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.
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 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 Couch Potato | Complete Couch Potato | Uber-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 deviaton | 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.
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.
Looking forward to checking out the book.
Sounds like a significant update to the book. I’ll look out for it the next time I’m in Chapters.
I loved the first edition of this book – great work keeping it up to date!
I’m going to feel a bit sorry for your desk if I win… but not enough that I don’t want to!
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.
I really enjoyed the first edition and would love to get to check out the changes with the new edition.
Sounds like a great resource!
I read the first one and eagerly await the second edition.
Thanks Dan, I’m excited about the 2nd edition, looking forward to reading it.
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!
Glad for the 2nd book read mine then gave it away and am looking to get the updated version!
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.
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!
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!
@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.
Looking forward to the second edition!
Thanks for updating this guide! I look forward to reading it and trying to convert other people to index investing!
Count me in! Looking forward to the 2nd edition.
Any chance of an e-book?
Thanks Dan. You do a great job at keeping things simple and easy to understand for us common folk :-P I only started doing this a couple years ago, but have appreciated your blog posts a lot. Keep up the good work!
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.
Now the only thing missing is an edition in French so I can recommend it to my non-English-reading friends :)
Thanks again for all the kind comments. Will there be a French version and an e-book? To be honest, I doubt it. Sorry.
Can’t wait to read it!
Sounds like a great update. Will definitely take a look. Thanks for the great work.
I already own the first book. Can’t wait to see what the updates are.
Sorry to hear about your desk….
Looking forward to reading it. I’m in the fledgling stages of investing and I enjoy reading your blog. Thanks!
Congratulations on your second book
Sounds like a good read to me… thanks!
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!
I missed last year’s edition – looking forward to seeing this one. Thanks!
Will look for it at Shopper’s. Have used the Couch Potato strategy as the basis for my portfolio.
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.
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?
Congrats on book #2! The first did a great job detailing everything on this site and more.
I just became a potato with help from the first book. Would love to see the changes with the second book.
Recently i have noticed that the titles of your articles are a bit confusing – what’s this and that?
@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.
Love your blog! I purchased the 1st edition last fall. Looking forward to the 2nd edition :)
Looking for funds that holds precious metal bullions to mix in with my asset allocation. Any suggestions?
I’m planning on becoming a potato and this would definitely help. Here’s to hoping that a book arrives in the mail!
I didn’t get the first version because it sold out, but it would be great to be able to get this version :)
Looking forward to read this new edition! Thank you Dan for all the great blog posts and resources on this website.
Look forward to reading the new book.
Got the first. Ready for #2.
Awesome news. Would be great to get this new version as I missed out on the first!
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.
It’s interesting to compare the couch potato portfolio returns to low cost balanced mutual funds like Mawer:
Mawer Balanced Fund
3-Yr 3.2%
5-Yr 8.9%
10-Yr 6.1%
Quite similar to the complete couch potato!