more of the overall portfolio should be allocated to the risky portion (stocks) rather than the risk-free portion (bonds, GICs). You don't need to pay someone a fee to do that.
I'm confused if US bonds pay foreign withholding tax, VBU for example. I read a paper from Blackrock saying that Canadian listed ETF's are not subject to US FWT at all (if holding bonds). When I look at Vanguards distribution history PDF, VBU does declare some FWT. Can you speak to this?
At this time, all of my bond exposure is through funds. I am interested in considering holding specific bonds, but am not well researched enough in the area to try my hand at it.
The one thing that's missing here about GICs is that it is extremely hard to find a GIC these days that outperforms a high interest savings account, and those are completely liquid. It's for that reason that I've never used GICs in my portfolio. Instead I use a combination of a bond fund (ZAG) and an HISA (currently returning 2.25 percent, but was over 3% until COVID) the HISA misses out on the guaranteed rate, but it's fully liquid, and beats pretty much any GIC I can find as far as rates go. Is there a good reason to use GICs rather than HISAs? I've never seen one.
Wonderful lucid presentation as usual. You’re one of the few who gives a coherent explanation of the role of international hedged bonds. A book by Lars Kroijer (hedge fund manager), ‘ Investing Demystified’, assigns the role of bonds in a portfolio as the ‘safe asset’, that is to dampen the volatility and loss in bad equity markets. Further, he recommends the highest credit rated bonds for this purpose, preferably in the local currency of one’s obligations. He is less enthusiastic about international bonds if they have a lower credit rating than one’s local bonds because you compromise ‘safety’ in turbulent markets with little appreciable gain to offset the lower quality. I’d be interested on your take on his thesis.
The idea of bonds as a safe asset class is in actuality quite an outdated thesis. Bond yields this low coupled with a flat (or inverted) yield curve is a waste of capital. The opportunity loss is greater than the modest return fixed income provides.
I'm with Lars and Bernstein on this. www.etf.com/sections/features/22420-bernstein-dont-bother-with-international-bonds-.html?nopaging=1 The diversification of international is minimal benefits. If you own high grade domestic gov bonds (risk free), diversification has little/zero benefits. Hedging int bonds effectively create a MORE expensive version of domestic bonds! If you go corporate/junk bonds instead, then diversification is vital. However, having your fixed interest component not "risk free" pushes it away from the 'efficient frontier'! Corporate/junk bonds risk/volatility start to behave like equity. If this is the case, logic says why would you every buy corporate/junk bonds which has same downside but capped upside??? Better with equity instead with unlimited upside!
Blake G I wouldn't agree with that. Despite current characteristics, bonds are safer (less volatile) than stocks, so still serve their primary function of decreasing the volatility of the portfolio. Besides, you don't own bonds for return (you own stocks for that). You own bonds to reduce portfolio volatility so you don't panic sell in a crash. If you don't need that volatility smoothing (which most people do), you don't need bonds.
Grant Maxted Thanks for your thoughts In that case do you see any role for international hedged bonds with a lower credit rating than your home country. I’m an Australian tax resident, like Canada our bonds are AAA If I were to diversify into international hedged Government bonds including Japan A , Italy BBB+, France AA, is there really any point? Thanks for the discussion Gents
I think that seeking fixed income exposure from only the highest rated bonds misses out on credit risk which is an independent risk factor that explains fixed income returns. The risk/return benefits of increasing credit risk decrease quickly, so I am definitely not saying we should own high yield bonds, but a bit of investment grade credit exposure is not a bad thing. If we accept the idea/data that credit is an independent risk factor then global diversification becomes a must. Vanguard's research has also demonstrated that global bonds offer insulation from interest rate spikes in your home country, for obvious reasons.
While it is true that holding a premium bond with higher interest payment is tax inefficient comparing to a bond issued at par. I don't think that is such a big problem in a falling rate period if you don't hold it to maturity. Since if the rate keeps falling ,the value of the premium bond you 're currently holding also increases.
One negative about GICs is that they are a lot more work to manage. You have to watch that you do not exceed the CDIC limits, including accrued interest and you may need to open accounts at different institutions if the limits are exceeded, or accept the relatively poor yields offered by the brokerages. A couple of questions. 1. If you need to hold fixed income in a taxable account, does the poor diversification of ZDB (compared to ZAG - no premium bonds), and the regulatory issues around HBB, make GICs a better choice? 2. I understand that Agg bond funds have outperformed GICs over the last 30 years, likely due to, at least in part, to falling interest rates. Do you think the reverse may happen in a rising interest rate environment?
You're right. Won't even mention the fact that a lot of institutions set GICs to auto renew so if you're not careful you could end up owning another five year gic because you didn't keep an eye on the maturity date
When you go non reg take a look at the breakdown on the distribution that bond fund. Most bond funds will pay a portion of ROC which is a point not mentioned here. May be another benefit over holding individual bonds (depending on where it's held etc)
Good point on the hassle factor of GICs, Grant. ZDB has paid off so far. Despite lower pre-tax performance since inception, it has beaten ZAG by about 30 bps per year after-tax on average. One thing to keep in mind, though, is that as interest rates rise, we will start seeing more discount bonds across the board, leading to capital gains in bond funds. ZDB will be distributing these gains. ZAG will have losses to carry forward to offset gains. I am not convinced that GICs are comparable to bonds in terms of expected returns. Forget about the past 30 years. Even the past 5-years, which have not been the greatest for bonds, ZAG has averaged 3.32% pre tax vs. somewhere around 2.5% for a 5-year GIC ladder. After tax, ZAG is 1.80% vs. 1.20% for a GIC ladder. I used the average GIC rates available through National Bank for the comparison, so you could squeeze out more going direct to EQ bank etc which might make GICs look better.
