Last January, I overhauled my model portfolios to make them simpler. Some of the older options included small-cap stocks, preferred shares, and real estate investment trusts (REITs), but I switched to recommending a three-ETF portfolio covering only the core asset classes. While many readers welcomed the change, several others criticized the new streamlined portfolios as too simplistic. I still get emails from beginners who want to add more ETFs to my recommended model. Simplicity, it seems, is a hard sell.
In his recent book, A Wealth of Common Sense, asset manager Ben Carlson (who writes an excellent blog with the same title) reveals that he’s made the same discovery: investors resist simplicity. Yet Carlson believes it’s the right solution for most of us. “I’ve spent my entire career working in portfolio management,” he writes. “This experience has taught me that less is always more when making investment decisions. Simplicity trumps complexity. Conventional gives you much better odds than exotic.”
A Wealth of Common Sense is one of the wisest investing books I’ve read in the last several years. Some of its arguments are not particularly novel: for example, he spends a lot of time discussing the familiar obstacles active investors face in their attempts to beat the market. But Carlson also has some refreshing insights to share:
A lot of complexity is just BS. “Complexity tends to be the default option that gets used to persuade investors to buy unnecessary investment products,” Carlson writes, “while the vast majority of people really just need to understand more conventional options to succeed.” When fund companies, media gurus and advisors peddle clever-sounding strategies, they’re creating “an illusion of intelligence and control.”
One of the ways advisors do this is by spinning narratives to make their strategies sound appealing. To illustrate this power, Carlson uses the wonderful example of The Significant Objects Project, in which researchers were able to sell worthless baubles on eBay for surprising amounts because they linked each one with a compelling story. “The problem with narratives is that they often fail as investment ideas,” he writes. “This is because those ideas are usually baked into the price.”
It’s hard to let go of the dream. Carlson quotes Benjamin Graham, who said, “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” One of the most difficult obstacles investors face is the nagging feeling that there’s something better out there. Market returns can now be had for less than 10 basis points, and these are almost certainly enough to allow investors to reach any realistic financial goal. Yet we sabotage ourselves by rejecting an easy A-minus and instead wind up with a C or D. “It’s amazing how easy it is to do worse by trying to do better.”
Ironically, it is often the most hands-on investors who are at greater risk. “In most areas of our lives, trying harder is great advice,” writes Carlson. “But trying harder does not mean doing better in the financial markets. In fact, trying harder is probably one of the easiest ways to achieve below average performance.” He advises that the first step in improving your results is to accept your limitations. “You first have to give up on the dream of superior performance and realize only a small fraction of investors ever actually get there.”
Create a buffer between your portfolio and your emotions. Carlson cites a study that found people ate three times as much chocolate when the treats were right in front of them, compared with when they had to walk a short distance to get one. In the same way, he says, “You have to force yourself to find a way to create that short distance between yourself and your investment decisions.” Maybe that means training yourself not to check your portfolio value every day, or even every week or month.
One of the benefits of using a simple strategy is that it doesn’t require you to constantly check your portfolio. When you do that, decision fatigue can set in quickly, which leads to flagging discipline and poorer choices. If major decisions—such as your asset allocation and your rebalancing threshold—are systematic, you don’t need to constantly agonize over what to do. “Most of the time the answer will be the same: do nothing.”
To underscore the beauty of simplicity, Carlson looks to one of the world’s greatest chefs, featured in the documentary Jiro Dreams of Sushi. According to Jiro’s son, the most sublime sushi is the product of a small number of high-quality ingredients and rigorous discipline. “The techniques we use are no big secret. It really comes down to making an effort and repeating the same thing every day.”
It has taken me a few years of couch potato inspired investment, but I’m now able to completely ignore my portfolios outside of the one time of the year I move chunks of money in. It’s a significant but still understated benefit of the passive approach.
Could the reluctance to only use a 3 etf or 4 index portfolio for a lot of people is because they are told to be diversified however when they see just 3 etfs it doesn’t look diversified and they don’t take the time to look at the underlying holdings which put together include thousands of securities? I bet if you showed people a portfolio of say XIC and a portfolio of say 10 canadian equity mutual funds most people would say the portfolio of the 10 cdn equity mutual funds would be more diversified than just XIC.
