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.
| Â Global Couch Potato: Option 1 | % | Return |
| Tangerine Balanced Portfolio (INI220) | 100% | 10.4% |
.
| Â 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% |
.
| Â 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% |
.
| Â 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% |
.
| Â 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%.
With bonds performing well in 2014, I expected my own 2014 results to be close to your model portfolios. But my 14.12% is 3-4% higher. I guess the difference is my higher exposure to U.S. stocks. I’ll enjoy my edge while I can. I may give it all back in 2015.
Are you making any changes to the recommended Funds for the Portfolios for 2015??
thanks
@cecilhenry: I will update the model portfolios before the end of the month.
Hi Dan, maybe I missed this, but are these the returns after MERs? I assume they are. Thanks.
Did you use total returns for 2014? That is, including dividends paid out?
@Dan: Are you going to summarize your update to the model portfolios in a post?
@Ben and Simon S: All figures are total returns (assuming dividends reinvested) and net of MERs. This is how all fund returns are measured.
@Que: Yes, all will be explained in detail.
Thanks for all the great info on indexes and ETFs on your site!
FYI…The Tangerine Balanced Portfolio has an additional TER of .01% on top of the MER of 1.07%, for a total cost of 1.08%. I have this fund and recently printed the fund facts.
https://www.tangerine.ca/pdfs/en/Tangerine_Balanced_Growth_EN.pdf
Many thanks!
Did CDSinnovations close its door to the public?
Is there another website that posts ETF tax breakdown?
Hi Dan,
When I am benchmarking my portfolio performance should I measure it against the ETF returns or the underlying index returns? Also – should I be using NAV based returns instead of market price based returns for my benchmark?
Impressive results again from the Tangerine Balanced Portfolio. For the ease of use through your general online tangerine banking account its an easy option to get started out with.
Incredible! Thanks for this information, Dan. It doesn’t matter what historical numbers I show others, they often moan about bonds and how if I was smart I’d go all out equities. Recency bias has gone rampant lately. They speak of the bond section of my portfolio as though it’s failed miserably while overall it’s been the star of the last 5 years. And again–8.3%?! I’ll take that for owning a less risky asset class. Any day of the week!
@Anton: The CDS Innovations site has changed its architecture and the link in the paper is no longer active. Here is the new one:
http://services.cds.ca/applications/taxforms/taxforms.nsf/Pages/-EN-LimitedPartnershipsandIncomeTrusts?Open
@Michel: Great questions. I think it’s more realistic to benchmark your personal portfolio against ETF returns rather than the indexes themselves, since ETFs are investable and indexes are not. I always use NAV returns, since this makes it easier to compare funds from different providers. Vanguard and BMO publish both NAV and market price returns, but iShares publishes only NAVs.
@Edward: Yes, I do think people have a tendency to underestimate what bonds have done in recent years. That said, I feel the need to caution you that it’s not realistic to expect 5% to 8% bond returns going forward with the yield on broad-based bond funds at around 2.5% or less. I just encourage people to be realistic with their expectations, understand the risk, and not pretend that they know how interest rates will behave.
Hello Dan,
I continue my reading and learning. While most of what I read reinforces what makes sense to me – that is a passive approach with diversified index funds do as well or surpass the after fee returns of “investing gurus”.
I have however recently read The Single Best Investment by Lowell Miller. While there is much to be learned my novice investing mind finds some fallacies in his argument. Nonetheless, he is not shy to mention several times that his company has beat the S&P 500 by a significant margin since 1997. He provides no data on this however.
Norm Rothery also publishes Canada’s 100 best dividend stocks in Moneysense every year and has also not been shy in the past about the outperformance of his Class A and B stock picks over the index.
As a newbe the doubt naturally arises – could it be that these “experts” are consistently beating the market?
You thoughts, as always, are appreciated.
Thanks for the update Dan. Blown away by those bond returns.
I am wondering if you (or anyone else) knows where I can find Couch Potato annual returns over the long term (say last 20 years). Dan, you posted the annualized results here:
https://canadiancouchpotato.com/wp-content/uploads/2014/01/CCP_Model_Portfolio_Performance_1994-2013.pdf
But I was looking for actual returns each year (i.e. 2001: -5%; 2002: +10%; and so on). Any idea where I could find this data?
