Here are the 2014 returns for my Model Portfolios.
The data below are from the funds’ websites whenever available: otherwise I used Morningstar. All ETF returns are based on net asset value rather than market price. Performance of US-listed funds is expressed in Canadian dollars using noon exchange rates from the Bank of Canada.
| Global Couch Potato: Option 1 | % | Return |
| Tangerine Balanced Portfolio (INI220) | 100% | 10.4% |
.
| Global Couch Potato: Option 2 |
% | Return |
| TD Canadian Index – e (TDB900) | 20% | 10.2% |
| TD US Index – e (TDB902) | 20% | 23.1% |
| TD International Index – e (TDB911) | 20% | 2.5% |
| TD Canadian Bond Index – e (TDB909) | 40% | 8.3% |
| 10.5% |
.
| Global Couch Potato: Option 3 |
% | Return |
| RBC Canadian Index (RBF556) | 20% | 9.8% |
| TD US Index – I (TDB661) | 20% | 22.9% |
| National Bank International Index (NBC839) | 20% | 1.7% |
| TD Canadian Bond Index – I (TDB966) | 40% | 7.9% |
| 10.0% |
.
| Global Couch Potato: Option 4 |
% | Return |
| Vanguard FTSE Canada All Cap (VCN) | 20% | 9.8% |
| Vanguard US Total Market (VUN) | 20% | 22.6% |
| iShares MSCI EAFE IMI (XEF) | 20% | 2.4% |
| Vanguard Canadian Aggregate Bond (VAB) | 40% | 8.8% |
| 10.5% |
.
| Complete Couch Potato | % | Return |
| Vanguard FTSE Canada All Cap (VCN) | 20% | 9.8% |
| Vanguard Total Stock Market (VTI) | 15% | 22.8% |
| Vanguard Total International Stock (VXUS) | 15% | 4.5% |
| BMO Equal Weight REITs (ZRE) | 10% | 8.7% |
| iShares DEX Real Return Bond (XRB) | 10% | 12.8% |
| Vanguard Canadian Aggregate Bond (VAB) | 30% | 8.8% |
| 10.8% |
.
| Über–Tuber | % | Return |
| PowerShares FTSE RAFI Cdn Fundamental (CRQ) | 12% | 6.5% |
| iShares S&P/TSX SmallCap (XCS) | 6% | -2.7% |
| Vanguard Total Stock Market (VTI) | 12% | 22.8% |
| Vanguard Small-Cap Value (VBR) | 6% | 20.6% |
| iShares MSCI EAFE Value (EFV) | 6% | 2.9% |
| iShares MSCI EAFE Small Cap (SCZ) | 6% | 3.6% |
| Vanguard FTSE Emerging Markets (VWO) | 6% | 9.7% |
| SPDR Dow Jones Global Real Estate (RWO) | 6% | 29.9% |
| BMO Mid Federal Bond (ZFM) | 20% | 8.7% |
| Vanguard Cdn Short-term Corporate Bond (VSC) | 20% | 3.4% |
| 9.8% |
Lessons from 2014
It was hard to go wrong with any balanced portfolio in 2014, with both equities and fixed income enjoying excellent years. Small caps were the only real laggards, though international equities also delivered lower-than-average returns. Looking back on last year’s performance offers a chance to reinforce some basic investing principles:
- Bull markets can last a long time. In 2013, US stocks returned over 40% in Canadian-dollar terms. I know many investors scaled back their US equity exposure after that huge year, but the US was the best performer again in 2014, topping 22%. (Much of those gains were thanks to a 9% appreciation in the US dollar relative to the loonie.) It’s tempting to wait for a pullback before investing, but the last three years have demonstrated that a pullback might not come for a long time. Opportunity costs can’t be ignored.
- People need to stop saying “interest rates have nowhere to go but up.” Interest rates can also go down, or they can stay flat for a long time. The broad Canadian bond market returned over 8% last year as rates fell—again.
