The numbers are in and no one is shooting the messenger this year. If 2018 was disappointment—returns were negative even for balanced portfolios—2019 had investors popping the champagne, as every major asset class was up on the year, and equities delivered double-digit returns both at home and abroad.
Below are the 2019 returns for the various versions of my model portfolios. But before we get to the data, let’s review the performance of the major asset classes last year:
- Is there anyone who left who still believes they can forecast interest rates and bond returns? The yield curve got run over by a truck in 2019, and it ended the year essentially flat, meaning the spread between short- and long-term interest rates was much narrower than normal. As those longer-term rates declined, bond prices soared and the asset class everyone loves to hate had its best year since 2014: the FTSE TMX Canada Universe Bond Index was up 6.9%.
. - Canadian equities lagged the US in 2019 for the ninth consecutive year, but at least this time it was a photo finish. The S&P/TSX Capped Composite Index rebounded from a dismal 2018 by delivering a 22.9% return, its best showing since the huge recovery of 2009.
. - The bull run in US equities continued in 2019, and the S&P 500 topped 25% in Canadian dollars. In a reversal of 2018, hedging the currency would have worked in your favour this year, as the index returned 31.5% in its native currency.
. - In overseas markets, international developed and emerging markets joined the party, too. The MSCI EAFE Index (Western Europe, Japan, Australia) returned just over 16% for the year, while the MSCI Emerging Markets Index (China, Korea, Taiwan, India, and so on) grew 12.7%.
OK, on to the real-world performance. Below are the returns of the individual funds, as well as the performance of the portfolios made up of those holdings. As always, these returns include all distributions (dividends and interest), which are presumed to be reinvested. The portfolio returns assume you started the year with the target asset allocation and made no transactions.
Option 1: Tangerine Investment Funds
The Tangerine Investment Funds are balanced portfolios that offer ease and convenience for investors who prefer not to open a brokerage account. They are available with three different asset mixes, ranging from the conservative Balanced Income Portfolio (30% stocks) to the more assertive Balanced Growth Portfolio (75% stocks):
Fund | Asset Allocation | 2019 Return |
---|---|---|
Tangerine Balanced Income Portfolio | 30% equities / 70% bonds | 9.97% |
Tangerine Balanced Portfolio | 60% equities / 40% bonds | 14.06% |
Tangerine Balanced Growth Portfolio | 75% equities / 25% bonds | 16.10% |
Option 2: TD e-Series Funds
The TD e-Series funds allow you to assemble your own portfolio using four funds as the building blocks: one for each of the major asset classes. Here are the 2019 returns for the individual mutual funds:
TD e-Series Fund | 2019 Return |
---|---|
TD Canadian Bond Index – e (TDB909) | 6.34% |
TD Canadian Index – e (TDB900) | 22.68% |
TD US Index – e (TDB902) | 24.32% |
TD International Index – e (TDB911) | 15.25% |
My model portfolios combine these funds in five variations, ranging from 30% to 90% stocks. Here’s how they performed in 2019:
Model e-Series Portfolio | Asset Allocation | 2019 Return |
---|---|---|
Conservative | 30% equities / 70% bonds | 10.50% |
Cautious | 45% equities / 55% bonds | 12.63% |
Balanced | 60% equities / 40% bonds | 14.79% |
Assertive | 75% equities / 25% bonds | 16.99% |
Aggressive | 90% equities / 10% bonds | 19.22% |
Option 3: Individual ETFs
The first of my ETF models uses three individual funds (including one that combines US, international and emerging markets) to build a globally diversified portfolio. Here are the individual ETF returns for the year:
Fund | 2019 Return |
---|---|
BMO Aggregate Bond Index ETF (ZAG) | 6.78% |
Vanguard FTSE Canada All Cap Index ETF (VCN) | 22.06% |
iShares Core MSCI All Country World ex Canada Index ETF (XAW) | 19.37% |
In 2019, these combined to deliver the following portfolio returns:
Model ETF Portfolio | Asset Allocation | 2019 Return |
---|---|---|
Conservative | 30% equities / 70% bonds | 10.75% |
Cautious | 45% equities / 55% bonds | 12.89% |
Balanced | 60% equities / 40% bonds | 15.02% |
Assertive | 75% equities / 25% bonds | 17.16% |
Aggressive | 90% equities / 10% bonds | 19.29% |
Option 4: Asset Allocation ETFs
