Call off the hounds: I have finally updated my model Couch Potato portfolios for 2015. Full details appear on the permanent Model Portfolios page, but here are the new versions in downloadable PDF format:
Option 1 — Tangerine Investment Funds
Option 2 — TD e-Series Funds
Option 3 — Vanguard ETFs
You’ll notice some significant changes this year:
- I have dropped the Complete Couch Potato and Über-Tuber from the lineup. All of the model portfolios now include only traditional index funds tracking the major asset classes: no REITs, real-return bonds, value stocks or small-cap stocks.
- The new lineup presents three options, with the key difference being the type of product. Option 1, from Tangerine, is a one-fund solution that’s ideal for investors who value simplicity. Option 2, the TD e-Series funds, offers more flexibility and lower cost. Option 3, built from Vanguard ETFs, is the cheapest option, but also the most difficult to manage for new investors.
- None of the options include ETFs traded on US exchanges.
- Each option now includes several different asset allocations, ranging from conservative (70% bonds and 30% stocks) to aggressive (10% bonds and 90% stocks). The older model portfolios were all 40% bonds and 60% stocks, the traditional mix in a balanced portfolio.
- For each option and asset mix, we present performance data going back 20 years (1995 through 2014), compiled by Justin Bender. Since none of the funds has a track record that long, we have filled in the gaps using index data minus the MER of the fund in question. This is an imperfect but reasonable proxy for how an index fund would have performed.
Why the changes?
I thought long and hard about these changes, because I know many readers currently use one of the older model ETF portfolios. But it has now been more than five years since I launched this blog, and I have corresponded with hundreds of investors during that time. I’ve also worked directly with dozens more through PWL Capital’s DIY Investor Service. That depth of experience has given me a few insights.
First, simple is usually better than complex. You can now build a portfolio that includes hundreds of bonds and thousands of stocks in some 40 countries using just three ETFs, all for a cost of less than 0.20%. No one needs to diversify more broadly than that. A skilled portfolio manager may be able to boost returns slightly by moving beyond traditional index funds in the core asset classes. But many DIYers make costly mistakes when they try to juggle too many funds. Meanwhile, there are exactly zero investors in the universe who failed to meet their financial goals because they did not hold global REITs or small-cap value stocks.
Using US-listed ETFs is a another example: the management fees and withholding taxes may be lower, but the steps involved in currency conversion can be complicated and it’s easy to make errors that wipe out any potential savings. If you don’t believe me, try explaining Norbert’s gambit to your mom.
These model portfolios are not intended to reduce MERs and taxes to an absolute minimum. The suggested asset allocations were not created using Markowitz’s efficient frontier or portfolio optimization software. They are simply designed to provide broad diversification and low cost while remaining easy to manage on your own.
So try not to agonize over the small details: just choose one of the model portfolios with an appropriate amount of risk and get started. It’s OK if convenience trumps cost, especially for young investors with small portfolios: remember, an additional cost of 0.10% works out to $0.83 a month for every $10,000 in your account. The cost of sitting in cash and scratching your head is much higher. And the peace of mind that comes with a simple investing strategy is priceless.
@ Tennis Lover: The main changes in the Recommended Portfolios have been along the lines of simplification, and getting rid of the fancy portfolios with more moving parts, particularly the more esoteric components. If you view the present remaining Recommended Couch Potato Portfolio as essentially the same as the prior recommended Global Couch Potato except for the present sliding scale of ratios of Bonds to Equities, you will see that the Equities portions have always had an internal distribution of 1/3 Canadian Equities, 1/3 US Equities, and 1/3 International Equities (not including US and Canada). The replacement of the latter 2 components with a single ETF covering US and the World in equal portions and taking up 2/3 of the Equities portion comes to essentially the same thing, and in this regard, nothing has changed in his recommendations.
@ Shandel
“is there a “best” way to allocate them into RRSP vs TFSA vs non-registered?”
Yes there are principles for tax-efficient investing. Here are some links that describe it:
https://canadiancouchpotato.com/2013/10/30/making-smarter-asset-location-decisions/
http://www.finiki.org/wiki/Tax-efficient_investing
Finiki.org is a great investing resource for all kinds of investing knowledge.