Thanks!
Once again, the Mawer Balanced Fund beats them all.
Aw poop. I was too scared to put a lumpsum in Tangerine All Equities so only got 3% cause I DCA up. Didnt expect their Balanced fund to do similar as Equities in 2014.
For 2015, invest in oil! >:P
+1 on Mawer Balanced. It is such a great choice for those people that want everything in a single fund.
12.1% return for 2014 and has beaten Tangerine Balanced every year since its inception (6 years).
@Scotty: Norbert Schlenker of Libra Investment publishes a spreadsheet of index data that you can easily use to calculate the annual return of any index portfolio you’d like to test:
http://libra-investments.com/Total-returns.xls
Norm Rothery’s asset mixer is a similar tool:
http://www.ndir.com/cgi-bin/downside_adv.cgi
@Kulvir: Lowell Miller’s book is very persuasive, though as you noticed, there are some fallacies in the arguments. For me the biggest issue is that he repeatedly implies that reinvested dividends are some uniquely powerful property, when in fact any investment can generate compounded growth: you don’t need to be a stock picker to benefit from compounding. You may like to revisit the series I did a few years ago on this topic:
https://canadiancouchpotato.com/2011/01/18/debunking-dividend-myths-part-1/
Norm Rothery, my colleague at MoneySense, is one of the smartest people I know. Not only is he a highly skilled stock analyst, he’s also an extremely disciplined value investor. However, my guess is that few people have actually achieved those outsized returns over the years, because they do not share his patience. I also think Norm would also acknowledge that in most years his stock screens do not produce enough picks to build a truly diversified portfolio. So anyone who buys these stocks should probably do so with only a portion of their portfolio.
Bottom line, it’s just not true to say “it’s impossible to beat the market.” Clearly it’s possible: many people have done it. It’s just very difficult, and the vast majority of people who attempt end up failing. At some point it makes sense to stop wasting time and energy on an activity with so little chance of long-term success.
Dan, thanks for the year-end summary. I’ve been a couch potato for almost 2 years now and love the “set it and forget it” approach. I never have to worry about short-term market events because I know that my long-term (30 years til retirement) is taken care of through the couch potato philosophy.
If anyone is interested, I’m a global couch potato (option 2) with RBC-only index funds with a 25-25-25-25 spread. Just checked my statement and it indicates a 11.1% return, which is in line with the TD-based portfolio in your model above.
@Canadian Couch Potato
Quick question.
Last year was the first year I undertook index investing using mutual funds (RBC D Series). I noticed you quote a MER of .06 for XIC. When I request a quote from RBC Direct Investing, the MER shows as 0.27%. Same as with TD Waterhouse. Only thing is TD shows the 0.05% as a Management Fee and the 0.27% as the MER.
Am I misreading something? From my appearance, the MER spread between ETFs and Index Mutual funds is a lot tighter?
Hi Dan and All,
One quick question/comment (as someone who invests Uber Tuber style), any reason why PowerShares FTSE RAFI Cdn Fundamental (CRQ) had a return of 6.5% as compared to the other portfolios whose Canadian large cap component all returned around 10%?
Are there fundamental differences here that I dont understand?
Thanks a lot
@TB: iShares cut the fee on XIC and several other funds in the spring of 2014. The MER reported by RBC and other sources is based on the last full year of data: this should be updated soon.
@Mark: The RAFI Fundamental indexes use a different methodology: they do not simply track the broad market like the other index funds in the model portfolios. In general, the RAFI indexes will outperform when value stocks, dividend stocks, and small/mid cap cap stocks outperform. 2014 was a bad year for all of these styles, so it underperformed.
@CCP: This post is complete in itself and I’ll bet experienced readers will be starting to eagerly anticipate this review every year. However, I bet the Complete Couch Potato 2014 analysis would provide even more insight for most readers in conjunction with an extension of your previous “Asset Periodic Table “to include 2014! I’m not sure where you would put it, though. Resources?
Hi Dan, I’m a long time follower of this great site and have, over the last few years, shifted most of my portfolio into passive , diversified etf’s–some cap weighted and some fundamental. But I have held onto a chunk of Mawer 104 because it has had an annoying habit of beating my best efforts. Any idea how their conservative balanced portfolio has so handily beat the couch potato and, more to the point, Tangerine? I believe the yield was well north of 15% for 2014.