My only change to the model portfolios last year was the addition of the new one-fund portfolios from Vanguard and iShares. The iShares versions launched at the end of 2018, so 2019 was their first full year of performance:
Fund | Asset Allocation | 2019 Return |
---|---|---|
Vanguard Conservative ETF Portfolio (VCNS) | 40% equities / 60% bonds | 12.06% |
Vanguard Balanced ETF Portfolio (VBAL) | 60% equities / 40% bonds | 14.81% |
Vanguard Growth ETF Portfolio (VGRO) | 80% equities / 20% bonds | 17.66% |
Fund Asset Allocation 2019 Return
iShares Core Balanced ETF Portfolio (XBAL) 60% equities / 40% bonds 15.19%
iShares Core Growth ETF Portfolio (XGRO) 80% equities / 20% bonds 17.96%
The fine print
When comparing the performance of the above four options, a good touchstone is the traditional blend of 60% stocks and 40% bonds. In this category, the iShares Core Balanced Portfolio (XBAL) was the leader at 15.19%, but the Individual ETFs (15.02%), the Vanguard Balanced ETF Portfolio (14.81%) and the TD e-Series portfolio (14.79%) were close on its heels. Only the Tangerine Balanced Portfolio lagged significantly at 14.06%, not surprising given the much higher MER.
But the difference in performance between the various options is only partly due to fees: indeed, costs are not even the biggest factor here. Most of the variation can be explained by subtle differences in the “asset subclasses” and in the specific indexes tracked by the funds.
Although all the portfolios are 40% bonds and 60% stocks, these broad asset classes are not subdivided in the same way in each portfolio. Some examples:
- The TD e-Series portfolio (which changed its benchmark indexes mid-year) tracks only large-cap stocks in the US and large and mid-cap stocks internationally, and it does not included emerging markets. The ETF portfolios track large, mid, and small cap stocks, and they all include emerging markets.
. - The Vanguard funds use the FTSE Canada All-Cap Index for Canadian stocks, while iShares and TD (for part of the year) use the S&P/TSX Composite Index: the latter outperformed this year, but the longer-term performance of these two popular benchmarks is almost identical. Tangerine uses the large-cap-only S&P/TSX 60 Index, which slightly lagged both in 2019.
. - My model portfolios generally allocate one-third each to Canadian, US and international equities (as do the Tangerine funds). The iShares asset allocation ETFs (XBAL and XGRO) assign significantly more weight—about 45%—to US equities.
. - BMO, iShares and Vanguard and TD all use different bond indexes. And the asset allocation ETFs (Option 4) are the only ones that include non-Canadian bonds. Vanguard’s versions include global as well as US bonds.
The lesson here is that you can usually ignore short-term variations in similar portfolios, because the differences are random and likely to even out over time.
Finally, a reminder that your personal rate of return may have differed significantly from the above, even if you followed the model portfolios closely. Your own results could have been affected by trading commissions, foreign withholding taxes, mid-year rebalancing, or large contributions or withdrawals.
This is helpful. It strikes me that the difference in returns between the Balanced three-ETF portfolio vs. the corresponding four-eSeries portfolio are pretty tiny, and are easily swamped by the costs of adding money (commissions) to the former.
Joe Q – yeah I love the e-series – so nice to not have to worry about trading commissions, or bid/ask market timing stuff. Really makes for stress and brain free investing plan
If I invest a big amount of money in couple of days, is the risk high to lose a lot during the year ? Should I wait that the market fall ?
@Charles
Meet Bob.
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/
Dan, I’d just like to express my thanks in your time for putting all this information together and helping draw comparisons between the various portfolios that you’ve modeled.
Very close to your ETF number again this year! My 60/40 Benchmark number was 15.43%. I use 4 ETFs instead of the 3 you mentioned above (2 different ETFs instead of 1 combined for USA/International).
Thanks, RK
Thanks again Dan for all work. I have learned so much from you over the years since I joined the index revolution
“ In a reversal of 2018, hedging the currency worked against you this year, as the index returned 31.5% in its native currency.”
