It’s been a while since the last new article appeared on the Canadian Couch Potato blog, and over two years since the last podcast. So I’m pleased to share the reason for the long silence: I’ve been busy on a new book called Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs.
The official publication date is November 1, but the book is already available for pre-order on Amazon and Indigo, and will soon be on shelves at better bookstores across Canada.
I stopped recording the podcast in the summer of 2019 because I needed to take a break and think about how I could make my work more useful in a world of information overload. I didn’t want to just crank out content on a deadline: I wanted to create something that would have a lasting impact on readers and listeners. What was needed, I recognized, was a step-by-step guide to designing, building, and maintaining a portfolio of ETFs over the long-term.
The new book is something of a reboot in its own right. When I was a columnist and editor at MoneySense magazine, I wrote a modest book called the MoneySense Guide to the Perfect Portfolio, which laid out a plan for building a Couch Potato portfolio with ETFs and index mutual funds. That book sold out three editions, but it has been out of print since 2013. I still get emails from readers looking for copies, but there are none, and even if there were, the book is profoundly out of date now. The marketplace has changed dramatically: online brokerages are better and cheaper, excellent new ETFs have appeared, and roboadvisors have become a viable option for DIY investors who want a more hands-off approach.
As 2020 dawned, I had a clear idea of what my next project would be. Now I just needed to find the time to do it. Then along came the COVID pandemic, which meant a lot more time for all of us.
All of these roads led me to write Reboot Your Portfolio. The book is a complete guide to becoming a do-it-yourself investor using low-cost index ETFs. It draws heavily from the writing I’ve done over the years, since much of the advice hasn’t changed. But everything has been thoroughly updated, and large sections are brand new, reflecting the changes in the investing landscape. Moreover, my own approach has evolved during the last decade as I made the transition from financial journalist to portfolio manager: the more closely you work with human beings, the more you realize that simplicity always trumps complexity.
If you’re a hardcore DIY investor who’s been using ETFs for years, and you’re looking for advice about optimizing your portfolio to shave a few basis points in costs or taxes, you won’t find that in the book. The same goes if you’re only interested in model portfolios or specific ETF recommendations.
My goal with the book is to help you get away from the idea that successful investing is about choosing products and obsessing over tiny tweaks that will take you from an A to an A+. As I’ve worked with hundreds of investors over the years, I’ve come to understand that I can help more people just by getting them to an A. The small details don’t matter very much after that—and indeed, stressing over them can easily sidetrack you from what’s really important.
I hope you enjoy the book, and that it will help you get started on a path to investing success.
Hi Dan,
I use VGRO for my large corp account. I am broaching my small business deduction soon.
As a professional, it might mean that the government is telling me to slow down.
That’s what I plan to do rather than buying permanent life insurance which is all my accountant keeps telling me to do.
I like holding VGRO. I wondered if I should have bought VEQT and GICS.
But that would still kick off a lot of passive income. And it would involve me having to rebalance.
Anyhow regardless of SBD tax issues, I am grateful to be able to use VGRO just for the simplicity factor alone.
Hi Dan, loved the book, read it in 2 days,in the process of re-reading and taking notes…but looking for your recommendations as to my specific situation…retiring in November 2023, have company pension that will pay me approx. 700/wk after taxes, have 20000 in TFSA, just inherited 40000 from dads passing last year…want money to last until at least I am 85, will be 52 when I retire…thnx so much, keep up the good work, I don’t think u realize how many ppl u are helping
@Mark: Thanks for the comment, and glad you enjoyed the book! It sounds you would benefit from a financial plan to make sure your expectations are realistic. There are many good planners who work on a fee-for-service basis, and these are are a great choice for DIY investors approaching retirement. Good luck!
Hi,
I enjoyed the book but as I am at the latter end of my saving life I am looking for a reference for what to do as the goal becomes locking in savings, minimizing taxes and generating income.
For example you mention you invest your clients money in GIC’s do you have a reference for what to look for there.
