Your Complete Guide to Index Investing with Dan Bortolotti

Podcast 10: MoneySense, We Hardly Knew Ye

2018-06-21T07:16:35+00:00August 2nd, 2017|Categories: Podcast|Tags: , , , , |21 Comments

If you’ve been a reader for a while, you know that I have a long association with MoneySense, a magazine I contributed to for some 15 years as a feature writer, columnist, and editor. MoneySense didn’t invent the Couch Potato strategy, but the magazine brought the idea to Canada around the turn of the millennium, when index funds were rare and ETFs were almost completely unknown to the public.

But times are tough for print media, and at the beginning of this year MoneySense published its last magazine and made the transition to an all-digital format, including a lineup of free newsletters.

In my latest podcast, I sit down with David Thomas, who was named editor-in-chief at the magazine in late 2015 and still oversees the MoneySense and Canadian Business brands at Rogers Media. We chat about the magazine and as well as the evolving role of the financial media.

Worlds apart

Do you still need international diversification in your portfolio? That’s the question I tackle in this episode’s edition of Bad Investment Advice.

I’ve recently received questions from readers and listeners about whether investors really need international diversification in their portfolios. A couple pointed to a popular blog, though it seems the idea has some high-profile supporters, too. An article on CNBC in April explains it’s been promoted by both Warren Buffett and John Bogle, the father of index investing.

The argument goes like this: US multinational companies sell their products and services all over the world, so they give you plenty of exposure to the global economy. Why invest directly in overseas markets when you get exposure to those economies through companies such as Coca-Cola, Apple or Google, who sell their goods and services in those countries?

As I discuss this idea on the podcast, I reference a paper by Clifford Asness and colleagues called International Diversification Works (Eventually). Their study argues that “long-term returns are primarily about a country’s economic performance, and long-term economic performance varies across countries” in ways that cannot be known in advance. “Diversification protects investors against the adverse effects of holding concentrated positions in countries with poor long-term economic performance.”

A half-century of data

To examine this idea from a Canadian perspective, I looked at data going back to 1970. I compared the performance of two portfolios: one that held half Canadian stocks (S&P/TSX Composite Index) and half US stocks (S&P 500), and another portfolio split equally between Canada, the US and international developed markets (MSCI EAFE Index). Both portfolios were rebalanced annually. Here’s what I found:

  • During the 47-year period in question, equity returns were 9.2% for Canada, 9.9% for international, and 10.8% for the US, when measured in Canadian dollars. The simple average return was, therefore, right around 10%.
  • The portfolio of half Canadian and half US stocks returned more than that average—about 10.3%—and with significantly lower volatility than either of the two countries individually.
  • The global portfolio had an even higher return of 10.4%, and the volatility was even lower than that of the Canada/US portfolio.

So adding international equities to a portfolio both increased returns and lowered risk over the entire 47 years. It didn’t help over every period—indeed, it was often a huge drag—but it’s fair to say that a portfolio with true international diversification should make for a smoother ride.

Helping Mom and Dad

I get a lot of questions from index investors who want to share their newfound knowledge with family members. In this episode’s Ask the Spud segment, I answer a question from a reader named Brent, whose parents are in their 70s and working with an advisor who has them in mutual funds with MERs between 2.11% and 2.42% and lousy performance to boot.

“I want the best for them, but I don’t know what that is,” he writes. “Does it make sense to continue to use their advisor and keep paying these high MERs? Or would converting to a Couch Potato portfolio with ETFs be better at this point?”

If Brent had asked me this question seven or eight years ago, I would have been indignant. I would have confidently urged his parents to sack their advisor and build their own DIY portfolio of index funds. But I now understand that advice is much too simplistic. Not everyone is cut out for investing on their own—especially people in their mid-70s who have worked with an advisor their whole lives.

So if Brent’s advisor provides good service—he returns their calls promptly, he meets with them regularly, and makes a genuine effort to understand their needs—then they probably won’t want to fire him at this stage of their lives. But neither should they resign themselves to paying fees well north of 2%.

It might be possible for Brent’s parents to ask their advisor to rebuild the portfolio with ETFs. But I doubt this will work. Many people are surprised to learn that most advisors in Canada are not licensed to recommend ETFs. And even if they could, advisors who have spent their careers selling mutual funds often have no idea how ETFs and index funds work.

So it might be more realistic for Brent’s parents to explain to their advisor that they’re concerned about the high fees and poor performance of their portfolio and ask him to present some options for lower-cost mutual funds. Even if he uses only active funds, it is almost certainly possible to reduce the cost of their portfolio to 1.25% to 1.5%. That sounds very high if you’re DIY investor, but it’s an awful lot less than they’re paying now, and it has the benefit of salvaging the relationship, which the couple probably needs.

If that discussion doesn’t go well, then it’s time to look for another advisor.