Nope. Hedging would have worked FOR you.
@Mordko: Good catch: I’ve corrected the error.
Too much Canada! Global is the future
I cannot thank you enough, Dan, for all your work. I have followed your blog for a number of years now and have recommended it to all my friends. You have a remarkable ability to explain investment and finance in a way that DIY investors can understand. Once again, it seems that following a plain-vanilla broad-market strategy is best.
Thanks Dan. Always learn from your wisdom and appreciate the vote of confidence in Index funds. This year I nearly changed all of my investments to VBAL, VGRO and XAW. If it wasn’t for my previous financial advisor’s company slowing down the process, I would even have done better. Take care and have a great 2020
Thanks for collecting and posting these annual results and writing this article Dan. I remain a devoted fan of yours after many years: reading your book, your website articles and listening to your podcasts.. I always enjoy your invaluable insights and analyses.
Thanks, Dan. I’ve been following your blog since 2014 and so pleased with my investment approach. I’ve opted for the e-Series route (mutual funds) because I don’t have to worry about the hassles of trading, bid/ask, etc. I admit though, I have been tempted to “graduate” to an ETF approach, but these yearly blog recaps always remind me that it’s not worth the hassle! Set it and forget it.
Thanks Dan for another informative post. I’m a big supporter of your blog and the Index ETF’s you review.
I’m planning to buy either VBAL or XBAL. But before I do, I’m hoping to clarify XBAL’s MER as it differs depending where you look. It is shown as 0.76% on some websites and 0.20% on others.
On iShare’s website, if you look at their XBAL ‘ETF Facts’ (dated March 2019) it shows the MER = 0.76%; while their Dec 31, 2019 XBAL ‘Fact Sheet’ shows 0.20%.
In addition, numerous financial websites (ie. YahooFinance and TD Dir.Inv.) show the MER on XBAL to be 0.76%.
Can anyone clarify this? Thanks in advance!
@Ken: Thanks for the comment.
The 0.76% figure for XBAL and XGRO has been a common misunderstanding since these funds first appeared. Their MERs will not be anywhere close to 0.76%. These two funds (unlike their counterparts from Vanguard and BMO) were not brand new: they evolved from two older ETFs (tickers CBD and CBN) that had much higher fees. Published MERs are backward-looking: they tell you the expenses of the fund over the previous 12 months. So investors holding CBD or CBN did pay an MER of 0.76% in 2018. But when iShares changed the mandate of these ETFs they lowered the management fee to 0.18%, and the MER (which includes taxes) should be right around 0.20%. Now that these funds have been live for a full year the published MER should reflect that current investors are paying this much lower cost.
Thanks for the clarification!
I find it striking that the Eseries did so well relative to both the asset allocation ETFs and Individuals ETFs (e.g. VGRO). I thought that the Eseries would do more poorly because of the higher MER. Is the percentage included with the MER? Why do you think this may be the case?
I really need to look into these a bit more. I have a few different accounts and juggle over 30 holdings in the largest one. This would be so much easier if I could convince myself to “get on the couch”
Thank you for another great article Dan! Very helpful! I’ve been very happy with my couch potato portfolio! It’s quite simple even with a taxable investment account. All my fixed income is ZAG in RRSP. I fill TFSA with XAW. The rest is in taxable account TD E series (Canada, USA, Intl), which makes re-balancing super easy!
Just wanted to leave a “thank you” for the all the help I have received over the years through your excellent blog. I have been a couch potato now for several years and never looked back portfolio wise! You are making a big difference to the quality of peoples’ lives.
Thanks to everyone who took the time to say they appreciate the blog and the model portfolios. I’m happy to hear how many people have found them helpful!
Thank you for your work. Currently doing 80% XAW and 20% VCN with questrade.
Thanks for all your great work. Your blog is very much appreciated.
I’ve been a CPP for over a decade now, and no regrets here, other than not following your advice as closely as I should have!
I only started couch potato recently. Thanks for putting the time and effort into doing these calculations for those of us who aren’t quite as number savvy. Are the TD e-series and ETF portfolios tax friendly if I put them in a non-registered account? (eg. my rrsp and tfsa are almost maxed out and I need to find somewhere to park investments in a non-reg account that won’t ding me with a lot of taxes). Any suggestions for tax efficient couch potato portfolios?
