Your Complete Guide to Index Investing with Dan Bortolotti
Blog2019-02-27T09:00:53-04:00

Blog

Browse hundreds of posts from Dan’s award-winning blog for information about all aspects of Couch Potato investing.

Trading ETFs Near Dividend Dates

In my most recent podcast, I addressed an excellent question from Philip, who asked, “Are there days when ETF investors should avoid trading?” Philip’s question has nothing to do with trying to time the market. He simply wants to know whether there might be days when you should not buy or sell ETFs close to the dates when distributions (dividends or interest payments) are made. And the answer to that question is—maybe. Let’s begin with a reminder that when you buy or sell shares of an ETF, the trade settles two business days later (weekends and holidays are excluded). In the industry, this is known as T+2 settlement. For example, say you buy 500 shares of an ETF at $20 each on Monday. Assuming no holidays, the trade settles on Wednesday, so you do not necessarily need to have the $10,000 in your account until that day. (In practice, some [...]

The Power of the 3BAL Portfolio

[Spoiler: This was an April Fool's joke!] Simple is beautiful, but in investing it ultimately loses its appeal. Since the beginning of 2018, all three of Canada’s top ETF providers have launched families of asset allocation ETFs, which are “one-ticket solutions” that allow investors to build a globally diversified portfolio with a single trade. But while these products can be useful for novice investors, they just aren’t well suited for those looking for the benefits that come from greater complexity. Many readers have asked whether I plan on ditching my current model ETF portfolio (which includes three funds) in favour of one of these asset allocation ETFs. The answer is no— at least not anytime soon. However, I would like to encourage readers to explore a different option, which I call the 3BAL Portfolio. The 3BAL Portfolio is built using three asset allocation ETFs—one each from Vanguard, iShares and BMO. [...]

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A New Rebalancing Spreadsheet for ETFs

It’s easy enough to build an index fund portfolio with your desired mix of stocks and bonds. But as any experienced investor knows, your asset allocation changes over time as markets move in different directions. When your portfolio drifts too far from its targets, then it’s time to rebalance. Rebalancing your portfolio is much easier with a spreadsheet, so I have created one you can download here. Rebalancing spreadsheets are not new, but this one has an additional feature I hope you will find useful: it allows you to incorporate ETFs that hold more than one asset class. My model ETF portfolio, for example, includes the iShares Core MSCI All Country World ex Canada Index ETF (XAW), which is roughly 55% US equities, 32% international equities, and 13% emerging markets. Let’s say you hold $20,000 of the ETF in your TFSA as well as $10,000 of a stand-alone emerging markets [...]

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Couch Potato Portfolio Returns for 2018

No one can say they weren't expecting it. After a long and giddy bull market that began in 2009, we finally experienced a calendar year when even balanced portfolios delivered negative returns—something young investors may not have experienced before. Things actually looked fine until the early fall, but the last four months swiftly erased most of the gains investors enjoyed to that point. December was particularly ugly: it was the worst month for equities since the 2008–09 crisis. But in the end, 2018 was really nothing worse than a minor disappointment, even though many in the financial media painted it as an unmitigated disaster. An aggressive index portfolio of 90% stocks lost less than 4% on the year: hardly a reason to panic. Let's review how the major asset classes performed in 2018: It was another surprising year for bonds. The Bank of Canada raised its key interest rate three [...]

Beyond One-Stop ETF Shopping

The new asset allocation ETFs launched by Vanguard and iShares in 2018 have made it easier than ever for investors to build a low-cost balanced portfolio. If you want a globally diversified mix of 80% stocks and 20% bonds, for example, the Vanguard Growth ETF Portfolio (VGRO) will deliver that with a single trade. Want a more traditional balance of 60% stocks and 40% bonds? The iShares Core Balanced ETF Portfolio (XBAL) will do all the heavy lifting. Of course, one-fund portfolios won’t fit the needs of all investors. Say, for example, your financial plan calls for an asset allocation of 50% stocks and 50% fixed income. None of the Vanguard or iShares asset allocation ETFs has this mix, so you’ll need to look for a different solution. Let’s consider some ways you can combine asset allocation ETFs and other products without completely sacrificing simplicity. Customize your asset mix with [...]