Another solid video, Ben. I was persuaded enough by Justin Bender's article ( www.canadianportfoliomanagerblog.com/the-most-boring-battle-ever-bond-etfs-or-gics/ ) that I moved the fixed income portion of my portfolio from 100% bonds to a combination of the two, maintaining a GIC ladder in my taxable account (22% of my portfolio) and a bond index in my RRSP account (13%). My RRSP holds all asset classes, so I have enough liquidity to properly rebalance even if equities halve overnight. Still, I do have a gap in global bond funds and your video has given me something to think about -- especially knowing that Vanguard uses their CAD-hedged global bond funds in their all-in-one products. I'll have to read up on the tax efficiency aspects of VBG/VBU though (and certainly won't complain if you're able to offer some of your own insights in that area :)).
VBG and VBU are both exposed to the premium bond issue (coupon > yield to maturity) which can be problematic in a taxable account, but this is a temporary problem. They do also have some withholding tax which would be unrecoverable in registered accounts. The fees are a bit on the high side, too. The same issues apply to international stocks: tax inefficient dividends in a taxable account, unrecoverable FWT in registered accounts, and higher fees, but International diversification in stocks is a given for most people. I don't think bonds should be any different.
Hi Ben, thank you for all the quality content and free information you share with the public! My question is regarding the sound of these videos: the volume at the very end tends to suddenly become super loud, disproportionately compared to rest of the clip. Is there a way to adjust the volume such that it’s more consistent throughout the whole video? Thanks!!
Hi Ben, thanks a lot for your teaching. Yesterday (march 12th) my Vanguard bond fund (VSB) dropped 5%. I'm a bit confused here. The NAV price barely moved. I called Vanguard. He told me it had something to do with liquidity in the system. I thought that my bond fund would only move with change in interest rate but I guess it ain't the case. If you have time, can you help my understand what I own because I'm not sure I do... best regards
There are different ways to think about this. I think that the best way to think about it is that it is not a liquidity issue, but a price discovery issue. The ETF price can drop below the NAV due to liquidity issues - too many people wanting to sell the liquid ETFs while the illiquid bonds can't trade with the same volume. Is this a problem with the ETF, or a problem with the underlying bond prices? Dave Nadig explained this in detail with an example on my podcast rationalreminder.ca/podcast/ep-71 _The reason people get hung up about ETF’s is because you can end up in a situation where you have a very liquid, very well-known ETF that owns a lot of very illiquid, very unknown securities and junk bonds are the sort of poster child for this, the two big ones there, HYG and JNK and you know, both of those individual funds have vastly more liquidity on a daily basis than most of the underlying bonds, they hold trade in in gear, so there is this paradox of liquidity._ _Now, people see that and they think that, “Oh well, that means that when everybody decides they want to get in on junk bonds, there’s going to be this huge disconnect between what you can do in the underlying market and what you could do with the ETF,” and they’re not wrong about that, there will be and there has been a disconnect._ _But that doesn’t mean that you’ve somehow broken the market. What you’ve actually done is add a vector for price discovery into a market that would otherwise lock up. For example, when Orange County was going bankrupt, the muni bond market locked up. You could not get a bid on high yield munis anywhere in the country. Nobody wanted to touch the darn things._ _The ETFs that help those bonds traded like water, all the way through that hiccup and you know, did they trade down? Of course they traded down. I don’t remember off the top of my head but imagine they trade down 20%, right? Blood bath of a day. And then supposedly, that’s not a ‘fair’ price because the last price those bonds traded at might have been 20% higher because those bonds haven’t traded it since, say, last Thursday._ _So you end up with this huge timing disconnect between when you can trade the ETF and when you can get a good price on the underlying. That timing disconnect appears as a pricing disconnect so everybody assumes that the world is broken. What actually happens is, when everybody comes back to their desk after lunch and they look and see that the world is not over, the muni bond market opened up and lo and behold, it traded to precisely where the ETF was trading._ _So yeah, you can get huge disconnects during market events, there’s nothing magical about the ETF that removes the beta risk of whatever thing you’re holding. But the ETF is much more likely to give you a price discovery mechanism in a crisis than the underlying bonds. We’ve seen that over and over again whether it was Egypt in the Arab spring or junk bonds in 2010._
Are all bonds in a passive bond ETF such as BND or AGG always held to maturity before the proceeds are rolled over? If the goal of these bond funds is to mirror the "total U.S. bond market", is pre-maturity selling ever necessary to adjust the weights of different debt types?
Hi Ben, Thank you for your video. What is your opinion what is more safe for some really tough times, collapses, depression, currency devaluation.... GIC, bond, treasury, if we put safety ahead of return? Thank you.
From 10:30 onwards (example on taxation): If interest rates decrease, why do the price and yield-to-maturity change? (I know about the inverse relationship of these two variables, but I do not understand why they change). The coupon rate on a bond is something that is determined upon issuance, isn't it? Or is it because the yields on bonds try to match the falling interest rates and hence decrease (prices of bonds would therefore increase)?
The coupon stays constant. Say you buy a bond today. If interest rates rise tomorrow, new bonds with similar characteristics to your bond will be issued with higher coupons. Your bond would fall in price to the extent that its yield to maturity would match the newly issued bonds. You end up with a lower priced bond with the same coupon, but your yield to maturity is the same as everyone else's.
"If I had bond funds in my portolio..." Wait, you don't own bonds? That's pretty aggressive! Personally, I have learned to prefer bond funds over GICs. Over the long term, I appreciate the liquidity aspect of these funds.
ProdigalExplorer I am the same. I have zero fixed income in my portfolio since I consider putting extra on my mortgage my fixed income allocation for now. An idea I got from Ben!
I'm with you on this one! GICs especially. If you have a short term objective the liquidity cash provides far outweighs the modest difference in return.
No bonds for me right now. I walked through my thinking on that here www.theglobeandmail.com/investing/personal-finance/gen-y-money/article-for-young-investors-a-100-per-cent-allocation-to-stocks-can-yeild/
What about investing in municipal bonds as a fixed-income instrument to benefit from tax exemptions in taxable accounts instead of investing in Bond funds?
