Smith Manoeuvre Started
It took me a while to get going, but i have finally decided to get moving on my smith manoeuvre. My SM is going to differ slightly from the standard approach, mostly due to my home equity still being relatively low (until i have my house re-appraised in the future). How my SM differs is that I will be doing, what i am going to call, a couch potato smith manoeuvre. As you can probably guess, this is a combination of the couch potato portfolio and the smith manoeuvre. Specifically, I will be investing in broad ETF’s that have historically high dividend distributions, as well as I will be investing in both US and CAD equities to keep the proper weightings. This will result in my SM portfolio being slightly less tax efficient than the ideal SM strategy. However, for the initial startup with my situation (low equity), it is not too much of a burden and definitely helps the process get moving.
So here is the run down on how i have everything set up.
Smith Manoeuvre Account – Questrade Non Registered Account
- PFF – iShares S&P US Pref Stock Idx Fnd
- IDV – iShares Dow Jones EPAC Sel Div Ind
- XDV – iShares CDN DJ Canda Slct Dvdnd Indx Fnd
I also have a TD self directed RSP account, which also holds IDV and PFF (RSP account is the most tax efficient for international equities). And I plan to open another Questrade account (TFSA) that will hold XRB, XSB, and XRE. The bonds and REITs are less important right now so it will likely be a few months before they finally get purchased. The reason for this is because (like my RSP contributions) the funds must come from my after-tax income, since bonds are not very SM compatible and REIT distributions are RoC (which are also not compatible with a SM).
I am still quite young so my weightings have been set at 10% for Bonds and REITs, 20% for Canadian equities, 35% US equities, and 35% international equities. RSP contributions are currently annual and just the US and international funds, but SM contributions will be more often and contribute to Canadian, US, and international funds. SM contributions will occur once the HELOC reaches $1000 or higher (3 – 4 biweekly mortgage payments).
Beyond these 3 accounts, I also hold other equities (Canadian and US) which i won’t include in the weighting. The main reason for this is that one is a GE stock purchase plan with my employer, and the other is ECA and CVE shares that i have owned for over two decades. Since it would take years of US and international contributions to even reach my desired weighting with Canadian equities, they will remain outside of the weighting. Additionally, since these are three funds only, and my goal is diversification, there is no point including such high contributions in the global weighting. In time, I will cash in my ECA and CVE shares and use the money to pay down the principal on my mortgage. I have to be careful though because it will trigger monumental capital gains (seriously, well over 500% gain on ACB), so I need to plan it carefully so i don’t generate a massive amount of taxes owed. With the funds added to the HELOC (whatever i don’t set aside to pay for the capital gains) I would end up purchasing equities based on the weighting, so ECA and CVE would no longer be held. Also, if i ever decide to part from my employer, I would most certainly sell my GE shares and use the income to purchase according to the weighting again. Furthermore, the GE shares are no very tax efficient right now anyways, so I really have no motivation to continue holding them in their current account.
Finally, i created a somewhat complicated spreadsheet (on google docs) to help manage the constant balancing of the portfolio’s. Once i have been using it for a bit i will post a template. For the time being though, it may still have bugs so i don’t want to confuse anyone beyond the need with an unfinished project.