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iShares Launches All-in-One ETF Portfolios

Back in February, writing about the newly launched Vanguard’s asset allocation ETFs, I asked why it had taken so long for someone to create an ETF version of the traditional balanced index mutual fund. Now, just 10 months later, Canadian investors who want to build an ETF portfolio with a single trade can choose between two excellent options. This month, BlackRock Canada launched two one-fund solutions of their own: the iShares Core Balanced ETF Portfolio (XBAL) and the iShares Core Growth ETF Portfolio (XGRO). Like the Vanguard products, these new funds hold several underlying stock and bond ETFs to create a fully diversified portfolio. Unlike their Vanguard counterparts, however, the new iShares funds are not brand new products. Rather, they’re a reboot of two older funds: the iShares Balanced Income CorePortfolio Index ETF (CBD) and iShares Balanced Growth CorePortfolio Index ETF (CBN). These ETFs had been around since 2007, but [...]

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When Bond Yields Throw You a Curve

In my previous post, I explained the flaw in the conventional advice about shifting to short-term bonds if you expect interest rates to rise. While it’s true that bond prices fall when yields go up (that’s math, not forecasting), there are many different interest rates, and they don’t move in lockstep. The rate on your mortgage might go up while the yield on long-term bonds may not budge. And as we’ve seen during the last year, the Bank of Canada’s key policy rate (the overnight rate) can rise significantly while bond yields may tick up only gradually—or even decline. The easiest way to visualize this idea is with a yield curve. A yield curve is a line on a graph that plots interest rates (on the vertical axis) for bonds of various maturities (the horizontal axis). In most environments, long-term interest rates are higher than short-term rates, which makes intuitive [...]

Bonds Behaving Badly

There are a couple of basic rules bond investors can depend on. The first is that bond prices fall when interest rates rise, and vice-versa. The second is that long-term bonds are vulnerable to larger price swings than short-term bonds—in other words, they are more sensitive to changes in interest rates. If you understand these principles, the logical next step—at least for active investors—is to move to short-term bond funds if you expect interest rates to rise, since they’re likely to outperform bonds with longer maturities during any period when yields move up. With this in mind, imagine you could transport back in time to early July 2017, when the Bank of Canada’s overnight rate stood at 0.50%. This key interest rate had been stuck at that level since mid-2015, and many economists and media commentators at the time were predicting rates would start ticking up. That suggested investors should [...]

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Ask Me Anything: Part 2

Here’s Part 2 of the highlights from my recent AMA on Reddit. This is a lightly edited transcript of the exchange, along with some additional comments and links I didn’t have time to provide during the live discussion.   CrushyMcCrush: Two questions: 1) if you have existing stocks that are fairly diversified, would you consider them part of your allocation for that region (e.g. Google, FedEx etc. in place of a US ETF) or would you recommend selling these stocks and buying an ETF? 2) For index investing, what is the minimum amount of time in the market you would recommend for someone with an above-average risk tolerance? For example, if I am saving for a down payment in five years, is that long enough, or would you recommend a high-interest savings account? CCP:  1) As you can imagine, I don’t recommend holding any individual stocks. They are a huge [...]

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Ask Me Anything: Part 1

On May 10, I hosted an AMA (“Ask Me Anything”) on Reddit, the online discussion forum, and over 90 hectic minutes I answered as many questions as I could from investors. This week, in two separate blog posts, I’ll present a lightly edited transcript of the discussion, along with some additional comments and links I didn’t have time to provide during the live AMA.   vbally101: I’m newly financially stable, 31, single female, own my home and car. Finally in a full-time job with a salary and benefits and have paid off my debts (with the exception of my car and mortgage). Current annual salary is $90K before taxes. I have about $13K in savings. My new company has a defined contribution pension plan (7% individual contribution; 6% company matching). I have no other investments and am not sure where to begin. I’m trying to look to the future, but [...]

