Gyroscopic Investing

I know there are quite a lot of Canadians on this forum so wanted to see the reaction to the following article:

http://www.theglobeandmail.com/globe-in ... le2393049/

I know that Gosso (correct me if I'm wrong) puts 5% in XWD (global stock index) with 20% in XIC.

The backtesting shows that there will be periods when the TSX beats the S&P and vice-versa. The question that I'm asking is do I act on this or stick to my original Canadian PP allocation and do any changes in a VP?

When setting up my Canadian PP I thought about mimicking my former stock allocation of 40% Canadian, 30% US, 20% International, and 10% Emerging Markets, but decided that that was confusing things too much for a 4x25 PP, so just went 100% Canadian. Perhaps making it 80% Canadian 20% World will smooth out the volatility a bit?

NewPPer wrote: I know there are quite a lot of Canadians on this forum so wanted to see the reaction to the following article:

http://www.theglobeandmail.com/globe-in ... le2393049/

I know that Gosso (correct me if I'm wrong) puts 5% in XWD (global stock index) with 20% in XIC.

The backtesting shows that there will be periods when the TSX beats the S&P and vice-versa. The question that I'm asking is do I act on this or stick to my original Canadian PP allocation and do any changes in a VP?

When setting up my Canadian PP I thought about mimicking my former stock allocation of 40% Canadian, 30% US, 20% International, and 10% Emerging Markets, but decided that that was confusing things too much for a 4x25 PP, so just went 100% Canadian. Perhaps making it 80% Canadian 20% World will smooth out the volatility a bit?

That article could be right.  If commodity prices fall, then so will the TSX.  This will also cause the CAD to decline which will cause gold to increase in CAD.  Canadian Long Bonds will also increase, because CAD's will be looking for a nice safe home until commodity prices recover.  Another thing that will happen with a weaker CAD is US/International businesses will want to setup shop in Canada, plus all of our exports will receive higher valued currencies.  And another thing, if gold is falling in price then that means interest rates have increased substantially, or good times have returned.  There are so many moving parts that I try not to think about it.  It is not as simple as commodity prices = TSX.

I would love to see what the TSX 60 looked like back in the 90's, I'd bet it was overweight in technology companies -- Nortel comprised 33% of the TSX in 2000.  That is why I prefer XIC since it has 10% cap on a companies weighting.

So you have to ask yourself, "Does the TSX represent the prosperity of the Canadian economy?"  My answer is yes.  Whether our economy is doing well (or poorly) from high commodity prices, a weak dollar, or whiskey exports.

As for adding US/International equities, well, I'd look at it from the standpoint of simply holding foreign currency, since most stock markets are fairly correlated especially during crisis mode.  In some ways holding XWD is like holding 50% gold / 50% stocks, because of the diversification of foreign currency.  Personally I like to have 65% CAD, 25% Gold, 10% USD/foreign, although backtesting shows you can go as high as 50/50 if you really wanted to.  Check out the 50/50 Option thread for backtesting info.

Ultimately I'd recommend you do whatever helps you sleep better, since as long as you stay within the general rules of the PermPort then you cannot hurt yourself too badly.  The back-testing shows the Canadian PermPort works, and Canada has seen some pretty crazy stuff.

Or to make things really simple, keep the Canadian PP pure, and add a VP with foreign stocks and bonds.  Maybe add new contributions to the VP until you meet your target.

I like to blend mine, which is not orthodox.  I'm such a rebel.  :D