As always,
Thanks!
JQ
I just took a quick look at that Mawer balanced fund. It’s MER is only 0.96%, which is great for an actively managed fund. The main reason passive funds tend to outperform on average is not because they’re passive, but because they have low fees. So I would expect that Mawer fund to outperform Tangerine by a bit on average for that reason alone. (Although I’m not certain whether that includes the MERs of the funds it holds (which are relatively low for the “O” class), or if those are a separate expense for the fund.)
Another factor is that, according to the fund description, “The Manager’s traditional equity approach of systematically buying wealth creating companies at a discount to intrinsic value is used to construct the equity part of the portfolio.” In other words, value investing. It is well known that there is a “value premium”, so again, it is expected that over the (very) long term, a fund that tilts toward value stocks will outperform. (This can be done with passive funds as well.) The common (but not consensus) belief is that there is an associated risk with this premium though, so those additional returns aren’t necessarily free.
Finally, when comparing active investments, 6 years is an extremely short timeframe. It’s entirely possible that any difference over that period is simply due to luck.
Anyway, it really doesn’t look like a bad investment for someone looking for an all-in-one fund with a value tilt. (Of course, if one wanted to go the ETF route, they could do something similar to CCP’s “Uber Tuber” portfolio to tilt to value at much lower cost.)
The Mawer Balanced Fund has outperformed the couch potato portfolio over a 5, 10, 15, and 20 year period. I would say that is more than luck. As for the lower cost than an ETF portfolio, what counts in the return – net of fees. Mawer wins hands down.
Dan, could you direct me to past years portfolio returns, ie. 2013, 2012 as far back as possible.
Thank you for your no nonsense site, a breath of fresh air.
John eversfield
@John Eversfield: Welcome aboard. Here are the links to the previous three years:
https://canadiancouchpotato.com/2014/01/09/couch-potato-portfolio-returns-for-2013/
https://canadiancouchpotato.com/2013/01/11/couch-potato-portfolio-returns-for-2012/
https://canadiancouchpotato.com/2012/01/09/couch-potato-portfolio-2011-returns/
@jessie: How long have you owned the Mawer fund in your portfolio?
Supreme information as usual, thanks.
Just curious… I share your fondness for Vanguard so I understand the choice of VUN but am suprised to see XEF for the international exposure and would have thought VDU would slot nicely in that position. Is there some glaring reason that XEF is preferable?
Thanks for the hard work in putting all this together Dan!
I was examining XEF and XEC’s tracking errors, which seem quite sizeable (1.24% and 2.24%, respectively), when I noticed that the US equivalent versions of these funds, IEFA and IEMG, enjoyed a much smaller tracking error.
Is there any particular reason for this discrepancy? It doesn’t make much sense to me that XEC had a tracking error of over 2% while it’s core holding, IEMG, had a 0.25% tracking error.
@Franko: Great question: I am working on a blog post about this very issue. It’s complicated, but the short answer is that tracking error on international equity ETFs is always higher because of foreign withholding taxes, and can be temporarily distorted further because of time zone issues. I wrote about this in the past, but will be addressing it again in a future post:
https://canadiancouchpotato.com/2010/04/23/international-tracking-error-part-1/
@jerry: Two reasons. First, XEF tracks a broader index, with more mid-cap and small-cap stocks. Second, XEF holds its stocks directly, whereas VDU uses an underlying US-listed ETF that results in an added layer of foreign withholding taxes. That said, VDU is a perfectly good fund if investors want to stick with Vanguard.
I’ve been a side-liner for most of 2012 and 2013 due to some illogical bias that we are at all time highs…indeed the opportunity cost has been too great. I’ve started entering now in 2015 at even worse prices you can imagine…….question is, is it smart to hedge some of our equity exposure through options?
Dan,
I’m just in the process of switching my RSP into CCP Option 4. Trying to decide between VTI or VUN though – with the Moneysense articles about asset location and foreign withholding taxes, I don’t understand how VTI and VUN could perform so closely (0.2% difference). That hardly makes it worthwhile to exchange $80K CAD into $70K US and loose big on the exchange, even using Norberts gambit.