Browse hundreds of posts from Dan’s award-winning blog for information about all aspects of Couch Potato investing.

Trading ETFs Near Dividend Dates

In my most recent podcast, I addressed an excellent question from Philip, who asked, “Are there days when ETF investors should avoid trading?” Philip’s question has nothing to do with trying to time the market. He simply wants to know whether there might be days when you should not buy or sell ETFs close to the dates when distributions (dividends or interest payments) are made. And the answer to that question is—maybe. Let’s begin with a reminder that when you buy or sell shares of an ETF, the trade settles two business days later (weekends and holidays are excluded). In the industry, this is known as T+2 settlement. For example, say you buy 500 shares of an ETF at $20 each on Monday. Assuming no holidays, the trade settles on Wednesday, so you do not necessarily need to have the $10,000 in your account until that day. (In practice, some [...]

Advertisements

The Power of the 3BAL Portfolio

[Spoiler: This was an April Fool's joke!] Simple is beautiful, but in investing it ultimately loses its appeal. Since the beginning of 2018, all three of Canada’s top ETF providers have launched families of asset allocation ETFs, which are “one-ticket solutions” that allow investors to build a globally diversified portfolio with a single trade. But while these products can be useful for novice investors, they just aren’t well suited for those looking for the benefits that come from greater complexity. Many readers have asked whether I plan on ditching my current model ETF portfolio (which includes three funds) in favour of one of these asset allocation ETFs. The answer is no— at least not anytime soon. However, I would like to encourage readers to explore a different option, which I call the 3BAL Portfolio. The 3BAL Portfolio is built using three asset allocation ETFs—one each from Vanguard, iShares and BMO. [...]

Advertisements

A New Rebalancing Spreadsheet for ETFs

It’s easy enough to build an index fund portfolio with your desired mix of stocks and bonds. But as any experienced investor knows, your asset allocation changes over time as markets move in different directions. When your portfolio drifts too far from its targets, then it’s time to rebalance. Rebalancing your portfolio is much easier with a spreadsheet, so I have created one you can download here. Rebalancing spreadsheets are not new, but this one has an additional feature I hope you will find useful: it allows you to incorporate ETFs that hold more than one asset class. My model ETF portfolio, for example, includes the iShares Core MSCI All Country World ex Canada Index ETF (XAW), which is roughly 55% US equities, 32% international equities, and 13% emerging markets. Let’s say you hold $20,000 of the ETF in your TFSA as well as $10,000 of a stand-alone emerging markets [...]

Couch Potato Portfolio Returns for 2018

No one can say they weren't expecting it. After a long and giddy bull market that began in 2009, we finally experienced a calendar year when even balanced portfolios delivered negative returns—something young investors may not have experienced before. Things actually looked fine until the early fall, but the last four months swiftly erased most of the gains investors enjoyed to that point. December was particularly ugly: it was the worst month for equities since the 2008–09 crisis. But in the end, 2018 was really nothing worse than a minor disappointment, even though many in the financial media painted it as an unmitigated disaster. An aggressive index portfolio of 90% stocks lost less than 4% on the year: hardly a reason to panic. Let's review how the major asset classes performed in 2018: It was another surprising year for bonds. The Bank of Canada raised its key interest rate three [...]

Advertisements

Beyond One-Stop ETF Shopping

The new asset allocation ETFs launched by Vanguard and iShares in 2018 have made it easier than ever for investors to build a low-cost balanced portfolio. If you want a globally diversified mix of 80% stocks and 20% bonds, for example, the Vanguard Growth ETF Portfolio (VGRO) will deliver that with a single trade. Want a more traditional balance of 60% stocks and 40% bonds? The iShares Core Balanced ETF Portfolio (XBAL) will do all the heavy lifting. Of course, one-fund portfolios won’t fit the needs of all investors. Say, for example, your financial plan calls for an asset allocation of 50% stocks and 50% fixed income. None of the Vanguard or iShares asset allocation ETFs has this mix, so you’ll need to look for a different solution. Let’s consider some ways you can combine asset allocation ETFs and other products without completely sacrificing simplicity. Customize your asset mix with [...]

