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.

A TD Rep Critiqued My Portfolio: Passed!

I got a call late last week from my neighbourhood TD branch to arrange an interview with one of their experts who would critique my portfolio. I have always said "no thanks" to these invites but not this time. I decided to toughen up and take some criticism.

So, today at 10 a.m. sharp I was sitting in a small office with a TD rep hearing how well I was doing. He liked my all equity portfolio. He understood why I had absolutely no bonds in my portfolio and agreed with my decision. Quelle surprise! 

I explained how I made all the withdrawals from my RIFs and LIFs demanded by the government as withdrawals inkind. Withdrawals above the minimum, the ones that are taxed immediately, I withdraw as cash. He could see my reasoning and as my approach has been working for the past fifteen years or so, why disturb something with a solid history of working. If it ain't broke . . .

We sat and chatted for an hour. I escaped being given a dressing down. He had one suggestion and only one suggestion: I should maximize my effort to reduce the money held in my RIFs and LIFs. Upon the death of my wife and me, the money in these registered accounts will be income for my estate and may face an income tax of something like 53%. He told me to find some ways to pass more money onto my children and pass less onto the government.

I liked this rep and will spend some time with all the info he gave me as I departed.

Bank of Montreal Looking Good

The Bank of Montreal is down $1.59 right now to $119.69. Its dividend is at 5.18%. Its price could drop more. It has sold for much less in the past year.It dropped to a low of $102.67. I own enough BMO but if it got down to $102.67 again, I'd be buying.

If I did not own so much BMO today, I believe I would be adding to my holdings. The last BMO I added was in the $117 range. I have not regretted the purchase. Analysts see the stock going to $130.59 in the coming year.

For a retiree this is a no-brainer. The Bank of Montreal has the longest run of any Canadian bank of never missing a dividend. The run is approaching two centuries. If one is buying BMO for the dividend, for the 5.18%, your dividend is pretty safe, but, of course, there are no 100% guarantees. A $20,000 investment would return a little more than a thousand dollars annually if the stock was purchased today and it is not hard to see a possible gain of $1800 in the coming year.

_____________________________________________________________

The Bank of Montreal closed last Friday a full three dollars lower than the price posted above. BMO is now yielding 5.3%. Nice. I am watching this stock closely. There will come a time when it will be hard not to add a hundred shares to my holdings.

Can ETFs best a high yielding stock portfolio in retirement?

Managing an income portfolio sounds time consuming. It could be but done right, and that means doing the minimum, it just sits essentially untended spitting out dividends. The overall value may go up and down at the whim of the market but as we are not paying all that much attention, the gains and losses go mostly unnoticed.

Over a lifetime of investing, I've invested in mutual funds, ETFs, stocks and bonds. I found mutual funds generally paid out too much in MER charges. Bonds, either purchased outright or bundled into an ETF like XBB, left me unimpressed. ETFs had their strengths, diversity being a big one, and pure stock portfolios delivered excellent yields thanks to the dividends. As you can see, I gravitated to owning individual stocks and ETFs.

Today, I own almost two dozen stocks and three ETFs and there are almost no surprises. I own Emera and Fortis, doesn't every retiree. I own the top six Canadian banks. The bank dividends are safe dividends. The Canadian banks have a history of hundreds of years of uninterrupted dividend payments. I also own pipelines and telcos. All the usual stuff. My portfolio has been more volatile than I like but I can ignore the ups and downs when the dividends continue to pay the bills. My portfolio yields 5% today.

But my mainly stock portfolio may be nearing its end. I have been experimenting with a nine ETF income portfolio with the stocks chosen for their overall excellent historic performance and a yield that is as good as my present stock portfolio. I insist on the yield being generous enough to cover all annual expenses so that one is not forced to sell units in order to live.

The nine ETFs making up the portfolio are:

• CDZ: iShares S&P/TSX Canadian Dividend Aristocrats Index ETF
• RIT: CI Canadian REIT ETF
• VIDY: Vanguard FTSE Developed ex North America High Dividend Yield Index ETF
• ZUT: BMO Equal Weight Utilities Index ETF
• ZWC: BMO CA High Dividend Covered Call ETF
• ZWG: BMO Global High Dividend Covered Call ETF
• ZWH: BMO US High Dividend Covered Call ETF
• XEI:iShares S&P/TSX Composite High Dividend Index ETF
• XSP: iShares Core S&P 500 Index ETF (CAD-Hedged)
  

I'd go into more detail but until I know more about how well this portfolio performs I am going to go light on the details. To work out the percentage of each ETF in the portfolio, I created a spreadsheet. I varied the percentages until I got something that I could live with and that delivered dividend income similar to my stock portfolio.
I have withdrawn $3,666.66 in each of the last two months as I created this portfolio in April with an amount of money equal to my actual portfolio on that day. My nine ETF portfolio has a value today of slightly more than my actual portfolio. In other words, so far this ETF approach is working. I kept about 10% of the portfolio in a cash account paying 4.55% and so it is no surprise that I have not had to sell any investments to raise money for the monthly payments.
There is one other portfolio approach that I am testing using Portfolio Manager and that is putting all my retirement savings in the iShares Portfolio-in-One-ETF: XEQT. I chose XEQT because it invests in about 10,000 stocks worldwide and it does not own any bonds at all. If you prefer a balanced portfolio containing some bonds, there are companion ETFs from iShares that include bonds.
As this is a very new portfolio opened with very little cash, I sold 69 units of XEQT this month in order to withdraw an amount of money equal to the amount  withdrawn monthly from my actual retirement portfolio. Of the three portfolios being tracked, the one that has the most value today is XEQT even after the unit sale.

Why run a portfolio when you can buy XEQT?

My personal portfolio is composed of a number of individual accounts holding a diverse mix of stocks and ETFs. I earn a good income from the dividends and the capital gains keep the overall value of my portfolio increasing. Yet, I cannot help but wonder if I could do as well or better by simply owning the iShares ETF XEQT.

XEQT is an exchange-traded fund (ETF) offering investors a complete portfolio in just one ETF. It is a complete portfolio assuming you don't want to hold any bonds. I don't. XEQT is an all-equity ETF. No bonds.

XEQT holds four iShares ETFs: 

• iShares Core S&P Total U.S. Stock Market ETF for U.S. equity exposure (44.6% weight)
• iShares Core MSCI EAFE IMI Index ETF for international developed markets equity (25.7%)
• iShares Core S&P/TSX Capped Composite Index ETF for Canadian equity (24.9%) 
• iShares Core MSCI Emerging Markets IMI ETF for emerging markets equity (4.8%)

This one ETF holding four ETFs provides a diversified portfolio of around 10,000 stocks representing the U.S., the international developed markets, the Canada market, and lastly the emerging markets. XEQT gives one exposure to the global equity market for a management fee of only 0.20% when last I checked.

XEQT only yields about 1.89% in dividends but it offers very good long-term capital growth. If I had all my money in XEQT I would have to sell some units annually and add that cash to my dividend income to cover my living expenses.

The simplicity and global diversity of XEQT makes it an appealing answer to portfolio management. I have decided to run a test. I have created a test portfolio composed of only XEQT. The test portfolio opened with a value equal to my portfolio at the close yesterday.

Today, as I write this XEQT is ahead by $518.07. This means very little but stay tuned. Getting out of the business of buying and selling stocks maybe possible. 😊 If you prefer Vanguard to iShares, Vanguard offers VEQT. Your choice. And if you insist on having some bonds in your portfolio mix, both iShares and Vanguard offer ETFs with traditionally balanced constructions as well.