Consider subscribing to my newsletter if you’d like to receive my easy-to-use Expense and Net Worth Tracker spreadsheet. I use it every month!

Spring Is In The Air

After many months of miserable weather in “Raincouver”, it has finally started to look like spring. In fact, as I’m writing this, this week is shaping up to reach almost 30 degrees Celcius. This is a huge improvement over last year, where it rained and was cloudy well into June.

Now, that bodes well for my personal life—I’m excited to go eat out with friends and do some hiking—but it doesn’t bode to well for AnotherLoonie. Just seeing that forecast makes me a little worried about my New Year’s resolution to post every week. Let’s see how I manage, shall we!

Savings & Expenses

April was another great month for us savings-wise. The topline number is that we saved 50% of our net income. This is well above our 40% annual savings rate that I reported over the past two years—wohoo!

Best of all that excludes our huge tax refund. That’s right, we were happy to get our taxes submitted before the strike and received a $12,600 refund.

Most of this refund is from our RRSP contributions, with about $1,200 is from the interest deduction from my investment loans. I expect we’ll get an even larger refund next year if we manage to meet our RRSP contribution goals.

What helped us achieve this 50% savings rate is that we didn’t spend too much money in April. Dining out and coffee was a little elevated, but most other areas were under control.

And we didn’t have any huge, abnormal expenses last month. The only thing that came close was the $387 we spent on hobbies and activities and the $324 we spent on travel. Both of these categories were a mishmash of things, all towards future travel and fun activities.

Investments & Dividends

Last month we received $503 in dividends. That’s a 41% increase compared to April of 2022.

May is usually a very low dividend-earning month for us, so I’m not expecting much. If anything, we’ll get around $50 to $100—or maybe less if our dividends somehow show up late.

In either case, I’m really excited for June and July. Both months could potentially cross the $1,000 barrier, which I’d be very happy about.

Net Worth Change

In April, our net worth increased to $800,500, up from $770,500 in the previous month. That’s an increase of $30,000—in just one month! That makes April the best month of the year for us so far, even better to the $25,000 gain we saw in January.

Here’s where the increase came from:

• $1,400 in home equity pay-down
• $1,200 in mandatory pension contributions
• $18,000 in savings of income and tax refunds
• $9,500 in investment gains

That means we’ve increased our net worth by $79,600 so far in 2023. If we keep up this trend, we could grow our net worth by over $160,000 in 2023!

However, I really doubt that will happen. We have some big expenses coming up—like our property tax bill—which will weigh on our ability to save. Not to mention all the activities we have planned for this summer.

The stock market has also done really well so far in 2023, and so I think the later-half of the year could be more muted.

In either case, I’m happy to see how we’ve done so far this year. Let’s see what May has to offer!

Thanks for Reading

I recently updated a few articles that you may be interested in. This includes my post on how investment loans are costing me $500 each month and my Q1 New Year’s resolutions update. Consider giving those a read if you think they’ll help you on your financial journey!

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post Net Worth Update: April 2023 appeared first on Another Loonie.

If you missed it, feel free to check out my last edition of monthly reads.

In this edition, I share my favourite TED Talk, a dividend update from one of my favourite bloggers, and an analysis of Canada’s real estate market. I hope you enjoy!

Mr. Money Mustache’s TED Talk

This TED talk from Mr. Money Mustache (Pete Adeney) is over 5 years old now, but the wisdom shared is just as relevant now as it was back then.

For those of you unfamiliar with Mr. Money Mustache, he’s had a huge influence on the FIRE (financial independence retire early) movement. His post on The Shockingly Simple Math Behind Early Retirement was a revelation for many. And since then, he has inspired so many people to get started on the path towards FIRE.

In this TED talk, Mr. Money Mustache uses humour and his own experiences to explain FIRE to a group who are mostly familiar with the topic. The result is quite fantastic, and serves as a great tool to introduce FIRE-curious people to what the movement is really about.

Rommel’s Massive TFSA Income

Another great blogger I enjoy is Rommel over at My Prudent Life. He’s a nurse located here, in Canada, but has lived and worked all over the world—the Philippines, Saudi Arabia, and England.

He’s been blogging as a hobby for a few years now and loves sharing how his dividend income has grown. In his latest update, he shared some astounding numbers. So far this year, he’s averaged over 20% year-over-year dividend growth in his and his wife’s TFSA portfolio.

That puts him on track to earn $11,500 in dividends in 2023—wow!

What I enjoy most about My Prudent Life is that it’s a great example of another Canadian who’s leveraging the power of dividends to help them reach financial independence. I highly recommend checking out his portfolio if you’re interested in dividends or looking to become a dividend growth investor.

Sticky Real Estate Prices

I’ve shared Liquid’s content a few times on my blog so far. I think the first time was in my December 2021 net worth update, when he compiled a list of insights from other investors in the personal finance blog community.

More recently, I really enjoyed his analysis of Canada’s real estate market. As you may know, Canada’s real estate prices are down between 13 and 15% over the past year (depending on how you measure). And many of us are just waiting for the next shoe to drop—I know I am!

But in Liquid’s recent post, he shares his theory for why Canada’s real estate prices haven’t fallen as much as people expected. He also created a great Youtube video diving deep into the topic:

I think Liquid is right on the money with his analysis. It’s a story about inventory, insane rents, and an overall strong job market that’s kept real estate afloat. If you want to get the full picture, I recommend checking out his video.

Thanks for Reading!

I hope you enjoyed this little look back at my favourite reads for the month of April. Was there anything great I missed? Any new blogs I should be following or YouTube channels to subscribe to? I’m always looking for recommendations, so don’t hesitate to drop them in the comments below.

As always, consider subscribing to the AnotherLoonie newsletter if you’d like to get a monthly email with my latest posts. And if you have any personal finance-related questions, submit them to me using this link.

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post Monthly Reads: Back to Basics and Sticky Real Estate appeared first on Another Loonie.

• Fall Portfolio Deep Dive for 2022
• Portfolio Deep Dirve – My Top 30 Stocks

Our Investment Strategy

In my last portfolio deep dive, I summarized our investing strategy as follows:

My wife and I both prefer to invest using ETFs. For us, ETF investing provides inexpensive, low-cost diversification and market-average returns. Also, with ETF investing, it’s just so much easier to get invested, manage your accounts, and stay invested.

Why is it easier to stay invested? Well, that’s because ETF investing is boring.

Since we don’t hold individual stocks, we never check the news looking for anything that could impact our investments. We don’t research company fundamentals, and we don’t stress about business models our future outlooks. And except when making a purchase (or writing a blog post), we essentially never check how our holdings are doing.

Instead, we allocate that mental and emotional bandwidth to other areas of our life, which has served us well.

This summary certainly still rings true today. By keeping things on “autopilot” as much as possible, we’ve been able to focus on other areas of life that bring us more happiness or are simply more productive uses of time.

