Index Investing Just Got Easier – The CCP Portfolio is now made up of only 3 funds

A few days after I wrote a post singing the praises of the Canadian Couch Potato Portfolio, they released their 2015 re-balancing allocations.

The Canadian Couch Potato index investing strategy now only consists of three funds:


Your allocation in these three funds is determined by your risk tolerance. You can take a peek at the different breakdowns of the suggested allocations here.

The old allocations held more ETFs — XRB.TO, ZRE.TO, VXUS.TO, WTI.TO, plus the ones that listed above that make up the new Couch Potato Strategy — depending on your risk tolerance and portfolio size. Reducing the couch potato to just three funds seems like a big change, but it’s actually just minimized the portfolio’s risk while keeping more or less the same exposure to the market.

Some people will wonder if they can have an adequately balanced investment portfolio with only 3 funds.

The answer is YES.

The funds suggested by the CCP break down as follows:

VXC.TO – International Equity (everything except Canada)

VCN.TO – Canadian Equity

VAB.TO – Canadian Bonds

From that you can see you will hold both stocks and bonds in your portfolio, and have both local and international exposure. You can modify how much you hold in each based on what kind of investor you are. For example, if you are a more conservative, risk-averse investor, you will choose to invest more in VAB, the Canadian bond fund. If you are an aggressive, risk-tolerant investor, you will invest more in VCN and particularly VXC.

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In order to minimize taxes, you will want to keep VXC out of your TFSA, and only hold VAB and VCN.

You can hold any of the funds in your RRSP

In addition to axing a bunch of the suggested ETFs, the couch potato strategy has changed in how much it suggests you have in the bank for each investment.

If your portfolio size is….

$0 to $50,000

The Tangerine Investment Funds (which I also mentioned in my previous post about index funds) are your best bet. These are well balanced index portfolios with very low fees. I have been investing in Tangerine funds for as long as I’ve been banking with Tangerine (over 5 years) and they’ve been fantastic for balance and return.

over $25,000

The TD e-Series funds. The CCP actually suggests four different e-series funds for a balanced portfolio. You can view them here. I have personally never used the TD e-Series funds myself, but I know other bloggers do (like Save Spend Splurge and Krystal of Give Me Back My Five Bucks) and they have nothing but good things to say about them. It sounds like they’re a little tricky to set up, but once you get going they are very easy to manage.

over $50,000

The ETFs listed in this post. Initially ETFs were suggested only for people with big portfolios, then over the past few years they became trendy for everybody, and now it looks like we’re swinging back to big money again. I started investing without $50K and nothing blew up in my face, but I think the real caution here is because ETFs can be expensive to trade. However, I use Questrade which lets you purchase ETFs for nearly free (usually costs me $0.01 to $0.03 to make a trade). For this reason, it’s relatively affordable to recreate the CCP strategy with less than $50K.

For most investors, the CCP is the perfect portfolio — even though it seems dead simple with only 3 funds, it is really perfect. Others like myself might want a little more “fun” in the market, and use the CCP as a foundation then opt to buy more specific ETFs or common stocks. As an MBA in Finance I can’t help but want to play the market a little, so I allocate some of my portfolio to my own investment strategies, but the heart of it is still the CCP approach.

How To Build A Balanced Stock Portfolio: Making the most of index investing

As I mentioned in my post outlining my financial plan for 2015, one of my focuses in the new year is rebalancing my stock portfolio to maximize return and minimize taxes. One of the things I noticed taking a critical look at my investment portfolio was that a lot of things needed fixing: I had too many equity investments, not enough bonds, and was holding more individual stocks than ETFs. I wasn’t interested in selling everything off and starting from scratch, but I did move a fair bit around, perfecting my asset allocation and building out my trading plan for 2015 and beyond. Below is an outline of my process!

What is the best account for you to contribute to? 

Click here to see a summary of when to choose a RRSP, TFSA, or unregistered account based on your income

The TFSA is only tax-free from a Canadian standpoint — if you hold US stocks within your TFSA, you’re paying a foreign withholding tax of 30% on your dividends. Ouch! You can get the money back, but you don’t get extra room in your TFSA to put it back where it belongs. For this reason, it’s better to keep your US holdings in an RRSP. The downside is that foregoing any international holdings in your TFSA also means you’ll miss out on any capital gains on those stocks within your TFSA. It is up to you to determine if it’s worthwhile paying 15%-30% of taxes on your dividends in order to capture hopeful capital gains on foreign holdings.

