Archive | January, 2017

Ask the Spud: Can I Make Taxable Investing Easier?

In Episode 4 of the Canadian Couch Potato podcast, I answered the following question from a listener named Jakob:

I’m currently investing with all my ETFs in RRSP and TFSA accounts. This year, however, I’ll finish paying off my mortgage, so I will have more surplus cash and will have to start using taxable accounts. I have been reading your blog posts about adjusted cost base, and they’re helpful, but it still sounds like a pain to track and calculate. I’d consider paying some extra fees for help with this. What options do I have?

Investing in a non-registered account involves a lot more hands-on work than RRSPs and TFSAs. While there’s no such thing as a maintenance-free taxable portfolio, you can certainly make your life easier with a few simple strategies:

1. Consider alternatives to ETFs. Make no mistake: ETFs are generally tax-efficient and they can be a great choice in non-registered accounts. But if you’re a novice index investor, consider other good products that require a lot less recordkeeping. Mutual funds, for example, track your adjusted cost base at the fund level,

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Podcast 4: Charles Ellis and the Index Revolution

For the latest episode of the Canadian Couch Potato podcast, I was privileged to have the opportunity to interview Charles Ellis, who has been called “Wall Street’s wisest man.”

Mr. Ellis’s best-known work is Winning the Loser’s Game, a book that had a big impact on me when I was beginning my education on index investing. After spending decades as an analyst and consultant for pension and endowment funds, here was Ellis arguing that individuals—and even many institutional investors—would be better off simply using index funds. And while that seems like a familiar argument today, Ellis first made it some 42 years ago, in a hugely influential article called The Loser’s Game. That paper appeared in The Financial Analyst’s Journal in the summer of 1975, a few months before John Bogle launched the first index fund at Vanguard.

In our interview, Mr. Ellis and I discuss his latest book, The Index Revolution, which looks back over his long career and concludes that, alas, things haven’t changed very much. The financial industry still behaves as though the data in favour of indexing doesn’t exist—or at least doesn’t apply to them.

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Model Portfolio Update for 2017

After two years with no changes to my Couch Potato model portfolios, the 2017 edition comes with an update to the ETF version.

Before I get to the details, I feel compelled to stress that if you’re currently using the older ETF portfolio, there is absolutely no reason to change. The funds I’ve swapped here are a wee bit cheaper, but the cost of selling your existing ETFs and buying the new ones almost certainly outweighs the benefits. And if the transactions would involve realizing taxable gains, then making a switch is downright nutty. To put this in perspective, the new portfolios will reduce your management fees by 0.03% annually, which works out to 25 cents a month on every $10,000 invested.

I’ve also updated my model portfolios page with historical returns to the end of 2016. As always, we’ve used actual fund performance wherever possible: for earlier periods we’ve used index data, subtracting the fund’s current MER to account for costs.

With that out of the way, here are the changes.

Zigging over to ZAG

First, I’ve replaced the Vanguard Canadian Aggregate Bond Index ETF (VAB) with the BMO Aggregate Bond Index ETF (ZAG).

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Podcast 3: A Hedge Fund Manager Comes Clean

The third episode of the Canadian Couch Potato podcast is now live. You can listen in your browser using the tool below, or download it using iTunes or your favourite podcasting software.

My first podcast of 2017 features an interview with Lars Kroijer, author of Investing Demystified, which will soon be released in a second edition. Based in the UK, Lars is a former hedge fund manager, but today he advises investors to give up the dream of market-beating returns in favour of a simple indexing strategy. As he says in our chat: “It’s my view that the overwhelming majority of investors have no chance whatsoever of beating the financial markets and they should act accordingly.”

Lars outlines his arguments in a new series of YouTube videos. The clips are well-produced and provide a good introduction to the principles of index investing.

What’s your expected return?

In the Bad Investment Advice segment, I scoff at an advisor who recently told one of my readers that he could expect 12% returns from traditional mutual funds. Then I encourage investors to challenge advisors and others who casually mention expected returns without explaining how they came up with their numbers.

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Couch Potato Portfolio Returns for 2016

If you believe the media, 2016 was an annus horribilis: some even dubbed it the worst year ever. I think there were a few years during the Great Depression or World War II that might have been worse, but maybe I’m just being a crank.

In any event, it was actually another solid year for investors—the Canadian equity market soared, and despite the surprising Brexit vote and the election of Donald Trump, foreign equity returns where respectable as well, at least in Canadian-dollar terms. Bonds just inched along, but anyone with a diversified index portfolio—whether conservative or aggressive—saw a nice gain last year.

Here’s an overview of how the major asset classes performed in 2016:

The year started very well for bonds, but interest rates rose late in the year and the broad bond market ended up delivering modest returns. The broad-based FTSE TMX Canada Universe Bond Index finished the year at about 1.7%.
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After a sharply negative 2015 and several years of lagging the US and international markets, Canadian equities rebounded with a monster year, topping 20% for the first time since 2009.

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