Stan
Okay, I have to say that I am MORE than happy with this book. The first 30-40% of it is simply talking about the non-technical things regarding investing: Equities-vs-Bonds, personal risk tolerances, investment timelines, etc… While the conclusion of the book is a simple reminder that the best plan is the ones you follow.
About the only thing that I didn’t see discussed was explaining the difference between investing and speculation. Many folks don’t understand the difference, but they are worlds apart.
Even if you have absolutely no interest in ETFs, this book is well worth the read. I finished it in about two days; it’s approx 200p)
VERDICT: HIGHLY RECOMMENDED (whether you are a noobie investor or a seasoned DIY-pro).
Hi Dan,
I am having a bit of trouble understanding index funding/etfs when it comes to amount and frequency. Lets say I bought ZGRO, do I just keep adding to it each month or “should” I have more than one etf/index fund?
thanks!
@mackenize: Assuming that ZGRO (which is 20% bonds and 80% stocks) is an appropriate portfolio for your situation, then it is designed to be all you need. There would be no benefit to adding more holdings to the portfolio. Just keep saving!
I initially started ETF investing prior to their being products that do the rebalancing for you. I wonder – do I sell my current ETFS and reinvest in a single product, as I prefer the ease, or do I just start investing all new money into the new product?
Good book
@Tasha: Unless you would face capital gains taxes after selling your current holdings, it is probably worth moving the whole portfolio to your chosen asset allocation fund. Otherwise you will still need to rebalance the other holdings: you’re really not making your life easier unless you switch everything.
Hi Oldie
Is XGRO the only fund you own? I see that all in one ETFs are becoming more popular and offers the investor the opportunity to invest easily outside of Canada. What was your rationale in choosing XGRO over, for example, VGRO?
Dan
Is there any problem in investing in an all in one ETF?
@Pat: I spend a good chunk of my book trying to argue that all-in-one ETFs are the best choice for most DIY investors. :)
@Pat:
I set up my non-Registered portfolio several years ago and it has multiple components in keeping with the standard Couch Potato advice at that time. There was also some tweaking towards acquiring Horizons Total Return Swap Index ETFs to avoid annual taxable income, as this is a rather large portfolio. Now Horizons has kept up with the times and offers a single ETF multi-component product which also uses the Total Return Swap feature. This would be an attractive choice to switch to, except for the fact that over the years the value of my current ETFs has risen so much that cashing them in to purchase the single Horizons product would create such a huge capital gain and income tax hit as to be inadvisable. Fortunately rebalancing is not a critical or difficult task, so continuing the status quo is quite ok for me.
On the other hand, my TFSA has allowed me to shelter the capital gains (from selling my prior stable of ETFs) tax-free over the years each time the Couch Potato advice got more simple with the availability of progressively more efficient ETF vehicles, and as soon as the new advice made sense to me I would sell my old ETFs and buy the newly recommended ETFs, most recently culminating in the conversion of the previous cluster of diversified ETFs to a single XGRO component a couple of years ago.
The really nice thing that doesn’t get mentioned much is that if you time the annual purchase of XGRO (using your annual TFSA contribution) to occur soon after an automatic Dividend Re-Investment Purchase of shares (which you should have set up previously), it is easy to use up as much cash as you have in the account to buy as many XGRO shares as possible without leaving an annoying excess of spare cash left over. With the multiple ETF version it was easy to lose track and make an error somewhere and find out that you actually had enough cash to buy more shares than you thought you could, and somehow ended up with some extra cash sitting in the TFSA until next year’s attempt at purchasing the exact amount of shares.
As Dan says, objectively, VGRO has as much to recommend itself as XGRO. The difference in fees is trivial and may change anyway. I just happened to buy XGRO. I believe at the time of purchase VGRO had only just become available and I had made my decision already.
There is absolutely no problem with using the single product method except maybe “Fear Of Missing Out” compared to your previously micro-managed system to take advantage of the lower total sum of annual fees, which, in retrospect turns out to be a false economy, except for, possibly , truly huge portfolios.
