Potatoes Helping Potatoes

It’s now been almost a year since I launched Canadian Couch Potato. When I first mentioned that I was writing a blog about index investing, many people were surprised that such a thing was needed. “What is there to say?” they would ask. “You build a portfolio of index funds or ETFs and rebalance it once a year. How many times can you write that?”

More than a hundred blog posts later, I know that being a Couch Potato isn’t always that simple. I’ve heard from many readers who have struggled with this investing strategy. Some rushed into indexing expecting instant results, while others understood the strategy but had problems implementing it.

I’m currently working on a feature for MoneySense magazine that’s aimed at preparing new index investors for what they should expect when they take a seat on the couch. I’ll debunk some of the myths surrounding the strategy, and help inexperienced investors avoid common mistakes. And I’d like to ask for your help. I want to include stories from current index investors who are willing to share some of their early mistakes and misunderstandings, and to offer words of wisdom and encouragement.

Here are some of areas I’d like to explore, based on the many emails I’ve received since launching the blog:

  • Did you fire your advisor only to learn that DIY investing was harder than it sounds?
  • Did you discover that annually rebalancing an ETF portfolio can be too expensive?
  • Have you found it difficult to “settle” for market returns when everyone you talk to has beaten the market 14 years in a row?

If you’re interested in sharing your thoughts, please drop me a line at mail@canadiancouchpotato.com. If I quote you in the magazine, I’ll send you a free copy of the MoneySense Guide to Retiring Wealthy.

Looking forward to hearing from you!

17 Responses to Potatoes Helping Potatoes

  1. Patrick December 6, 2010 at 10:04 am #

    I couldn’t agree more. I’ve never encountered so much valuable information that I never knew I didn’t know. A naive couch potato knowing just the basics (diversify, minimize fees) might come within 1% of “optimal”, but I want that last 1%, and your advice points the way. You’ve explained ways to avoid things like tracking error, taxes, currency risk and exchange rates, and unintended correlations between funds, none of which would be obvious to the uninitiated.

    You certainly don’t have to justify this blog to me!

  2. Brian December 6, 2010 at 11:42 am #

    Great idea Dan. I look forward to hearing from other couch potatoes experiences as well

  3. Sean December 6, 2010 at 12:38 pm #

    Great blog, Dan!
    Very informative throughout the year. I enjoyed your honest new product reviews.
    I found the summary page of all (non-leveraged) Canadian ETF’s especially useful.
    Merry Christmas/Hannukah/Holidays!
    THANKS.

  4. Dave@50plusfinance December 6, 2010 at 7:47 pm #

    Congratulations on your coming anniversary. I have watched and appreciated all your hard work putting this together. Looking forward to your article.

    I’ll tell you the best thing about index investing for me is I can finally relax and let my investments work. I was so tired of all the work it took to find the right stock or mutual fund. Index investing made that all go away. It gave me peace of mind. Thats what you should include in your article.

  5. Canadian Couch Potato December 6, 2010 at 7:57 pm #

    @Patrick, Brian, Sean and Dave: Many thanks for the kind words, and thrilled to hear that you’ve found the blog useful!

  6. Financial Cents December 6, 2010 at 8:45 pm #

    I’ll try and drop you a line soon Dan.

    Keep up the great work on the blog!

    My Own Advisor

  7. Slacker December 7, 2010 at 1:04 am #

    – I lost more than a thousand dollars to foreign exchange cost when I bought USD ETF’s at TDWaterhouse
    – I rebalanced too frequently (obsessive compulsive rebalancing).
    – I quasi-time the market, I’m currently sitting on 10% cash allocation, when I’m supposed to be holding close to 0%
    – I underestimated the impact of commission fees. Some people say as long as commission fees is below 1%, then it’s ok. But historical after inflation return is only 7%, then 1% trading cost becomes quite significant. I recommend keeping your MER to less than 0.25%, and trading cost to less than 0.25%.

  8. ETF thinkin' December 7, 2010 at 4:39 am #

    Some things I found worked for me:

    1. Always go with your own gut. If you think the market isn’t good, don’t invest in it at all. A 2% GIC is better than any negative.