Some of the complexity is imposed on us by the government(s),which are treating different investments differently for tax purposes and force us into having a multitude of accounts.
I am an index investor and I don’t like your new portfolios. The reason is that its theoretical basis is the Capital Asset Pricing Model (CAPM) which advocates just owning the market portfolio. However, since that time, factor analysis has replaced CAPM which I think demonstrates that you can earn more than market returns by tilting towards value and high quality small cap stocks. I also think that adding REITS can reduce the volatility of a portfolio although not the return. The addition of a few extra ETF’s gives you a simple portfolio with better risk return characteristics. I think the extra return is worth the effort because most folks are struggling to earn enough on their portfolios to retire in this low return environment.
My complextity comes through too many accounts. His self directed RSP, TFSA, Spousal, work RSP, work Spousal, Her RSP, TFSA, LIRA. I am using 2014 CCP ETF allocations, treating all accounts as one asset allocation. I collect RSP contributions through my work accounts using Index funds, then transfer them once a year to self directed accounts and rebalance. Ive already unlocked and transfered the low value LIRA to self directed RSP.
To get people onboard with this, it needs to be an offering through wealth management organizations. Most people will do much better with WealthSimple, NestWealth, etc. acting as a buffer to stupidity, and yet these only offer unnecessarily complex portfolios (purely for marketing reasons, I assume).
@Bill I think that just goes to show that you can be “an active indexer” or a couch potato with very similar portfolios
I don’t like your new portfolios.
I believe since the early days of CCP, you have changed your target audience, from enthusiastic DIY investors like myself, and go for the masses.
Nothing wrong with that. You are probably doing a great job for most.
But I feel that you have abandoned those of us who strive to optimize the last dollar of our taxes, those who squeeze every last basis point of MER.
I continue to subscribe to your blog, and thank you for having done a great job and helped me in the past.
@Slacker: I think CCP’s point was that, far from abandoning his target audience, enthusiastic DIY investors like you, and I hope me too, his more considered and pragmatic advice, after a few years in the trenches actually advising and interacting with real-life investors with high-falutin’ theoretical knowledge and even higher expectations, is to inform us that most of us supposedly clever and disciplined investors actually don’t have the emotional level-headedness and/or discipline to carry out with consistency the apparently rational but rather complex strategies that we initially set out to accomplish.
It’s easy to be somewhat dismissive of the more unsophisticated investors who (we think) don’t have as firm a grasp of the basic principles of Passive Index Investing as we do.
But as I review my own actions of the past 2 years, I wonder if I, too, should be crying “Mea Culpa”.
I certainly have spent more time and energy reviewing the current financial information than has been efficient. But I could consider this time spent as an essential cost of my education, as part of the overhead necessary to understand the educational pearls dispensed in this blog. After all, my own time doesn’t cost me anything.
More problematic are the financial transactions and changes I have made as a result of ( I had hoped) growing understanding of investing theory, and of my own capacity for risk in the context of my investment horizon. But I have a nagging suspicion that a lot of the investment decisions I have made were unnecessarily driven by the desire to tweak, to do better, and the un-acknowledged bias of recent market happenings overwhelming my supposed fixed long term and rational allocation model. I just don’t know for sure. But Dan definitely has a point, and in all honesty, it may very well apply to me.
I think that although asset allocation and costs are important, avoiding behavioural errors is the most important part of achieving an optimal outcome. And keeping things simple helps to avoid behavioural errors, as well as mathematical errors.
Jack Bogle puts it best “Simplicity is the master key to financial success”.
I agree that most average investors are best served by a simple plan like this. For those of us who want to add to their mix will have the motivation to go and seek either Dan’s previous models or others out there provided for FREE. I like looking at PWL model portfolios for reference. But I wish that we have DFA funds available for us DIY investors.
Simplicity rules! I do believe that a simple but easy to set up and maintain system beats a complex one. I have a simple 3 ETF portfolio. I do believe it will enough to make sure I get market return. That is hard enough to do.