Advertisements

iShares Launches All-in-One ETF Portfolios

Back in February, writing about the newly launched Vanguard’s asset allocation ETFs, I asked why it had taken so long for someone to create an ETF version of the traditional balanced index mutual fund. Now, just 10 months later, Canadian investors who want to build an ETF portfolio with a single trade can choose between two excellent options. This month, BlackRock Canada launched two one-fund solutions of their own: the iShares Core Balanced ETF Portfolio (XBAL) and the iShares Core Growth ETF Portfolio (XGRO). Like the Vanguard products, these new funds hold several underlying stock and bond ETFs to create a fully diversified portfolio. Unlike their Vanguard counterparts, however, the new iShares funds are not brand new products. Rather, they’re a reboot of two older funds: the iShares Balanced Income CorePortfolio Index ETF (CBD) and iShares Balanced Growth CorePortfolio Index ETF (CBN). These ETFs had been around since 2007, but [...]

When Bond Yields Throw You a Curve

In my previous post, I explained the flaw in the conventional advice about shifting to short-term bonds if you expect interest rates to rise. While it’s true that bond prices fall when yields go up (that’s math, not forecasting), there are many different interest rates, and they don’t move in lockstep. The rate on your mortgage might go up while the yield on long-term bonds may not budge. And as we’ve seen during the last year, the Bank of Canada’s key policy rate (the overnight rate) can rise significantly while bond yields may tick up only gradually—or even decline. The easiest way to visualize this idea is with a yield curve. A yield curve is a line on a graph that plots interest rates (on the vertical axis) for bonds of various maturities (the horizontal axis). In most environments, long-term interest rates are higher than short-term rates, which makes intuitive [...]

Advertisements

Bonds Behaving Badly

There are a couple of basic rules bond investors can depend on. The first is that bond prices fall when interest rates rise, and vice-versa. The second is that long-term bonds are vulnerable to larger price swings than short-term bonds—in other words, they are more sensitive to changes in interest rates. If you understand these principles, the logical next step—at least for active investors—is to move to short-term bond funds if you expect interest rates to rise, since they’re likely to outperform bonds with longer maturities during any period when yields move up. With this in mind, imagine you could transport back in time to early July 2017, when the Bank of Canada’s overnight rate stood at 0.50%. This key interest rate had been stuck at that level since mid-2015, and many economists and media commentators at the time were predicting rates would start ticking up. That suggested investors should [...]

Advertisements

Ask Me Anything: Part 2

Here’s Part 2 of the highlights from my recent AMA on Reddit. This is a lightly edited transcript of the exchange, along with some additional comments and links I didn’t have time to provide during the live discussion.   CrushyMcCrush: Two questions: 1) if you have existing stocks that are fairly diversified, would you consider them part of your allocation for that region (e.g. Google, FedEx etc. in place of a US ETF) or would you recommend selling these stocks and buying an ETF? 2) For index investing, what is the minimum amount of time in the market you would recommend for someone with an above-average risk tolerance? For example, if I am saving for a down payment in five years, is that long enough, or would you recommend a high-interest savings account? CCP:  1) As you can imagine, I don’t recommend holding any individual stocks. They are a huge [...]

Ask Me Anything: Part 1

On May 10, I hosted an AMA (“Ask Me Anything”) on Reddit, the online discussion forum, and over 90 hectic minutes I answered as many questions as I could from investors. This week, in two separate blog posts, I’ll present a lightly edited transcript of the discussion, along with some additional comments and links I didn’t have time to provide during the live AMA.   vbally101: I’m newly financially stable, 31, single female, own my home and car. Finally in a full-time job with a salary and benefits and have paid off my debts (with the exception of my car and mortgage). Current annual salary is $90K before taxes. I have about $13K in savings. My new company has a defined contribution pension plan (7% individual contribution; 6% company matching). I have no other investments and am not sure where to begin. I’m trying to look to the future, but [...]