With that said, let’s dive in and review each of our investment accounts!

My TFSA

In 2021, I set a goal to maximize my wife and I’s TFSA accounts which we finally achieved in October of last year. Here’s what it took to achieve that goal. Note that I started 2020 with only $3,500 in my TFSA.

As you can see, I made consistent contributions to my TFSA for quite a long time—even before I started AnotherLoonie in June of 2021. Each month I tried to contribute $2,000. And in other months, I was able to take advantage of extra income I received, tax refunds, or excess savings to maximize it even quicker.

For this whole period, my TFSA holdings have been the same. I hold four tickers in my TFSA, including VCN, VIU, VEE and VUN. These are my “core four” and give me inexpensive diversification across the globe.

My RRSP

When starting AnotherLoonie I had $12,400 in my RRSP. Previously I had more, but I liquidated much of my RRSP to come up with the downpayment on our home.

Since I was focused on our TFSAs through 2021 and during most of 2022, I hadn’t contributed to my RRSP with any consistency. That has changed recently, with my current investing goal being to maximize my RRSP in 2023.

In my RRSP, I try to follow my “core four” portfolio, which includes VCN, VIU, VEE and VUN. The only difference is that I have some VTI that I purchased back when I had some excess USD sitting in my bank account.

I don’t plan on buying any more VTI in the near future. It’s too much of a hassle to convert from CAD to USD to make a purchase. Instead, I like to buy VUN more consistently and in smaller amounts that make converting to USD less worth it.

Wife’s TFSA

My wife started 2021 with quite a bit more money in her TFSA (about $17,000) thanks to having some leftover cash after buying our house. Since then, she’s been a consistent contributor and maximized it at the same time I maximized my TFSA last year.

At first, it was tough to get my wife excited about investing and saving for retirement. To help spark her interest, I encouraged her to pick some ETFs she was interested in. She ended up finding two great dividend ETFs that pay her monthly dividends: the iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV) and the iShares Core MSCI Global Quality Dividend Index ETF (XDG).

Since then, she has added VCN (one of my “core four”) and XAW (the iShares Core MSCI All Country World ex Canada Index ETF) for some added diversification. Although there’s some duplication with these ETFs, she’s happy with her portfolio, and the sizable dividends she receives keeps her excited to invest.

Wife’s RRSP

My wife only opened an RRSP recently. After I received an unanticipated windfall last year, it made sense for her to open an RRSP so we could deploy some of our cash and receive a larger tax refund. Since then, she has made some modest contributions to this account.

In 2023 she doesn’t plan on contributing very much to her RRSP. Instead, she might help me maximize my RRSP by covering more of our household expenses or mortgage with her income.

Unlike our other registered accounts, her RRSP portfolio is very simple. She only holds XEQT (the iShares Core Equity ETF Portfolio). Currently, she has $25,300 in XEQT and is quite happy with its quarterly dividend.

Margin Account

Each of the above big contributions were composed of $5,000 in Tangerine LOC debt and $3,500 in margin debt. As of today, I hold $40,900 in VEQT and no other assets in this account. And yes, that means I’m down about $3,400 in this account (excluding dividends).

Each of the above big contributions were composed of $5,000 in Tangerine LOC debt, and $3,500 in margin debt. As of today, I hold $40,900 in VEQT and no other assets in this account.

I don’t plan on contributing any more to this account until after my RRSP is maximized. And even then, I may prioritize my Smith Maneuver account and paying down my mortgage over taking on more margin debt.

Smith Maneuver Account

I started this other account at Interactive Brokers after receiving a large home equity line of credit last spring. Like my margin account, I planned to purchase VEQT using debt—this time, financed by my new HELOC.

My sole investment in this account is VEQT which is worth $64,700.

As you may know, my leveraged investing strategy hasn’t been all sunshine and roses. Recently I shared how my investment loans were costing me more than $500 per month.

Overall Portfolio

I shared the details of my portfolio assets and debt in my recent year-end review. But in brief, as of my March net worth update, we hold $422,200 in ETF investments. $320,300 of these investments are owned outright, with the remaining $101,900 financed by investment loans.

In reviewing our total portfolio allocations, we are pretty close to VEQT, which holds 30% Canadian, 41% U.S., 21% international developed, and 8% in emerging markets assets.

Where we diverge is in our Canadian holdings. I’ve always thought investing 30% of your portfolio in Canada was too much, given we’re such a small economy and we only have a few major industries. So instead, we target around 20% Canadian and invest the leftovers in U.S., international developed, and emerging markets.

Looking ahead, I’ll try to keep these allocations consistent as we continue to make more contributions to our portfolio. I check my balance every time I contribute and purchase ETFs accordingly.

Thanks for Reading!

Thank you for checking out my latest portfolio deep dive. I hope you found this very interesting and can compare our strategy with your own. Do let me know what you think about our ETF investing strategy in the comments below.

I recently wrote a few articles that you may be interested in. This includes my guide comparing the TFSA to RRSP and my choice for the best dividend ETF in Canada. Consider giving those a read if you think they’ll help you on your financial journey!

As always, please consider following me on social media or signing up for my newsletter if you’d like to be notified periodically (less than once per month) with a list of my recent articles.

The post Spring Portfolio Deep Dive (2023) appeared first on Another Loonie.

What are Bonds?

You may have heard the term bond before but never fully understood it. Essentially, bonds are debt securities issued by governments or businesses when they want to raise money. When people talk about “government debt,” for example, they are usually talking about bonds issued by the government to fund the services it provides.

Investors can purchase bonds, typically on the secondary market, and receive income in the form of coupons. These coupons are agreed to by the issuer of the bond and can be close to 1% for low-risk bonds like those issued by governments and upwards of 10% or more for high-risk bonds issued by struggling corporations.

Bonds are priced based on the credit rating of the issuer and reflect prevailing interest rates. Rising rates tend to reduce the price of bonds, while falling interest rates will increase the price of bonds. In today’s environment, where rates are at multi-decade highs, bond issuers need to offer higher interests rate to ensure their bond is attractive to investors.

What Are Bond ETFs?

Bond ETFs are exchange-traded funds issued by companies like Vanguard, Blackrock, and many others, that purchase many different types of bonds. Investors can then buy shares in the bond ETF and receive their share of coupons paid by the underlying bonds that the fund holds.

Bond ETF Pros

Bond ETFs in Canada make it easy to earn income from a diversified portfolio of bonds. Purchasing a bond ETF is also much less expensive than selecting individual bonds for purchase. That’s because individual bonds have much larger trading spreads than common stock.

Canadian Bond ETFs also often have very low management expense ratios. This is especially true for large bond ETFs that follow a broad-market index. Bond ETFs with higher MERs tend to be actively managed or follow niche indexes or strategies.

Bond ETF Cons

The main downside of investing in a bond ETF is that the fund can experience large fluctuations in price. A good example is the past few years, where rising interest rates drastically reduced bond prices, causing bond ETFs to fall in price.