What’s the real advantage of VTI over VUN?? Is it really only 0.2% annual return difference?
Sorry for the duplicate post, but you seem to replying here, but my post on Moneysense is still in moderation with no discussion.
Thanks!
Sven
@Sven: One should expect the cost difference between VUN and VTI to be about 0.42%: about 12 bps for the difference in MER and an additional 30 bps due to foreign withholding taxes (based on a 2% yield taxed at 15%). If the difference came out to less than that in 2014 it’s likely the result of the specific exchange rate I used (noon closing) or some other random variable that will smooth out over other periods. These calculations are never going to be exact:
https://canadiancouchpotato.com/2014/02/20/the-true-cost-of-foreign-withholding-taxes/
If the RRSP holding is large it’s worth considering the US-listed version, but only if you are comfortable doing Norbert’s gambit or if you have cash in USD already. It’s not a mistake to choose the slightly costlier Canadian version. This may help:
https://canadiancouchpotato.com/2013/12/09/ask-the-spud-when-should-i-use-us-listed-etfs/
What should not enter into the decision is the current CAD-USD exchange rate, which is irrelevant. If you decide to invest in US stocks, then the currency exposure in VUN and VTI are identical:
https://canadiancouchpotato.com/2014/01/13/how-a-falling-loonie-affects-us-equity-etfs/
FYI, I am unable to monitor and respond to comments on the MoneySense site, so best to post comments here.
Any suggestions for how to track gains, currently I find that the best bet is a simple ecell spreadsheet with the xirr function. Not much else does a good job with mutual funds when making regularly investments and with divided pay outs
taal, I use the Bogleheads spreadsheet http://www.bogleheads.org/wiki/Calculating_personal_returns
@taal: Justin Bender’s ROR calculator has been updated for 2015. Download it here:
http://www.canadianportfoliomanagerblog.com/calculators/
Here’s a blog from last year explaining how to use it. (Most common error: don’t record dividends as cash inflows, since they’re already accounted for.)
https://canadiancouchpotato.com/2014/01/20/calculate-your-personal-rate-of-return/
Thanks Dan,
I actually did not even know Justin had a blog. The ROR calculator is something i spent hours searching for before Christmas and was somewhat surprised how hard it was to find a proprietary version. This is very helpful as I am just starting.
I am trying to understand why dividends and distributions are already accounted for. I understand that the company is worth less after the payout. I understand how the ROR would work without any distributions but I am just not sure how the spreadsheet could account for a ROR based on payouts.
If investment/portfolio 1 returned a potential gain of 10% by means of an increase in price (if sold) and investment/portfolio 2 also returned a potential gain of 10% by price increase (if sold) AND 5% in dividend payouts would the ROR calculator not calculate both investments or portfolios to have returned the same 10%?
Finally do you know if the Bogleheads spreadsheet uses the same methodology?
Thanks!
@kulvir: You don’t need to account for dividends because they do not represent money paid into or withdrawn from the account. (This assumes the dividends are left in the account and not withdrawn and spent.) Remember, you are entering both the start value and the end value of the portfolio, so any growth from price increases and distributions will be reflected in the difference between those two numbers. In your example, a price increase of 10% and a 5% dividend would show up as a 15% return. You also don’t need to realize the gains: when you say “if sold” in your examples, this is not necessary: the security does not have to be sold for the gain to be reflected in the rate of return.
Justin’s calculator uses the Modified Dietz methodology. This is different from the money-weighted “investor return” in the Bogleheads methodology but similar to the “portfolio return.” The methodologies should produce very similar results unless there are very large cash inflows or outflows before or after big market moves.
@Jessie: I can’t definitively say whether out-performance is largely or even partially due to luck. It certainly is partially due to low cost and value tilt. If anyone has the time, they could run three-factor regressions on the returns of the funds underlying components to verify that.
As far as luck though, if you take a sufficiently large group of actively managed mutual funds and compare their returns to the index over 5, 10, 15, and 20 year periods, there will absolutely be some that under-perform solely due to luck, and some that over-perform solely due to luck, over all periods, based on simple probability. In fact, there may well be more over-performers than under-performers, for the simple reason that funds that under-perform year after year often aren’t around after 20 years! The ones people know and talk about are the ones that did well.