Taxes on dividends in Canada is pretty low, so you might prefer to keep boring dividend-paying stocks in unregistered accounts. Likewise, margin trading, or any kind of borrowing to invest, should be executed in an unregistered account. If you’re borrowing money and then dumping it in a TFSA or RRSP to gamble on a hot stock and you lose, that money — and contribution room — is gone forever.

For those that don’t want to speculate excessively, this is a simple division of assets:

  • TFSA: Canadian stocks & ETFs (to avoid foreign withholding tax)
  • RRSP: Canadian, American, and International stocks & ETFs (because you pay less foreign withholding tax and likely have more contribution room)
  • Unregistered Accounts: Canadian, American, and International stocks & ETFs, and any margin trading activities (to pay minimum taxes on dividends and manage riskier investments so you can claim capital losses if an investment goes badly)

Asset Allocation: What to buy

Even the great Benjamin Graham, wise teacher of Warren Buffet and author of my go-to investing book, The Intelligent Investor, sang the praises of index investing. This is why over the past 2 years I’ve gradually strayed from purchasing common stocks to buying ETFs. This wasn’t always the case — when I started investing ETFs weren’t as accessible as they are now and most financial sources said you needed tens of thousands of dollars to buy in. That’s no longer true, and every since Questrade gave up charging fees to buy ETFs, I’ve been filling up my portfolio with diversified holdings.

But there’s an even easier way to get into index investing: Tangerine mutual funds.

Asset allocation of the Tangerine Balanced Growth portfolio

Asset allocation of the Tangerine Balanced Growth portfolio

Many people will tell you not to bother with mutual funds because of the high fees. This is true, but Tangerine keeps its MERs around 1%, which is one of the lowest available out there. For investors just getting started that are confused or overwhelmed by ETFs or do not have $1,000 on hand + at least $100/mo to contribute to a brokerage account with Questrade, the Tangerine funds are a perfect starter vehicle for investing. Even though I have a large portfolio with Questrade, I still hold a portion of my RRSPs in a Tangerine mutual fund. I’ve had the account for over 3 years and have been very pleased with its growth and returns.

Working towards DIY index investing

Index investing consists of buying a collection of funds that track various indices. These hold a myriad of stocks that someone else manages so you don’t have to go through the hassle of  doing so yourself. You still have to research the fund, but looking at one fund is easier than evaluating 30 stocks.

Index funds are risk mitigators: by owning shares in multiple companies you’re less exposed to volatility, protecting your investment.

I understand the appeal of buying common stocks, but I don’t have the time evaluate the financial statements of the dozens of individual companies I would need to hold positions in in order to have a well diversified portfolio. If there’s anything my MBA in Finance has taught me, it’s that I am unlikely to consistently beat the index. The more I know, the less certain I am that I can game the system, which is why I’ve gotten on the index investing bandwagon over the past year and a half. This doesn’t mean I have abandoned common stock entirely, but it does mean that I adhere strictly to my own rule of never having more than 3% of my portfolio invested in a single stock.

To build a well-balanced index portfolio

Researching index portfolios is easy, because it’s a popular strategy. One of the most popular strategies for Canadians is the Couch Potato developed by MoneySense magazine. Not only does that website provide great detail on different stocks and strategies in index investing, they even provide a series of Model Portfolios where they lay out exactly what ETFs you should buy. There’s no simpler strategy than that! You can also look at other examples of portfolio structures, such as Wealth Bar or Forbes. If you’re absolutely brand new to investing, following one of these exactly won’t lead you astray. If you’re a more seasoned investor and already know some of your own preferences, feel free to modify these portfolios accordingly. For example, I like to keep 5-10% of my portfolio in cash at all times, and I want to continue to hold common stocks for blue-chip, high-dividend paying companies.

Growing your portfolio

Having a strategy simply tells you what to buy and in what account, which makes building your wealth all that much easier. Because you can buy ETFs as little as one unit at a time, or purchase mutual fund units in any amount you choose, it’s easy to keep a balanced approach to building your portfolio. It’s for this reason that you should:

  • contribute regularly, either on a monthly or bi-weekly basis in conjunction with your regular paycheque
  • reinvest all interest & dividends
  • review at least once times per year and rebalance as necessary
  • never withdraw your funds

Index investing works whether you have $1,000 or $1 million, which is why it’s the favored strategy of every savvy investor.

This Is What It Looks Like When You Put Everything Into One Stock… And Lose

Special thanks to Kapitalust for sharing the link that brought me to one of the craziest stock mess stories I’ve read in awhile. Maybe you heard about this incident in the news, but I promise, it looks different up close.

The following is not for the faint of heart.

I actually felt legitimately sick reading these posts and watching the story unfold. To summarize, a whole bunch of eager-investors dumped a ridiculous amount of money in a tech stock that went bad. Really, really bad.