Technically, individual bonds you purchase would also experience these price swings, but you could always hold bonds to maturity to avoid realizing a loss.

Should You Invest in a Bond ETF?

For a long time, the 60/40 portfolio was the standard investment portfolio recommended to Canadians. It was a portfolio of 60% common stock and 40% bonds. This provided adequate growth while also helping to reduce year-over-year volatility.

These days, most people agree that young Canadians can invest less of their money into bonds or bond ETFs. But as you get older and closer to retirement, bond ETFs start to make a lot more sense.

At the end of the day, whether you should invest in bond ETFs is a question of risk. For conservative investors, both young and old, bond ETFs could be an excellent choice to weather market volatility while also earning income from their portfolios.

The Best Bond ETFs in Canada

Canada’s best bond ETFs each have a combination of medium to high yield, low management expense ratios, and excellent credit quality. In this list, I share my top 5 Canadian bond ETFs. Each of these funds are traded on the Toronto Stock Exchange and invests primarily in Canadian bonds.

HBB ETF Review

The first Canadian bond ETF to consider is the Horizons Canadian Select Universe Bond ETF (HBB). Established in 2014, HBB seeks to replicate the Solactive Canadian Select Universe Bond Index.

HBB invests in Canadian bonds with a minimum credit rating of BBB and primarily invests in high-quality AAA, AA or A bonds. It boasts a distribution yield of 2.54% and an MER of just 0.10%.

What’s unique about HBB is that it uses a total return swap contract to track the performance of its index. This has some advantages, such as HBB does not distribute taxable income to its unit holders. This can be advantageous for investors holding HBB in a taxable account. However, it does incur a 0.15% fee to execute this swap strategy, which can reduce the overall return of the fund.

VAB ETF Review

One of the most popular Canadian bond ETFs is the Vanguard Canadian Aggregate Bond Index ETF (VAB). This fund was started in 2011 and has attracted nearly $4 billion in assets.

Vanguard’s VAB seeks to track the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index. This means it uses a passive strategy to invest in investment-grade bonds from across Canada.

What’s made VAB so popular is its combination of low MER, reasonably high yield, and excellent credit quality. Like other Vanguard funds, VAB is always trying to reduce its expense, and because of that, it boasts an MER of just 0.09%—tied for the lowest on this list. Its distribution yield is also excellent for a diversified bond fund at 3.55%.

XBB ETF Review

The first bond ETF from iShares on this list is the iShares Core Canadian Universe Bond Index ETF (XBB). XBB has been around for 1 year longer than VAB and coincidentally has more assets at over $4,780 million.

XBB has a low management expense ratio of just 0.10% and has a very high credit quality, investing 39% of its assets in AAA-rated bonds.

However, XBB loses marks for distribution yield. Today XBB yields only 3.01%, making it middle-of-the-pack compared to other popular Canadian bond ETFs. Like BMO’s Aggregate Bond Index ETF (ZAG), XBB seeks to replicate the FTSE Canada Universe Bond Index.

XSB ETF Review

The iShares Core Canadian Short Term Bond Index ETF (XSB) is another excellent choice for the best Canadian bond ETF. It tracks the FTSE Canada Short Term Overall Bond Index, which means it primarily invests in short-duration bonds. Overall, its average maturity is just 3 years.

This strategy has some upsides. Mainly the bond ETF lost a lot less value than its peers. In 2022 while other ETFs lost over 10%, XSB lost only 4%. That’s because bonds with a short maturity lose less value than bonds with a long maturity when interest rates rise.

The main downside for XSB is that because it has such a short maturity, it pays a low yield at just 2.48%. However, this has to be weighed against its overall strategy. In a rising rate environment, XSB will likely outperform bond ETFs that have longer maturities.

ZAG ETF Review

The BMO Aggregate Bond Index ETF (ZAG) is a top contender for the best Canadian bond ETF. It also has the largest assets under management at $6,279 million.

The Bank of Montreal’s ZAG has a high dividend yield of 3.56% and a low MER of 0.09%. That gives it both the highest distribution yield and lowest MER on this list.

It also has an excellent credit rating, having 89% of its assets invested in bonds with a rating of A or better. Its largest issuer is the federal government at 37% of assets, followed by Canada’s provincial governments at 34%.

Comparing the Best Bond ETFs in Canada

Canadian Bond ETF Fundamentals

Each of the best Canadian bond ETFs have an MER of around 0.10%. They also pay monthly distributions, making them ideal investments for those looking for cash flow.

The main difference between these bond ETFs is their yield. XSB has the lowest yield due to its short-term focus. You can see that its average maturity is just 3 years, while the other best bond ETFs in Canada have a maturity of around 7 years or more. XBB’s yield is probably the most disappointing, given it has an average maturity of 10 years.

Canadian Bond ETF Performance

Each bond ETF has performed poorly in the rising rate environment that took place in 2022 and that may continue this year in 2023. HBB was the worst performer, but only by a hair. That’s a good sign that its swap-based strategy is doing a good job replicating its index.

XSB has benefited from its short-term focus over the past two years, losing just 4.1% and 1.0%, respectively. However, in a falling interest rate environment, expect HBB, VAB, SBB and XAG to overperform due to their large portfolios of longer-maturity bonds.

Canadian Bond ETF Issuer

Each of the best bond ETFs in Canada primarily invests in federal and provincial bonds. XSB is the largest investor in federal bonds out of the five ETFs, with VAB having the most corporate bonds under management.

Canadian Bond ETF Credit Quality

Each bond ETF received full marks for credit quality. Each fund holds mostly AAA, AA or A-rated bonds, with only 10% or less allocated to BBB-rated bonds.

Canadian Bond ETF Maturity

VAB, XBB, and ZAG all have a similar distribution of bond maturity. Most of their bonds mature within the next 5 years, while equal amounts of bonds are due to mature within 10 years and subsequently within 30 years.

XSB stands out for having by far the lowest maturity. 99.5% of its bonds mature within 5 years. Breaking that down further, we can see that 29% of its bonds mature within 2 years, a further 28.6% mature within 3 years, and a further 42% mature within 5 years.

Common Canadian Bond ETF Comparisons

VAB vs ZAG

VAB vs ZAG is a tough decision. Both funds are excellent choices for the best Canadian bond ETF. Both VAB and ZAG share an MER of 0.09%, making them competitive on cost. They also both have a distribution yield of around 3.55%. These attributes have helped them attract over $10 billion in assets.

Over the past 5 years, their performance has been nearly identical, so the deciding factor probably comes down to personal preference. Investors already holding Vanguard ETFs will likely choose VAB for their Canadian bond ETF. While investors with an existing relationship with BMO will select BMO.

