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Investing in stocks within a TFSA
December 26, 2020
7:35 pm
Loonie
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RetirEd said
I've been reading up on ETFs - particularly index ones. They do have MER and trading fees, but no loads, and the charges are exceptionally low. I know this is not a general investment forum, but may I ask where our members think good information can be found? And how to select a broker?

I have a very old copy of the Dummies Canadian ETF book, but I need current and diverse viewpoints. I do value the conservative mindset here on this forum, because I am nearing 70 and iffy about bubbles.

RetirEd  

The reality is that there are a zillion ETFs and it would not be practical to know about all of them. Nowadays, many of them are not even true index funds, but are in fact managed funds.
Like you, I would look for pure index funds, at what their benchmark is, and at how closely they have tracked, as well as management fees.
If I were doing this, which, admittedly I'm not, I would not want to do all that work because it's a LOT of work. I don't believe I am any more likely than the next guy to come up with a perfect solution, even if I put in a lot of effort. So, I would look to those who have done the leg work already.

Accordingly, I would look at Canadian Couch Potato,
https://canadiancouchpotato.com/ ,
which revises their recommendations annually or so, or I would invest through a company such as WealthSimple, https://www.wealthsimple.com/en-ca/ which can make the decisions for you and carries them out. They know way more than I ever will and probably more than you will.
I have no personal connection to either of these, but they are connected to each other in the person of Dan Bortolotti. I have followed him over a number of years and find him to be reasonable.

However, since you eschew online banking, it may be that your best bet is through, for example, the funds that the banks offer. Couch Potato is currently recommending TD e-funds (low cost mutual funds). I'm not sure if these are online-only, but you should be able to get them or something parallel by going into a branch. You would need to inquire as to whether your requirements are a match for their offerings in terms of access. If I remember correctly, Couch Potato used to recommend funds at BMO. They may be almost as good. RBC, through PH&N, which they bought a few years ago, also has some good funds. But these latter arrangements probably have a bit higher MERs than Vanguard and iShares.

If you want to go through a broker, other people can probably comment more knowledgeably on that.

December 26, 2020
7:40 pm
AltaRed
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There are a lot of DIY discount brokerages, if one is prepared to make investment choices themselves. Which is what my reference was to the MoneySense and Rob Carrick annual survey of discount brokerages. There is no need to engage a middleman when investing now can be so simple, e.g. CCP's model portfolios.

December 26, 2020
9:31 pm
Loonie
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Bill said
Never lost even one penny as an investor, Loonie, that's an incredible record! I'm not sure I've ever heard of any investor anywhere (including Buffet) being able to say that, I know I've certainly had some misses among the winners. I retract my comment about this site not being a good place to get investment advice, might not be the case at all!  

As you know, Bill, most losses occur because people sell at the wrong time, panic selling being the most common. "Buy high; sell low" is very common in practice. A lot of people don't understand risk, especially at the beginning, which is why I try so hard to impress that on newbies here. Most newbies have unrealistic expectations, think they should actively manage their investments because they can beat the market, and are attracted to the shiny baubles. When you tell them, as any of the well respected successful gurus of investing would, that it's basically a rather boring business of making conservative investments and waiting, they are disappointed and even more determined to go it alone or pressure their advisors for riskier ("more upside potential" - never mind the downside potential) investments. They are currently panicked into buying because interest rates are low (never mind that equity prices are high), and they will later be panicked into selling because equity prices are falling. I have never done that and never would. I was very religious about "buy lower, sell higher" and was always willing to wait indefinitely. I believe in getting out while the going is good.

I always invested conservatively, most in mutual funds. They never tanked and I always held out until they made a profit. Almost all of this was over 20 years ago at least.

Buffett has made much bigger gambles. With the amount of money he has, he almost em>has to do that. And he can afford to do it as he's not going to lose his shirt. He also has the time to investigate potential investments in considerable detail. I've never found myself in his position!
I recall reading his advice to "ordinary" investors some years back was to buy broadly based mutual funds or ETFs (I forget which) and hang on to them. He didn't suggest that the little guy can or should do what he does.
Here's another tip. If you think Buffett knows what he's doing (and it would be hard to argue he doesn't), then buy a few shares of Berkshire Hathaway. You can have his wisdom without working so hard.

I got out of this because I don't enjoy it. I don't like worrying. I don't need the "upside potential" - or the downside.
I keep an open mind. I wouldn't say I would never invest in equities again, but it's very unlikely. In my personal opinion, the markets are overvalued and are being driven by ever-lower interest rates more than value, and I expect some kind of crash.

