Experts are predicting that the next few months or so will be pretty choppy. And of course, we all know these are just little bumps in the road. Nothing to get alarmed about. So where am I going with this?

Recently, I seem to be hearing lots of talk about where you should put your money in these ‘uncertain times’. And more frequently than usual, I am hearing experts say “Pay down your debt.”

Let’s see. I went to the MoneySaver seminar held in Ottawa and Dale Ennis said “Paying down your mortgage is a guaranteed rate of return based on your tax factor.” I got the impression that Dale believes that you should pay off your mortgage before you start investing.

I was watching Financial Fridays on ROBTV a couple of weeks back, and Benj Gallander (of Contra the Heard) was saying to take some profit and pay down your debt. Guaranteed rate of return. You know exactly what you are earning.

I did a review on a book titled “Why Swim with the Sharks?“. Heavy focus on getting yourself debt free.

I am currently reading Dollar$ to Donuts by Daniel Kesselring. He has a five step model to wealth:

1. Get out of high interest debt.
2. Build up an emergency fund ($5,000)
3. Build up a freedom fund ($20,000 - $40,000) depending on how much you earn.

Once you have this freedom fund set up, you can use this money to ‘loan’ to yourself to purchase items (car, downpayment on a home) or make principle payments on your mortgage. So no more borrowing money from the bank. You then pay yourself back to rebuild your fund. Once you have your freedom fund set up, the ‘excess’ or ’spillage’ goes into the next steps.

4. Registered plans
5. Unregistered plans

I really like this idea. It has a lot of merit. He builds up his freedom fund before he starts investing.

Where am I going with this? Well, it is very rare to hear people suggesting that you pay down your debt first. Why? Financial advisors and the whole financial industry don’t make money from people who pay down their debt. They want people to pay interest on their debt and then pay these same financial institutions to invest their money. It is a win-win for the financial industry.

I guess a few times in the past, I’ve said that paying down your debts (including your mortgage), should be a top priority. And most people tell me that I am nuts! Max out your RRSP so that I can retire a gazillionaire!! I am just glad to see that I am not the only one that sees getting your debt paid off ASAP as a good thing.

On April 3rd, I wrote an article  about my current asset allocation and my new proposed allocation.  They were almost identical except that I decided to add in some emerging markets exposure (I know you know where this is going!).

Anyways, my new allocation called for 2% of my portfolio to be in emerging markets.  So, I went out an purchased some units of the CIBC Emerging Markets Index.  That felt good.  My new asset allocation mix was in place.

What happened next?  Emerging markets got hammered!  I swear.  It was the day right after I made my purchase!  My emerging markets is now down 13.65% in the last few weeks.

Oh well.  This is my new asset allocation model, so I am sticking with it, but I just thought I would share my little story.

The banks that I own and drip increased their dividends as follows:

Bank of Nova Scotia (BNS) up $0.03 to $0.39. Increase of 8.3%.

Bank of Montreal (BMO) up $0.09 to $0.62. A whopping increase of 17%!

CIBC (CM) up $0.02 to $0.70. An increase of 3%. Even that is pretty amazing after the whole Enron fiasco!

If you check out Mergent’s Dividend Achievers, you will see that BMO, BNS, CM, NA (National Bank of Canada), RY (Royal Bank) and TD (TD Bank) are all on the list.

If I could only own one stock, it would most definitely be a bank stock.

So, I thought, “Hey!  I should probably upgrade to the latest and greatest version.”  Don’t ask me why that idea just popped in my head.  I don’t know.  Anyways, I went over to FutureShop, picked it up and paid $100 plus tax.  This also included a copy of QuickTax (which is valued at roughly $40).  Strangely enough you could either buy Quicken XG 2006 for $100 or the Quicken Suite which includes Quicken XG 2006 AND QuickTax 2005.  Go figure.
Anyways, I get home, install it and guess what?  Other than the prettier interface, it basically does the same thing that my Quicken 2000 does.  I am rather disappointed.

Quicken is obviously a mature product so they are really grasping at straws by trying to release yearly versions.  There just isn’t that much more they can possibly add to it.  Well, I have learned my lesson.  Although I love my Quicken, I do not plan to upgrade ever again.

Equities (60%) made up of:

Canadian Equity (25%)
- Barclays iUnits S&P/TSX 60 Index Fund XIU (MER 0.17%)
- Altamira Precision Canadian Index fund (MER 0.54%)
- TD e-Funds Canadian Index (MER 0.31%)
- 14 Canadian DRiPs

I add to my Altamira Canadian Index fund regularly. Once it gets large enough to offset my brokerage cost, I roll that money into my iUnits ETF to take advantage of the super low MER. If I need to rebalance, I move money in and out of the mutual fund. I never touch the iUnits. This is my basic strategy of using the ETFs and mutual fund combo.

All my e-Funds are in a taxable account. My DRiPs are also in a taxable account letting me take advantage of the dividend tax credit. These are long term holds.

US Equity (18%)
- iUnits S&P 500 C$ Index Fund XSP (MER 0.30%)
- Altamira US RRSP Index (MER 0.53)
- RBC O’Shaunnessy US Value Fund (MER 1.61%)
- CIBC US Small Companies (MER 2.62%)
- TD e-Funds US Index (MER 0.33%)

Same idea as Canadian Equity. I build up funds within the Altamira index and then roll it over to iUnits once it is large enough.

I also decided to try the O’Shaunnessy line of funds. I had heard good things and it has a fairly low MER compared to other funds (although much higher than index funds). I also wanted some exposure to small caps. I went with the CIBC fund but I am going to investigate replacing it with a lower MER fund in the near future.

International Equity (15%)
- Altamira International RSP Index (MER 0.54%)
- TD e-FUnds International Index (MER 0.48%)

The MER on the equivalent iUnits fund XIN is 0.50%. For the moment, I have invested solely in the Altamira index.

Emerging Markets (2%)
- CIBC Emerging Markets Index (MER 1.23%)

Although the MER is high for an index fund, this was the only one that I could find. Some of the actively managed emerging markets funds were over 3%!

Non-Equity portion of my portfolio:

Real Estate (5%)
- iUnits S&P/TSX Capped REIT Index Fund XRE (MER 0.55%)
- RioCan REIT DRiP

Not to much to say here. I need a fund to place temporary money into as I build towards the ETF. CIBC Real Estate Fund has a MER of 2.84%. Trying to find a better spot.

Cash (5%)
- At the moment, in a money market fund. But these are terrible. Considering the Altamira T-Bill fund (MER 0.42%). I want this cash to be readily available so that I can buy on the dips.

Fixed Income (30%)
- Currently, a mixture of GICs.

This is the one that I am still working on. I am deciding whether to buy the
iUnits Canadian Bond Broad Market Index Fund XBB (MER 0.30%) or try to create my own bond ladder. I am new to bonds, so I am seeing if this is even possible. Probably, I don’t have the purchasing power to get good rates on bonds. So, if that fails, I will then look at a combination of the iUnits ETF and GICs.

Well, that’s it. Comments are welcome. It is a pretty plain vanilla looking portfolio.