XBB vs XSB

XBB vs XSB comes down to whether you want a shorter or longer maturity fund. Like the other best bond ETFs in Canada, XBB has a maturity of 10 years. Contrast this with XSB, which has a maturity of just 3 years. If you want a lower-risk portfolio or expect rates to rise even more in 2023, XSB may be the better choice.

However, if you want an ETF that’s diversified into longer maturity bonds and want a higher distribution yield, XBB is the superior choice.

HBB vs VAB

When comparing HBB vs VAB, it’s clear that both ETFs have some attractive qualities. If you’re looking for a standard bond ETF that is low-cost and pays good income, VAB is the superior choice. But if you’re an investor looking to purchase their ETF in a taxable account, HBB may be more advantageous. That’s because HBB does not pay any taxable income. And since income from bonds is taxed as regular income, that can make HBB much more attractive in a taxable account.

Choosing the Best Canadian Bond ETF

Each of the best bond ETFs in Canada are competitive on price, having management expense ratios of around 0.10%. They are also both competitive on credit quality, with each fund primarily investing in government-issued bonds with ratings of A or higher.

The deciding factor may come down to the overall strategy of the bond ETF. For Canadians looking for a shorter-term bond ETF, iShares Core Canadian Short Term Bond Index ETF is the clear winner. It’s inexpensive, has an adequate distribution yield, and has an average maturity of just 3 years.

Of all the longer-maturity funds, the best Canadian bond ETF is VAB or ZAG. Both funds have comparable management expense ratios, distribution yields, credit quality, and average maturity. They even have almost identical performance over the past 5 years. Any investor looking for a Canadian bond ETF would do well in either of these two popular ETFs.

Thanks for Reading!

I hope you enjoyed my analysis of the best Canadian bond ETF. If you’re interested in learning about other great ETFs, check out my review of the best preferred share ETFs, the best dividend ETFs, and the best REIT ETFs for Canadians.

The post The Best Canadian Bond ETF (2023) appeared first on Another Loonie.

Consider subscribing to my newsletter if you’d like to receive my easy-to-use Expense and Net Worth Tracker spreadsheet. I use it every month!

TFSA Maxed!

In 2023 the TFSA limit increased by a generous $6,500—thanks to elevated inflation over the past two years. And as of last month, I was able to contribute $6,500, maximizing my TFSA again after originally maximizing it back in October of last year.

It took just two contributions: $3,000 in February and $3,500 in March. And now that it’s maxed, I don’t need to think about it for the rest of 2023, and can focus on maximizing my RRSP instead.

Savings & Expenses

What helped was that March was three paycheque month for both my wife and I. This means we earned a lot more than a regular month—about 50% more, in fact. This helped us save 64% of our net income in March.

Having such a great month also pushed our annual savings rate to dramatic new highs. We’re now hovering around an annual savings rate of 45% for 2023! That’s even higher than the 40% savings rate we achieved last year.

Other than receiving 3 paycheques each in March, what helped is that it was a relatively modest spending month for us. Every category was about average except for a few exceptions.

Dining out, for example, was the highest it’s been in quite some time. I attribute that to some nice weather we got that made visiting and eating out downtown worthwhile.

Health spending was quite high at over $800, but we will get some of that money back as our medical insurance claims are processed. In the end, it should be reduced to around $500.

Overall, modest spending and extra paycheques made March a great month to save and invest.

Investments & Dividends

Last month I estimated we could receive close to $499 in dividends, and I was pretty accurate in that statement. In total, we received $479 thanks to our monthly dividend ETFs (XDIV and XDG) as well as some of our quarterly ETFs paying out (like XAW and VEE).

That means we’ve earned a total of $2,448 in dividends so far this year. Compared to this time last year, that’s an increase of 74%!

If I project this increase onto our 2022 numbers, I estimate we could earn over $8,000 in dividends in 2023—that’s over $600 per month on average. Now that would be an accomplishment.

Net Worth Change

In March, our net worth increased to $770,500, up from $752,600 in the previous month. That’s an increase of $17,900—in just one month!

Here’s where the increase came from:

• $1,400 in home equity pay-down
• $1,200 in mandatory pension contributions
• $11,100 in savings of income
• $4,200 in investment gains

That means we’ve increased our net worth by $49,600 so far in 2023. And while this month was mostly carried by saving our income, about $22,000 of that increase has come from our investments starting to recover lately.

It’s tough to say where we’ll end up by the end of the year. But I’m excited to see we’re crossing into $800,000 net worth territory (hopefully) very soon.

Thanks for Reading

I recently updated a few articles that you may be interested in. This includes my post on how investment loans are costing me $500 each month and my Q1 New Year’s resolutions update. Consider giving those a read if you think they’ll help you on your financial journey!

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post Net Worth Update: March 2023 – TFSAs Full! appeared first on Another Loonie.

This continues a habit I started in 2021, where I shared my New Year’s resolutions with you, my readers, as a commitment device to help me achieve them.

In 2023 I made 6 New Year’s resolutions, and now that we’re just about done with the first quarter of 2023, it’s time for me to update you on my progress!

If you’d like to check out my previous New Year’s resolutions, find them at the following links:

• My 2021 New Year’s Resolutions
• My 2022 New Year’s Resolutions
• My 2023 New Year’s Resolutions

Blog Goals

Unlike last year, I hope to be much more engaged on my blog in 2023. To help me achieve that, I defined two New Year’s resolutions that I’ve been working towards.

Publish a Blog Post Every Monday (Succeeding)

This New Year’s resolution is probably my most challenging. It’s so difficult to write enough quality blog posts to post every week. But surprisingly, so far at least, I’ve been achieving this goal.

In total, I’ve already posted 12 times in 2023. And on top of this, I’ve written around a half dozen blog posts to use later this year—on weekends when I’m travelling or too busy to contribute to my blog.

What’s helped me is to just write something every couple of days—even if I’m not sure what to write or if I don’t think it’ll be very good. It’s also helped me to have less of a focus on SEO-optimized blog posts. These are posts that take a lot of time and research and are too challenging to write every week.

I give myself a “Succeeding” for this resolution. Yay! Now I just need to keep it up.

Interact More With My Readers (Needs Improvement)

The second New Year’s resolution is to interact more with my readers.

I made a few moves towards achieving this goal. For one thing, I added a new “Ask Me Anything” button that readers can use to submit their questions.

However, I have only gotten a few questions so far. I think I haven’t done a good enough job advertising this button or encouraging people to submit their questions.

What’s worse is that although I’ve been answering peoples’ questions via email, I have yet to convert any of these into posts I can publish on my blog. I need to focus more on this in Q2 this year.

I give myself a “Needs improvement” for this resolution.

Financial

Maximize My RRSP (Succeeding)

My big financial goal last year was to maximize my wife’s and my TFSAs. And now that goal is complete, my new goal is to maximize my RRSP.

And so far, I’ve made a lot of progress toward maximizing this account. In 2023 I have made two contributions of $600, one contribution of $8,000 and another contribution of $10,000.

