Archive | 2017

Podcast 11: Fighting Evil With Index Funds

The waiting is over: we’re back with another episode of the Canadian Couch Potato podcast:

Our featured interview this time around is with Mike Foy, senior director of the Wealth Management Practice at J.D. Power, the well-known research firm. Mike was the lead author on the Canadian Self-Directed Investor Satisfaction Study, released in September. The survey included some 2,500 clients of the major online brokerages in Canada.

The full J.D. Power survey is not available to the public. But if you’re interested in comparing online brokerages in Canada, MoneySense has been doing an annual survey since 2013, and I was closely involved in establishing the criteria and writing the articles during the first couple of years. The 2017 edition includes a handy comparison tool that lets you scan for the features that are most important to you.

If you want to dig more deeply, you can visit the website for Surviscor, the research firm that provides the raw data for the MoneySense rankings.

Rob Carrick and the Globe and Mail also do an annual review of online brokerages and robo-advisors.

Continue Reading 17

How T+2 Settlement Affects ETF Investors

These days we’re used to financial transactions that happen instantly. Buy groceries with your debit card and you see your bank account updated immediately. Send a friend money with an Interac transfer and it’s in their hands in seconds. Yet when you buy or sell an ETF or mutual fund, the trade doesn’t settle for three business days, a practice known as T+3. It’s a convention that seems as outdated as traveller’s cheques.

The good news is this is about to change: on Tuesday, September 5, markets in Canada and the United States will be moving to a T+2 cycle, with settlement two business days after the trade.

This change will mostly affect financial institutions and their intermediaries, but if you regularly buy ETFs, mutual funds, and other investments through an online brokerage there are a number of details you should understand.

Out of order

Before diving into the details, let’s review what settlement means in this context. A trade is considered settled when the buyer has delivered the cash to the seller, at which point ownership of the security officially changes hands. Strictly speaking, you don’t have to pay for your ETF or mutual fund units until three business days after you make the purchase.

Continue Reading 18

Podcast 10: MoneySense, We Hardly Knew Ye

If you’ve been a reader for a while, you know that I have a long association with MoneySense, a magazine I contributed to for some 15 years as a feature writer, columnist, and editor. MoneySense didn’t invent the Couch Potato strategy, but the magazine brought the idea to Canada around the turn of the millennium, when index funds were rare and ETFs were almost completely unknown to the public.

But times are tough for print media, and at the beginning of this year MoneySense published its last magazine and made the transition to an all-digital format, including a lineup of free newsletters.

In my latest podcast, I sit down with David Thomas, who was named editor-in-chief at the magazine in late 2015 and still oversees the MoneySense and Canadian Business brands at Rogers Media. We chat about the magazine and as well as the evolving role of the financial media.

Worlds apart

Do you still need international diversification in your portfolio? That’s the question I tackle in this episode’s edition of Bad Investment Advice.

I’ve recently received questions from readers and listeners about whether investors really need international diversification in their portfolios.

Continue Reading 18

RBC Revamps Its Index Fund Lineup

In my last post, I reviewed RBC’s forthcoming lineup of traditional ETFs, which will appear later this summer. The launch of these ETFs will also spark some changes in RBC’s index mutual funds: they’ll be getting new benchmark indexes and lower fees, and in some cases they’ll use the new ETFs as their underlying holdings. It’s good news for investors who want to use index mutual funds rather than ETFs, so let’s take a closer look.

We’ll start with the two equity funds that will see only a new benchmark, with no change to their structure.

The RBC Canadian Index Fund (RBF556) currently tracks the S&P/TSX Composite Index, but as of September it will be pegged to the FTSE Canada All Cap Domestic Index. (You can find the factsheets for all of FTSE’s indexes here.) These two indexes are very similar, so this is not a terribly meaningful change. The FTSE index is the same one tracked by the soon-to-be-launched RBC Canadian Equity Index ETF (RCAN), but the mutual fund will not use this ETF as its underlying holding—at least not yet.

Continue Reading 46

RBC Gets Back to Basics With New ETFs

When RBC entered the ETF marketplace back in 2011, it tested the waters with a family of specialized bond ETFs. Since then they’ve created a number of equity ETFs, all with active strategies. However, RBC recently filed a preliminary prospectus for a new family of plain old index ETFs covering the core asset classes you’ll find in a classic Couch Potato portfolio.

Normally the appearance of more “me too” ETFs wouldn’t be newsworthy, but RBC’s entry is interesting for a couple of reasons. First, the new lineup will include at least one unique product: a global bond ETF. And second, it will significantly improve the bank’s lineup of index mutual funds.

