Perplexity compares XEQT to mutual funds

I asked Perplexity how owning XEQT, the complete Canadian portfolio in one ETF,  compares to owning a number of carefully chosen mutual funds to create a complete, diversified portfolio. Perplexity answered:

Answer:

 

The iShares Core Equity ETF Portfolio (XEQT) is an all-in-one ETF designed to provide broad diversification across global equity markets. It includes a mix of underlying ETFs that cover various regions and sectors, making it a convenient option for investors looking for a simple, diversified equity portfolio. Key features of XEQT include:

 

XEQT provides broad diversification with exposure to over 9,500 stocks across global markets, including US, Canadian, international developed, and emerging markets.

 

This level of diversification helps spread risk across various sectors, countries, and company sizes.

Low cost: With a management expense ratio (MER) of 0.20%, XEQT is significantly cheaper than most actively managed mutual funds

Lower fees can have a substantial impact on long-term returns.

Simplicity: As an all-in-one ETF, XEQT eliminates the need for manual rebalancing and simplifies portfolio management

You can achieve a globally diversified portfolio with just one investment.

Automatic rebalancing: The fund managers handle annual rebalancing, ensuring the portfolio maintains its target asset allocation

This helps in selling high and buying low, potentially boosting returns over time.

Tax efficiency: ETFs are generally more tax-efficient than mutual funds due to their structure and lower turnover.

Long-term growth potential: XEQT is designed for long-term capital growth, making it suitable for investors with a long time horizon and higher risk tolerance

 

Risk tolerance: XEQT is a 100% equity portfolio, which means it can be more volatile than balanced funds that include bonds. (My add: If you insist on bonds in your portfolio, consider XGRO for 80% equity and 20% bonds or XBAL for 60% equity and 40% bonds. I would never even consider holding more than 40% bonds even though this option is offered.)

 

Ensure XEQT aligns with your risk tolerance and investment goals.

Time horizon: Due to its all-equity composition, XEQT is best suited for investors with a long-term investment horizon (5 or more years with the accent on "more years".)

Home bias: XEQT has a 25% allocation to Canadian stocks, which is higher than Canada's global market capitalization. While this can provide some benefits for Canadian investors, it's important to be aware of this overweight.

 

When all is said and done, what we all want to know is how does XEQT perform when compared to mutual funds? Answer: XEQT more than holds its own.

 

XEQT: Historical performance has been strong, with notable returns over the past few years. For example, XEQT returned 17.05% in 2023, which is competitive with other investment options

Mutual Funds: Performance varies widely among mutual funds. While some actively managed funds may outperform the market, others may under-perform, especially after accounting for higher fees. For instance, the RBC Select Aggressive Portfolio returned 12.71% in 2023, which is lower than XEQT's performance

 

In conclusion: For investors seeking a simple, low-cost, and globally diversified equity portfolio, XEQT can be an excellent replacement for a portfolio of mutual funds. It offers broad diversification, professional management, and automatic re-balancing at a fraction of the cost of most mutual funds. 

 

However, as with any investment decision, it's important to consider your personal financial situation, risk tolerance, and investment goals before making a switch. If you decided that you prefer active management and are willing to pay the higher fees, you may still find value in a carefully chosen portfolio of mutual funds.

 

After Perplexity answers a question, it posts a number of suggestions for areas for future investigation. In this case, Perplexity suggested some of the following questions:

 

• What is the historical performance difference between XEQT and a carefully selected mutual fund portfolio?
• How do the distribution yields of XEQT compare to those of mutual funds?
• How does the risk of XEQT compare to other ETFs?
• How does the risk of XEQT compare to a mix of mutual funds?

Perplexity: a fine intro to Ai

What is the Ai program Perplexity? Is it a search engine?

Definition: Perplexity is a search engine that answers queries using natural language predictive text, utilizing sources from the web. It surpasses traditional search capabilities by incorporating AI-driven features that aim to provide more accurate, contextual, and comprehensive answers to user queries.

Launched in 2022, Perplexity is based on OpenAI's GPT-3.5 model and a standalone LLM with NLP capabilities for its free product. Pro version accesses GPT-4, Claude 2, and others. If you don't understand this answer, try asking Perplexity to clarify it.

Click the link to try Perplexity for yourself.

My next post will s demonstrate Perplexity in action.

Advice for a friend approaching retirement

I have a good friend who has just retired. He puzzles over what he should do now with his investment savings. He is no longer saving for retirement but he IS retired. The day that will never arrive has arrived.

My friend worked all his life. He will be collecting a tidy monthly sum from CPP. His wife didn't work as long as he did but she too will collect CPP but a lot less and some years in the future. She is a few years his junior.

Of course, they both will collect OAS. She will have to wait a few years before her cheques begin arriving but she will be 65 sooner rather than later. Time passes quickly.

My friend also has an excellent pension. This will be the main source of retirement income as his wife, if she has a company pension at all, will have much smaller pension than her husband. 

In the short term, my friends will be fine. They will be able to live with their reduced income until all sources of retirement income mature. At the point that they are both receiving CPP and OAS plus hubby's pension, they will have more than enough money to live very nicely.

The thing is, they both have retirement savings plans. What to do with these six figure accounts? This is not as easy a question to answer as one may think. I'd suggest they have at least three options:

Cash out the accounts, take the money and run. This is not possible if an account is a locked-in-plan of some kind. And, at any rate, this is not a good idea. Forget it. Never squander retirement savings.

Convert RRSPs to RRIFs and locked-in-plans to LIFs and be ready to withdraw annually the amount demanded by the government. The withdrawal increases with each passing year. Google it. In my opinion, there is only one place to put the money: equities. Equities increase in value in step with inflation and with any luck will increase in value quicker than inflation erodes that value.

How does one invest in equities? 

Set up a self-directed investment account with your bank, if possible. TD, Royal, Scotia, CIBC and others all offer this service. There are only three investments with which I concern myself:

• Money market funds. These are paying something in the order of 4.3% today with no risk to capital.
  
• Direct equity ownership. The big rule here is "diversify". Try to own no less than 20 stocks and no more than 30. Consider weighting your portfolio to stocks paying a good dividend.
  
• ETFs. My fave here is XEQT. This is an entire portfolio in one purchase, one ETF. If one does not need dividend income, XEQT may well be the way to go. Buy, hold and watch it grow in value over the years. XEQT holds no bonds but more than 9000 stocks from markets all around the globe.
  

Stay away from bonds. Do a little research and you will soon agree; for the small investor, bonds are not worth holding. And stay clear of mutual funds. ETFs are a "yes" and mutual funds are a "no". It is that simple. 

I don't have a good pension. I need cash flow. I own two dozen or so good, solid, dividend-paying stocks. The dividends pay the bills. My friend has a good pension. He and his wife do not need the cash flow. If I were him, I'd simply buy XEQT and let the units sit and grow in value. I might spend the small dividend income as "mad" money.