Thanks for all the great work. Started with e series before going to etfs. Your blog has been very useful.
Thanks so much for this yearly recap, Dan. I always look forward to it.
The great performance of US equities in 2019 reminds me of what Dan wrote in his 2013 yearly summary. Here’s a quote:
“The extraordinary returns in US stocks (over 33%) coincided with a strengthening US dollar, which gained almost 7% against the loonie. The result was a once-in-a-generation return of almost 43% in the broad US market for Canadians. I have data for the Wilshire 5000 Index going back to 1975, and there has never been a year with higher returns when measured in Canadian dollars.”
I was just learning about index funds around 2014. At the time, I had my US equity holdings in actively managed funds (with 2% MERs) and my US return in 2013 was 21%, 12 percent lower than the index return. In 2014, my return was again 7% less than the index. When I went back to check 2012, I under-performed the index by 6% that year too.
Those were painful experiences to feel I was unnecessarily leaving money on the table. It motivated me to learn about alternatives! Canadian Couch Potato was a great help those years as I read everything I could find in do-it-yourself investing and index ETFs. I decided my real risk was in not being able to even consistently achieve “merely average” market returns in the funds I held. If you miss out on those rare really good years because of poor fund choices, that really sets you back.
It look about a year to get all my holdings moved into a self-directed brokerage account and into low-cost index ETFs. All I wanted was high confidence I would at least get something close to the index no matter what.
Last year, index investing really delivered for me.
I hold my US equities in Vanguard’s total market index ETF, VTI, a fund Dan has recommended. Last year, the total market US index returned 30.84% and VTI had a total return of 30.80% after fees. That’s incredible. That’s 1 basis point of tracking error and 3 basis points of fees.
There are a lot of investors that get below market returns due to poor fund choices, trading in and out of the market, whatever. I’m so glad that wasn’t me in 2019 like it was in 2013.
Thank you, Dan, for your role in educating Canadians on low-cost index funds.
This is great. Pretty interesting to see the TD E-series outperforming the VGRO funds. hmm
Dan, have you made any changes to your model portfolios after 2019? I’ve recently convinced my partner to exchange her expensive TD mutual funds for a self-directed portfolio of e-series. We’ll be making lump sum purchases of your e-series model portfolio next week.
Thanks!
@Darren: I’ll be rolling out some changes to the model ETF portfolios in the next couple of weeks. But no changes to the e-Series suggestions: they remain a good a choice as ever.
Are you going to be updating the same type of chart as last year that shows 1 yr.. 3 yr … 5 yr..etc.. for the various portfolios?
@Michael: Yes, when the model portfolios are updated. Thanks for your patience.
A great big thanks to you, Dan! You have been my guide and mentor since 2007, when I came across your blog and articles in MoneySense. Of course the market crashed shortly after I started investing. While it was a harrowing experience to go through the negative returns, I at least understand how scary a market crash can be. You have made investing tangible and accessible for the average DIY investor. In fact, I think you’ve enabled thousands to be DIY investors. You have educated me, excited me and made me confident in my decision to follow your model portfolios. I invest monthly (SIP) in the e-series funds and have put my other accounts (RDSP & Locked-in RSP) into VBAL and VGRO, which has simplified things even more.
I look forward to your update!
Can any of the portfolio funds from vanguard be purchased using US funds?
Thanks so much for all your work! Every year I look for your suggestions and they never disappoint! I’m so happy to be able to be in control of my own investments!!!
Hi Dan
You helped me get going on my own DYI c- potato plan about 6yrs ago
Wondering if there is. Couch potatoe portfolio for climate change?
Want can I add or get rid of ?
Thanks so much
Stephen
I just wanted to add my thanks to the litany you are already seeing here. Not only do I follow your general advice, but I am also a highschool teacher and the CCP portfolios form the backbone of my financial literacy course when I teach it. I call the section “Do you want to make a Million Dollars for Yourself or for Your Bank?”
It’s very informative having my students build spreadsheets constructed from bank standard funds and then comparing the returns (and fees) vs the CCP over 30-50 years.