- The big picture is more important than the fine details. Of the four versions of the Global Couch Potato, three saw almost identical performance. The Tangerine Balanced Portfolio lagged the TD e-Series and ETF versions by less than 0.10%, despite an MER of 1.07%. (The main reason is that the underperformance of small-cap stocks benefited the Tangerine fund, which includes only large-cap indexes.) The point is not that cost is unimportant. But if you’re just getting started and you’re intimidated about building an ETF portfolio (and I’ve heard from many readers in this boat), a balanced fund is great choice, even if it isn’t the absolute-lowest-cost option. The price of siting on the sidelines over the last few years has been a lot higher than 1.07%.
Congrats on a successful year with the portfolios.
I am looking at getting on board with one of the model portfolios this coming year.
Do you know of any BMO funds that compare with the Tangerine Balanced Portfolio? I have no trouble with Tangerine, but would like to keep some of these investments along with others I hold.
Thanks much.
Steve
Hi,
Do you have any thoughts on using VUS (the hedged version of VUN) in the portfolio given the recent decline of the CAD? The 22.6% 2014 return for VUN is of course reflective of its unhedged nature but a case could be made that future CAD declines are unlikely and I’d like to limit the forex risk to the investment.
I’m curious as to whether anyone’s looked more into the actual effectiveness of forex hedging in these ETFs.
@CDNInvesting: I don’t recommend using currency hedging, as discussed here:
https://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/
@Steve: BMO has some “Balanced ETF Portfolios,” which are mutual funds that hold ETFs as their underlying assets, but they are expensive:
http://www.bmo.com/home/personal/banking/investments/mutual-funds/navigator/portfolio/bmo-etf-portfolios/list/expenses-and-fees?selectedId=
@Matty: (I’m just another beginner student of the concept of Passive Index Investing).
“Will buying into broad market bond fund now opposes the concept of “buying low?””
The philosophy of Passive Index Investing requires that one abandon the fiction that we can foresee the future. Therefore one cannot know what “low” (or “high”) is except in hindsight. You think hard about your investment horizon, and decide upon the overall asset allocations that you can live with (without any consideration of present and projected supposed market conditions), and then fill all your allocations with the components now, at today’s prices. That’s it.
Readers may be interested in this new blog post from Justin, which analyzes the performance of the Mawer Balanced Fund and others:
http://www.canadianportfoliomanagerblog.com/active-funds-exposed/
For more about how three-factor regressions work, this may be of interest also:
https://canadiancouchpotato.com/2013/11/04/going-on-a-factor-finding-mission/
@CCP. I really enjoy this blog. My ‘folio is similar to the Complete CP.
Now that XEF holds stocks directly does that make withholding taxes a non-issue vs. US based ETFs like IEFA or VEA? The MERs are a touch lower on those funds, but only about 10 basis points.
Also have you heard any rumblings about iShares doing the same thing on XUS and XEC? Or Vanguard Canada moving to holding stocks directly their US and international ETFs? Thanks!
I’ve only started investing into mutual funds last year and I have found your website and articles very helpful. I use both Tangerine (non-registered) and BMO InvestorLine (registered) to invest my money. I am glad that the Tangerine Balanced Portfolio did well last year, but as you know one year doesn’t mean much. I do find Tangerine very easy to invest with (intuitive website, easy to setup automatic saving plans, low fees, etc.).
I’ve also begun looking into the Mawer Balance Funds, which is available through BMO InvestorLine. As some other posters have pointed out, this fund has performed very well throughout the years.
@Bruce: Glad you’re enjoying the blog. The withholding taxes on XEF are still likely to be higher than they are on VEA because of the differences in the tax treaties the US and Canada have with overseas countries: in general, US investors pay lower rates of withholding tax. But the lower cost of transacting in CAD probably makes XEF cheaper overall for most investors.
I’m not aware of any plans to move to a direct-held model with any other ETFs. For the record, it’s not an issue with XUS or other US equity funds. In that case, the withholding taxes are lost in an RRSP and recoverable in a non-registered account whether the stocks are held directly or via an underlying ETF.
Hello Dan,
A thought crossed my mind today. If the Canadian market only represents 4% of the global economy should it not represent 4% of my portfolio?