@SB McManus: VT is a US-listed fund. One of the goals with the new portfolios was to avoid US-listed funds because of the potentially high cost of transacting in US dollars.
@Jim: In theory there may be some lost opportunity, but I don’t imagine this will be a major issue for many people. And again, the point was not to create an optimal solution, but simply a useable one.
Thanks again for this wonderful resource, Dan! But I’d like to echo Robin’s comment, as it captures my view exactly: “While I appreciate the new model portfolios, I would like to point out that some Canadian investors (myself included) have substantial USD savings for one reason for another. It would be nice if there was a model portfolio that took into account Canadian tax concerns in choosing US-listed ETFs.”
“De-registering an RRSP is a pretty uncommon situation (most people will never do this)”
OK, I see. De-registration fees would be applied when switching ETF brokers, something most people never do.
What about withdrawal fees. The TD Direct Investing “Rates and Fees” document lists withdrawal fees of $25 fee for partial RRSP withdrawals. In a TD Canada Trust online account there is no such fee. To withdraw without fees from a TD Direct Investing account, it seems one needs to wait until the RRSP is converted to an RRIF. Is this right?
Thanks Dan,
Once again we all appreciate your work and advice. For what it’s worth I think that you should keep your portfolio suggestions for previous years available as an archive and for people to be able to see if they so choose. All your articles are available and indeed someone can just pick a year and a month and visit all your articles but the model portfolios page is overwritten and therefore no longer accessible. I think there could be some value in keeping these one in a year posts available for people to see and make their own individual decisions (e.g. if the complete couch potato is worth the complexity)
I also understand, Dan, why you have simplified the updated 2015 portfolios. It’s important that investors do not get overwhelmed when first starting out to invest. However, I also think that you have several followers on the blog who have a semi complex portfolio and would still like to hear your valued input. Looking at the components of US, emerging and developing through separate ETFs rather than just one that encompasses all. Rather than repeating why others also want continued updates with more elaborate portfolios, I’ll just say “ditto”.
Hi Dan,
We hold some cash for an emergency fund and I was wondering if I would include this when calculating the fixed income portion of our portfolio?
Thank you for all of the help over the past two years!
@Harry: I would treat your long-term portfolio and your short-term savings separately. For example, if stocks fall 25%, would you use your emergency cash to rebalanced If not, then it is not really part of your portfolio.
@Dmitris: The older model portfolios are still available on the pages that report their annual performance. Type “portfolio returns” into the search bar and you can find them all.
@Efren: “Deregistering” an RRSP means turning it into a non-registered account. That’s something most people will never do. Fees for other services vary a lot, but in general:
– Transferring an RRSP to another brokerage (which is common) costs about $125 or so. Often the receiving brokerage will reimburse that fee if you ask.
– Making a partial withdrawal from an RRSP (again, not that common, and not usually recommended) typically carries a small fee as well.
– Converting an RRSP to a RRIF is usually done at no cost. After that, minimum RRIF withdrawals usually carry no fee, but additional withdrawals may.
Dan, love this. Everyone should understand that these are “model” portfolios – there’s no way you could cover every scenario and this provides a solid, underlying framework that we can all follow.
For example, my portfolio follows “Option 2”, but I don’t have have a TD account and use RBC index funds instead (yes, the MERs are slightly higher, ~0.70%, but convenient for me since all my other accounts – savings, chequing, credit cards, etc. – are all with RBC). When I looked at my 2014 RBC statement last week, returns for my “assertive” portfolio (25/25/25/25) was 11.13%, which is line with the TD e-Series (11.02%).
Thanks again!
I was curious if you recommend switching allocations then? I have followed your previous ones for awhile so I have real return and REITs in my portfolio. I actually like having them. Should they be phased out or still used for someone that already is using them?
Also do you have a good software program you would recommend to keep track of our real returns throughout the year? I always add lots of new money and when I take wants at the end of the year and subtract the beginning it gives me a return but I am not sure if it takes into account all the new money that I added…..thx
Many thanks to everyone for their feedback on the new model portfolios. I appreciate those who have acknowledged the enormous amount of work that goes into creating these resources, which are all offered here for free. I will just make one more comment before signing off this thread.