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$GTAT hitting near zero October 6, 2014

In the beginning, this group was practically high-fiving each other through their screens thinking they’d all become instant millionaires. They spoke confidently about catching one of those rare opportunities that changes your whole life. It’s really easy to get carried away trying to decide what kind of yacht you’re going to buy.

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If you read the forum, some investors exited early and the ones staying in smugly waved them goodbye, chastising them for missing out on the money train that was headed their way.

I don’t really fault them for being overly optimistic, but it cost them dearly.

Many had dumped their entire life savings, and that of their family into the shares. Some even went above and beyond gambling their own money and purchased options in the stock. I’m going to let them tell you how that unfolded when GT Advanced Technologies unexpectedly filed for Chapter 11 bankruptcy. The posts below are merely excerpts from the thread as the group realizes their losses.

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A forum poster & GTAT investor laments going from expected millionaire to over six-figures in debt in a single morning

They are heart-wrenching.

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I hesitated a bit sharing this story because I’m generally a really big advocate of millennials investing in the stock market, and sharing such a terrifying story of loss isn’t going to inspire confidence in young investors who came of age during the crash of 2008.

But I’m hoping this grisly tale serves as a tale of what NOT to do.

For those of you that want to invest and want to make sure you do so wisely, heed the following:

  • Never invest more than 3% of your portfolio in a single stock.

  • Stick to index funds to diversify your portfolio and reduce your risk.

  • Always, always, always keep a percentage of your net worth in cash.

  • Never risk an asset you can’t afford to lose, like your retirement accounts or your house.

  • Make sure you understand the risks of options completely before you invest on a margin.

  • Do true due diligence in researching an investment before your buy.

  • If something seems too good to be true, it probably is.

One of the most cringeworthy moments of the the $GTAT debacle is when one poster asks if things would be different if they hadn’t been encouraging each other in the forum:

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It’s a poignant self-reflection, and one readers of personal finance blogs should take to heart. The personal finance community is a receptive one — so receptive you’re bound to find a blog that will support you in making really dumb financial decisions. Only yesterday I was linked to a blog written by a woman that cashed out retirement savings at a huge penalty to buy a car. Her 401K was irrevocably damaged, but her comment section was filled with words of encouragement and congratulations for following the Dave Ramsey way. I’ve expressed some criticism for the personal finance blogger community before, but I feel the need to reiterate that we also need to be careful not to continuously heap praise on each other for bad decisions just because we like each other.

That said, the $GTAT forum is not the time to be honest about someones financial idiocy. A lot of those people lost everything, so I’m going to second Joshua Kennon and urge you not to kick them while they’re down by commenting in the forum. Let it serve instead as an up close look at what it really feels like to make a huge money mistake — may you never know it first-hand.

The 4 Most Desirable Traits in a Market Analyst

The 4 Most Desirable Traits in a Market Analyst

The financial markets have changed considerably in recent times, thanks to a number of social, economic and technological advancements. Some aspects of financial market trading remain unchanged, however, such as the volatile nature of certain sectors and the impact that international data releases can have on company performance and prices. This is why financial experts such as Killik release daily market updates, so traders can remain up-to-date with the changing market landscape.


Considering a Career as a Market Analyst: The 4 Most Important Traits


This is creating a significant demand for market analysts, which represents a viable career option for those with an interest in finance. With this in mind, consider which attributes are the most desirable traits in potential candidates. These include: -


  1. Critical Thinking


Otherwise known as reflective reasoning, critical thinking enables individuals to have a clear focus when they interpret changeable market trends. This is crucial in terms of advising traders and empowering them to make concise decisions in real-time.


  1. An Understanding of Determinism


Determinism plays a key role in financial trading, as it helps investors to understand cause and effect in the financial market. Analysts need to have a comprehension of its principles, and apply these when presenting a clear view of the marketplace for the benefits of individual traders throughout the world.


  1. Methodical


Essentially, financial market trading is a task that requires good attention to detail and a methodical approach to work. Market analysts must therefore operate in a similar manner, and strive to create sound structure and reasoning to support their assertions. You will need to develop a certain level of trust with your subjects, and being methodical in your week is the best way of achieving this.


  1. A Keen Imagination


While it may not seem like it, market analysts require a keen imagination and an ability to visualise how economic trends will unfold. Taking initial data and information, they must evaluate this to determine the short and long term course that a specific trend will take. This must always be presented in a visual manner through charts and concise graphs.


With these things in mind, it is possible to distinguish yourself from rival candidates and achieve a successful career in financial market analysis. While you will always need to operate from an established foundation of academic qualifications and experience, an ability to demonstrate the above traits will afford you a critical edge when applying and interviewing for work.