I've told you how I managed to never lose a penny. How did you manage to lose? People can learn as much from that as they can from success.

December 27, 2020
6:30 am
mechone
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The thing about equities ,when the down turn came I bought . I love downturns I hope it happens again and so does Warren. I was down 30,000 in the summer and bought more ,I recovered the 30,000 and made 30,000 more in a month ,but I don't care.
Never buy an equity unless it pays a dividend , I don't care if the stock goes up or down ,always nice to see it go up, however all I'm looking for is payment whether monthly or quarterly. I f you can get by the downs , and stay focused on the payment as a retirement income its a win win .
And dividends are taxed at a much lower rate than interest income and if sold for profit capital gains are taxed only on 50% of the profit on 1000 you would only pay 250.00 and 1000 of bank interest 500.00 if your in the top bracket
Many top investors live on dividend income and play the market with slush money
Kevin O'leary for example

December 27, 2020
6:40 am
savemoresaveoften
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Loonie said

As you know, Bill, most losses occur because people sell at the wrong time, panic selling being the most common. "Buy high; sell low" is very common in practice. A lot of people don't understand risk, especially at the beginning, which is why I try so hard to impress that on newbies here. Most newbies have unrealistic expectations, think they should actively manage their investments because they can beat the market, and are attracted to the shiny baubles. When you tell them, as any of the well respected successful gurus of investing would, that it's basically a rather boring business of making conservative investments and waiting, they are disappointed and even more determined to go it alone or pressure their advisors for riskier ("more upside potential" - never mind the downside potential) investments. They are currently panicked into buying because interest rates are low (never mind that equity prices are high), and they will later be panicked into selling because equity prices are falling. I have never done that and never would. I was very religious about "buy lower, sell higher" and was always willing to wait indefinitely. I believe in getting out while the going is good.

I always invested conservatively, most in mutual funds. They never tanked and I always held out until they made a profit. Almost all of this was over 20 years ago at least.

Buffett has made much bigger gambles. With the amount of money he has, he almost em>has to do that. And he can afford to do it as he's not going to lose his shirt. He also has the time to investigate potential investments in considerable detail. I've never found myself in his position!
I recall reading his advice to "ordinary" investors some years back was to buy broadly based mutual funds or ETFs (I forget which) and hang on to them. He didn't suggest that the little guy can or should do what he does.
Here's another tip. If you think Buffett knows what he's doing (and it would be hard to argue he doesn't), then buy a few shares of Berkshire Hathaway. You can have his wisdom without working so hard.

I got out of this because I don't enjoy it. I don't like worrying. I don't need the "upside potential" - or the downside.
I keep an open mind. I wouldn't say I would never invest in equities again, but it's very unlikely. In my personal opinion, the markets are overvalued and are being driven by ever-lower interest rates more than value, and I expect some kind of crash.

I've told you how I managed to never lose a penny. How did you manage to lose? People can learn as much from that as they can from success.  

In the mutual funds that you own, chances are some of them did have Nortel in the mix back in the days. So yes you did lose money, you just did not explicitly know it. Nortel is just an example. There are any big names that have faltered and never bounce back to their glorious day. Blackberry just another name that came to my mind.
Don't think any one can truly claim "never lose a penny on stock investing". The game is about win big and lose small, be it investing or professional gambling.
The greatest traders ever have about a 70% hit rate, meaning they still lose 30% of the time, but they are able to contain their loss.

December 27, 2020
1:30 pm
Bill
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I had losses in the gambling/individual stock-picking portion of my portfolio (though even there I hit enough home runs to make it very profitable) and those were essentially because it took me a while to learn to trust my own observations (& knowledge of our society and the world & its diverse history) over the "experts", "analysts", the media, my friends/neighbours/other social consensus, financial statements analysis, the noise. I came to the conclusion that current info that came to me was, aside from being available to everyone, always tainted, in fact often probably deliberately so to harvest willing buyers for the savvy, insider, large sellers (or vice-versa). So I developed my own method/philosophy, trusted myself over everybody else (that was the key), and then losses were no longer an issue. Idiosyncratic, not at all for everyone (it's one reason I generally don't give advice), but worked for me.

And, for sure, I was impatient sometimes. Some of us are imperfect, that's for sure, that caused some misses for me.

Maybe there were other reasons too, I don't know.

And I always laugh about the cliched Nortel, Bre-X, etc examples people bring up. I made good money on Nortel on its run-up, as did most Nortel holders who left some money on the table. People seem to forget it was mainly the people holding the bag at the end that lost, there were lots of folks who rode the ride for a while, or two, and got off in time. Even on the day it hit its high, there were as many happy sellers as unwitting buyers.