It may be too simplistic…. I suppose I am just thinking that the logic behind an index fund that is market capitalization weighted may also hold broader truth: should a global equity portfolio also be cap weighted in some way. I wonder why we arbitrarily choose 1/3 Canadian market, 1/3 US, and 1/3 international. There is likely some rational to this, it seems simple enough….
It was just a thought that occurred to my novice mind.
Would you kindly share your thoughts?
@oldie
Thank you. I agree with what you said. Hindsight is always 20/20, and there is no way to predict future outcome. I’m in my late 30s so my investment horizon is still relatively far out.
@Canadian Couch Potato
What do you think about my strategy/approach in order to go back to the broad market bond fund. Do you think it’s a good idea to convert a huge chunk of my cash component into a universe bond index fund in one shot or do it gradually.
Thank you very much for your input.
@kulvir: https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/
@Matty: Here are my thoughts on easing into the market gradually. I understand the desire to do this with equities, because they can fall very hard and stay down for a long time. It seems unnecessary to do it with a bond fund, which is not likely to very volatile.
https://canadiancouchpotato.com/2013/05/28/ask-the-spud-should-i-buy-in-now/
https://canadiancouchpotato.com/2013/05/31/does-dollar-cost-averaging-work/
@kulvir: This question comes up repeatedly, because it is a good one. CCP last covered this in 2012
https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/
I don’t know if all his answers overlap with another reason that I reasoned out that makes sense for me — if we are intending to retire in Canada, then we will be spending Canadian dollars. Therefore it makes sense to have a significant portion of our returns in this same currency so as not to take any currency risk with this portion. I just re-read the post again and I realise now that my reason was incorporated in his answer, except he expands the concept a little, saying if the income part is large and in Canadian bonds, then one can take a bit more risk in foreign equities (and benefit from diversity, I would imagine). I wonder too if, seeing as how a lot of the goods and products purchased in Canada originate in the US, whether investment in US equities are a reasonable hedge equivalent against a relative devaluation of the Canadian dollar compared to the US dollar.
Thanks Dan and oldie
I was amused to read the blog.
The question being answered was almost word-for-word the same as mine.
I had never seen this post before:)
Thanks Dan. I have read your papers multiple times, but the intricacies of investing taxes still trip me up.
I had another look, and if I understand correctly, holding VTI would save the US withholding tax therefore still be cheaper than VUN or XUS (from the PWL Foreign Withholding Taxes paper published Feb 2014). I just switched my RRSP to ETFs last year, and at this point I am not ready to try Norbert’s Gambit, and it would only save me <$300 / yr. Not an insignificant amount if compounded over a decade or two, but since the dream of a perfect plan is the enemy of a good plan, I wanted to get my portfolio built last year, even if it was not absolutely the cheapest I could do.
@Bruce: If you’re comparing VUN (or XUS) with VTI, the advantage of VTI is the fact that it’s a US-listed ETF, and US securities are exempt from withholding taxes in an RRSP. If you use a Canadian-listed ETF that holds US stocks, such as VUN or XUS, withholding taxes add an additional cost of about 0.30% (2% yield x 15%). But you need to balance this against the cost of converting current to buy VTI, which can easily overwhelm the savings from lower tax. So if you are looking for “simple and good enough” as opposed to optimal, the Canadian-listed ETFs are the way to go.
Hi Dan, Thanks so much for your answer. But more importantly thanks for maintaining such an excellent Webpage. Based on this I went away from an advisor and built the portfolio below.
My portfolio looks like this for anyone interested, kinda of ubertuber with an SRI bent. My MER is about 0.6% for the portfolio.