There’s a lesson here for DIY indexers who are eager to share their passion with loved ones being poorly served by their financial advisors. Although your intentions are good, remember that if you tell someone they’re paying too much for advice, or worse, that their advisor is “ripping them off,” they may feel like you’re calling them foolish or naïve. So if you want to encourage others to consider index investing point them to some good resources, but don’t push too hard. If they’re interested, they will come around on their own time.



  1. Phil August 2, 2017 at 11:21 pm

    I like the ‘they will come around on their own time’. Very true, I have close friends who loose more than my annual employment income with their investment ideas. They know I have my ways, the index efts, but they don’t like the slower long term approach. If It can’t make them rich in a month then forget it.

    I call my method (the couchpotato) my permanent freedom. All I need to do is be disciplined and wait,… 30 years when I’m 65 I should be ok:)

    Aside, I have to say I have used the phrase ‘you’re being ripped off ‘. My grandparents were paying 5% in fees and had been locked into venture capital funds for 10 years while being close 80 years old and other very confusing funds which they had no idea they owned. In 2013 I transferred their funds to rbc direct and couchpotatoed them.

    25% RBF 2010
    25% GIC
    25% XSB

    12.5% VCE
    6.25% XEF
    6.25% VUN

    It has been great! There has been no concerns with returns since. Thanks for all the great info on this site dan. Your contribution to my own and my family’s lives has been a gift.

  2. Adam August 3, 2017 at 7:35 am

    Pretty conflicted when it comes to MoneySense. Generally like much of the content, but then once I attempted to enter one of its contests, it outright excluded residents of Quebec. Still don’t have an answer from them on why such a sweeping decision was made.

  3. Adam August 3, 2017 at 8:35 am

    Thanks for this information re: excluding Quebec. …. but I guess the question now is do other provinces/territories not have similar restrictions? (Not for you to answer, but I am curious.)

  4. Sarah De Diego August 3, 2017 at 1:09 pm

    Dear Adam,

    I’ve been hosting giveaways on my blog and contesting since 2010. Quebec IS the only province with such strict contesting requirements (I can’t speak specifically to the Territories but I’ve never had a problem when I hosted giveaways, mind you, no one from there entered and/or won ;) ). Many Canadians and Americans don’t realize that the strict laws do not apply to prizes under $100, however, when you have 28 additional rules to follow like stating the exact hour when you will draw for a prize, it’s just not worth the time and effort. I have many good friends in Quebec (that contest) and really feel for them and you. However, I suggest that you talk to your government about the regulations.

    Dear CCP,

    I am generally invested in individual stocks (except for VGK.US) but am always interested in learning more about investing. Looking forward to reading along.

    Besos Sarah.

  5. Caleb August 3, 2017 at 1:38 pm

    Hi Dan,

    Great comment about not forcing indexing unless they are interested. My parents are with what I consider a “good” adviser (i.e. responsive, listens, range of services) and while I know they could theoretically do better, for them it is not worth the change.

    1. I am currently about 25% Self-Directed Couch Potato and 75% with the same inherited “good” adviser and am trying to figure out how to mostly part ways and how urgently I need to (RRSP – DYN 077/9494, TFSA – DYN 1562, Non-Reg. Emerg. DYN 1770/1771/077/9494). While I know it is my money, do you have any recommendations for how to have that conversation with your adviser? Kindly saying I am being charged to much for sub-par performance?

    2. How would would recommend establishing something like an emergency fund in the context of couch potato investing? I have seen some ideas such as having the bond portion of your portfolio (in a TFSA so you aren’t docked when withdrawing) act as an emergency fund.

    Thanks for your wisdom!

  6. Alexis August 3, 2017 at 7:18 pm

    Hi Dan,

    Any place I can find the online poker article you wrote for Money Sense magazine a while back? :)


  7. Canadian Couch Potato August 4, 2017 at 8:53 am

    @Alexis: That had to be at least 10 years ago. Sorry, I don’t think it ever made it online.

  8. CJBob August 4, 2017 at 11:30 am

    After becoming educated about ETF’s I set up a meeting with my advisor. We discussed fees and switching from mutual funds to ETF’s and agreed on a plan.

    I’m paying 1% + ETF’s now and stayed with him for my RRSP’s because I thought the service I was getting was (and continues to be) worth the cost. I did set up TFSA’s with Royal Direct and I manage that myself.

    As you correctly stated, each person needs the solution that meets their own situation and I’m not comfortable taking it all on myself.

  9. Weekend Reading: Longevity Risk Edition August 5, 2017 at 8:33 pm

    […] the latest Canadian Couch Potato podcast, Dan Bortolotti chats with MoneySense’s David Thomas about the magazine shifting from print to digital, as well as the future of financial news […]

  10. Rick_J August 8, 2017 at 11:08 pm

    Thanks for continuing these great podcasts. While I completely understand your point about the downsides of placing any pressure on parents to switch to a couch potato I wanted to share my experience.