@CCP: Maybe Justin would be interested in doing those regressions? I would be curious to see how much of Mawer’s performance is value exposure and how much is alpha. Or if not, if you can get monthly performance data for their underlying funds I would even be interested in doing it at some point.
Thanks for all the hard work putting all this together.
I’m truly surprised at how surprised all the various portfolios turn out very similarly, given that their makeup and MERs are pretty different.
@Nathan: Yes, that would be interesting. I sometimes hear people saying that Mawer Funds have “outperformed the index over the long term”. It would be interesting to see if that is because they have taken more risk, and whether they really have outperformed the appropriate risk adjusted index.
What is the difference between Justin’s 2014 and 2015 ROR calculator ? I used the 2014 last year and was very pleased with it. I thought it would be consistent over the years ? Thanks.
I really enjoy your website and the effort you’ve put into it. It has been through reading your website as well as the investment books you’ve put out with Moneysense that has enabled me to understand index investing and to take the plunge with a Couch Potato approach. I am currently invested at BMO Investorline with a “Complete Couch Potato” portfolio.
Having said that, and believing in the concept of index investing for the long term, I can’t help but take note of what a few other people have mentioned. That is the Mawer Balanced Fund! It seems like this fund has a long track record and there are performance numbers one can look up for the last 15 years. This fund has outperformed the Complete Couch Potato portfolio during this entire time period by a significant amount!
This has cause me to second guess myself. The Mawer Balanced Fund seems like one of the (few) mutual funds that really outperforms the market (certainly outperforms the Couch Potato approach). The fund manager seems to know what he is doing. It is ONE fund do-it-all, rather than a mix of 6-7 ETFs. Dan, can you tell me why I shouldn’t sell my CCP portfolio (about $400K+) and just put all of it into the Mawer Balanced Fund? (With a plan to invest about $1.5m+ in this all-in-one balanced fund.) What, if anything, is the downside? Thanks.
@Surprised1: It’s the same calculator: only the title is updated. It changes slightly in leap years, but not significantly.
@Ken C: I really think it’s important to realize that with literally thousands of mutual funds in Canada, across hundreds of fund families, it would be strange *not* to see many that outperform the index over long periods of time, solely due to randomness. And if out-performance is due to randomness, there is no reason to expect it to continue, regardless of how long it has gone on in the past. When you buy an index fund portfolio, you know that you will get roughly index performance, which allows you to minimize second-guessing. With an active fund, you can never be certain whether results are due to manager brilliance or sheer luck. What if you moved everything into Mawer today, then they proceeded to underperform over the next year? Five years? Ten? At what point would you start second-guessing the switch?
The thing I like about index investing is that there is a rational basis behind it. So even when the market is down and my funds have lost money, I can remain confident in the strategy and not worry that maybe I made a mistake. (The same applies to passive small/value tilting.) With an active fund I don’t know if I could have that confidence. And even if the people at Mawer DO know something the rest of us don’t and actually are generating alpha (which I personally doubt, but admit is possible), there will still be periods when they get unlucky and trail the market, so those doubts will come up.
All that said, with a MER of 0.96%, and a value tilt, they would likely beat at least Tangerine over the long term on an absolute basis. (Perhaps not on a risk-adjusted basis due to lack of diversification.) So I certainly wouldn’t call it a terrible choice. I would just go into it with the knowledge that going forward, trailing the market is about as likely as beating it.
@Nathan/Ken C.
I really liked Nathan’s answer to Ken’s question. I was going to just answer that Mawer was going to outperform the indexes…. until it didn’t anymore. And no one can know when that will be, if the outperformance will continue, or if it was a statistical blip.
Hello Everyone,
The fixed income portion of my portfolio are mainly in short-term bond fund and in high-interest savings. I have missed out the gains by the broad market bond in the past few years — I have missed about 2% plus worth or return in 2014.
For a while now I have been pondering about converting my cash components into bonds. What are your thoughts about switching a good chunk of my cash into broad market bond index fund (or ETF equivalent) in one shot, or spreading it out (e.g., quarterly)? Will buying into broad market bond fund now opposes the concept of “buying low?”
Thank you.