The Second Coming of the Perfect Portfolio

The anticipation has been palpable, I know, but the waiting is over. The second edition of The MoneySense Guide to the Perfect Portfolio is now available.

The first edition of my handbook for do-it-yourself index investors, published last October, sold out quickly as Couch Potatoes stampeded to their local newsstands to demand a copy. The revised second edition should now be available across Canada on magazine newsstands at Chapters, Shoppers Drug Mart, Walmart and Loblaws. It’s also available online, and if you order 51 copies or more, you get a hefty discount. Order 99 and you save even more. [Update: Perfect Portfolio is now available in Apple iPad, Kobo. and Kindle editions.]

While the second edition is very similar to the first, there have been a surprising number of developments since last fall. Vanguard arrived in Canada, Claymore was bought by BlackRock, and three brokerages now offer commission-free ETFs. The guide has been updated accordingly.

Now with improved performance!

I have long wanted to compile more complete historical performance data for my model portfolios, but the problem has always been that the ETFs have very short track records. In his excellent book The Smartest Portfolio You’ll Ever Own, Dan Solin gets around this idea by using a combination of real fund returns and index data. To account for costs, Solin subtracted each ETF’s management expense ratio from the index returns when doing his calculations. Since most well-run ETFs have low tracking errors, this is an imperfect but reasonable proxy, and I decided to do the same for the new edition of my own book.

Well, to be honest, I asked Justin Bender, CFA and portfolio manager at PWL Capital, to use his large brain and larger database to do the actual work in exchange for a pint of beer. It was a huge undertaking, but I think it will provide index investors with a reasonable idea of how the strategy performed over the last 15 years (from 1997 through 2011). The results and the description of how we compiled the data are available here, as well as on the Model Portfolios page. I will update the numbers annually—at least as long as Justin is still talking to me. Here’s a summary of the results (all figures are annualized percentages):

Global Complete
Couch Potato Couch Potato Über-Tuber
3 years 7.43 11.55 9.52
5 years 1.12 3.26 1.89
10 years 3.87 6.29 5.54
15 years 5.20 6.98 6.17
Standard deviation 8.02 8.21 7.92
Worst 12 months -19.02 -20.07 -19.89
Worst 36 months -6.68 -4.53 -4.91

Finally, I have made some changes to the Über-Tuber, my model portfolio with a tilt to value and small-cap stocks. Long-time readers will know this portfolio has evolved a few times over the years as I have struggled to keep it simple and inexpensive while still getting access to the value and small-cap premiums. With Justin’s help once again (that’s two pints I owe him now), we’ve come up with a version that it is 10 basis points cheaper. The main change was getting rid of the fundamental-weighted ETFs for the US and international exposure, and replacing these with cheaper value and small-cap funds from Vanguard and iShares. Another change is incorporating two BMO bond ETFs that approximate the maturities targeted by Dimensional Fund Advisors in their fixed income funds. The new version now appears on the Model Portfolios page.

I have three copies of the book holding up the short leg of my desk, and I’m giving them away to faithful readers. Enter the contest by using the nifty widget below. I need your email in order in to contact you if you win, but as always, I never share this information with third parties.

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122 Responses to The Second Coming of the Perfect Portfolio

  1. Russ August 9, 2012 at 9:09 pm #

    Well done on your 2nd edition. On a personal note, I’ve recently sold off portions of a number of my Canadian dividend-oriented equity positions, taking some capital gains (offset by some losses), and have reallocated the proceeds into ETF positions that are somewhat underweight (everything other than Canadian equities!). I’ve also un-enrolled in the synthetic DRIP so that the dividends can accumulate as cash. When the cash is significant enough, I will add to my underweight positions, again through ETFs. I’ve created a somewhat hybrid passive portfolio, combining the Couch Potato with the pension-oriented allocations discussed on Doug Cronk’s blog, Institutional Investing for Individual Investors.

  2. J Martyn August 9, 2012 at 9:30 pm #

    Looking forward to checking out the book.

  3. Echo August 9, 2012 at 9:46 pm #

    Sounds like a significant update to the book. I’ll look out for it the next time I’m in Chapters.

  4. Marc August 9, 2012 at 9:50 pm #

    I loved the first edition of this book – great work keeping it up to date!

  5. LighteningKid August 9, 2012 at 10:10 pm #

    I’m going to feel a bit sorry for your desk if I win… but not enough that I don’t want to!

  6. christine August 9, 2012 at 10:11 pm #

    Have the first edition, read it closely, made lots of changes regarding my personal investing… still making changes. Would love to get the 2nd ed to see if I’m still on track.

  7. Paul G August 9, 2012 at 10:33 pm #

    I really enjoyed the first edition and would love to get to check out the changes with the new edition.

  8. Owen August 9, 2012 at 10:55 pm #

    Sounds like a great resource!

  9. James August 9, 2012 at 10:57 pm #

    I read the first one and eagerly await the second edition.

  10. Darren August 9, 2012 at 11:10 pm #

    Thanks Dan, I’m excited about the 2nd edition, looking forward to reading it.

  11. Profiteer August 9, 2012 at 11:22 pm #

    How come no performance numbers for the Yield Hungry portfolio? As a lump sum investor, I’ve been considering it, along with the Uber-Tuber. Maybe I’ll find the answer in the guide, which I’ll be picking up tomorrow. (I know how I’ll be spending my weekend.) Cheers!

  12. phil August 10, 2012 at 12:23 am #

    Glad for the 2nd book read mine then gave it away and am looking to get the updated version!

  13. Gordon August 10, 2012 at 4:19 am #

    Please count me in. I am fairly new on the blog and would love to expand further on what I have learned so far. Love it.

