Balanced Passive Investing

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

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

• 40% of the RRSP will be in Bonds, GIC’s 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 your passive investing plan up however you wish. You would then decide which index funds, ETFs or the like that 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 out with the example).

Re-Balance

After a period of time you will wish to make sure that your investment goals are relatively the same percentage wise, and that period of time is your decision, you could choose:

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

I don’t feel good selling one equity to buy another in this methodology (unless something heinous is going on in the markets which dictates 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 simply see where I need to put my money to get my investment goal percentages back to where I planned, and 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 really 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, more likely your investment goals for where the money should be will change (hopefully becoming more conservative), so you can change your goals when you have more money to invest, or you can sell your equities to change the balance as well.

This is not an original idea by me, I borrowed it from the Canadian Capitalist and I 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 reinvest themselves which helps out too (i.e. I use the DRiP capabilities of the ETFs and Index funds that I hold).