Your Complete Guide to Index Investing with Dan Bortolotti
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complete guide to index investing

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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 brokerages do not allow you to place a trade if you have insufficient cash in the account on the trade date.) If you sold those 500 shares for $20 each on Monday, the cash balance in your account might read $10,000 immediately, but your brokerage almost certainly will not allow [...]

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. It retains some of the benefits of a one-fund solution without sacrificing the benefits of juggling three moving parts. It works like this: say you want a traditional balanced portfolio of 60% stocks and 40% bonds. Using the 3BAL formula, you would purchase equal amounts of the following three ETFs: [...]

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 ETF in your RRSP. What is your overall allocation to emerging markets? That’s not easy to answer, and it will make it harder for you to keep your portfolio on target. This question gets even thornier with the new “all in one” ETFs from Vanguard and iShares. These popular ETFs [...]

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 more times in 2018 (following two increases in 2017) but the FTSE TMX Canada Universe Bond Index was still up 1.36% on the year. Bonds lose value when rates rise, but as we saw last year, there are several key interest rates and they don't always move in the same [...]

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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 [...]

ETFs and Funds|

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 [...]

Uncategorized|

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 [...]

Podcast 25: Dr. Steve Wendel on Investor Success

July 9th, 2019|

The latest episode of the Canadian Couch Potato podcast features an interview with Dr. Stephen Wendel, Head of Behavioural Science at Morningstar. Wendel heads up a research initiative called the Investor Success Project, which focuses on the human factors that dominate personal finance. So much discussion around financial well-being focuses on investing, but as Wendel points out in our interview, “In the finance industry, we often focus alpha, asset allocation and fees, but these are only important for people who have saved.” And according to his research, nearly half of all Americans have saved nothing for retirement. I don’t imagine the numbers are any more encouraging in Canada. Wendel and his team are devoted to helping investors overcome the many challenges they face in the effort to save more and enjoy a comfortable retirement. His [...]

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