About
Welcome to Canadian Couch Potato. This blog is designed for Canadians who want to learn more about investing using index mutual funds and exchange-traded funds (ETFs). The Couch Potato strategy—also called index investing, or passive investing—is growing in popularity as more people become disillusioned with mutual funds and stock-picking strategies that try, usually in vain, to beat the market.
The blog’s creator is Dan Bortolotti, a professional journalist who has written about personal finance for many Canadian magazines, including MoneySense, Financial Post, More, Chatelaine and Today’s Parent. He completed the Canadian Securities Course in 2009.
During his work, Dan has spoken to many small investors who have been badly served by the financial industry. Advisors put these investors’ money in high-cost, poorly performing mutual funds, or in undiversified portfolios of individual stocks. Many of these hard-working savers had little idea how or where their money was invested, or how much risk they were taking on. In many cases, their portfolios were wholly inappropriate and absurdly expensive.
After reading Dan’s articles about the Couch Potato strategy, many investors contacted him directly. They loved the strategy, but they weren’t sure how to implement it. Should they buy index mutual funds or ETFs? How should they compare one ETF to another? Which asset classes should they invest in, and in what proportion? The answers are not straightforward, and while there are many books and websites devoted to index investing, virtually all of them are aimed at US readers. Nothing similar has been available in Canada—until now.
If you’re a Canadian investor who is thinking about embracing the Couch Potato strategy—or if you’re already one of the enlightened—you’ll find all the information you need right here.
Dan – we’ve been following your writings on the Couch Potato strategy for awhile now. Great to see that you are now blogging on the subject. As neophyte investors holding mutual funds with high MERs, the Couch Potato strategy makes sense to us. However, after the market mayhem in 2008 we’re edgy about selling mutual funds that may have incurred a loss. By selling those actively managed funds wouldn’t we just be locking in the losses? Or, is the Couch Potato/ETF strategy a bet that one will eventually win back those losses over time from lower fees and improved investment performance (i.e., passive management over active)?
Keep on blogging Dan. We’re long overdue for a respite from high MERs and financial advisers who are rewarded to sell mutual funds rather than look after client interest.
Thanks for the note, Jim. RE: locking in losses by selling your mutual funds, it doesn’t make a lot of sense to hang on to an underperformer with high fees. If you sell an actively managed fund and buy an index fund or ETF in the same asset class (for example, dumping an overpriced Canadian equity fund and buying a Canadian equity index fund or ETF) you can take advantage of future growth at much lower cost. That’s selling low and buying just as low, which is not the same as chasing performance.
The only thing you should be concerned about is whether any of your funds have deferred sales charges that will kick in if you sell. If that’s the case, it is sometimes better to wait until those fees no longer apply, and then sell them. Good luck!
Thanks Dan. Very helpful guidelines in making a decision. Luckily, very few DSCs and back end loads on the mutual funds as they were bought quite awhile ago. What hurts the most though is the underperformance coupled with the high MERs. Ouch.
Jim
Hi Dan,
Thanks for taking the initiative to create this blog, I am looking forward to following your thoughts on self-managed portfolios. For years I had been questioning the performance and fees of my advisor, and in 2009 I cashed out and began acting as my own advisor with a portfolio of self managed ETFs. I could not be happier with the results so far, and the impact to my bottom line after jettisoning the substantial quarterly fees! The support of blogs like yours and others such as Canadian Capitalist can only help to enable more of us to break free from a system that is designed to profit from us, not for us.
Thanks, Steve. Congrats on taking control of your own finances, and I hope you’ll find the blog helpful!
I would like to mirror Steves thoughts. I hope this Blog catches on “FIRE” and it wakes up many sleeping people. I struggle at work to explain to upper management just how much the employee’s at my work lose being in a DC plan with a well know Insurance/M.Fund comapny. 1.8% to 2.8% MER’s in funds that historically underperform.
So many just don’t get it or refuse to take a few minutes out of their busy lives to see just how ripped-off we are blindly contributing to mutual funds and paying there exhorbitant & deliberately complicated fees.
I agree this discussion is long overdue. So is a regulatory system to
stop the highway robbery that mutual fund companies have been doing
for years. If you recall it was years before we even knew what a MER
was and years after that before we knew how to determine how funds
compared to the indexes only to find out way late that they could not come
close to beating the indices. They knew all of that but we didn’t and they made damn sure we didn’t. It wasn’t until ETF’s became common knowledge
that we found out these valuable pieces of information. If the ordinary
Joe was getting his due those guys would be made to pay come kind of
compensation for this rip off. I still have some but like Jim I’m hesitant to sell until the markets are back enough not to take a big
loss but I guess that doesn’t make a great lot of sense either.
Thanks for the comment, Bud. I had an interesting conversation recently with an investor advocate, and he made the point that investors can call for thee regulatory agencies to step in, but it’s futile. The industry lobby is simply too powerful.
The only way things will improve is if investors simply get out of bad mutual funds and invest elsewhere. Now that there are low-cost alternatives, investors have to take the lead here. I believe things are improving, but we’ve got a long way to go.
[...] Bortolotti has recently launched an entire blog devoted to Couch Potato Portfolios. I see it quickly becoming a very popular [...]
Thanks for such great information. I have a question though- I met with an investment advisor whose comment about ETF’s vs an active manager is that the manager comes in handy when the markets take a downturn, and can actively go into a defensive position. The advisors comment was that with Index Funds, the index goes down with the market, and is not actively managed to preserve capital. I would appreciate your thoughts on this matter.
Nick
Nick: Glad you found the blog. The advisor’s argument is at the heart of the active-versus-passive debate. The short answer is that he has no idea when the markets will take a downturn, and no idea when they will head back up. He may be right some of the time, and be able to protect you from loss temporarily, but then he’ll usually miss the boat when the markets go back up. Over the long run, the advisor will be wrong at least as often as he is right, and the added trading, the taxes it incurs, and the fees he collects will add up to below-market returns for at least 70% to 90% of the people who try it. Your advisor, on the other hand, will do very well no matter what the markets do.
You may want to check out this article in MoneySense, where I address this question and several related ones:
http://www.moneysense.ca/2009/02/01/investing-how-i-became-a-couch-potato/
I’d also suggest reading two of the books I include on my Library page: The Little Book of Common Sense Investing and The Smartest Investment Book You’ll Ever Read. Both are very brief and are great introductions to the basics of index investing. Good luck!
Dan