Thanks a Million!
What a treasure of useful information. Thank you.
When considering balanced funds, Mawer Balanced A (MER 0.91%) has a sterling record for 25 years, and completed 2019 with a net return of 15.0%. For those with a 60/40 Global Neutral Balanced asset allocation, it has the added plus of being actively managed, as opposed to following a passive index strategy.
It’s a key component of our portfolio, and together with the Vanguard Couch Potato, the benchmark for ourselves.
Given that the Tangerine Funds have a higher MER and are pure index, this ought to be a worthy component for a one-product portfolio.
Thanks Dan, great website and information that has been very helpful to me. Had a great year, spending most of it about 93-7 heavy equities and finished up 22.8%. Largest holdings VTI, XIC, XEF, smaller amounts of VUN, XAW and now hold VGRO in TFSA’s and RESP. Just today re-balanced a little to new AA of 90-10 on track to get to 80-20 this year. Still adding tons of money to the portfolio over the next 5 years.
Loving your re-balancing spreadsheet too!!
Really appreciate your efforts here!
Thanks again for all the work you do Dan, and the CCP site, great information as always.
I like to noodle with asset allocation to try and find my deepest drawdown on my portfolio.
There are a few I have found, the asset mixer at Stingy investor is good (no reits) and is helpful.
Portfoliocharts.com is very nice but uses some USA for some of data.
Is there any way a DIY can get a detailed SD rating and deepest drawdown going back decades and is user friendly for the not (too Tech and spreadsheet savvy) individual??
I know you don’t like preferred shares but I have them and don’t know how to handle them in a asset mixer?
Thanks in advance.
Mark.
Never invested, but have 20K to invest. If I use option 4 do I invest in all: VCNS, VBAL, VGRO, XBAL and XGRO or do I invest in 1 or 2?
I have been reading and watching YouTube videos but am not 100% sure on everything, but again, would love to start.
@Pedro: The idea of asset allocation ETFs is that they allow you to build a portfolio with a single fund. So you should pick the single ETF that is most suited to your risk profile and goals and just use that one.
Hi Dan,
I’ve been following your index investing advice for years to great benefit to my family – thank you!
Very long story short – we now have (rather randomly) a decent sum of USD to invest. Do you have portfolio recommendations for trading on US stock exchanges?
@Carlii: There are a great many US-listed ETFs that would be suitable for traditional index portfolios. In general, you should not buy Canadian equities or fixed income in US dollars, but both iShares and Vanguard offer low-cost options for foreign equities. Some examples:
For US equities: VTI or ITOT
For international developed markets: VEA or IEFA
For emerging markets: VWO or IEMG
Using US-listed ETFs in RRSPs is ideal if you can manage this. (You typically can contribute USD to an RRSP without converting it. The contribution for tax purposes would be equivalent to the CAD value of the USD on the date of the transfer.)
If you use US-listed ETFs in a non-registered account you may need to file a T1135 report at tax time (as these are considered foreign property) and tracking your cost base for tax purposes needs to be done in CAD, which is not straightforward. This is why I don’t typically recommend using Us-listed ETFs in taxable accounts.
Thanks Dan, very helpful as always. I really like the format of how it is presented.
Fyi, you might want to revisit how your article posts show on the main page. While I get the emails, sometimes I visit by bookmark and the most recent is not showing on the main link.
Hi Dan, thank you so much for the good information you provide.
Is there a reason you stopped recommending the mix (XAW, VCN, ZAG) on your site?
I noticed it’s not there anymore in any of the models.
I like that since it’s only 3 ETFs to buy from.
Thanks…
@Camilo: The updated model portfolios are even simpler:
https://canadiancouchpotato.com/2020/01/23/unveiling-the-2020-couch-potato-model-portfolios/
Thanks, Dan,
I had missed the post above explaining the changes when you posted originally.
Camilo
Dan , thankyou for your work. Where would I find the charts for 2019 that you referred to in an answer to a Jan 17/20 request.. They showed the Model Portfolio Performance, 1,3, 5 year etc. I cant find them. thanks again
@John: You can download the PDFs here:
https://canadiancouchpotato.com/model-portfolios/