Balanced Passive Investing

This is the active part of passive investing, balancing (or re-balancing) your investments to fit your investment goals after a while.

Suppose you decide that you are getting older and you want to set up a conservative investment plan for your RRSP, so you decide on the following investment goal splits:

• 40% of the RRSP will be in Bonds, GIC or the like (slow growth, but loss less likely)
• 60% in equities, which you then split into
  • 25% in Canadian Equities  (Canadian Wonder ETF)
  • 25% in U.S. Equities  (U.S. Super ETF)
  • 10% in International Equities  (Worldwide Amazing ETF)

Remember, this is an example; you can set up your passive investing plan however you wish. You would then decide which index funds, ETFs or the like you want to act in your passive investment plan, take the money you have available and buy the equities you have identified to act as your category investments. (I have included wacky fictitious names to help with the example).

Re-Balance

After a while, you will wish to ensure that your investment goals are relatively the same percentage-wise, and that period is your decision.

You could choose:

• Never leave the purchases as is, walk away (now that is passive investing), and take out the funds when needed (I am not espousing this theory; I am simply pointing it out).
• Every Quarter, if you are really into ensuring you aren’t caught out by any market adjustments.
• I usually do the re-balance when you have more funds to invest in the RRSP.

I don’t feel good selling one equity to buy another in this methodology (unless something heinous is going on in the markets which dictate that might be the most prudent thing to do (e.g. ETF CEO ran off with all the funds, etc.)), to ensure the correct balances, so when I have more money to invest, I see where I need to put my money to get my investment goal percentages back to where I planned. Hopefully, that will put things back into balance.

An example would be that Worldwide Amazing ETF has dropped to actually being 6% of your RRSP (due to your other investments doing so well, let’s say), so you need to buy more of this ETF with your extra funds to get your portfolio back into balance, it’s that simple (if you look at the Sleeply Mini Portfolio with the Canadian Capitalist he even gives you a nifty little spreadsheet that you can adapt for these types of calculations).

Time

Over time, your investment goals for where the money should be will likely change (hopefully becoming more conservative). You can change your goals when you have more money to invest, or you can sell your equities to shift the balance.

This is not an original idea of mine; I borrowed it from the Canadian Capitalist and have seen it around in a few investment books as well, but it is one way to manage your investments if you don’t want to be an Active investor (or hyperactive).

I also have the dividends in my funds reinvesting, which helps out, too (i.e., I use the DRiP capabilities of the ETFs and Index funds I hold).

Long-Term Portfolio Articles

• “I’m an indexer. I don’t care what the indexes did today!” a good call from a Financial Media Maven, Preet Banerjee.
• What is Couch Potato Investing? Given the rise of AI, maybe this is the way to go.
• DIY Balanced Funds for Investing you can do that yourself.
• MER : A Worm in the RESP Money Tree low MER index funds or ETF are the answer.
• Investment Risk Profile is another way that Mutual Fund salespeople try to steer you to the funds they want you to purchase.
• A Guide to Understanding the Tax Considerations When Cashing out an RESP an essential factor to consider