For sure, there are portfolios that will beat simple portfolios, but they require more time and work to set up and follow. And the temperament to do what is needed. With my simple portfolio I just buy each month the ETF that lags behind in his target allocation…
For the more complex stuff, the need to play and outperform, I have my play money… that keeps me busy
Thanks to everyone for the comments. I think the key argument Carlson is making (with which I agree completely) is being lost here. There is a widespread assumption that if you are just willing to put in a little more effort with a complex portfolio you have a high probability of outperforming a simple one. Many of the comments here start from that premise. But that fact is, anyone who has experience working closely with investors understands that the precise opposite is true. Most people who try to do better end up doing worse. That’s the key insight.
I use 8 (sub)asset classes, one fund for each, in my portfolio. Backtesting, with all it’s risks, shows this portfolio has beaten the S&P, with the much lower variance of a standard 60/40 portfolio, over each of the past 4 decades. Yes it depends on factor investing to some degree, but even if some aspect of this portfolio design fails, and even accounting for the recent tendency of risk assets to move in concert, it still appears likely to perform well under most conditions, and is currently performing as expected. I guess you all can tell me if 8 funds is simple or not, but it seems so to me.
Since embracing a minimalistic lifestyle in my retirement I love the stress free and simple life! I’m thinking of simplifying my investment portfolio even more. I’m fond of BMO etfs. How does a two fund portfolio sound like ZAG/ZGQ? The advantage is rebalancing is so simple and cheaper.
I like the new portfolios. I have legacy ETF’s now from the old Uber portfolio but have been making new investments with the simpler portfolio and believe whole heartedly the simpler one is good enough and requires less effort to manage going forward and I’m willing to accept the returns are not likely any different perhaps even better (i.e. the complexity may actual result in lower returns)
Keep it simple. Thanks for moving that way.
Hey Dan,
Thanks for your work on this blog, it’s been a huge help.
What would you recommend for those of us with one of your legacy mixes in place? I know you’d agree that tinkering with allocations is a sure way to mess up performance, so do we carry on or switch to a simpler model?
Great article and again, thanks for the constant drumbeat on this.
I still use a 7-ETF portfolio that is similar to the original “Complete Couch Potato”. However based on recent reading, I have come to believe that your actual asset allocation (10% or 20% Canadian, 10% REITs or none) in the long run matters almost not at all. What is likely to matter more is whether you stick to a target, versus adjusting it every year or two, chasing the latest sector/geography/whatever that’s the hot topic.
So whether you prefer a simple 3-fund portfolio or a more complicated one, I don’t think matters much at all. What matters is that you stick to your allocation faithfully, whatever it is.
@Tim: I think it depends on your own comfort level. If you are perfectly content managing six or seven ETFs I don’t see any burning need to reduce that number. But if the idea of simplifying appeals to you, then consider doing so the next time to add new money and/or rebalance. Of course, costs and taxes always need to be considered. For example, if one were sitting on a large capital gain in a US equity ETF it may not be worth realizing it.
Part of the problem of the new simpler portfolios, for me, is that it doesn’t fit my reality. I have, through no fault of my own, four different investment accounts — RRSP, LIRA, TFSA and Non-registered. Many are probably in the same boat. Each of those accounts has a different role to play, with different tax implications, and so should contain somewhat different investments.
But your new three-fits-all approach doesn’t work in that scenario.
@Trevor C: No model portfolios can possibly account for multiple family accounts. Many people have asked about this: “Why don’t you have a model portfolio for RRSPs and another one for non-registered accounts, etc.” But that makes no sense, as everyone’s situation is going to be different: portfolio size, tax rates, contribution levels, liquidity needs, and so on. In many cases one can still use the three- or four-fund portfolio across multiple accounts: I’ve set this up dozens of times for clients of our DIY service. But it in other cases you may need to make different arrangements and introduce complexity. But there is no way to create a general model that will be helpful to a large number of people.
Dan, I completely understand you can’t address everyone’s situation. That’s why it’s good that you still put time into the “Recommended Funds” section. That’s the section that still offers help for people like me. As well as your blog posts (keep ’em coming!)