@Ben Felix I would like to hear your thoughts on the bxmd buy write call options at 30 deltas strategy. It seems to outperform given the data we currently have although I am not sure if the sample of our data is enough to confirm this. It apparently also results in less risk with greater returns. In small accounts though I believe the fee of trading the 30 delta call options would remove any benefits of the increased return. www.cfaaustin.org/wp-content/uploads/2016/03/MattMoran-2016-04-20-CFA-5-cities-Texas.pdf www.cboe.com/framed/pdfframed?content=/micro/buywrite/cboe-feb08-2016-kwc-ingarm.pdf
Up to this point I had held ZAG in my non taxable and ZDB in my taxable, but I'm wondering about the benefit of adding currency hedged global bond funds like the vanguard ones mentioned. You mentioned that you do not need much in those funds to gain much of the benefit, can you direct me to that literature or any general rule of thumb regarding what portion of fixed income should be currency hedged global funds to gain the bulk of that benefit?
Here you go: personal.vanguard.com/pdf/ISGGLBD.pdf I also added it to the video description. There is not a rule of thumb as it depends on various factors. Page 14 has the discussion.
As usual, another interesting video with food for thought. Given than even guys like Bill Gross had less than stellar results in this low interest rate environment, and factoring in fees as well, would we not be better with either laddered GIC's and possibly utility stocks, which act somewhat like a bond, with a much better payout?
Utility stocks are not a replacement for bonds. PG&E is the best current example of why that is. Laddered GICs could be an alternative, but they don't capture the factors that explain bond returns, so you expect to miss out on some future returns. I don't think that active management is ever the answer (Bill Gross = active management). But bond index fund returns have been pretty good even recently. VAB has returned 3.08% per year on average over the past 5 years which is better than a GIC ladder would have done before tax over the same period. After-tax maybe GICs would have been a bit better.
@@HamiltonRb That's something that I have been thinking about a lot recently. There is some peer-reviewed research that suggests holding bonds in tax-free accounts, but that research is based on bond yields being higher than stock yields. As of now, international stock yields are higher than bond yields. My position is that because conditions (yields, tax rates) can change over time, it probably makes sense to hold an equal mix of all assets across all account types. The topic of asset location is a focus of a lot of the thinking and research that I do, so if my position changes I will be sure to make a video to comment on it.
@@BenFelixCSI Look forward to it because it is an interesting thought. Presently I have 24 Canadian dividend paying stocks in my non registered account and since I am self employed I don't use an RRSP but carry only one non dividend paying stock, BRK.B in my TFSA so I don't get hit with withholding fees on dividends. Am also 100% equities, but as blue chip & boring as you can get.
Ben Felix Don't you need to consider expected returns, rather than just yield, when deciding what to place in your TFSA, it being the best tax advantaged account, which would therefore favour stocks over bonds? Assuming you are doing asset location, of course.
anyone have confidence in VLB (vanguard long term canadian bond etf)? it feels attractive for its high return but it's history is short so it's hard to know how it will handle the next ten + years.
This is not so much about VLB as it is about the index that it tracks. It tracks long-term bonds which you would expect to be relatively volatile especially if interest rates change.
@@BenFelixCSI thanks for the reply! i dont mind if its volatile, it would be a long term hold, but say in ten+ years is it likely to average even 6% return--8% seems to good to be true. i cant find a data for the index it tracks
@@dscosche there is evidence that the risk/return tradeoff becomes less attractive as you get into longer maturity bonds. If higher expected returns are the goal, you will have a better tradeoff going with stocks than going with long bonds. If stocks are too risky, then you might add in some bonds alongside, but not necessarily long-term bonds.
We do not use them. They are not CDIC insured and there is a bit of a built in cost on the spread in addition to the MER. If we did not have access to Class F HISA then we might be more willing to look at these for clients.
As interest rates rise or even if they stay the same, the issue of premium bonds will go away. This makes the tradeoff between less diversification for more tax efficiency less attractive for ZDB.
Hi Ben, I'm really enjoying your videos, but it seems they're geared more towards someone with an advanced knowledge of investment, investment products, and financial mathematics. I know this is a big ask, but could you do a series for beginners to bring people up to speed on the basics?
@@BenFelixCSI At least for Canadians, I feel like Susan Daley from PWL Capital's Waterloo branch would be a good plug here. Consider adding her to your list of featured channels.
You're correct. This channel is definitely geared towards Intermediate to more advanced DIY investing. The good news is that if you watch, watch again, and re-watch these videos, as well as research misunderstood/confusing parts of these videos youll begin to gain a strong understanding of what Ben is talking about.. AND it will absolutely be reflected in your annual & long term returns. The level of knowledge Ben continues to preach is the level of investing that we should all aspire to. So dont give up! this will all slowly begin to make sense if you continue dedicating time to it! Trust me its worth it. that being said there are some other DIY channels that are more for beginners. Look up Brandon Bevis on youtube, he might be a good fit for you for now until you have more of an understanding. Cheers.
@Ross there is a lot of wisdom in your words. When I started studying the CFA curriculum I did not have a strong finance background. I remember that even though it was painful I continued to read and re-read the material until slowly it all started to make sense and the pieces started to come together. I think that jumping into the deep end like you described is a great way to learn.
Nobody can predict the future. Asset prices reflect information and change based on new information, which we cannot predict. Based on this I do not spend any time thinking about bubbles. It is only a bubble if we can predict when it will "pop" and there is no evidence that anyone can do this consistently.
@@BenFelixCSI withdrawal strategies would be helpful. In my research I've read to stay away from group plans. I had someone from CST stop by and now I know why. But I'm still fuzzy on the difference between individual and family plans. I'm going to the bank this week to most likely open a self directed individual plan but I'm worried about withdrawal and how much risk etc. You always have unique insights so I'm sure there's something creative that you would suggest. Im planning on buying ETFs or dollar cost average into td e series funds. There's a lot of videos on rrsp and tfsa but I can't find many quality videos on here about resp. Susan Daley has one. Just curious if your insights are different from hers
Alright I will consider it for a future video. The risk is minimal. If the child does not enroll in a qualifying education program right after high school, the account can stay open for up to 35 years after it was originally opened. So you could wait and see if they do choose to go to school within that time period. Worst case scenario, the plan is closed, the grants are repaid, and income is withdrawn at your tax rate + 20% unless it is transferred into your RRSP. A family plan lets you share the income in the plan. So if only one child goes to school, the other child can use all of the income that accrued on the other child's contributions and grants. Each child in the family plan can only use up to the maximum $7,200 in grant, so anything in excess of that would still need to be repaid. We generally use family plans when there are multiple children.