Investing in stocks to hedge against your lifestyle costs

A few years ago, before I had a personal finance blog of my own and was just an anonymous reader, I was a huge fan of Jacob of Early Retirement Extreme. His progress and achievements are admirable, but his methods are not for the faint of heart (including taking cold showers in order to save on utility costs). One of his tactics for accumulating so much wealth so fast on such a modest income was that, if he couldn’t afford an activity with his passive income from investments, he simply would not partake in it. Instead, he would forego indulging in that spend and put the money into his investment accounts until they paid out enough in dividends to let him go back to it again.

This requires a lot of discipline I don’t possess, but it doesn’t mean my goal isn’t to ultimately replace my salary or full-time income with passive income from investments — I’m just ok with taking more than a few years to do so.

One of the most interesting ways to generate passive income for your spending in one category, is to own stock in the company providing you the product or service

– effectively making them pay you for your use of their business. 

This isn’t a new idea. There’s hundreds of articles and posts out there telling you that purchasing $2,000 of Apple stock is better than spending the same amount on a new Mac, or putting a years worth of soft-drink spending into Coca-Cola stock is better than buying a can from a vending machine every day. But that doesn’t make it any less of a fun way to look at how you’re spending your money and find any opportunities where you might be able to profit from a company you purchase from.

Stocks to buy to hedge against your lifestyle costs

REITPaying rent/mortgage and owning REITs

This was #2 on my list of 5 Stocks Every Millennial Needs To Have In Their Portfolio. With home prices what they are in Canada, plenty of young people feel either like they’ll never be able to afford a house, or that they need to over-extend themselves immediately to get in before the prices go up even more. Both of these scenarios are stressful, and I feel like most 20-somethings don’t realize there’s quick and easy way to get into the property game without saving up tens of thousands of dollars for a down-payment. Owning a REIT (Real Estate Investment Trust) is a short-order way to invest a small amount of money (I’d suggest starting with at least $1,000) and be a part of the ups & downs of the real estate market, while collecting a monthly dividend. It will take a long time and a big investment for the payout to resemble your rent or mortgage payment, but wouldn’t it be nice to get even a little bit of cash back back from property ownership every time your housing costs go out of your own bank accounts? I lean more towards commercial REITs than residential, but there are plenty of options to choose from.

AsktheEditors_cellphones2012_610x426Paying for cable/internet/cellphone and owning stock in your provider

I don’t own any shares of Rogers Communications, my cellphone provider, but I do own some stock in Shaw, who supplies my internet. Shaw’s monthly dividend means negates more than a quarter of my monthly bill, which makes my internet service feel very affordable. At present I have no plans to quadruple my holdings in Shaw, but at least in the meantime I’m effectively getting their services at a discount: I pay them my balance each month, and then they immediately pay me a little bit back in a dividend. Communications tech stocks are usually some of the best dividend payers out there, though the volatility of their stock might make you a bit ill. Best to buy and then look away, only checking in every quarter or two.


source // Kraft stock took a tumble last week so it might be a good time to buy — after all, can you imagine a world without Oreos?

Buying groceries and owning General Mills, Pepsi, Kraft, etc.

As a healthful shopper when it comes to food, my grocery bill is often terrifyingly high. I’m not willing to eat less nutritiously just to be more frugal, so one of the ways to make high food costs easier to swallow is to own shares in some of the major food processors and providers. You’ll never have to make the “Pepsi or Coca-cola?” choice again because you can buy and hold both long term in your portfolio. Many of these companies have decades of dividend raises behind them and make excellent holdings for the long term, particularly in things like your retirement portfolio. After all, people will always need food.


where-to-buy-common-household-items-in-nyc-for-the-lowest-priceBuying household and personal care items and owning Proctor & Gamble, Unilever, General Electric, etc. 

If you’re a good budgeter and well versed in tracking your spending, you already know how much you spend or dish soap or laundry detergent every year, and aybe a new washer was needed after your old one went kaput. In any case, you’re spending a lot of money to keep your home going, and owning stocks in the companies that make the products you use every day might make these bills easier to manage.

Of course, the potential for lifestyle hedging doesn’t stop there. You can buy stocks in publishing companies that make your favorite books and magazines, fast food companies where you get your lunch every week, airlines you use to fly around the globe etc — and yes, of course Starbucks where you get your daily coffee. You will still need to invest in more than consumer goods and services to build a well-diversified portfolio, but sometimes owning shares in companies you interact with every day can make managing your money a little more interesting.

What are your thoughts on owning stocks in businesses you buy from? Any others that are your favorites?