Tom Drake
Tom Drake
Age: 31
Occupation: Financial analyst for a major retailer, living in Edmonton
Portfolio: TD U.S. Index e-Series Fund, TD International Index e-Series Fund, RioCan Real Estate Investment Trust, Canadian Real Estate Investment Trust, H&R Real Estate Investment Trust and Boardwalk Real Estate Investment Trust.
Investing history
When he began investing, Mr. Drake followed the advice of his banker. But then he read an article in MoneySense magazine about Couch Potato Portfolios. Its passive, low-cost approach to investing resonated with him - as did a book written by John Bogle on the same approach, The Little Book of Common Sense Investing .
Investment approach
The core of Mr. Drake's portfolio is the TD U.S. Index e-Series Fund and TD International Index e-Series Fund (currency neutral). These two index funds are available online from TD Canada Trust and are among the least expensive within the Canadian mutual fund universe, charging annual management expense ratios (MER) under 0.5 per cent.
He holds them on an equal-weighted basis in a registered retirement savings plan and intends to keep building his positions over time. Within five years, he will add the TD Canadian Bond Index e-Series Fund to the portfolio and increase its percentage allocation as retirement approaches.
For purposes of diversification, he has invested in four real estate investment trusts (REITs). They are the top four holdings in the iShares Canadian REIT Sector Index Fund, comprising 60 per cent of its basket. This allows him to effectively track the sector yet avoid the 0.55-per-cent MER charged annually by the exchange-traded fund.
He plans soon to raise his exposure to stocks through the Smith Manoeuvre. This involves borrowing against the equity in his house as it becomes available through a home equity line of credit or facsimile. The borrowed funds will be used to buy stocks with ample and growing dividends.
Best move
His best move was using the Home Buyer's Plan to withdraw almost all the money from the mutual fund that was in his RRSP. "When I did this, I was concerned about … missing future gains," he says. "However … it was done in the fall of 2007, at the peak price for this fund. Now I'll repay the HBP and buy more of the TD e-series funds into a more affordable market. I got lucky with this one."
Worst move
"Not investing sooner, due to lack of knowledge in investing at the time."
Advice
Mr. Drake offers many tips on saving, investing and tax reduction in his blog The Canadian Finance Blog. He emphasizes making regular investments in low-cost index funds. "After fees, the majority of mutual funds can't beat the market, so why not invest in the entire market and come out ahead through lower fees?" he explains. "Then once a year, rebalance back to the original asset allocation. This forces you to buy low and sell high."
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