I like what you do. You should do a refresh with the 2022 rising rates. GIC interest going up and bonds going down.
Excellent video, I wish I could have seen this 40 years ago, lol
I've been a DIY investor for 3 decades now -- long enough to know what to do when too old to remain fully invested in stocks. My DIY portfolio has always had two major, and unambiguous, categories - (1) risk-free assets and (2) risky assets -- with the market value ratio between them (portfolio risk/return slider) tied to a formula based on age. I have held strip bonds to maturity, and GICs to maturity -- but have never bothered with bond funds. For terms under 5 years, GICs work better than bonds held to maturity because bond holders accept a lower yield to get the better liquidity I really don't need. As for bond funds, why pay management fees inside a bond fund just to have a basket of essentially risk-free assets arbitrarily bought and sold in ways that increases volatility and make them less risk-free? If I am ever going to pay fees for management of risk-free assets, I'd expect to at least get something useful in return.
Fantastic video! Thank you for finally allowing me to understand how a bond fund operates. You explained it so simply that I feel dumb for not understanding the concept sooner, lol.
The thing to remember is Bond prices and yield are inversely related, because they trade on the secondary market.
Thanks for this great video Ben. I just put quite a lot of money that I had in a GIC for several years into a Bond Fund. My new financial advisor convinced me this is a good move. I'm not so sure. I'm quite worried and really don't understand how a bond fund works and how it will benefit me. You're right, GICs did help me sleep better. I definitely - at this point - prefer a GIC. I have to wait 90 days before I can make any more big decisions about my next step. I'm hoping that I don't lose money. Oh dear.
In the current environment bond funds will also be more tax efficient than GICs. Sounds like this is more of an issue of education and having a long-term plan, both of which an advisor should be providing to you.
Your channel is excellent and i have learned so much over the years of watching! This greatly clears up the issue of fixed income for me :)
Hi Ben,
I prefer bond funds over GIC's as per your question. I prefer the liquidity and generally longer duration provided by bond funds. I do not try to overanalyze things, all fixed income purchases are in XBB, a low risk portfolio of Canadian provincial and federal government bonds.
A year ago, I took over management of my investment portfolio (about 70/30 equity: fixed income ) from my financial advisor and transferred all my investments to my self directed brokerage account. My financial advisor held my fixed income exposure in individual government bonds over a 15 year income ladder. Even though collectively, the weighted average YTM and duration of my individual bonds was almost identical to that of XBB, I determined that to sell all my government bonds and to purchase XBB would cost me about 0.2% in commission costs. I have therefore decided the best course of action is to hold my individual government bonds to maturity and simply reinvest the proceeds at maturity into XBB.
Makes sense. Thank you for sharing the experience - very interesting.
it really depends on the risk present in the market. I feel GIC is a lot more secure in times of uncertainty, whereas bonds/stocks are better in times of growth/recovery.
Lots of really great information in this video.i had to watch it a few times to wrap my head around the concepts
this video was really hard to understand.
Jae Oppa but such a good information
I agree. I really love this channel and Ben’s advice but it feels like this video is too technical for me who is just learning about investments. For a channel focused on Common Sense Investing I believe this video was above the average viewer. Anyways, I’ll take another look at this video later on to see if i can follow along better. Regardless though thanks for the vid Ben and team!
Most of the videos in this channel are difficult to understand for the common man.
And I thought I was just incompetent. But that still may be true 🤔
I gotchu
I was holding a GIC as a sort of "emergency fund" but as you said, not being able to liquidate it is what got me into heavier into bonds. Although I did have to wait for the GIC to mature in order to not pay an early withdrawal fee.
Cashable GICs can be used as a Emergency fund...That is liquid.
Why use cashable GIC when you can use HISA ETF instead with a better rate ?
@@xavierdube5025 actually I switched the cacheable GIC a ISA INVESTMENT SAVING account which is a hisa giving me 3.5% actually better than the cashable GIC rate now
I would prefer a combination of both bonds and ladder GICs for an even greater diversification and lower risk as a relatively conservative investor.
Interesting. I guess GICs do offer a bit of a diversification benefit.
Hi Ben,
Love some of the animations that companied the video, especially the scales weighted by the GICs on one side and bond funds on the other! The slope of the curve on the recurring yield curve graphic always has my mind venturing into the gutter, which does also prompt a smile or smirk, but to keep this G-rated, I won't go there. ;)
Good rationale for bond index funds or ETFs in portfolio. I hadn't considered some of the aspects in the early part of the video, as I tended to only think about GICs being illiquid and not affording annual rebalancing opportunities to long-term investment portfolios.
I also was pleased to hear about the lower risk profile and potentially greater long-term returns of a globally diversified, hedged-to-CAD bond portfolio. I was going to ask you if there was an ETF that tracked the Bloomberg Barclays Global Aggregate Bond Index, hedged to CAD, but you named a couple new-ish Vanguard ETFs that are worth further study. For the reasons you outlined, that is the currency volatility negating the de-risking and negatively correlated aspects that bond index funds or ETFs provide to portfolios, I imagine you're (like me) also not a fan of LEMB (emerging market bonds in local currencies). What about low cost, investment grade emerging bond ETFs hedged-to-CAD? Do they have merit in some portfolios and what you recommend as a model allocation in, say, an 80/20 or 70/30 model portfolio?
