I’ve always tried to stress that successful investing is about the right process, not the right products. But good products certainly help. In the latest episode of the podcast, my guest is Todd Schlanger of Vanguard Canada, who was one of the architects behind the firm’s asset allocation ETFs, launched earlier this year to great fanfare in the DIY investing community.

These globally diversified “funds of funds” are available in three versions: the Growth ETF Portfolio (VGRO) has a target of 80% stocks and 20% bonds, while the Balanced ETF Portfolio (VBAL) holds 60% stocks and the Conservative ETF Portfolio (VCNS) is 40% stocks. In each case, the underlying holdings are seven other Vanguard ETFs.

In our interview, Todd discusses the thought process behind the construction of these new funds. We discuss the decisions to include global bonds, to overweight Canada (home bias), to use currency hedging for the bonds but not the stocks, and how frequently the funds are rebalanced.

A few times in the discussion we mention a white paper that Todd recently co-wrote on this subject: the title is Vanguard asset allocation ETFs:  A simple yet sophisticated approach to portfolio construction.

Changing course

In the Bad Investment Advice segment, I question whether DIY investors can improve their skills by taking courses, either online or in classrooms. I’m all for self-study, but I argue that you need to be selective about investing courses, because there’s a significant risk that all you’ll learn are bad habits.

For example, the Canadian Securities Course is intended for investment advisors, but there’s a version for the general public, too. While there’s lots of useful material in the course, it’s inevitably biased towards active management and product sales, because these are bread and butter of the industry. Any DIY investor who takes courses like this is likely to come away with the impression that successful investing is stock picking, clever trading and making forecasts.

One online course that focuses on the right subjects is Practical Index Investing for Canadians, created by John Robertson, author of The Value of Simple and my guest on an earlier podcast. The course contains absolutely no material on segregated funds or how to buy put options.

In addition to learning practical knowledge and skills—such as how bonds work, and how to measure your rate of return—I think one of the best ways to become a better investor is to learn about the behavioural biases we all face when making financial decisions. Here are a few of my favourite books of the subject:

Your Money and Your Brain, by Jason Zweig. Why are we supremely confident about our investing skills despite evidence to the contrary? Why are we so inept at assessing risk? One of the best financial journalists in the biz takes readers on a tour through our lizard brains and explains why they’re ill-equipped to manage money.

Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich. The best way to avoid mental accounting, anchoring and the endowment effect is to recognize these “cognitive biases” we all share. This is an entertaining and anecdotal guide to the most common pitfalls we face when making financial decisions.

Thinking in Bets, by Annie Duke. I can’t resist a book that includes insights into both investing and poker, both of which involve working with incomplete information and mastering your emotions. Duke is a champion poker player and a business consultant who specializes in decision-making research. This book is one of the best arguments for why you can’t judge decisions by their outcomes.

Finance for Normal People, by Meir Statman. Professor Statman is one of the key researchers in behavioural finance, and in this book he explains how we approach investing not simply for utilitarian reasons (to grow our wealth), but also for expressive and emotional reasons.

Thinking Fast and Slow, by Daniel Kahneman. Not an investing book per se, but a must-read-twice for anyone who wants to better understand how humans make decisions, by the Nobel-winning psychologist.