    2. It’s not when to buy and sell it’s that you can accept (and commit) on what price to buy and sell and be happy with it. Most buy high (get caught up in the news) and sell low (ride it down).

    3. Shop around for where to buy ETFs, GICs, ect. You can always get a better deal.

    4. Money isn’t everything. You need some but there are many, many more things in life more important that money.

    5. Never go into debt to speculate (or gamble). (ie. Betting the house HELOC, take out a loan to buy stocks, etc)

    6. As CCP says, only take as much risk as you need to take.

  9. Dave Niven December 7, 2010 at 2:29 pm #

    I started as a potato but too interested in the market to sit idle. I actually did better than as a potato but I didn’t like the volatility. I am back with a mixture of Low MER mutuals and ETFs . I would like to see how your model’s perform year over year and especially factoring in Canadian tax differences like capital gains & dividend tax credits vs interest . A notional after tax return.

  10. Canadian Couch Potato December 7, 2010 at 2:37 pm #

    @Dave: Interesting to hear that you did well as an active investor but still came back to a more passive strategy. Sounds like you’ve settled on a compromise that works well for you.

    Trying to calculate after-tax returns with model portfolios is impossible, because everyone’s tax situation is different. Change one assumption and the whole thing falls apart. Overall, however, index funds (and especially index ETFs) will typically incur lower taxes than active strategies with a comparable asset mix, simply because the passive strategy involves far less turnover.

  11. Melissa December 7, 2010 at 5:34 pm #

    Congrats on the upcoming anniversary of a great blog. You’ve been a lot of help to me Dan. Best wishes for continued success.

  12. Chhai December 8, 2010 at 8:39 am #

    Hi Dan,
    conratz! I’m going to vote for your blog in the Globe and Mail article.
    http://www.theglobeandmail.com/globe-investor/personal-finance/vote-best-of-the-money-blogs/article1571811/

    I started reading about the Couch Potato on canadianbusiness.com three years ago and just implemented the Potato strategy with my TFSA and RSP using the e-Series fund for now. I got off my butt and just did it mainly due to your blog!
    Thanks.

  13. DM December 8, 2010 at 9:13 am #

    Dan, let me add my voice to the chorus – amazing job on this blog. Reading your articles has really helped me become a more knowledgeable investor and has helped develop my confidence to manage my family’s portfolio. And so far, so good.
    I look forward to new discussions in 2011 as the Canadian ETF and index fund space continues to evolve…
    Cheers

  14. Canadian Couch Potato December 10, 2010 at 8:23 am #

    @Melissa, Chhai, DM: Many thanks for the supportive words. As you can imagine, a blog like this takes a lot of time, so it’s great to know that others find it helpful. I’ve enjoyed hearing from readers, especially those who take the time to post regular comments.

    I’ve received lots of great feedback for the MoneySense article: look for it in mid-January.

  15. Andrew Hallam December 10, 2010 at 8:00 pm #

    Well done on the site Dan. I can really appreciate the time you’ve put into creating posts with such quality. I read the comments above, and I think there’s one really important thing to note. One reader talked about the importance of investing with your gut–or at least listening to it. People investing with their gut, in my view, are eventually destined to lose out over the long run. Our gut, after all, is an extension of our lizard-like brain—and it’s very poorly equipped to make logical investment decisions. My gut is always scared to death of the best decisions I have ever made. My gut says to sell when markets tumble, and buy when markets rise. Good thing I don’t listen to my gut! If another person’s gut says otherwise, that guy or gal is lucky.
    Keep up the great work!

    Andrew

  16. Canadian Couch Potato December 13, 2010 at 6:11 pm #

    @Andrew: Many thanks for your comment, I appreciate it. I do believe that you have to be comfortable with whatever investment strategy you choose, and you shouldn’t do anything that doesn’t feel right, but you’re right, that doesn’t mean investing in hunches. Sometime I think the best investors are the ones who are best able to keep a lid on their emotions. All the best, and looking forward to your book!

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