The discussion on CDIC insurance was also interesting, and I was particularly intrigued on your comment about it generally providing a government-subsidized arbitrage opportunity for higher risk deposits. It might be a bit outside the scope of your investing videos, but I wonder if you might also talk about credit union deposit insured GICs and what, if any, additional risk(s) those carry and to what degree? By all or most indications, each credit union deposit insurer has the backing of the provincial government. Provincial governments are more highly levered than the federal government, thanks mainly to federal government cuts to transfer payments and downloading of responsibilities, as evidenced in the S&P report that came out yesterday or the day prior to yesterday showing provincial & municipal debt topping $1 trillion. However, the federal government would never let a provincial government fail, so by default (no pun intended), provincial governments effectively have the de facto backing of the federal government. By extension, credit union deposit insurance corporations, being owned and backed by their provincial governments, have an indirect federal government backing, no? (For the same reason, it's completely disingenuous and misleading when the federal government looks only at the total federal debt or, worse, "federal net debt" of the country! The "own," albeit indirectly, provincial and municipal debt, too!)
As for me, though, I agree with you with you on the preference for bond ETFs and you have successfully made the case for a mix of short and longer term maturities even if rates continue to rise in the near- to medium-term (I tend to think that's not likely to be the case). I DO use GICs (with each of Canada Deposit Insurance Corp.-insured Coast Capital Savings Federal Credit Union* and Deposit Guarantee Corp. of Manitoba-insured Sunova Credit Union Ltd.), but only for cash I have sitting on the sidelines waiting to invest or that is relatively short-term and for which has a specific purpose.
Cheers,
Doug
* As part of transitional CDIC insurance coverage, unlimited CDIC insurance is provided on my existing GICs to maturity in or around December 2020 (the rate of which is a very generous 4%).
At present I use ZAG per the CCP model portfolios, but I am seriously contemplating for any new investments to go with VGRO/XGRO for simplicity, then buy more VBAL/XBAL as I shift towards a more conservative risk tolerance.
I think that would be a reasonable approach.
What is the best portfolio setup for retirement then? I thought a 5-year GIC ladder + a conservative portfolio was the ultimate solution to pacing retirement income.
As a long term investor I just perceive my bond allocation as a holding account for when equity markets take a once in a decade type nose dive. Yes it’s true the bond fund could be down too however it likely will be nowhere near the drop in the equity market.
That's a good way to think about it.
I like to think of my bonds almost as a multipurpose emergency cash reserve.
Hey Ben,
Very basic question here: If you own a bond ETF do the interest payments go back into/reflect in the price of the bond ETF or are you actually paid interest directly. If you own an all in one solution like XGRO -- how does the bond ETF interest work there?
Thank you!
You would receive cash distributions directly. Same with XGRO. The bond ETF would distribute cash to XGRO which would distribute cash to you.
Paying minimal fees inside a broadly-based ETF makes sense because diversification reduces the risk, for a given expected return, in the risky (stock) portion of an investment portfolio. Paying fees inside a bond fund makes no sense because the assets it holds are already risk-free. With bonds and GICs, diversification isn't needed and buying and selling them before maturity merely adds risk to the portion of an investment portfolio that should be and stay risk free. If an overall portfolio doesn't have a high enough expected return (increases with risk level) then more of the overall portfolio should be allocated to the risky portion (stocks) rather than the risk-free portion (bonds, GICs). You don't need to pay someone a fee to do that.
I'm confused if US bonds pay foreign withholding tax, VBU for example. I read a paper from Blackrock saying that Canadian listed ETF's are not subject to US FWT at all (if holding bonds). When I look at Vanguards distribution history PDF, VBU does declare some FWT. Can you speak to this?
Very helpful. Im cost averaging a large sum over the nexts 4 years into the market. I thought GICs were the only practical short term vehicle.
Makes sense.
At this time, all of my bond exposure is through funds.
I am interested in considering holding specific bonds, but am not well researched enough in the area to try my hand at it.
The one thing that's missing here about GICs is that it is extremely hard to find a GIC these days that outperforms a high interest savings account, and those are completely liquid. It's for that reason that I've never used GICs in my portfolio. Instead I use a combination of a bond fund (ZAG) and an HISA (currently returning 2.25 percent, but was over 3% until COVID) the HISA misses out on the guaranteed rate, but it's fully liquid, and beats pretty much any GIC I can find as far as rates go.
Is there a good reason to use GICs rather than HISAs? I've never seen one.
2022 says hi
Wonderful lucid presentation as usual. You’re one of the few who gives a coherent explanation of the role of international hedged bonds.
A book by Lars Kroijer (hedge fund manager), ‘ Investing Demystified’, assigns the role of bonds in a portfolio as the ‘safe asset’, that is to dampen the volatility and loss in bad equity markets. Further, he recommends the highest credit rated bonds for this purpose, preferably in the local currency of one’s obligations.
He is less enthusiastic about international bonds if they have a lower credit rating than one’s local bonds because you compromise ‘safety’ in turbulent markets with little appreciable gain to offset the lower quality.
I’d be interested on your take on his thesis.
The idea of bonds as a safe asset class is in actuality quite an outdated thesis. Bond yields this low coupled with a flat (or inverted) yield curve is a waste of capital. The opportunity loss is greater than the modest return fixed income provides.
I'm with Lars and Bernstein on this.
www.etf.com/sections/features/22420-bernstein-dont-bother-with-international-bonds-.html?nopaging=1
The diversification of international is minimal benefits. If you own high grade domestic gov bonds (risk free), diversification has little/zero benefits. Hedging int bonds effectively create a MORE expensive version of domestic bonds!
If you go corporate/junk bonds instead, then diversification is vital. However, having your fixed interest component not "risk free" pushes it away from the 'efficient frontier'! Corporate/junk bonds risk/volatility start to behave like equity. If this is the case, logic says why would you every buy corporate/junk bonds which has same downside but capped upside??? Better with equity instead with unlimited upside!
Blake G I wouldn't agree with that. Despite current characteristics, bonds are safer (less volatile) than stocks, so still serve their primary function of decreasing the volatility of the portfolio. Besides, you don't own bonds for return (you own stocks for that). You own bonds to reduce portfolio volatility so you don't panic sell in a crash. If you don't need that volatility smoothing (which most people do), you don't need bonds.
Grant Maxted
Thanks for your thoughts
In that case do you see any role for international hedged bonds with a lower credit rating than your home country.
I’m an Australian tax resident, like Canada our bonds are AAA
If I were to diversify into international hedged Government bonds including Japan A , Italy BBB+, France AA, is there really any point?