12.5% PH&N COMMUNITY VALUES BOND (mutual fund mid term bonds-sri)
12.5% ISHARES CORE SHORT TERM HIGH QUALITY CANADIAN BOND INDEX ETF
16% ISHARES JANTZI SOCIAL INDEX FUND (large cap CDN etf – sri)
9% Hsbc Small cap growth (Mutual Fund – small cap CDN)
16% ISHARES MSCI KLD 400 Social ETF (large cap US etf – sri)
9% VANGUARD SMALL CAP ETF (small cap US etf)
12 % VANGUARD FTSE DEVELOPED (large cap intl)
6.5% ISHARES MSCI EAFE SMALL CAP ETF (small cap INTL)
6.5% ISHARES MSCI EMERGING MARKETS IMI INDEX
Hello,
Great Blog, really have learned a lot here.
I’m in the process of setting up ‘Model Portfolio #3’ with CIBC Investor’s Edge. It was all going smoothly until I added the National Bank International Index (NBC839), it would seem that CIBC doesn’t offer it? If I am wrong someone please correct me.
I was hoping that someone could offer a good/similar alternative to that fund so I can get my portfolio set up. Thanks.
@Matt: The old name for this fund is the Altamira International Index. Perhaps it;s listed under that name? If it’s not available, you could consider the TD International Index – I series (TDB964).
@Mark: It strikes me that 0.6% is rather high for an ETF portfolio. I looked up KLD and their expense ratio is 0.50%. I would be really conflicted about this issue — I don’t like supporting the industries that are questionable in my view, but the cost of a structure that excludes this by selecting out from the overall stock market of USA seems huge compared to the plain vanilla US stock market funds. But I guess you are stuck with this MER if the issue is essential to your philosophy.
However, it seem that outside of this issue you have also selected other ETF funds with a high expense ratio. In my taxable portfolio I have only two funds that have a high MER. Firstly, FXM, a Canadian value, and to some degree smallish cap fund which has an MER of 0.62%, and I have some misgivings about this choice, but I think I can justify this as a small percentage holding and balanced against a larger batch of conventional Canadian stock ETF (VCE) with much lower MER in the usual economical range. And secondly HXS, with a MER of 0.45% which I justify on account of the annual savings of US withholding tax and Canadian income tax, which would be even more expensive on a net basis when held as conventional US market ETFs in my taxable account.
Hi Oldie, Great comment!
Well my previous portfolio with an advisor was 2.5% MER lol, so its reduced substantially.
The SRI ETFs and bond fund all have MERs higher than 0.5. Also the small cap canadian mutual fund is north of 2%.
Definitely would consider moving from the small cap canadian fund. But I am ok with having a bit higher of a MER for SRI funds. Its a big debate on SRI and how socially responsible they are.
But for me I don’t want to buying Arms companies, its a personal thing. But I do my best to avoid that
It is very interesting to see all of your couch potato strategies generated 10%+@ income. I would prefer the Complete Couch Potato option among others. Since I am in my early 30, I am all in to solid ETFs like VTI and VCE and great dividend companies but 10%+@ income Couch Potato options are very tempting.
@BeSmart Rich: I don’t know if you’re a beginner or if you have extensive investing experience and sophistication; but I’m trying to read something into your comment and to offer a caution. Please don’t take offence if I’m totally off the mark. But don’t make the Newbie error in reading this post which is ONLY ABOUT THE RETURNS FOR THE PAST 2014 YEAR, albeit in a portfolio which is sensible and quite forgiving of equity declines which are bound to happen in significant numbers of years within your investment horizon, and translating this in your mind as a portfolio that is likely to generate somewhere in the region of 10% annually more or less all the time. I hope by stating the latter false premise as boldly as I did I can demonstrate how it obviously can’t be so, and should not be equated as such.
Even the favourable geometrical mean annual return over the last 25 years, which might be closer to a more reasonable prediction of future returns has been heavily influenced by exceptional bond returns which were due to particular and specific conditions of gradually falling interest rates, and thus very unlikely (?impossible) to be matched in the future.
@Oldie:
Did you have the chance to check with your MD management advisor if they do calculate their ACB correctly with CDS innovation database?
Sorry if I’m duplicating a question found elsewhere, but you used to have historical returns (1, 5, 10, 15, 20 year or something like that) for your different portfolios all in one nice presentation. I can’t find that anywhere now. Is it gone because you changed the content of your portfolios? I found that useful to refer to.
