Unlocking the Complexity: How AI Legalese Decoder Can Streamline Asset Allocation ETF Transitions
- May 7, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Transitioning from XEQT to XGRO: Planning Ahead for a Less Risky Portfolio
Hello,
My wife and I have carefully allocated all our investments into XEQT for long-term growth, considering our relatively young age and high risk tolerance. However, as retirement looms closer, we are starting to question the level of risk in our portfolio.
Traditionally, as individuals progress towards retirement, it is advisable to shift towards a less risky investment strategy. This often involves transitioning from high-risk assets like equities to more balanced portfolios such as XGRO and eventually to XBAL.
One concern that arises is the process of transitioning from one ETF to another. It seems counterintuitive to sell high-risk assets to purchase lower risk ones. This raises the question of timing and strategy in making such transitions.
### How AI Legalese Decoder Can Help
The AI Legalese Decoder can assist in analyzing and simplifying complex investment strategies and legal documents. By using advanced algorithms, it can provide insights into the best timing and approach for transitioning your investments. This tool can help you make informed decisions regarding the shift from XEQT to XGRO, ensuring a smoother transition towards a less risky portfolio as you approach retirement.
Thank you.
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> But I know that as you draw closer to retirement that you should your portfolio should be less risky.
At any age or stage your asset allocation should align with your risk profile.
A good risk assessment considers timeframe, knowledge, experience and tolerance for volatility. The way we looked at it our knowledge, experience and tolerance for volatility did not decrease over the years. And, since money invested at age 35 could be spent at age 65 and money invested at age 60 could be spent at age 90, neither did our timeline.
>My wife and I have put all our investment into XEQT for long term growth as we are relatively young so we can take the risk.
Though some people tell young investors that they don’t need fixed income others (like Justin Bender, Dan Bortolotti and Andrew Hallam) who have observed how novice investors react to the markets are a lot more cautious about that kind of advice. They know that a good risk assessment balances timeframe with knowledge, experience and perceived tolerance for volatility. (And that risk tolerance may increase as you get older.) To help you choose a risk appropriate asset allocation ETF I suggest that you read the following pages.
https://web.archive.org/web/20220524023411/https://assetbuilder.com/knowledge-center/articles/what-percentage-should-you-have-in-stocks-and-bonds
https://www.moneysense.ca/columns/ask-moneysense/should-you-put-all-of-your-investments-in-equity-etfs/
https://web.archive.org/web/20220512201940/https://assetbuilder.com/knowledge-center/articles/why-100-percent-stocks-might-earn-you-less-long-term
https://www.canadianportfoliomanagerblog.com/how-to-choose-your-asset-allocation-etf/
In your RRSP/TFSA you can just buy one and sell the other at relatively low cost and risk. There are no cap gains to worry about.
If you have a taxable component you may not want to realize capital gains. In that scenario you may want to buy XBAL to overweight your bond portion in your RRSP /tfsa while leaving the Xeqt in your taxable.
Another alternative is to just start buying bonds as you switch to a lower volatility portfolio. So you buy a bond fund like ZAG fund with your annual contributions and you shift your balance a few % per year.
I think the best solution if you want fine control with maximum simplicity is to just stick with XEQT and slowly add in a bond only fund if/when you determine it fits your risk profile via new contributions. I wouldn’t worry too much about rebalancing unless your position becomes way out of line.
There is some recent research on lifecycle asset allocation which suggests keeping a full equity position as you get older and through retirement. As your income and net worth grow, it makes sense to be less risk averse. OAS and CPP provide a strong baseline, and the expected return on equity is likely to outperform bonds even in a unlucky return scenario. There are a lot of competing perspectives on this though, and at the end of the day the best investment plan is the one that makes sense to you and that you can stick with through troubled times.
In registered accounts like tfsa and RRSP you can sell XEQT and buy a different asset allocation etf. In a taxable account it’s not as straightforward since if you sell you’ll trigger a taxable event. So it’s best to start buying a bond etf in a taxable account as you head towards retirement. This would be vab or xsb
As you grow your amount invested I would suggest switching to 4 or 5 different low MER index etfs so you can diversify globally. Then you control the allocation to each type of investment and rebalance once or twice a year. This forces you to buy low and sell high.
We are retired now and are fortunate enough to have enough pension income to pay all expenses so we do not depend on income from investments. Everyone’s risk tolerance and needs are somewhat different. It may make sense to use single fund asset allocation ETFs like XEQT when you are just starting out, but I think it makes sense as assets grown to transition to doing your own allocation. Currently I target:
Cdn Equity Growth XIU – 12%
Cdn Dividend XEI – 15%
Fixed Income TDB8150, GICs – 15%
International Growth XEF – 25%
US Growth VSP – 21%
US High Growth XQQ – 12%
I use a dividend fund instead of bonds. Yes, higher risk, but better long term return.
This is way off the standard recommended for people of our age. The way I look at it is that it is really not our money at risk, but that of our kids! Our TFSAs have grown to north of $300K each with this strategy, so it seems to work reasonably well…