Although I don’t have the exact numbers from the CRA, I can do a rough calculation of how much RRSP room I have left. Here are the numbers:

• Contribution room for 2022 = $40,800
• Contributions since March 2022 = $36,500
• New space for 2023 = $22,000

That means I have approximately $26,300 in RRSP room remaining before I maximize this account.

With all my progress, I’ll give myself a “Succeeding” for this resolution. If I continue saving, I should have this account maxed before the end of 2023!

Personal

Live in the now (Succeeding)

This New Year’s resolution was especially important to me. Basically, my goal is to focus more money, time and energy on creating memories with family and friends. To “Live in the now,” so to speak.

So far I’ve made a lot of progress toward this goal. In my January net worth update, I shared that I went on a big ski trip to Big White Ski Resort. Although this wasn’t on my original list of ideas, it is definitely fulfilling the spirit of the goal to “Live in the now” and make memories with family and friends.

I also made progress towards travelling and visiting new countries by spending over $4,000 on future travel this year.

There’s more work to do when it comes to planning things like road trips or hiking expeditions with family and friends. But overall, I would say I’m happy with the progress I’ve made on this goal. I give myself a “Succeeding.”

Maintain my health (Succeeding Plus)

This New Year’s resolution sought to continue my habit of working out almost every other day and also minimizing my alcohol intake. I also wanted to fix a bad habit I had of eating too many sweets.

The alcohol habit is still going strong—I only drink a beer on the weekend, usually once per week, or if visiting friends.

On the exercise front, I have made my habit even stronger by waking up early every day to exercise in the morning. Lately, I’ve been exercising up to 5 days a week, which is much more than the 3 or 4 times per week I was doing in 2022.

I have also done a good job reducing the number of sweets I eat. I’ve simply avoided purchasing sweets or tried to turn them down when others offer them. I have even gone so far as to throw out candy or sweets I had in the house so I wouldn’t be tempted.

I give myself a “Succeeding Plus” for this goal. Woohoo!

Read 5 books (Succeeding)

This is a goal I always need help with. I first committed to this goal for my 2022 New Year’s resolutions and completely failed to achieve it, only having read one book in 2022—embarrassing!

2023 has gotten off to a much better start. I have already read one book for work. It was a little under 300 pages but otherwise a quick read. On my recent ski trip, I think I read at least 100 pages. Since then I have tried to build a habit of reading at least 5 pages every night before bed.

After finishing, I picked up another book that I’ve been meaning to read: The Ride of a Lifetime: Lessons Learned from 15 Years as CEO of the Walt Disney Company.

So far I’m really enjoying this book. I read “Shoe Dog” by Phil Knight in 2021, and I find “The Ride of a Lifetime” to be similar in that it’s an autobiography of a successful CEO of a world-famous company. I’m about a fourth of the way through this book and will hopefully be done in a month or so.

I give myself a “Succeeding” for this goal.

Conclusion

This year I’ve done a good job sticking to my New Year’s resolutions. Out of six, I only have one resolution that I need to improve on: interacting more with my readers.

If you’d like to help me out with that goal, consider submitting a question. The topic can be anything, be it retirement, FIRE, blogging, investing and more!

Please look out for my next New Year’s resolution update for Q2! You can expect it to be posted sometime in June.

Thanks for Reading

I recently wrote a few articles that you may be interested in. This includes my analysis of my recent property assessment and my update to my best preferred share ETF. Consider giving those a read if you think they’ll help you on your financial journey!

As always, please consider signing up for my monthly newsletter if you’d like to receive more of my content.

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post 2023 New Year’s Resolutions: Q1 Update appeared first on Another Loonie.

If you missed it, feel free to check out my last edition of monthly reads.

In this edition, I share the latest news on inflation, the Silicone Valley Bank collapse, dividend income in the Canadian blogger community, and how one personal finance guru is changing their FIRE path.

Inflation Turning a Corner

The big news this month was that Canada’s inflation rate continued its slow decline last month. Statistics Canada reported that inflation decreased to 5.2% in February, which is the lowest it’s been in over a year.

However, food and groceries continued to experience persistent, high inflation. Overall, food inflation was reported to be over 10% and isn’t declining like most other goods in Canada.

But there could be light at the end of the tunnel. When you look at the monthly inflation data for the past year, you can see that spring of 2022 had especially high inflation.

But like what happened in February, as more of those high inflation months roll off the calendar, we’ll see our annualized inflation rate continue to decline.

The Bank of Canada projects that inflation will be around 3% by mid-2023 and close to 2% sometime in 2024. And if we continue on our path, that projection looks like it’ll come to fruition.

That’s good news for consumers—especially those of us with variable-rate debt—as it means stable or even declining interest rates could be coming soon.

Inside a Bank Run

The other big news story in March was the collapse of Silicon Valley Bank and the actions taken by the Federal Deposit Insurance Corporation to help protect depositors’ money from being swept up in the collapse.

As an avid Planet Money podcast listener, I really enjoyed their recent deep-dive into the Silicone Valley Bank run.

For about 72 hours, people and companies that had deposited millions of dollars at the Silicon Valley Bank — many of whom were in the tech industry — thought they had lost absolutely everything to a bank collapse.

This eye-opening edition of Planet Money showed how otherwise stable banks can be just a few missteps away from collapsing.

This is a story that we’ll likely hear more of in 2023. There has already been at least one other bank collapse, and with the Federal Reserve raising rates another quarter point in February, there could be more on the way.

Joe is Going Back to Work!

With interest rates at decade highs and the stock market wavering, some in the FIRE (financial independence retire early) community are making some BIG changes.

Most interesting has been a change from Joe, who blogs at Retire By 40. He shared that he planned to switch from SAHD FIRE to Barista Fire.

Until I read his blog, I hadn’t heard of “SAHD FIRE.” I’m not sure if it’s a term he coined, but “stay-at-home dad FIRE” is when a father retires with some financial independence while their spouse continues working in their career.

This is something that’s been working for Joe for quite some time now. But with his son growing up, he won’t be needed at home as much. On top of that, he has some ambitious financial goals—like building a beach cabin in Thailand—that he’d like to pursue.

Overall, his post is a great reminder that FIRE is flexible. And I’m looking forward to seeing what type of job he ends up pursuing.

The Combined Magic of Canadian Dividends

The last thing I wanted to share comes from another Canadian blogger, Vibrant Dreamer, who documents his personal finance and travel journey over at VibrantDreamer.com.

Once a month, he does this really cool blog post sharing the dividend income all the Canadian personal finance bloggers he’s connected with have earned in the previous month.

It’s really cool to see how I stack up against some of the other Canadian dividend bloggers. It looks like in February, I was near the back of the pack, with most of my ETFs not paying anything.

I’ll definitely be checking out his post monthly to see the progress everyone is making.

Thanks for Reading!