I would like to respond to something that Dan wrote on Jan 25: 4:34 pm:
“I think the key argument Carlson is making (with which I agree completely) is being lost here. There is a widespread assumption that if you are just willing to put in a little more effort with a complex portfolio you have a high probability of outperforming a simple one”.
I disagree with Dan that I am missing his point. Rather I think his assumption that we cannot get better returns with a little more effort is wrong. I am convinced by French and Fama’s work that I can get those extra returns without a lot of extra complexity. I also think that Dan’s believes that based upon his previous articles on factor analysis and his association with Larry Swedroe and DFA Funds through his association with PWL Capital which is a great firm. Larry and DFA are big promotors of the multiple factor approach to investing which this website has abandoned.
Rather than dumb down the website, I think that we should recognize that some people need to pay an adviser because they are incapable of managing their money without doing serious harm to themselves. Making portfolios simplier and sacrificing return is not going to help those folks, because their problem is not too much complexity it is behavioral.
After several years of having the simple 4-fund TD portfolio, there’s no way I’d ever go back to anything more complicated. Between the original model portfolio (now called “Balanced”), and the CPP articles “Making Smarter Asset Location Decisions” and “Why Rebalance Your Portfolio?,” I have everything I’ll hopefully ever need. The most difficult thing is not tinkering with it at all. …But I sit on my hands and step away from the computer if that evil urge ever comes up.
I started with the “complete potato” a few years ago, and then simplified to the new model earlier this year (although I’ve stuck with ZCN instead of VCN). I’m happy I did it. It is simpler to monitor, and to keep balanced. It reduces the number of rebalancing decisions that have to be made, which helps me to just objectively stick to my plan.
In response to Edward and KJF praise of simplicity I would ask if you know how much they are giving up in risk adjusted returns and can you afford it? If not, look at the PWL website portfolio and you will see that Dan thinks that you will be financially better off with a slightly more complex multiple factor portfolio (net of his fees). I totally agree with Dan and have recommend his firm to those that cannot handle the complexity or don’t have the emotional constituency to stick to a plan when times get tough. I manage my own money because I am fine with a bit of complexity and know I have a high risk tolerance as I have been through many meltdowns since I retired 20 years ago.
I am disappointed in the change of this website as I think it has given up badly needed premiums to market returns in name of simplicity. I think the change is particularly badly timed when all but the most wealthy investors need that extra bid of return to retire in this low bond and equity return environment.
If you cannot believe that you can get an extra risk adjusted return by tilting your portfolio to value and smaller cap stocks read some of Dan’s post on the topic or go for the gold and read French and Fama’s papers.
.
Thanks to CP, last year I moved my investments from primarily stocks with a brokerage to several ETFs, self directed. Feels better, less stress, makes a lot more sense. For simplicity, I plan on rebalancing annually on Apr. 1. CP, can I get your thoughts on my plan, and whether there are marked advantages to rebalancing more frequently. Many thanks!
@Bill – I’m not sure that anyone is arguing here against factor-based investing, or suggesting that it offers no benefit (which as you point out is well-documented). I think what the author is trying to focus on is the broadest message that is most applicable to most investors. Said another way, which of the two below statements do you think applies to more investors:
1) Shoot, I followed a simple 3-fund strategy religiously for decades, and now I cannot retire as soon as I’d like because my simple portfolio generated 1% less annual return than a factor-based portfolio would have!
or
2) I am not a skilled investor, have no plan, not sure what I should do, am locked into GICs or high-fee MFs or cash or whatever, and my portfolio is potentially seriously mis-allocated.
I am willing to bet, sadly, that #2 applies to a very large portion of the population. And what is most effective at fixing #2 is a simple solution as proposed here.
Once you’ve cracked that nut, if you have desire and motivation, there’s nothing stopping you from moving to #1. But if the aim is to be relevant and useful to the greatest number of people possible…. keep it simple.
I came to value simplicity via a somewhat different route. All the investment advice I’ve read starts with the subject of asset allocation, as that will have the biggest effect on your returns. So, what’s the correct asset allocation? It depends on your willingness, need, and ability to take risk. If you’re 50 years old, the correct asset allocation could be 50:50 equities:fixed income, or 60:40, or 70:30. That’s a huge range of values, a huge range of potential outcomes down the road, and ultimately it depends on how much risk you feel like you’re willing to take.