Thanks for the discussion Gents
I think that seeking fixed income exposure from only the highest rated bonds misses out on credit risk which is an independent risk factor that explains fixed income returns. The risk/return benefits of increasing credit risk decrease quickly, so I am definitely not saying we should own high yield bonds, but a bit of investment grade credit exposure is not a bad thing. If we accept the idea/data that credit is an independent risk factor then global diversification becomes a must.
Vanguard's research has also demonstrated that global bonds offer insulation from interest rate spikes in your home country, for obvious reasons.
While it is true that holding a premium bond with higher interest payment is tax inefficient comparing to a bond issued at par. I don't think that is such a big problem in a falling rate period if you don't hold it to maturity. Since if the rate keeps falling ,the value of the premium bond you 're currently holding also increases.
One negative about GICs is that they are a lot more work to manage. You have to watch that you do not exceed the CDIC limits, including accrued interest and you may need to open accounts at different institutions if the limits are exceeded, or accept the relatively poor yields offered by the brokerages.
A couple of questions. 1. If you need to hold fixed income in a taxable account, does the poor diversification of ZDB (compared to ZAG - no premium bonds), and the regulatory issues around HBB, make GICs a better choice? 2. I understand that Agg bond funds have outperformed GICs over the last 30 years, likely due to, at least in part, to falling interest rates. Do you think the reverse may happen in a rising interest rate environment?
You're right. Won't even mention the fact that a lot of institutions set GICs to auto renew so if you're not careful you could end up owning another five year gic because you didn't keep an eye on the maturity date
When you go non reg take a look at the breakdown on the distribution that bond fund. Most bond funds will pay a portion of ROC which is a point not mentioned here. May be another benefit over holding individual bonds (depending on where it's held etc)
Good point on the hassle factor of GICs, Grant.
ZDB has paid off so far. Despite lower pre-tax performance since inception, it has beaten ZAG by about 30 bps per year after-tax on average. One thing to keep in mind, though, is that as interest rates rise, we will start seeing more discount bonds across the board, leading to capital gains in bond funds. ZDB will be distributing these gains. ZAG will have losses to carry forward to offset gains.
I am not convinced that GICs are comparable to bonds in terms of expected returns. Forget about the past 30 years. Even the past 5-years, which have not been the greatest for bonds, ZAG has averaged 3.32% pre tax vs. somewhere around 2.5% for a 5-year GIC ladder. After tax, ZAG is 1.80% vs. 1.20% for a GIC ladder. I used the average GIC rates available through National Bank for the comparison, so you could squeeze out more going direct to EQ bank etc which might make GICs look better.
Another great video Ben.
Thanks, Blake!
From Russell: This was excellent. Some food for thought for our own accounts.
It would be nice if you sourced the studies you refer too in the description of the video for us interested in reading more. Otherwise, nice video!
You’re the third person to suggest this recently, so I am going to start doing it!
@@BenFelixCSI Just btw, are these the studies you were referring to? personal.vanguard.com/pdf/ISGGLBD.pdf & personal.vanguard.com/pdf/s826.pdf
Another solid video, Ben. I was persuaded enough by Justin Bender's article ( www.canadianportfoliomanagerblog.com/the-most-boring-battle-ever-bond-etfs-or-gics/ ) that I moved the fixed income portion of my portfolio from 100% bonds to a combination of the two, maintaining a GIC ladder in my taxable account (22% of my portfolio) and a bond index in my RRSP account (13%). My RRSP holds all asset classes, so I have enough liquidity to properly rebalance even if equities halve overnight. Still, I do have a gap in global bond funds and your video has given me something to think about -- especially knowing that Vanguard uses their CAD-hedged global bond funds in their all-in-one products. I'll have to read up on the tax efficiency aspects of VBG/VBU though (and certainly won't complain if you're able to offer some of your own insights in that area :)).
VBG and VBU are both exposed to the premium bond issue (coupon > yield to maturity) which can be problematic in a taxable account, but this is a temporary problem. They do also have some withholding tax which would be unrecoverable in registered accounts. The fees are a bit on the high side, too. The same issues apply to international stocks: tax inefficient dividends in a taxable account, unrecoverable FWT in registered accounts, and higher fees, but International diversification in stocks is a given for most people. I don't think bonds should be any different.
Hi Ben, thank you for all the quality content and free information you share with the public! My question is regarding the sound of these videos: the volume at the very end tends to suddenly become super loud, disproportionately compared to rest of the clip. Is there a way to adjust the volume such that it’s more consistent throughout the whole video? Thanks!!
I'll give the feedback to the producer and see if we can fix it up!
Ben Felix thank you so much!