I hope you enjoyed this little look back at my favourite reads for the month of March. Was there anything great I missed? Any new blogs I should be following or YouTube channels to subscribe to? I’m always looking for recommendations, so don’t hesitate to drop them in the comments below.

As always, consider subscribing to the AnotherLoonie newsletter if you’d like to get a monthly email with my latest posts. And if you have any personal finance-related questions, submit them to me using this link.

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post Monthly Reads: Inflation Turning the Corner and Stay-At-Home Dad FIRE appeared first on Another Loonie.

I began with a really attractive line of credit from my bank, Tangerine. It offered me a $25,000 loan at just 2.45% (Tangerine Prime – 0.00%). On top of that, I took advantage of record-low margin rates from Interactive Brokers to help me invest even more.

In that post, I also shared some of the qualities I believed were needed for leveraged investing:

• Patience: to let your investment strategy play out
• Disinterest: to not worry about short-term results

It’s now been almost 2 years since beginning my leveraged investing journey, and those two qualities are needed now more than ever!

That’s because my Tangerine line of credit has gotten expensive. It quickly rose from 2.45% to an incredibly high 6.45%—in less than one year! My margin loan hasn’t done much better, rising from less than 2% to around 6%.

Enter the Smith Maneuver

In 2022 I picked up another avenue to gain even more access to leverage. In line with my 2022 New Year’s resolution, in April of 2022 I applied for a home equity line of credit and was approved for a massive $400,000 loan.

And before you ask, no, I didn’t withdraw the whole $400,000 (thankfully!). Instead, my Smith Maneuver strategy saw me “priming the pump” and contributing $60,000 before the end of 2022.

Between my Tangerine LOC, margin loan, and home equity line of credit, I’ve invested approximately $100,000 into VEQT—all using borrowed money.

And boy, is this getting expensive.

Monthly Interest Costs

The carrying cost of my leveraged VEQT position started off pretty well. In 2022, before I began the Smith Maneuver, I paid less than $100 monthly in interest.

But unfortunately, around the time I started “priming the pump” with my HELOC, interest rates in Canada and elsewhere began to rise dramatically. I went from less than $100 per month in May in 2022 to now over $500 per month.

I don’t know about you, but $500 feels like a lot. Especially when it’s a monthly expense and essentially on an experiment that may or may not work out in the long run.

In fact, much of my leveraged investment strategy depends on my investments outpacing my cost of financing. This has become increasingly difficult, with all my loans averaging around 6.5%.

• Interactive Brokers: 5.91%
• Tangerine LOC: 6.45%
• TD HELOC: 6.75%

As you may know, the long-term average return of the stock market is around 8%. That leaves just 1.5% of “wiggle room” in my strategy. That’s a pretty hard sell, especially with the economy potentially entering a recession and inflation still hovering around multi-decade highs.

Dividends to the Rescue?

What’s softened the blow is that I can deduct this investment interest from my income. After accounting for RRSP contributions, I should receive back 31% or $31 on every $100 I spend on my investment loans.

This makes it a bit easier for this strategy to “work.” For one thing, instead of my hurdle rate being 6.5%, I can think of it as 4.5% after taxes—much more reasonable.

And in terms of cash flow, there are also dividends to consider. For example, in 2022 I spent $3,116 in interest servicing my investment loans. But I have also received sizable dividends, totalling $2,062 from my leveraged VEQT position.

This means I only have to make up $1,054 from my pocket.

However, this will look worse in 2023 as it’ll be a full year of 6.5% interest on the much larger average balance of loans than I had in 2022. Unless something changes, I expect to be out-of-pocket around $4,500 because of these loans in 2023—ouch!

What’s worse is I am down on my VEQT investments. So if I were to sell, I’d face even more losses.

Conclusion

I hope this provides an excellent example of what can go wrong when leveraged investing. It’s not all sunshine and rainbows. Rates can rise dramatically, even within a single year.

And as we’ve all seen, the stock market isn’t reliable in the short term—at all. On average, 8% sounds great, but to get that 8%, you need to ride the market turbulence. And that isn’t easy when you’re investing with borrowed money.

I’m hopeful this strategy will eventually win out. But over the short term, it’s anybody’s guess—and it’s not looking good!

Thanks for Reading

I recently wrote a few articles that you may be interested in. This includes my huge update to my best Canadian dividend ETF article and post sharing my top 30 holdings! Consider giving those a read if you think they’ll help you on your financial journey!

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post Investment Loans Are Costing Me $500 Each Month! appeared first on Another Loonie.

Welcome to my net worth update for February 2023! These numbers represent my wife and I’s net worth as of February 28th. Please check out our previous net worth update if you haven’t already!

Consider subscribing to my newsletter if you’d like to receive my easy-to-use Expense and Net Worth Tracker spreadsheet. I use it every month!

Savings & Expenses

February tends to be a low-spending month in our household. That’s often because it’s too cold and wet to want to do anything. And while we did ski in January, we decided not to organize another trip in February.

We did end up contributing more towards our travel plans—around $900 on tickets and other activities. That brings our total spend on travel to $5,500 already in 2023. This aligns with my New Year’s resolution to spend more on “living in the now” in 2023.

Most of our other expenses were controlled or even lower than average. In total, we managed to save a pinch over $5,600. That puts us at a 52% savings rate for February, which is above our average savings rate of 40% in both 2022 and 2021.

So far our savings rate is 30% in 2023, which I think is pretty good considering we already spent around half of our travel budget. And our savings rate will likely improve in March since it’s a three paycheque month for both of us—hooray!

Investments & Dividends

As you can see, February is typically a month of low dividends. The only ETFs that paid out are my wife’s XDG (iShares Core MSCI Global Quality Dividend Index ETF) and XDIV (iShares Core MSCI Canadian Quality Div Index ETF) shares which she holds in her TFSA.

These two ETFs pay monthly dividends, and XDIV specifically is among my favourite dividend ETFs in Canada.

However, earning $119 can still help us estimate our year-over-year dividend growth and help us project what we may earn in 2023. For example, last February we earned $80. That means our dividends grew by 49% in February compared to last year.

We’ll have to see what March’s dividends end up looking like. Last year we earned $335 in March, so a 49% increase would mean we could earn an extra $164—not bad at all.

Net Worth Change

The market was pretty flat last month, but we were able to rely on saving our employment income to increase our net worth. In total, our net worth increased to $752,600 from $745,800 in the previous month. That’s an increase of $6,700 or just under 1%.

Here’s where the increase came from:

• $1,300 in home equity pay-down
• $1,200 in mandatory pension contributions
• $5,600 in savings of income
• $1,400 in investment losses

So far our net worth is up $31,700 in 2023. It’s hard to say if our investments will grow on their own this year or if we’ll have to rely entirely on our employment income to improve our net worth. Either way, if we manage to keep saving, I think we’ll end the year with a good result.