Can anyone really say with confidence that a 60:40 portfolio is OK for them, but 65:35 is too risky and 55:45 is too conservative? My point is that with one of the most important decisions about your investment strategy, you’re trying to hit the broadside of a barn, and it’s hard to know if you’re getting it right. Now, in that context, does it really make sense to try to eke out another fraction of a percent by adding a small cap tilt to your large cap equity holdings? Why not just change your asset allocation from 60:40 to 62:38 to achieve higher returns without adding complexity? And if you’re willing to go to 62:38, what about 64:36, or 66:34…? In the end, I decided that if the big decisions, which will have big effects on my returns, aren’t very precise, then it doesn’t make sense to worry about the small details that will have marginal effects. So I just pick an asset allocation that seems more-or-less sensible, and try to keep things simple.
@Willy: I would also add a third scenario:
3) I tried to squeeze out an additional 1% by capturing the factor premiums, but I sat in cash for two years while I agonized over whether to put 7% or 9% in international small-cap value, then paid too much to convert currency to buy US-listed ETFs, paid commissions and taxes to switch from one ETF to another to save three basis points in MER, held equity funds in a non-registered account when I had lots of TFSA room because I misunderstood the impact of foreign withholding taxes and, hey, I ended up underperforming a plain-vanilla Couch Potato portfolio.
@Willy: I would also add a third scenario:
3) I tried to squeeze out an additional 1% by capturing the factor premiums, but I sat in cash for two years while I agonized over whether to put 7% or 9% in international small-cap value, then paid too much to convert currency to buy US-listed ETFs, paid commissions and taxes to switch from one ETF to another to save three basis points in MER, held equity funds in a non-registered account when I had lots of TFSA room because I misunderstood the impact of foreign withholding taxes and, hey, I ended up underperforming a plain-vanilla Couch Potato portfolio.
@Dean: Rebalancing once a year is generally fine, and the specific date doesn’t matter:
https://canadiancouchpotato.com/2011/02/24/how-often-should-you-rebalance/
Of course there is the 4) minority scenario where you actually do understand the tax consequences of various accounts and transactions, as well as how to do factor analysis and evaluate the risk/return of various funds, and can therefore make a reasoned decision to deviate from the simple model portfolios. Of course, if that is you, it’s not like you’re going to blindly follow model portfolios _anyway_, so they really don’t do you any harm.
@Nathan: “Of course, if that is you, it’s not like you’re going to blindly follow model portfolios anyway, so they really don’t do you any harm.” Exactly: the model portfolios are, by definition, a default position, not a prescription for every investor. But I would add that the percentage of investors who “know how to do factor analysis and evaluate the risk/return of various funds” is vanishingly small.
John Bogle is also proponent of simplicity. He is constantly advocating that investors should just buy the entire market (i.e. the US market) and sit on their hands. I think most people get way too hung up on the details. We will only know the optimal asset allocation twenty years from now. You kind of have to pick a plan and then stick with it. I think rebalancing is the one place where investors can increase their returns. I review my portfolio every 90 days and make small adjustments. As well, I buy anytime there is a market dip or correction. Then I sell a little bit on the next rally.
If an investor cannot deal with the complexity of having a portfolio of 6 to 8 securities then he/she would be better off – financially – paying a firm like PWL to manage your portfolio. I agree that this is the vast majority of people. When you consider the emotional or behavioural element, the number of investors who can manage their portfolio is vanishingly small as Dan has pointed out earlier.
However, if you are capable of managing your money, then this website is not useful. If you find it useful, then your investment skills are such that you should talk to PWL. This was not true of the previous “Couch Potato” portfolios. I am saddened by this.
@Bill: First, let me say that I appreciate the supportive words about our firm and the value of using a good advisor. But let’s examine the idea that “If an investor cannot deal with the complexity of having a portfolio of 6 to 8 securities then he/she would be better off – financially – paying a firm like PWL to manage your portfolio.”