@Kurt: The long-term performance of the portfolios is still there (linked on the Model Portfolios page), but each of the three portfolios now has its own one-page PDF.
@CCP: Hey Dan, I was wondering why you don’t talk about the Mawer balanced fund? It has lower MER than the tangerine balanced fund and has performed better from what I can see. You can also buy it with an online brokerage like TD investing and has a low 5000$ minimum inicial purchase compared to 50 000$ if you buy directly from Mawer.
With the very good advice you give, I went with the tangerine balanced fund TFSA last december. Still too early to say , but today i’m up more than 1200$. I started with 15 000$. This is for long term investing.
Now i’m rethinking of opening a TD direct investing account and have the Mawer balanced fund in a TFSA and transfer my tangerine to the Mawer. This way when I get to around 50 000$ I will already be able to switch to e-series or ETF if I want to. What do you think?
Should I just stick with Tangerine for now?
Thanks for the great job you are doing with CCP.
@Steve L: I have nothing against the Mawer fund, which is low-cost option with a good track record. If I had to recommend an actively managed balanced fund for someone who wanted 60% equities and 40% bonds it would likely be my choice. But my model portfolios are all index funds.
Remember, too, that some brokerages don’t even offer the Mawer fund, and the $5,000 minimum is a barrier for some investors. Among the best features of the Tangerine funds is that you don’t even need to open a brokerage account and there is no minimum investment, which makes them ideal for new investors.
@CCP: Thanks for the reply. That is true. Tangerine is so easy to setup. Thats why I like it. I have it setup to automatically transfer money every month.
Another thing, I also have some rrsp with tangerine, but its sitting there in a savings account. Would it be better to put in a balanced fund?
@Steve L: In general, long-term savings like RRSPs should probably not be in cash. But I can’t make any specific recommendations for you.
Thanks Dan. What do you usually suggest in % of asset allocations. Should I go more towards bonds in the rrsp and more equity with my tfsa?
@Jas: I received a preliminary reply from the MD Management advisor. He confirmed that the legal onus is on the investor to make sure that the info is correct. They make every effort to be accurate, but there are certain circumstances that cause inaccuracies. He gave some examples, investments where purchases involved currency conversions, investments where the companies corresponded directly with he investor but failed to inform MD management. They do not use the CDS innovation database. He is forwarding my query to the investor advisor team, and there may be a subsequent answer.
Excellent post.
I has been using mostly e-series the last couple years and have no complaints.
I have started to dabble in ETF’s but am in no rush to covert everything over.
Key is to keep plugging away and hope the market keeps going in the ^ direction.
As I move into complete DIY mode, I believe it critical to measure my portfolio performance against a benchmark. Is the Couch Potato portfolio compared to the respective indices? Do you assume that they are tracking the index minus MER? It seems to me some ETFs miss the mark.
And why is it so hard to find the annual index returns in Canadian $ for a calendar year? Some of the fund companies show the comparison but often there are small differences that I can’t explain. Some use Total Return, a few don’t.
Morningstar and Globe use their own benchmarks and even then you can’t get the cumulative measure unless you catch it right after Dec 31. Now only showing 1/3/5 year as of Feb 2015, not much use to me in evaluating my progress. iShares site is good because you can change the end date but I would like a second, more neutral resource.
If anyone has found a site that lists market index returns as of Dec 31, I would really appreciate it if you would point me to it.
@Helen: I keep a close eye on the tracking error of the funds I recommend:
https://canadiancouchpotato.com/2013/04/18/how-well-does-your-etf-track-its-index/
My firm, PWL Capital, publishes index returns every month:
https://www.pwlcapital.com/en/The-Firm/Market-Statistics
My colleague Justin Bender offers an Excel tool to help you benchmark your portfolio:
http://www.canadianportfoliomanagerblog.com/calculators/
Libra Investment Management offers a spreadsheet with calendar-year index returns in the major asset classes, updated annually:
http://libra-investments.com/Total-returns.xls
Excellent, thanks for the references.