@CCP: This weekend’s Globe and Mail Business Section has an article about how Bonds (and by extension Bond ETFs) have been hammered by rising interest rates, and advises the remedy — buy GICs where otherwise you would have owned Bonds.
This, now that I have learned and absorbed CCP wisdom (I hope) over the years, strikes me as a simplistic knee jerk reaction, and not good advice at all.
Would it be correct to say that if your long term strategy called for a Bond component to your mix, then that’s what you should have, and you should keep it that way. The drop in Bond value, meant to buffer drops in Equity value, is a temporary misfiring of your intended buffer, and will iron itself out in the long term. This type of glitch will occasionally happen in the course of events and is one of the possibilities that you should acknowledge in you personal assessment of risk acceptance.
If you need to have a cash reserve for a specific purpose and specific shorter time frame, GICs fill that need, but you should not be changing your long or intermediate term strategy, particularly if your course change is based upon events out of your control like rising interest rates, or on your prediction about what you think is going to happen in future.
I don’t know why I allowed my eye to drift on to this article when I usually discard the Business Section entirely without reading it — such a blessed avoidance of what used to be an anxiety-provoking activity. But now that I have read it, I’m obliged to think about it, and to weigh its purported wisdom, such as it is.
Professor, this is my term paper based upon what I think you have taught us over the years. Am I close to a Pass?
@Oldie: I think Rob Carrick’s article was quite balanced. In the end he stated that “a mix of GICs and bonds is more broadly appealing” than holding GICs exclusively. But it’s probably also true that there’s some hindsight bias here.
It’s best to start this discussion with a few statement that (I hope) are uncontroversial, based on my experience managing portfolios for clients.
– Bond ETFs are volatile, while GICs are not. Most people hate volatility in fixed income, and it’s hard to blame them when bonds are frequently touted as the safe part of a balanced portfolio.
– Bond ETFs are very hard for most investors to understand. GICs are about as easy as it gets.
– Most of the time, the yield on a five-year ladder of GICs will exceed the yield to a maturity on a broad-market bond ETF (which has an average term of about 10 years). Today the yield to maturity on ZAG, for example is about 4%, whereas you can buy even one-year GICs yielding 4.5% or so. It’s reasonable to choose a guaranteed 4.5% (at least in the short term) over an uncertain 4%.
– One of the reasons GICs pay a premium over government bonds is that they are illiquid. It’s very common for investors to lock up money in GICs for several years, only to change their plans (e.g. make an unplanned property purchase) and find themselves unable to access their money.
– During periods when interest rates rise, GICs look like stars. But during periods when rates fall, bonds thrive and GICs look like laggards. Investors have short memories. Broad-market bonds returned about 6.8% in 2019 and 8.5% in 2020. During those two years, it as common for a GIC ladder to yield less than 2%. Believe me, when we bought five-year GICs for clients in 2019 they were not enthusiastic.
Take all of these things together and it seems clear that in most cases investors would do well to hold both bond ETFs and GICs at all times. Bonds provide liquidity and thrive when rates fall, but at the cost of come volatility. GICs provide stability and thrive when rates rise, but at the cost of liquidity. This is just another layer of diversification in a balanced portfolio.
Justin did an excellent bog and video on this topic: Bond ETFs vs. GIC Ladders
@CCP I have duel citizenship between Canada and US. Currently a Canadian resident however I still have to file US tax returns. These tax returns make it inefficient to purchase ETF listed on a Canadian exchange. Currently I need to transfer all my CAD to USD then buy US listed ETFs and international ETFs. This has some downsides, currency conversion costs, changing exchange rates. For exposure to the Canadian market I have a stock picker that charges 1% of my portfolios value, this makes balancing a bit of pain. Currently I balance to have 40% US 40% CAN 20% INTER.
I’m reaching out to ask if you have any suggestions of what to do or where to look for more information? I would ideally do all the investing myself with an extremely simple single market weighted index fond. Or if there are specific US products you would suggest?
Thanks for the help you have already provided :)