I don’t think the value we offer is the ability to deliver higher expected returns by using complex portfolios or factor tilts. That may be a small part of it, but it doesn’t make a lot of sense to pay an advisor 1% and an additional 0.5% or so in MER in an effort to outperform a plain-vanilla ETF portfolio. The value proposition has to be more than that. It’s a combination of financial planning, tax-efficient portfolio management, discipline and simple convenience. Taken together, we are confident we can help clients do much better than they would do on their own. But if people are coming to our firm because they think we’re going to outperform my model portfolios over the long term, they’re coming for the wrong reasons.
Moreover, our firm has a minimum account size of $500K, and many other fee-based advisors have similar minimums. That immediately eliminates a huge majority of the Canadian population. Those with smaller portfolios might be able to find a good, reasonably priced advisor, but the odds are against them. Millions of Canadians end up paying way too much for underperforming funds and rotten service. Millions more try DIY investing by picking stocks etc. and make out just as poorly. These investors would be better off following a simple low-cost indexing strategy.
I appreciate that some readers enjoy the more technical subjects, and a lot of the work Justin and I have made public over the last few years has been very popular with advanced investors, and within the industry. We will continue to revisit these issues. But I find it far more rewarding to help the 99.99% of the public for whom complex investment strategies are counterproductive. I recognize this is often interpreted as “dumbing down,” but as Ben Carlson and William Bernstein have discovered before me, it is actually the wisdom of experience.
Thanks for the link on rebalncing! Great article!
Hi Dan,
I have been using the complete couch potato but like the idea for all the reasons you say to switch to the simpler model you suggest. (There would also be a MER savings) However, I have about $700,000 and contribute fairly significantly each month. Do I simply sell all the ETFs I have and the buy the three ETFs you suggest? It makes me nervous to sell that much at once. It seems I would lose quite a bit of money in the buy/sell difference in price. I am a Canadian non-resident for tax purposes so there are no tax implications in selling the ETFs. Can you give me any advice? What is the best way to switch from the Complete Couch potato to your newer model?
On another note – thank you. This site has been great for me. I love that I don’t worry about my money. Whenever I contribute, I use your rebalancing spreadsheet and buy the appropriate ETF’s to keep it balanced. It’s quick, easy and I don’t have to think about it. Simplicity truly works.
@Bill Unless you’ve got a crystal ball or time machine (in which case you don’t need this website to tell you how to invest anyway) no one can say how much, if any, difference in performance there will be between the previous model portfolios and the new ones over the next 10, 20, or 30 years. I think the impact of the decision whether to use the old vs. new model will be small enough that it won’t materially affect my retirement plans. The benefit of the simpler plans outweights the small odds that I’m missing out on a big performance delta. What I do know is that I’m miles ahead of the expensive and underperforming mutual finds I was using before I switched to the Couch Potato method.
I have been reading that S&P 500 is richly priced at this time. Wondering what are you thoughts on combining value investing in index investing – buying indexes when they are priced at good bargain values?
I stumbled onto this page while searching for hedged ETFs, what a great site, thank you!
My question is about the model portfolios posted here: https://canadiancouchpotato.com/2015/01/15/couch-potato-model-portfolios-for-2015/
How relevant is the model given the climate in 2016? I started on a path of simplicity recently and the approach really meets my values so I am hoping this is still a relevant model to follow.
Hi
I have been following your blog for a few years now, so I did adopt the index strategy when you had different options posted. I never did use the “Uber Tuber” because my portfolio was too small and it seemed a headache. I did use your Complete Couch potato model, and had invested in REITs as well as Real Return Bond ETFs.
Both the domestic REITs and the Real Return Bond ETFs have taken a bit of a beating lately. That really isn’t my concern right now as I have no need to cash them in. I have been reluctant to add to those asset classes, torn as I am with the new recommended portfolio. I have to agree with your simple bond recommendation, with a broad government and corporate ETF.
I am not inclined to sell all my VCE to buy VCN. No quarrel with the recommendation, just not sure if it is worth the hassle and costs as they seem to be performing similarly.