  14. André August 10, 2012 at 6:36 am #

    Can’t wait to read the new edition! Have gradually moved toward etfs for the equity portion of my portfolio (because of x-tra low interest rates I still prefer holding 3-5 years bonds instead of bond etfs!).
    Your advices have made it much more easier to stick to a long term investment strategy that makes a lot of sense.
    Great work!

  15. Jill August 10, 2012 at 7:12 am #

    I scoured the city for your first edition, unsuccessfully. I can’t wait to get my hands on this! Especially since the updates are particularly relevant to my portfolio and interests. Congratulations!

  16. Canadian Couch Potato August 10, 2012 at 7:51 am #

    @Profiteer: We did not compile numbers for the Yield-Hungry Couch Potato because the indexes have very short track records.

    @Jill: Sorry to hear you had trouble finding the book the first time around. Have you considered ordering online? It’s a few bucks for shipping, but probably worth it in time saved.

  17. Michael August 10, 2012 at 7:53 am #

    Looking forward to the second edition!

  18. Luc-Rock August 10, 2012 at 7:58 am #

    Thanks for updating this guide! I look forward to reading it and trying to convert other people to index investing!

  19. Fahim August 10, 2012 at 8:29 am #

    Count me in! Looking forward to the 2nd edition.

  20. Sandy Kemsley August 10, 2012 at 8:42 am #

    Any chance of an e-book?

  21. John August 10, 2012 at 8:48 am #

    Thanks Dan. You do a great job at keeping things simple and easy to understand for us common folk 😛 I only started doing this a couple years ago, but have appreciated your blog posts a lot. Keep up the good work!

  22. jerri August 10, 2012 at 9:12 am #

    I have a new couch potato portfolio thanks to Justin. Some of my friends are asking questions, and I think this would be a great refrence that will help them decide if they want to become a couch potato too.

  23. Jason St-H August 10, 2012 at 9:40 am #

    Now the only thing missing is an edition in French so I can recommend it to my non-English-reading friends 🙂

  24. Canadian Couch Potato August 10, 2012 at 10:14 am #

    Thanks again for all the kind comments. Will there be a French version and an e-book? To be honest, I doubt it. Sorry.

  25. Colleen August 10, 2012 at 10:18 am #

    Can’t wait to read it!

  26. uptoolate August 10, 2012 at 10:29 am #

    Sounds like a great update. Will definitely take a look. Thanks for the great work.

  27. Patryk August 10, 2012 at 10:43 am #

    I already own the first book. Can’t wait to see what the updates are.

  28. alan August 10, 2012 at 10:59 am #

    Sorry to hear about your desk….

  29. Lori August 10, 2012 at 11:29 am #

    Looking forward to reading it. I’m in the fledgling stages of investing and I enjoy reading your blog. Thanks!

  30. mike August 10, 2012 at 11:35 am #

    Congratulations on your second book

  31. Sam August 10, 2012 at 11:36 am #

    Sounds like a good read to me… thanks!

  32. Maxwell C. August 10, 2012 at 12:00 pm #

    As someone who now has his whole family using a couch potato strategy…I should probably read this, for interest’s sake 🙂

    Thanks again, Dan!

  33. Jaclyn August 10, 2012 at 12:14 pm #

    I missed last year’s edition – looking forward to seeing this one. Thanks!

  34. Jolene August 10, 2012 at 12:23 pm #

    Will look for it at Shopper’s. Have used the Couch Potato strategy as the basis for my portfolio.

  35. Linda August 10, 2012 at 12:43 pm #

    Dan, congratulations on the new edition of the guide to the perfect portolio . It was the first edition of the book together with your blog that gave me the courage to move into DIY. Looking forward to checking out the updates.

  36. Sid August 10, 2012 at 1:12 pm #

    Would hate to make your desk wobbly, but I would love a copy of the book.

    In case I don’t win, is there an electronic version?

  37. Adam August 10, 2012 at 1:35 pm #

    Congrats on book #2! The first did a great job detailing everything on this site and more.

  38. shelly August 10, 2012 at 1:53 pm #

    I just became a potato with help from the first book. Would love to see the changes with the second book.

  39. Tarique August 10, 2012 at 3:44 pm #

    Recently i have noticed that the titles of your articles are a bit confusing – what’s this and that?

  40. Canadian Couch Potato August 10, 2012 at 4:27 pm #

    @Sid: Sorry, no immediate plans for an e-version.

    @Tarique: In think you’re referring to Canadian Capitalist’s blog. “This and That” is the title he gives to his weekly roundup of stories from other blogs and websites.

  41. Bernie August 10, 2012 at 4:32 pm #

    Love your blog! I purchased the 1st edition last fall. Looking forward to the 2nd edition 🙂

  42. boipinoi604 August 10, 2012 at 5:11 pm #

    Looking for funds that holds precious metal bullions to mix in with my asset allocation. Any suggestions?

  43. ronniem August 10, 2012 at 8:10 pm #

    I’m planning on becoming a potato and this would definitely help. Here’s to hoping that a book arrives in the mail!

  44. SophieW August 10, 2012 at 8:36 pm #

    I didn’t get the first version because it sold out, but it would be great to be able to get this version 🙂

  45. Fred August 10, 2012 at 11:52 pm #

    Looking forward to read this new edition! Thank you Dan for all the great blog posts and resources on this website.

  46. Martine August 10, 2012 at 11:54 pm #

    Look forward to reading the new book.

  47. Nelson August 11, 2012 at 12:04 am #

    Got the first. Ready for #2.

  48. Neil August 11, 2012 at 12:18 am #

    Awesome news. Would be great to get this new version as I missed out on the first!

  49. Be'en August 11, 2012 at 3:49 am #

    Have shifted most of my portfolio into ETFs – thanks to your blog (as well as a few others). Read your last book too.

    Would love to read your latest.

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