Thanks for Reading

I recently updated a few articles that you may be interested in. This includes my huge update to my best REIT ETF article and choice for the best preferred share ETF in Canada! Consider giving those a read if you think they’ll help you on your financial journey!

Consider supporting my blog by sharing or joining me in using any of my recommended services:

• Join Tangerine using my Orange Code (46870461S1) to earn $50!
• Join Questrade using my referral code (336421347418465) to earn $25 to $250!
• Create your own website using Web Hosting Canada!
• Save online and earn credit card sign-up bonuses by using Great Canadian Rebates!

The post Net Worth Update: February 2023 appeared first on Another Loonie.

What are REIT ETFs?

REITs, or real estate investment trusts, are companies that invest in income-producing real estate. Think apartments, office buildings, and retail centers. Canadian REITs can be purchased on the Toronto Stock Exchange and are required to distribute most of their earnings to investors – typically 85% or more.

REIT ETFs (exchange-traded funds) are funds that invest in REITs. These funds employ different strategies for how they invest in REITs. Often they try to follow a benchmark, which dictates how much of each particular REIT they can own.

Why Invest in REIT ETFs?

REIT ETFs are more popular than ever and have attracted billions in assets over the years. There are a few great reasons why investors love REIT ETFs.

First of all, REITs are a simple and effective asset class for generating dividend income. Since REITs must distribute at least 85% of their net profit as dividends, unitholders can earn significant income by investing in REITs.

Another reason REITs are so popular is because they’re the cheapest way to invest in real estate in Canada. Best of all, instead of having all of your real estate investments tied up in a single property, REITs diversify across numerous properties.

An even more diversified strategy for investing in REITs is to invest in a REIT ETF. You don’t need to pick whether you’d like to target residential, commercial, or industrial real estate. With a REIT ETF, you can own a piece of them all!

HCRE ETF Review

Ticker: HCRE
Dividend Yield: 4.57%
Management Expense Ratio: 0.33%
Assets Under Management: $58 million

The Horizons Equal Weight Canada REIT Index ETF (HCRE) is a unique ETF that uses a total return swap contract to replicate the performance of its index while increasing tax efficiency. Essentially, HCRE uses swaps to avoid making taxable distributions to its unit holders. This is advantageous if holding HCRE in a taxable account or if you otherwise want to avoid receiving income from your investment.

Perhaps because of its unique structure as a swap-based ETF, HCRE boasts an impressive MER of just 0.33%. This is much lower than most other REIT ETFs in Canada. And while it doesn’t pay distributions, it has an effective yield of 4.57%. This yield is automatically reflected in the HCRE’s net asset value instead of paid out to unit holders.

So on the surface, HCRE looks like the ideal REIT ETF—low MER, high yield, and well diversified. However, its swap-based strategy may give some investors pause. HCRE has only been around since 2019, and at just $58 million in assets, it may take more time for investors to warm up to its strategy.

PHR ETF Review

Ticker: PHR
Dividend Yield: 4.10%
Management Expense Ratio: 0.80%
Assets Under Management: $31 million

The Purpose Real Estate Income Fund (PHR) is an active fund that uses a combination of macro, fundamental, and technical factors to select its constituents. And unlike other REIT ETFs in Canada, PHR invests a significant amount of its assets in REITs from the United States. Around 35% of its assets are based in the U.S. while 59% are from Canada.

Because it’s an active ETF, PHR has a much higher management expense ratio (MER) than most of the other REIT ETFs in Canada. PHR has also attracted only $31 million in assets, which is very low for an ETF.

The combination of high MER, low assets under management, and a low amount of holdings—just 17—makes PHR a tough sell for most investors. However, if you believe in their active strategy, that could outweigh the otherwise poor fundamentals of this ETF.

REIT ETF Review

Ticker: REIT
Dividend Yield: 3.96%
Management Expense Ratio: 0.48%
Assets Under Management: $19 million

The Invesco S&P/TSX REIT Income Index ETF (REIT) was established in 2017, and despite having the ideal ticker for a REIT ETF, it has only attracted $19 million in assets. This is on the very low end of viability for an ETF, even in the small market space of REIT ETFs.

Despite that, Invesco S&P/TSX REIT Income Index ETF does have some redeeming qualities. Mainly its low MER of 0.48% and a reasonably high dividend yield of 3.96%. It accomplishes this by seeking to replicate the S&P/TSX Capped REIT Income Index.

Invesco’s REIT could be a good choice for investors who are comfortable with some of Invesco’s other popular ETFs and are happy with its indexing strategy.

RIT ETF Review

Ticker: RIT
Dividend Yield: 4.59%
Management Expense Ratio: 0.87%
Assets Under Management: $645 million

The CI First Asset Canadian REIT ETF (RIT) is an active fund that seeks to achieve dividend income and capital appreciation through its REIT investments. Like some of the other REIT ETFs in Canada, RIT also invests in non-REIT companies, like those focused on real estate operations and services.

Despite being actively managed, there is considerable overlap between RIT’s top holdings and the top holdings of the other Canadian REIT ETFs. However, some equities are uniquely held by RIT. This includes Tricon Residential Inc, which is RIT’s largest holding at just over 5%.

Investing in foreign REITs is another aspect of RIT that sets it apart. Given that it’s actively managed, it tries to find returns wherever they may be. Because of this, RIT has 8.7% of its assets allocated to foreign REITs. Despite being Canada-focused, its prospectus highlights that up to 30% of the fund’s assets may be invested in foreign securities.

VRE ETF Review

Ticker: VRE
Dividend Yield: 4.20%
Management Expense Ratio (MER): 0.38%
Assets Under Management: $330 million

Established in 2012, the Vanguard FTSE Canadian Capped REIT Index ETF (VRE) provides investors with a low-cost option for investing in Canadian REITs. It boasts an MER of just 0.38%, which is the lowest in the Canadian REIT ETF space today.

And because it’s a Vanguard ETF, they’re committed to making their funds even more affordable for investors. Just recently, VRE was able to decrease its MER by 0.01% (from 0.39% to 0.38%).

VRE is known as a capped index and won’t invest more than 25% of its assets in a single REIT. Despite this, VRE is top-heavy, with its top 5 holdings representing around 50% of its total assets.

XRE ETF Review

Ticker: XRE
Dividend Yield: 4.42%
Management Expense Ratio: 0.61%
Assets Under Management: $1,146 million

The iShares S&P/TSX Capped REIT Index ETF (XRE) was established in 2002. Since that time, XRE has managed to attract over a billion in assets, making it Canada’s largest REIT ETF.

Like VRE, iShares’ REIT ETF is also top-heavy, with its top 5 constituents making up nearly 50% of its total assets. The two funds’ holdings differ slightly, with XRE investing in real estate service businesses like FirstService Corp (FSV) and Colliers International Group Inc (CIGI).

The main problem with XRE is its relatively high MER – especially when you consider that it only has 17 total holdings. However, XRE does have an impressive dividend yield. At an annualized yield of 4.42%, XRE is near the top of the pack in terms of Canadian REIT ETFs.