I will continue to write about specific funds, strategies and situations that go well beyond these simple portfolios. That has always been the case, so nothing has changed in that respect. There is plenty of information elsewhere on the blog about how to effectively use US-listed ETFs, GICs instead of bonds, asset location to minimize taxes, etc. The model portfolios have always been intended as a starting point, nothing more.
As for those who feel they are suited to complex portfolios but are disappointed that I won’t be tracking their performance for them, this is somewhat ironic. New investors shouldn’t be expected to know how to do this, and that’s the reason Justin and I have done all of this work to help them. We have also provided free tools that more advanced investors can use to track, rebalance and benchmark more complex portfolios on their own using data anyone can look up online. If DIY investors want complexity but aren’t able (or willing) to manage it on their own despite everything we’ve provided already, then they should probably reconsider that decision and use a simpler portfolio or get professional help. That isn’t a smart-ass comment: it’s an honest one that comes after seeing so many investors making costly mistakes by biting off more than they can chew.
For those who haven’t yet discovered Justin’s new blog and the excellent tools he’s created, here’s where to start:
http://www.canadianportfoliomanagerblog.com/calculators/
Food for thought:
150 Portfolios Better Than Yours:
http://whitecoatinvestor.com/150-portfolios-better-than-yours/
Hi Dan,
Thanks once again!
In the off chance my comment was misunderstood, I never suggested that you should keep tracking the performance or maintaining different historical portfolios; just that maybe the previous portfolio posts could be archived for people to be able to see as they are able to see all other posts since 2010.
That’s all :)
@Dimitris:
Can’t you find the information you are looking for in the previous annual portfolio returns reports?
https://canadiancouchpotato.com/2015/01/09/couch-potato-portfolio-returns-for-2014/
https://canadiancouchpotato.com/2014/01/09/couch-potato-portfolio-returns-for-2013/
https://canadiancouchpotato.com/2013/01/11/couch-potato-portfolio-returns-for-2012/
Tangerine’s website just went down for “upgrades”. I called on the representative said everything including phone banking will be off-line for an hour. How reliable is an online bank that shuts down for an hour on a weekend in RRSP? Is it really safe to invest my money there when I am denied access randomly?
Great post as usual!
A couple of quick questions:
In your work at PWL I believe you have access to and make use of Dimensional Funds.
How do their results compare with Tangerine and CPP on the various time lines?
Is there a Fama-French free lunch?
If you were to re-work a portfolio for a client would it involve using Dimensional Funds?
Should I find myself using them are there any trailing fees etc?
As always,Thanks
Jamie
@Jas
Absolutely. My bad for not thinking about it! Guess I have so much other stuff on my mind. Thanks for pointing out the obvious for me :) Much appreciated.
@jamie: Thanks for the comment. The performance of the PWL model portfolios (which include a mix of Dimensional Funds and ETFs) is available on the PWL site, updated monthly by Justin:
https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/PWL-Portfolio-Model
These numbers are net of fund fees, but do not include PWL’s fee, as this will vary with the client. Each client’s personal performance report is net of all fees.
Dimensional funds are not available through discount brokerages. They can only be purchased through a select number of advisors. We use the F-series, which have no trailer fees, in all managed accounts. There are A-series versions that pay a 1% trailer.
Hi CCP, thanks for all your hard work over yet another year of blogging about index investing! Your blog has been a fantastic resource for learning how to calculate my ACB and performing Norbert’s gambit last year.
I was looking forward to the model portfolio post, because I was curious to see whether ZEA and ZEM would make the cut given that they theoretically should be more efficient because they avoid some of that extra layer of foreign withholding taxes on distributions (even though they don’t hold everything directly.) With the changes you’re making (which totally make sense), that obviously won’t happen in a model portfolio post. Will you or Justin be digging into their returns at some point to see how things are shaping up since their inception with a separate blog post?
@Andrew: Yes, we will likely look at this issue in the future.
I think its great how you simplified the portfolios. It seemed like the previous portfolio and some articles were a bit too complex (and unnecessary) to qualify as “Couch Potato”
Still I enjoy reading your more complex articles. Maybe putting these in a “advanced and unneccesary” section would a good compromise for your loyal readership? ;)
Dan, thanks again for the enormous work. I have learned a great deal from your articles. I understand more, invest better and sleep easier. I would wholeheartedly encourage any CCP newbies, or those seeking portfolio complexity, to peruse the article history.