love your podcast
Hi Ben, thanks a lot for your teaching. Yesterday (march 12th) my Vanguard bond fund (VSB) dropped 5%. I'm a bit confused here. The NAV price barely moved. I called Vanguard. He told me it had something to do with liquidity in the system. I thought that my bond fund would only move with change in interest rate but I guess it ain't the case. If you have time, can you help my understand what I own because I'm not sure I do... best regards
There are different ways to think about this. I think that the best way to think about it is that it is not a liquidity issue, but a price discovery issue. The ETF price can drop below the NAV due to liquidity issues - too many people wanting to sell the liquid ETFs while the illiquid bonds can't trade with the same volume. Is this a problem with the ETF, or a problem with the underlying bond prices? Dave Nadig explained this in detail with an example on my podcast rationalreminder.ca/podcast/ep-71
_The reason people get hung up about ETF’s is because you can end up in a situation where you have a very liquid, very well-known ETF that owns a lot of very illiquid, very unknown securities and junk bonds are the sort of poster child for this, the two big ones there, HYG and JNK and you know, both of those individual funds have vastly more liquidity on a daily basis than most of the underlying bonds, they hold trade in in gear, so there is this paradox of liquidity._
_Now, people see that and they think that, “Oh well, that means that when everybody decides they want to get in on junk bonds, there’s going to be this huge disconnect between what you can do in the underlying market and what you could do with the ETF,” and they’re not wrong about that, there will be and there has been a disconnect._
_But that doesn’t mean that you’ve somehow broken the market. What you’ve actually done is add a vector for price discovery into a market that would otherwise lock up. For example, when Orange County was going bankrupt, the muni bond market locked up. You could not get a bid on high yield munis anywhere in the country. Nobody wanted to touch the darn things._
_The ETFs that help those bonds traded like water, all the way through that hiccup and you know, did they trade down? Of course they traded down. I don’t remember off the top of my head but imagine they trade down 20%, right? Blood bath of a day. And then supposedly, that’s not a ‘fair’ price because the last price those bonds traded at might have been 20% higher because those bonds haven’t traded it since, say, last Thursday._
_So you end up with this huge timing disconnect between when you can trade the ETF and when you can get a good price on the underlying. That timing disconnect appears as a pricing disconnect so everybody assumes that the world is broken. What actually happens is, when everybody comes back to their desk after lunch and they look and see that the world is not over, the muni bond market opened up and lo and behold, it traded to precisely where the ETF was trading._
_So yeah, you can get huge disconnects during market events, there’s nothing magical about the ETF that removes the beta risk of whatever thing you’re holding. But the ETF is much more likely to give you a price discovery mechanism in a crisis than the underlying bonds. We’ve seen that over and over again whether it was Egypt in the Arab spring or junk bonds in 2010._
Are all bonds in a passive bond ETF such as BND or AGG always held to maturity before the proceeds are rolled over? If the goal of these bond funds is to mirror the "total U.S. bond market", is pre-maturity selling ever necessary to adjust the weights of different debt types?
If I'm going to use this money in 20 to 30 years should I buy a long-term bonds or buy short-term bonds and constantly reinvest the money
Hi Ben, Thank you for your video. What is your opinion what is more safe for some really tough times, collapses, depression, currency devaluation.... GIC, bond, treasury, if we put safety ahead of return? Thank you.
Ben, What do you think of (VAB) thx!
Thank you
From 10:30 onwards (example on taxation): If interest rates decrease, why do the price and yield-to-maturity change? (I know about the inverse relationship of these two variables, but I do not understand why they change). The coupon rate on a bond is something that is determined upon issuance, isn't it? Or is it because the yields on bonds try to match the falling interest rates and hence decrease (prices of bonds would therefore increase)?
The coupon stays constant. Say you buy a bond today. If interest rates rise tomorrow, new bonds with similar characteristics to your bond will be issued with higher coupons. Your bond would fall in price to the extent that its yield to maturity would match the newly issued bonds. You end up with a lower priced bond with the same coupon, but your yield to maturity is the same as everyone else's.
Very good explanation, thank you Ben!
@@BenFelixCSI Spot on!
"If I had bond funds in my portolio..." Wait, you don't own bonds? That's pretty aggressive! Personally, I have learned to prefer bond funds over GICs. Over the long term, I appreciate the liquidity aspect of these funds.
ProdigalExplorer I am the same. I have zero fixed income in my portfolio since I consider putting extra on my mortgage my fixed income allocation for now. An idea I got from Ben!
I'm with you on this one! GICs especially. If you have a short term objective the liquidity cash provides far outweighs the modest difference in return.
No bonds for me right now. I walked through my thinking on that here www.theglobeandmail.com/investing/personal-finance/gen-y-money/article-for-young-investors-a-100-per-cent-allocation-to-stocks-can-yeild/
I have a question. Is the YTM after the fund fees or before fund fees?
Canadian GIC = US CD
What about investing in municipal bonds as a fixed-income instrument to benefit from tax exemptions in taxable accounts instead of investing in Bond funds?
Canada does not offer any tax advantages to holding municipal bonds as far as I know. The US does.
@Ben Felix
I would like to hear your thoughts on the bxmd buy write call options at 30 deltas strategy. It seems to outperform given the data we currently have although I am not sure if the sample of our data is enough to confirm this. It apparently also results in less risk with greater returns. In small accounts though I believe the fee of trading the 30 delta call options would remove any benefits of the increased return.
www.cfaaustin.org/wp-content/uploads/2016/03/MattMoran-2016-04-20-CFA-5-cities-Texas.pdf
www.cboe.com/framed/pdfframed?content=/micro/buywrite/cboe-feb08-2016-kwc-ingarm.pdf
So since I'm Canadian I should not buy TLT?
Up to this point I had held ZAG in my non taxable and ZDB in my taxable, but I'm wondering about the benefit of adding currency hedged global bond funds like the vanguard ones mentioned. You mentioned that you do not need much in those funds to gain much of the benefit, can you direct me to that literature or any general rule of thumb regarding what portion of fixed income should be currency hedged global funds to gain the bulk of that benefit?
Here you go: personal.vanguard.com/pdf/ISGGLBD.pdf I also added it to the video description. There is not a rule of thumb as it depends on various factors. Page 14 has the discussion.
As usual, another interesting video with food for thought. Given than even guys like Bill Gross had less than stellar results in this low interest rate environment, and factoring in fees as well, would we not be better with either laddered GIC's and possibly utility stocks, which act somewhat like a bond, with a much better payout?
Utility stocks are not a replacement for bonds. PG&E is the best current example of why that is.
Laddered GICs could be an alternative, but they don't capture the factors that explain bond returns, so you expect to miss out on some future returns.
I don't think that active management is ever the answer (Bill Gross = active management).
But bond index fund returns have been pretty good even recently. VAB has returned 3.08% per year on average over the past 5 years which is better than a GIC ladder would have done before tax over the same period. After-tax maybe GICs would have been a bit better.
@@BenFelixCSI Would you consider putting VAB & laddered bonds in your TFSA, so that you aren't taxed on fixed income?
@@HamiltonRb That's something that I have been thinking about a lot recently. There is some peer-reviewed research that suggests holding bonds in tax-free accounts, but that research is based on bond yields being higher than stock yields. As of now, international stock yields are higher than bond yields. My position is that because conditions (yields, tax rates) can change over time, it probably makes sense to hold an equal mix of all assets across all account types. The topic of asset location is a focus of a lot of the thinking and research that I do, so if my position changes I will be sure to make a video to comment on it.