    A few years ago I became a devoted couch potato after reading your book and books by authors like Bill Bernstein, Larry Swedroe, Rick Ferri, and other bogelhead authors. Over time I shared the information I learned with my parents and in-laws. They expressed genuine interest and I later agreed to review their portfolios which were both managed by the big banks. I saw an opportunity to save them more than 2% in MERs which across all accounts was about $30,000 per year with less risk as they could shop for the best rates on GICs rather than settling for big bank GIC or bond funds with relatively high average duration and lower credit. I would not convert them to a couch potato ETF portfolio until they read your book and Bernstein’s investor manifesto. I then drafted a Investment Policy statement based on their input (both sets of parents of different needs, willingness and ability to take risk). I have been their authorized trader at Questrade for several years now using XIC, VTI, VEA and fixed income (GICs and high interest savings accounts) for more than five years and spend about a day on their accounts per year. This includes an annual financial meeting to confirm rebalancing trades to their targets.There is no market timing and ultimately they are more engaged in their finances then they were ever with an advisor.

    I enjoy helping them and would be happiest if they maximize their retirement enjoyment of their savings and have no need to receive an inheritance. Certainly this process is not for everyone and it would not work if the retirees are not fully on board. If they are and you are committed to remaining engaged for the long run the opportunity for savings and reduced risk taking make it worth at least considering in my opinion.


  11. Canadian Couch Potato August 9, 2017 at 9:33 pm

    @Rick: Many thanks for sharing your story. I think you’ve done your parents a huge service here!

    A key point, however, is that you have become your parents’ de facto advisor. Most people do not have the time, skill or inclination to do that for their parents. My advice really pertained to people who encourage their family members to fire their advisors and go DIY. That said, if people are willing to do what you have done (and their family members are on board) then this can clearly work out well. Nice work!

  12. Joel August 12, 2017 at 12:40 am

    Hi Dan, I’m a long time follower of your blog. Recently I listened to a Freaknomics podcast that I think is something all couch potatoes should hear as well as all potential potatoes. It’s from July 27 and called “The Stupidest Thing You Can Do With Your Money”

    It’s crazy that in the US they are up in arms about active mutual funds costing 1% where in Canada we’ve accepted 2-2.5%.

  13. John August 12, 2017 at 11:21 am

    Hi Dan
    Have you heard of Trans Atlantic direct. They are advertising and are guests on some local am talk show radio stations. The announcer seems to baffle us with how much he knows about currency trading and which way the markets are going. Everything he says goes against responsible investing from what I have learned. Seems to be a big sales pitch and surprised this reputable station has them on.
    Just curious if anyone has heard this as well.

  14. Canadian Couch Potato August 13, 2017 at 9:17 am

    @Joel: I’m a big fan of the Freakonomics podcast, and I thought that episode was very well done. I especially loved that they got Jack Bogle on. Yes, it’s pretty funny to hear US investors lamenting “outrageous” fees that sounds like a bargain by Canadian standards.

    @John: I’m not familiar with that show but it sounds pretty terrible!

  15. Seb August 22, 2017 at 7:49 pm

    @Alexis: Dan republished online the article you were looking for:

  16. Canadian Couch Potato August 23, 2017 at 10:19 am

    @Seb: That is not the article I was referring to in the podcast. I did a feature for MoneySense many years ago about the rise of online poker (which was new at the time) and whether a decent player could be expected to reliably make money playing at it. It was only published in print, not online.

  17. shak August 27, 2017 at 11:45 pm

    A nice touch.

    As someone who was just starting to work and making money, the best investment I had ever made was in a monthly Moneysense magazine subscription almost 10 years ago. Even after I had a grasp of all the major points (keep your fees low, broadly diversify, live below your means, pay yourself first), the physical magazine was a nice reminder to keep these habits in check. It was a great magazine. RIP moneysense hardcopy edition.

  18. Mike B November 29, 2017 at 5:28 pm

    Hi Dan….I am a longtime reader of Moneysense and follower of your articles and investment philosophies. Thank you so much for all the money saving / earning information you have shared over the years. ETF’s and The Couch Potato are fantastic philosophies for almost any investor to adopt.

    Many Thank$

  19. Mike March 9, 2018 at 1:53 pm

    Hi Dan,

    During the 47-year period in question, equity returns were 10.8% for the U.S. Please correct me if I’m wrong, but it seems that U.S equities were the clear winner here.

    Am I wrong to assume that buying and holding U.S equities such as an S&P 500 Index ETF (although more volatile) would have produced higher returns over a widely diversified global portfolio during the same time period?

    I know that past performance does not guarantee future results, but how do we know broader diversification in a global portfolio is likely to fare better when historically it appears otherwise? I don’t wish to speculate. I would like to understand your reasoning. Please accept my apology in advance if you explained this already.

    Thanks for your help.


  20. Canadian Couch Potato March 9, 2018 at 3:02 pm

    @Mike: Over any 47-year period, some countries are going to outperform others. But since we cannot possibly identify the “clear winners” in advance, it seems reasonable to diversify globally rather than making a bit on any single country or region. This is not much different from the decision to buy an index fund rather than individual stocks. Sure, over the last 20 years you would have been better off investing 100% in Google or Apple, but you could only know that in hindsight.

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