I would encourage complexity-seekers towards the following reads (and, where appropriate, the related white papers). But I have no doubt that there are plenty of other gems in the CCP archive.
Managing multiple accounts: https://canadiancouchpotato.com/2014/08/13/managing-multiple-family-accounts/
Withholding taxes: https://canadiancouchpotato.com/2014/02/20/the-true-cost-of-foreign-withholding-taxes/
Norbert’s gambit: https://canadiancouchpotato.com/2013/12/03/norberts-gambit-the-complete-guide/
Market Timing: https://canadiancouchpotato.com/2013/12/30/the-failed-promise-of-market-timing/
I’d also encourage beginner CCPs to buy Dan’s “Guide to the Perfect Portfolio”. A trivial cost for well-articulated introduction to the broad principals behind CCP / passive index investing. Details per https://canadiancouchpotato.com/resources/
Interesting that none of the new ‘simple’ portfolios suggests use of a robo-advisor. But understandable ;)
pretty amazing one can invest in thousands of companies worldwide with just 3 equity index funds along with a very good canadian bond index fund, how much more do people want or simpler can you get than with the CCP portfolio, and thats with just 2 equity index funds and a bond when one uses etfs. amazing
@Jake
I am a huge fan of the Three Fund Portfolio. It fits in well with Boglehead principles. Taylor Larimore at Bogleheads.org has a great thread going on the idea. It is a very elegant, simple to manage, and efficient.
Here’s the link to the Bogleheads article:
http://www.bogleheads.org/blog/the-three-fund-portfolio/
Hi Dan
I wanted to also thank you for all your hard work and advice. I moved all my investments to the complete coach potato portfolio 2 years ago but only after extensive reading of all your blog postings, your recommended readings and your book. I completely agree that you have provided us with the tools we need to make our investments decisions and track our returns. You have done more to secure my retirement future than my advisor did in over 10 years. Thanks for helping me take control of my financial future.
Great idea to simplify the model portfolios, especially for new investors. I am very happy with how my portfolio is performing and will stick to my plan. I think the new format for the model portfolios showing the impact on returns for various asset allocations is great. Having lived through 2000,2001,2008. It is a good reminder that things don’t always go so well in a 100 % equity portfolio so it pays to diversify
Always wonderied how you found the time to do all this blogging and give us such good information to consider. Looking forward to more in 2015
Thanks again
I totally get your reasoning here, and absolutely agree that simplicity trumps the tiny added efficiencies one could gain otherwise. Also that varying risk exposure is much more important that things like RRBs or value tilt. Hooooowever, it does seem like a shame to lose those things entirely. Did you consider any other options, like maybe having an ‘advanced’ portfolios page, which which would be accessible through a de-emphasized link at the bottom of the main portfolios page? (I know it would be added effort to maintain, but you obviously stay pretty on top of the ETF universe anyway.)
That said, it would still be an added effort, and as you say, the old ones are still available in the archive. So.. honestly, never mind. :) I’m sure you made the right call!
Dan, thank you for the update! Looking at the updated model portofolio, I can’t help but asked myself: How do I know if I have the right asset allocation or should I consider switching to a more cautious or assertive portfoliio?
I have been following the Balanced portfolio using TD e-series funds and my investment time horizon is 20 years. Even if I am comfortable with the Balanced portfolio for now, how should I adjust my asset allocation as my time horizon decreases to 15, 10, 5 years and my risk aversion increases as I get closer to retirement? Is there a simple rule of thumb that I can follow (i.e. if you are X years old, allocate X% in fixed income)?
One thing I know for sure is that I am getting older every year so the time horizon for my investment would only decrease! Thank you for your advice.
@Jorge: Determining an appropriate asset allocation is the most important decision an investor will make, and it needs to be done thoughtfully after assessing your goals and your stomach for risk. Rules of thumb aren’t really useful: a financial planner can very helpful here, since doing the projections is beyond the ability of most non-professionals. This should help you with the basic concepts:
https://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/
I have been a reader on/off. In term of my personal investing, I was into index for a while before realizing I was making wrong choices that made my returns much worse. So I turned my portfolio to Mawer discretionary management.