Your stated philosophy is to be invested for the long term AND to be broadly diversified. But I do wonder if it is a good idea to completely shut out an asset class, such as REITs. Doesn’t that reduce diversity by definition?
I would like to say that I enjoy your blog and am not in any way complaining, just am curious why REITs are out. Is it just to keep it simple? It would be interesting to see what the numbers would be on the old recommendations, compared to the current one. I know my portfolio did a bit better recently, but I am not holding my breath on next year or the year after…
Thanks as always for your insights.
@AJ
Dan has written about market timing in the past, and he (and the others below) do not recommend it. You invest on based on your need, willingness, and ability to take long term risk.
http://www.chicagotribune.com/business/sns-201509091900–tms–retiresmctnrs-a20150909-20150909-story.html
John Bogle, founder of the Vanguard Group, wrote this about market timing: “After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know of anybody who knows anybody who has done it successfully and consistently.” And then there’s one of my favorite Warren Buffet comments, “I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two.”
@OP
Dan’s model portfolios remain very relevant in 2016. Investing is about process, not products. With the three fund portfolio, you have a very strong level of diversification, with a very minimal amount of cost.
If you’re new, in addition to this website, you should check out Dan’s presenation from Retire Rich 2014. It’s very well presented and covers the basics of index investing very well.
http://www.moneysense.ca/retire/retire-rich-dan-bortolotti-on-index-investing/
@Chris
Dan can chime in if he needs to correct something.
My understanding is that REITs were dropped because of simplicity.
Justin wrote a good analysis on the role of REITs in a portfolio.
https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/Blog/Justin-Bender/May-2012/Should-you-invest-in-REITs
From this analysis, they may modestly increase returns while at the same time reducing volatility by a small amount over the long run.
At a base level, this extra level of complexity may not be worth the extra effort that an individual investor would have to put in.
Super newb question here I’m sure but, I recently purchased the Tangerine Balanced Growth fund (thank you for the recommendation) but I see in this post that you say “…but I switched to recommending a three-ETF portfolio covering only the core asset classes.” Does this mean that I should have one of each of the three options in my portfolio? Should I pick a fund from the Tangerine options (already done) and also a fund from the TD e-series funds and one from the Vanguard funds? Please excuse my ignorance as I am a brand brannnnddd new investor in this game. Thanks in advance for any help from anyone.
@ccp
Hello there. I have a question that is a bit off topic, and I’m just curious if you can give me your opinion.
I’m a new investor and I utilize your model e-series couch potatoe portfolio in both my rrsp and tfsa. By that I mean I have all four funds in each.I do this because I want to easily rebalance and not need to sell funds in one account to buy funds in the other.
Is this a bad idea?
I know you have covered this topic in detail but it’s quite complicated and I want to keep my portfolio as simple and efficient as possible.
Any input is awesome
Thanks
Amus
@Erik Thank you for the link to Dan’s presentation there. Really good presentation and lays out the couch potato strategy and how to build a usable portfolio in a SIMPLE way.
@Amus: Holding all four funds in your RRSP and your TFSA is not optimal, but it is just fine for relatively small DIY portfolios.
@C. Hull: The Tangerine balanced funds hold all of the core asset classes, so there is no need to ad anything else. These funds are designed to be a one-stop solution.
@Erik: Thanks for addressing the comments from AJ and OP. I agree fully with your comments to Chris as well with regard to REITs: over the long term any advantage of including a small allocation to REITs is likely to be very modest and may not be worth the added complexity. With real-return bonds, these can be a useful diversifier, but in Canada there are precious few issues, and they are very long-dated, which makes them very volatile. I have come to appreciate that investors hate volatility on the bond side of their portfolios, so sticking with a traditional bond fund is less likely to encourage bad behaviour.
@Chips: I can’t give you advice specific to your situation because I have no details. In general, the bid-ask spreads are going to be the same whether you make the switch all at once or gradually. The biggest concern is likely to be realizing cpaital gains/losses if you have some ETFs in taxable accounts. If you’re adding new money to the portfolio or rebalancing you will need to make some trades anyway, so you can likely use these opportunities to make fund switches as well.