@@BenFelixCSI Look forward to it because it is an interesting thought. Presently I have 24 Canadian dividend paying stocks in my non registered account and since I am self employed I don't use an RRSP but carry only one non dividend paying stock, BRK.B in my TFSA so I don't get hit with withholding fees on dividends. Am also 100% equities, but as blue chip & boring as you can get.
Ben Felix Don't you need to consider expected returns, rather than just yield, when deciding what to place in your TFSA, it being the best tax advantaged account, which would therefore favour stocks over bonds? Assuming you are doing asset location, of course.
anyone have confidence in VLB (vanguard long term canadian bond etf)? it feels attractive for its high return but it's history is short so it's hard to know how it will handle the next ten + years.
This is not so much about VLB as it is about the index that it tracks. It tracks long-term bonds which you would expect to be relatively volatile especially if interest rates change.
@@BenFelixCSI thanks for the reply! i dont mind if its volatile, it would be a long term hold, but say in ten+ years is it likely to average even 6% return--8% seems to good to be true. i cant find a data for the index it tracks
@@dscosche there is evidence that the risk/return tradeoff becomes less attractive as you get into longer maturity bonds. If higher expected returns are the goal, you will have a better tradeoff going with stocks than going with long bonds. If stocks are too risky, then you might add in some bonds alongside, but not necessarily long-term bonds.
@@BenFelixCSI fantastic thank you!!
Literally just used GICs for the first time last weekend, with exactly the goal of using the money in less than a year.
Well played.
Hey Ben, what do you think about exchange traded hisas (psa etc) - do you guys utilize those at all?
We do not use them. They are not CDIC insured and there is a bit of a built in cost on the spread in addition to the MER. If we did not have access to Class F HISA then we might be more willing to look at these for clients.
Should ZDB be held indefinitely in a non-registered account or are there certain economic conditions that would change this recommendation?
As interest rates rise or even if they stay the same, the issue of premium bonds will go away. This makes the tradeoff between less diversification for more tax efficiency less attractive for ZDB.
Can anyone tell me what song plays at the end of these videos?
Can you do a video money on market funds like TDB164?
Possibly. We generally use high interest savings accounts and not money market funds. I'll add it to the possible future topics list though.
Hi Ben, I'm really enjoying your videos, but it seems they're geared more towards someone with an advanced knowledge of investment, investment products, and financial mathematics. I know this is a big ask, but could you do a series for beginners to bring people up to speed on the basics?
I am working on a course for beginners. It will not be free like the CSI series though.
@@BenFelixCSI At least for Canadians, I feel like Susan Daley from PWL Capital's Waterloo branch would be a good plug here. Consider adding her to your list of featured channels.
You're correct. This channel is definitely geared towards Intermediate to more advanced DIY investing. The good news is that if you watch, watch again, and re-watch these videos, as well as research misunderstood/confusing parts of these videos youll begin to gain a strong understanding of what Ben is talking about.. AND it will absolutely be reflected in your annual & long term returns. The level of knowledge Ben continues to preach is the level of investing that we should all aspire to. So dont give up! this will all slowly begin to make sense if you continue dedicating time to it! Trust me its worth it. that being said there are some other DIY channels that are more for beginners. Look up Brandon Bevis on youtube, he might be a good fit for you for now until you have more of an understanding. Cheers.
@Ross there is a lot of wisdom in your words. When I started studying the CFA curriculum I did not have a strong finance background. I remember that even though it was painful I continued to read and re-read the material until slowly it all started to make sense and the pieces started to come together. I think that jumping into the deep end like you described is a great way to learn.
Great video! Do you suggetst to keep also corporate bond on fixed income part of portfolio? I was thinking to keep only a global government bond etf.
Is there a U.S. equivalent to a GIC?
There is. It's a Certificate of Deposit (CD).
Do you think there is a bond bubble and that it is about to burst?
I don't think about bubbles.
Ben Felix I’m not sure that that means
Nobody can predict the future. Asset prices reflect information and change based on new information, which we cannot predict. Based on this I do not spend any time thinking about bubbles. It is only a bubble if we can predict when it will "pop" and there is no evidence that anyone can do this consistently.
Ben Felix ok that makes sense, thanks
Hey Ben, can you redo one for bonds
I searched Ben Felix resp and got nothing. Does that mean you have never touched on the topic or is it named something else?
As of now I have not looked at RESPs in a video. What aspect of the account would be useful to see covered?
@@BenFelixCSI withdrawal strategies would be helpful. In my research I've read to stay away from group plans. I had someone from CST stop by and now I know why. But I'm still fuzzy on the difference between individual and family plans. I'm going to the bank this week to most likely open a self directed individual plan but I'm worried about withdrawal and how much risk etc. You always have unique insights so I'm sure there's something creative that you would suggest. Im planning on buying ETFs or dollar cost average into td e series funds. There's a lot of videos on rrsp and tfsa but I can't find many quality videos on here about resp. Susan Daley has one. Just curious if your insights are different from hers
Alright I will consider it for a future video. The risk is minimal. If the child does not enroll in a qualifying education program right after high school, the account can stay open for up to 35 years after it was originally opened. So you could wait and see if they do choose to go to school within that time period. Worst case scenario, the plan is closed, the grants are repaid, and income is withdrawn at your tax rate + 20% unless it is transferred into your RRSP. A family plan lets you share the income in the plan. So if only one child goes to school, the other child can use all of the income that accrued on the other child's contributions and grants. Each child in the family plan can only use up to the maximum $7,200 in grant, so anything in excess of that would still need to be repaid. We generally use family plans when there are multiple children.
What does gic mean?
Guaranteed investment certificate issued by the gov of Canada
I believe it's similar to a Treasury Bill here in the U.S.
Actually it is more like an FDIC insured bank Certificate of Deposit (CD).
Why does he remind me of Obama 🤔🤔
Um can you please speak english
If you have to ask, you can’t afford it
@@BenFelixCSI you gotta admit his taylor swift cover is off the hook