I’ll discuss the mutual funds in my next post. For now let’s look at RBC’s seven new ETFs, which will hit the market in early September. The four equity ETFs are traditional cap-weighted funds of large and midcap stocks:

ETF name
Ticker
Benchmark index

RBC Canadian Equity Index ETF
RCAN
FTSE Canada All Cap Domestic Index

RBC U.S. Equity Index ETF
RUSA
FTSE USA Index

RBC International Equity Index ETF
RINT
FTSE Developed ex North America Index

RBC Emerging Markets Equity Index ETF
REEM
FTSE Emerging Index

All of the new funds track indexes from FTSE,

Continue Reading 19

Podcast 9: Finding Common Ground

Does the whole “active versus passive” debate miss a key point about what leads to successful investing? Why do investors focus on “mutual funds versus ETFs” when neither structure is inherently superior? These are some of the topics I discuss with Tom Bradley in my latest podcast:

Tom is the co-founder and president of Steadyhand Investment Funds, based in Vancouver. Steadyhand believes strongly in active management: they even call themselves “undex funds,” because their goal is to look like nothing like the benchmarks. But if you spend any time reading Tom’s articles in the Globe and Mail, MoneySense, and on the Steadyhand blog, you’ll notice there a surprising amount of overlap in our messages. I noted this some six years ago when Tom released the first edition of his book, It’s Not Rocket Science.

Tom and I both understand that, whatever your specific strategy happens to be, the fundamental ingredients of a successful plan are low cost, broad diversification and a disciplined strategy you will adhere to over the long term.

Continue Reading 18

Ask the Spud: Should I Switch All at Once?

In Episode 8 of the Canadian Couch Potato podcast, I answered the following question from a listener named Remy:

I want to move away from my stocks and mutual funds in order to build a Couch Potato portfolio with ETFs. What is the best way to do this? Should I sell everything at once and pay all of the taxes this year, or should I sell my assets over a longer period, like two to three years?

Many investors in Remy’s situation have made that all important first-step: committing to an indexed strategy. But now they’re unsure about how to liquidate their existing portfolio and build the new one. Should you clean house and do it all at once, or take a more gradual approach?

This is an easy decision if all of your investments are in RRSPs and TFSAs. Since there are no tax consequences to selling your existing holdings, you should just liquidate all the holdings right away. But Remy is investing in a non-registered account, and if he’s held his stocks and mutual funds for several years, he’s probably sitting on large unrealized capital gains,

Continue Reading 24

Podcast 8: Couch Potato With a Conscience

Are you interested in indexing but uneasy about the idea of investing in certain “sin stocks”? In my latest podcast, I look at whether you can be a Couch Potato investor and still stay true to your values.

The episode features a detailed interview with Tim Nash, a financial planner, creator of the Sustainable Economist blog and a specialist in socially responsible investing (SRI), with a particular expertise in green ETFs. I first interviewed Tim here on the blog back in 2013, and since then he has been my go-to guy on sustainable investing.

During the interview we discuss several ETFs. Here are links to the ones Tim mentions:

iShares Jantzi Social Index ETF (XEN) offers exposure to 50 large-cap Canadian companies weighted according to environmental, social, and governance (ESG) criteria.

iShares MSCI KLD 400 Social ETF (DSI) is one option for large-cap US stocks. According to Tim: “Really what they’re trying to do is to replicate the S&P 500, but getting rid of the worst of the worst companies.” The fund drops the lowest-ranking 20% of stocks based on their ESG scores.

Continue Reading 34

Bond Basics 3: Should You Wait for Higher Yields?

In my last podcast, I set out to answer a series of common questions about bonds. Here’s one I’ve been hearing on and off since 2009: “With yields so low now, is it even worth it to invest in bonds? Wouldn’t I be better off waiting until interest rates go up?”

It’s true that interest rates are near historical lows: as of early May, 10-year Government of Canada bonds are yielding just over 1.5%, and a broad-based bond index fund like the ones I recommend in my model portfolios yield a little less than 2%. It’s hard to get excited about that, especially when equity returns have been so strong in recent years.

It’s also hard to tune out the financial media, which is still populated by gurus who warn interest rates have “nowhere to go but up.” Since rising rates will cause the value of bonds to fall, why not just stay out of bonds until yields are higher?

The first thing to discuss is this idea that interest rates are highly likely to go up in the near future. I don’t think we can take people seriously anymore if they continue to beat this drum.

Continue Reading 38