ZRE ETF Review

Ticker: ZRE
Dividend Yield: 4.53%
Management Expense Ratio: 0.61%
Assets Under Management: $651 million

The BMO Equal Weight REITs Index ETF (ZRE) is another Canada-focused REIT ETF. ZRE tracks the Solactive Equal Weight Canada REIT Index and holds an equal proportion of the REITs it invests in. This structure is uncommon for an index ETF, and it’s the reason why ZRE allocates about 4.5% of its assets to each of its 23 holdings.

Because of its unique structure, ZRE is far less top-heavy than other Canadian REIT ETFs. The top 5 constituents of ZRE make up just 25% of its total assets. A small REIT like Boardwalk (BEI) makes up just 2.3% of XRE’s assets, while in ZRE it’s one of the top holdings at 5.0%.

Although its MER is on the higher end, BMO provides relatively good value for an investor looking to diversify adequately across Canadian REITs. And at a dividend yield of 4.53%, ZRE makes investing worthwhile for anyone looking to add significant income to their portfolio.

Best Canadian REIT ETF Comparison

Best Canadian REIT ETFs – Fundamentals

When comparing Canadian REIT ETFs, we can see that each has a dividend yield of around 4% or more. They also all pay monthly, making them good candidates for investors looking for cash flow from their investments (except for HCRE, which doesn’t have actual distributions).

The ETF that stands out to me is VRE, with an MER of just 0.38% and a dividend yield of 4.20%. PHR and RIT also stand out, but only because of their higher-than-average MERs of 0.80% or more.

Something else to notice is the distribution of holdings. Many of the ETFs in this list have around 20 holdings. This may seem like a small amount, but in fact, there are just not that many REITs in Canada. The funds with more holdings typically invest in additional assets like specific real estate-related businesses or REITs located outside of Canada.

Best Canadian REIT ETFs – Sector Weightings

Each REIT ETF has sizable retail, residential, industrial, and office real estate investments. VRE has the largest allocation of office real estate, at 12%. Both VRE and XRE have the most invested in retail real estate at 40% each.

Unfortunately, RIT recently removed some information on its allocations from the Invesco website. But last year’s numbers showed it had 19% retail, 31% residential, and 21% industrial. This would put it near the top of the pack for investments in residential real estate, only behind PHR, which has 36% of its assets allocated to that sector.

Best Canadian REIT ETFs – Past Performance

The performance of Canadian REIT ETFs was abysmal in 2022. This can be attributed to the economic contraction in the retail and office sectors. One saving grace has been residential real estate, which has seen rents rise dramatically in 2022 and so far in 2023.

It’s interesting that VRE and XRE, which are both overweight their top 5 holdings, and each performed so similiarly in the past two years. While the comparably more diversified ETFs, ZRE, PHR and RIT, performed worse last year.

We can also see a good sign for HCRE’s swap-based strategy in these performance numbers. In the past three years, HCRE’s performance has been almost identical to ZRE, which follows the same Solactive Equal Weight Canada REIT Index that HCRE seeks to replicate.

Common Canadian REIT ETF Comparisons

XRE vs VRE

When comparing XRE vs VRE, the first thing that stands out is their different management expense ratios. At 0.38%, Vangaurd’s VRE is significantly cheaper than iShare’s XRE. XRE does have a slightly higher dividend yield, at 4.42%, but not quite high enough to make up for their difference in MER.

Much of their difference in dividend yield can be attributed to their indexes. VRE seeks to replicate the FTSE Canada All Cap Real Estate Capped 25% Index while XRE uses the S&P/TSX Capped REIT Index.

When deciding against XRE vs VRE, the deciding factor seems to be their MER. At just 17 holdings, it’s hard to justify XRE’s management expense ratio of 0.61%.

ZRE vs VRE

ZRE vs VRE comes down to what you’re looking for in a REIT ETF. Vanguard’s VRE definitely has the more attractive management expense ratio, saving you 23 basis points per year when compared to ZRE. While ZRE is slightly more diversified than VRE, with 4 more holdings.

BMO’s ZRE also performed much better in 2022, only losing 17.4%, while VRE lost 22.6%. Meanwhile, VRE performed much better in 2021.

Probably the deciding factor is their strategy. ZRE is an equal-weight REIT ETF, meaning it invests in an equal number of each of its holdings. While VRE is a capped index, which caps each holding at a maximum of 25%. This means that VRE is much more top-heavy than ZRE, with almost 50% of its total assets allocated to its top 5 holdings. So if you’re looking for better diversification, ZRE may be the superior choice.

XRE vs ZRE

XRE vs ZRE is a difficult comparison. Both ETFs have the exact same management expense ratio of 0.61%. They also have a similar amount of holdings, at 17 and 23 holdings respectively. They are also both among the most popular REIT ETFs in Canada, with XRE having $1,146 million in assets while ZRE has $651 million.

Their indexes are different, with XRE using the S&P/TSX Capped REIT Index while ZRE uses the Solactive Equal Weight Canada REIT Index. Despite this, they have performed identically over the past two years.

Likely the deciding factor between XRE vs ZRE is their issuers. Investors who are comfortable with iShares ETFs will likely go with XRE. While investors with a relationship with BMO will probably be more comfortable with ZRE. In the end, both are excellent choices.

Choosing the Best REIT ETF in Canada

There is no perfect REIT ETF in Canada. Each of the available ETFs has some tradeoffs that make them more or less attractive than their peers.

Looking at Vanguard’s VRE and iShares’ XRE, it’s hard to justify either of these funds as the best REIT ETF in Canada when they’re so top-heavy. Both have half of their assets tied up in their top 5 holdings, which makes them insufficiently diversified for an ETF.

On the other end of the spectrum is RIT, which has the most holdings for a Canadian REIT ETF. The tradeoff with RIT is that it also has the highest MER and an actively managed strategy that may lag a REIT index over time.

With all this in mind, the BMO Equal Weight REITs Index ETF (ZRE) may be the best all-around REIT ETF in Canada. Its MER is average for a REIT ETF, while its dividend yield is above average. Best of all, ZRE’s equal weight strategy ensures it’s adequately diversified.

Another choice for the best Canadian REIT ETF is the Horizons Equal Weight Canada REIT Index ETF (HCRE). This is a unique fund that uses swaps to replicate the performance of the Solactive Equal Weight Canada REIT Index. It’s tax efficient, cheap, and has great performance. For investors comfortable with its strategy, HCRE may be the best REIT ETF in Canada.

Thanks for Reading!

I hope you enjoyed my analysis of the best REIT ETFs in Canada. If you’re interested in learning about other great ETFs, check out my review of the best preferred share ETF in Canada and my article on the best dividend ETFs for Canadians!

The post The Best REIT ETF in Canada in 2023 appeared first on Another Loonie.