I realized this is an index site and would like to get some feedback on how people keep on track and limiting expenses.
1) tracking error + transactional cost. This probably adds another 10-20 basis points to MER.
2) dealing with investor emotions. It takes significant discipline to tune out the noise and I wonder how people here do so.
3) Having an overall financial review. Do people manage it all themselves or use an advisor?
Seems to be a lot more negativity than I expected with the new portfolios dan posted. most of us are in the investing growth stage. reits i thought were usually for folks that want income such as in retirement. as well reits in canada are such a small percentage of companies i always thought the percentage in the older complete ccp was high.
@ bob
Re tracking error and transactional costs, reported returns are after tracking error, so I don’t consider it an issue. With maybe 10 trades a year my transaction costs add 2 basis points. Bid/ask spread is a couple of pennies on ETFs that trade at $20-30 per share, so again a minimal amount.
Investor emotions: I have stayed invested in 1987, early 90s, the tech crash, 2008 and a few smaller ones in between. Reading things like the Four Pillars of Investing, Winning the Loser’s game and other books plus reading blogs like this one instilled enough knowledge and discipline for me. But you are right this is a big issue for many investors. I would not recommend DIY for very many people.
For an overall financial review I used a fee-only planner to do a comprehensive plan for me, and can go back for advice on a fee for service basis if needed. I did find that very helpful in understanding how much I need and how to manage my finances optimally. I also use software called Retireware to do my own planning and scenario analysis.
Are you sure international and US should be just one fund? This year I bought only international when I rebalanced because US stocks did so well last year. Seems like you could lose out when you rebalance using one ETF because you would automatically be putting 50 percent in both areas. I wonder if you will do a comparison of returns when using one fund for both US and International without any rebalancing between the two compared to using two ETFs and rebalancing.
I like the simplicity of your models, but I do think the old four ETF models may be better than the new three ETF model, either of which is not very complex.
I would like to know why there is such a high allocation to canadian stocks given that we represent around 3% of the world market? Is it because we are taxed less on dividends? I read so much about the S&P 500 being well balanced and diversified, as opposed to the Canadian index being weighted to only finacials and energy. Why such a high allocation?
@bruce.
I realized that DIY wasn’t for me after some painful lessons.
I know that tracking error is reflected with the etf. However, funds are generally compared with underlying index without the cost associated. So etf would likely trail the index by 20 basis points in addition to mer
I was wondering how much saving it would be for DIY. I currently pay <1% for portfolio and a cfa advisor. Probably not much less if I use etf and an advisor.
Thanks for the update Dan, we can see that lots of work has been put in these documents and it’s very appreciated.
This makes it great to introduce the concepts to new “couch potatoes” :)
I was also surprised about the reduction in “complexity” but it makes total sense when seen from that angle!
@Peter: My thoughts on this question are here:
https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/
@David: The rebalancing benefit that might come from splitting US, international and emerging markets is likely to be relatively small. Once again, the idea of the model portfolios was not to optimize, but to simplify. More advanced investors are always welcome to split their foreign equity holdings if they choose to.
Dan,
You get it – this is great.
The proof is in the pudding – the simply portfolios don’t really add much over time compared to the more simple one so really why bother?
Like you say those 3 ETFs get you 98% of the way there. What’s the point in the hassle in fighting over fractions of MER.
Diversify; contribute regularly; rebalance yearly. That’s it, it really is that simple.
Thank you for grabbing the signal from the noise (to paraphrase Nate Silver). You’ve made a huge contribution to my, and my family’s, financial well being and for that I will always be grateful.
@Peter
The Globe and Mail did an online interactive session with Jack Bogle last year. I submitted a couple of questions to him, one concerning asset allocation which he was kind enough to answer. Here’s the transcript from that portion of the session:
“Hi Jack, I am a Canadian Boglehead. First of all, I want to say a heart felt thank you for your life time of work spent educating and advocating for the small, retail investor. Here in Canada, we have mutual funds with some of the highest MERs in the developed world. Your lifetime of writing and your Vanguard legacy is slowly but surely leading to a rethink of how Canadians invest for retirement. MERs are also slowly but surely coming down. Thank you!
