Most investors have a diversified portfolio consisting primarily of a mix of shares and bonds.
One investor shared his strategy with the Globe and Mail’s finance columnist, Rob Carrick, the other day. It is worth repeating because it is both simple and smart.
This reader proposes to use two-thirds of his funds to invest in the Vanguard All-Equity ETF (Exchange-Traded Fund) portfolio (VEQT). VEQT holdings are 40 percent American, 30 percent Canadian, and 30 percent from countries outside of North America. The management fee is 0.22 percent.
For the fixed income component of the remaining one-third of his portfolio, the investor selected a five-year GIC, issued by the new online bank called “Motusbank,” with a return of 3.2 percent, which is a pretty good rate right now.
This investor chose GIC’s over a more traditional bond portfolio to avoid negative repercussions from fluctuating bond value. Many investors are not aware that when interest rates go up, the value of bonds decline. When the interest rates go down, bonds appreciate in value.
The GIC avoids this investment risk. To compare, the yields for Bond ETF’s for the entire bond market are currently about 2.1 percent. A GIC rate of 3.2 percent looks pretty good by comparison.