Two questions for you please:
First, for US investors, you recommend a two-fund portfolio– a US index equity fund and a US total bond market fund. Would you recommend a two fund portfolio for a Canadian investor like myself– e.g. a Canadian index equity fund (e.g. VCN-T) and a Canadian index bond fund (e.g. VAB-T or VSB-T)? A caveat: as you know, the Canadian stock market is small (4% global cap weighting) and not particularly diversified (heavy tilt toward financials and natural resources).
Second question: I understand you prefer index mutual funds to index ETFs. In Canada, we only have access to index ETFs through Vanguard Canada. Can we expect Vanguard Canada to offer index mutual funds any time soon? In the interim, would you recommend Canadian investors use the ETF version to gain index exposure?
Disclosure: I invest like Norway. I hold VCN-T (Canada), VUN-T (US), VDU-T (Non-US Developed Markets), VEE-T (Emerging Markets) according to global cap weighting (similar to VT-N). My fixed income exposure is made up of laddered term deposits.”
Jack Bogle: “Please let me say how appreciative I am for your kind words about my work with Vanguard.
Our office in Canada began just 2 years ago, and it’s been a great success so far. We now have $2.3 billion in Canda, which is putting great pressure on prices in the Canadian fund business.
The US is probably the most diversified, tecnologically advanced market with great investor protections, which makes the US a great place to invest. As to a portfolio for non-US investors, you might want to think about this crude rule of thumb: 25% in your home country, 25% in other non-US investments, and 50% in the US market. But the right allocation for you will depend upon your specific circumstances.
Will Vanguard come into Canada with regular index mutual funds? First, I cannot speak for Vanguard’s management. But I’d say the ETF is such a handy investment for non-US investors that I’m not sure we can improve on it much. There are significant regulartory hurdles involved, so I suspect the ETF will remain Vanguard’s main option in the Canadian market for the forseeable future.”
Thanks Dan,
3 funds make my life a lot easier when i’m trying to split our investments between myself and any wife and 5 different accounts!
Thought’s on the Bond funds? Would your fund recommendation change the closer one gets to retirement? I’m looking at early retirement in 14 years.
VAB seems to hold bonds with maturity dates between 7 and 10 years. I’m no expert on bond funds but would I want to switch to shorter term bond ETF’s the closer I get to retirement? Does it even matter?
Thanks.
Dan, I just want to make sure I’m on the right track. I’m currently using your assertive ETF portfolio because my wife and I both have pensions. I’m currently making 1 ETF purchase per month for our combined rrsp portfolio of 150K. I usually just buy whatever ETF has started to get out of balance. Is this cost effective or should I be using the TD e series funds? My account is with TD. Thanks and I’m so glad I found your blog.
@Chris: That’s a complicated question: it really depends on how your portfolio is set up in retirement. But in general, yes, it probably does make sense to keep bonds shorter in retirement to reduce volatility.
@Marc: If you are paying $10 per ETF trade at TD Direct you probably don’t want to make trades for less than a couple of thousand dollars each. The cost of the commissions could outweigh the MER savings. This may help:
https://canadiancouchpotato.com/2012/07/30/comparing-the-costs-of-index-funds-and-etfs/
hello
just wondering if i sell my current etf’s which have gone up in value to switch to the new model portfolios will i have a big tax bill due to the sell off?
@johnr: If you hold them in a taxable account, absolutely. There is no reason to sell your existing ETFs based on the new model portfolio recommendations!
Dan, i just wanted your opinion on something. Questrade allows one to buy any ETF for free and sell for $4.95 per trade. So looking at this isnt it most beneficial to go with the vangaurd ETFs since it wont cost to keep putting money in and the MER is lower than TD eseries.
@KD: From a cost standpoint, yes. However, I think it’s fair to say that managing ETFs through Questrade is more difficult for new investors. So just make sure you’re comfortable with the platform, placing trades, etc.
https://canadiancouchpotato.com/2013/02/19/why-index-mutual-funds-still-have-a-place/
The nice thing about a couple of brokers (including Questrade), is that they will let you open a practice account. So you can go through the motions of buying/selling ETFs without making a mistake with real money.
Is there a swap based ETF for Int’l markets?
eg.
VCN-HXT
VUN-HXS
VDU-???