December 27, 2020
1:54 pm
Norman1
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Loonie said

I recall reading his advice to "ordinary" investors some years back was to buy broadly based mutual funds or ETFs (I forget which) and hang on to them. He didn't suggest that the little guy can or should do what he does.

Warren Buffet's advice was not that most people couldn't or shouldn't do what he does. It was that people now don't need to.

In earlier times, people had to pick 20 or 30 stocks out of the TSX 300 or S&P 500 because only institutional investors could mimic the TSX 300 or S&P 500.

Minimum commissions used to be around $50 per trade. So, someone trying to replicate the S&P 500 would have to spend at least US$25,000 on commissions initially to buy the 500 stocks! Afterwards, the dividends would need to be reinvested also at US$50 each. If one had "only" $50,000 to invest, the commissions would take a large chunk of that.

Now, one can just buy an ETF that tracks the S&P 500 in a single trade for US$9.99 and never have to spend time reading annual reports, SEC filings, and investment news.

December 27, 2020
2:04 pm
Norman1
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savemoresaveoften said


Don't think any one can truly claim "never lose a penny on stock investing". The game is about win big and lose small, be it investing or professional gambling.
The greatest traders ever have about a 70% hit rate, meaning they still lose 30% of the time, but they are able to contain their loss.

Losing and learning to deal with duds are part of stock investing. The idea is not to never lose on an investment. That's simply not realistic. For people doing it full time and professionally, about one-in-five to one-in-four stocks chosen won't work out. Some of those duds can even lose serious money!

The idea is not avoid to losses. The idea is to set up a portfolio so that the winners more than make up for duds and losers. That's why index funds work as well as they do. The rest of the stocks in the TSX 300, for example, have more than made up for the losers, even big losers like Nortel and Bre-X.

The index funds also don't do stupid things like sell a winner after it has gone up by 5% hoping to buy it back after it drops by 5% later.

December 27, 2020
4:28 pm
Loonie
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savemoresaveoften said

In the mutual funds that you own, chances are some of them did have Nortel in the mix back in the days. So yes you did lose money, you just did not explicitly know it. Nortel is just an example. There are any big names that have faltered and never bounce back to their glorious day. Blackberry just another name that came to my mind.
Don't think any one can truly claim "never lose a penny on stock investing". The game is about win big and lose small, be it investing or professional gambling.
The greatest traders ever have about a 70% hit rate, meaning they still lose 30% of the time, but they are able to contain their loss.  

It's great to hear someone like you pointing out the real risks in investing in the stock market and making the comparison to gambling. For a lot of "investors", it is effectively like gambling because their vision is blinded by the jackpot they imagine receiving.
Most of the time, even on this forum of mostly-conservative people, there are many statements from market investors who repeatedly claim that winning over the long term is almost inevitable with their stock market investments. It's not; and I appreciate hearing that from you.

I think it's splitting hairs when you assume that the mutual funds I was involved in may have had specific stocks that lost money. Maybe they did. I don't know, and, frankly, neither do you.
Have you ever tried to get a complete list of what a mutual fund is invested in, a running list of what they bought, what they sold, when, and whether they made a profit or had a loss on those investments? As far as I was able to determine, they never reveal that information. In fact, it's one of the things I very much dislike about mutual funds.
Let's be clear. I didn't invest in Nortel. I invested in a mutual fund, and I couldn't name the stocks that were in it. It was the manager who had to deal with any losses in the underlying stocks, not me. I only lost if the mutual fund took a dive at the time I redeemed it. This did not happen.

As for the professionals with their 30% losses, I think we need to remember that these people are under enormous pressure to find winners, preferably spectacular ones that they can brag about, and get more clients as a result. The pressure, in that industry, is always to outperform; and to have any possible chance at doing that, you have to take more risks. Some of those will indeed fail. But the average person doesn't need to do that IMO. The average person can do fairly well with slow-and-steady and less risk, and probably should. The bigger your portfolio, the greater risk you can afford and may even need to take. CPP is a case in point. For me, there is enough risk in that portfolio that i don't want to add any more by taking my own. CPP is big enough that it can, hopefully, afford it; as an individual, I'm not willing to do the same.

December 27, 2020
5:19 pm
Loonie
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Bill said
I had losses in the gambling/individual stock-picking portion of my portfolio (though even there I hit enough home runs to make it very profitable) and those were essentially because it took me a while to learn to trust my own observations (& knowledge of our society and the world & its diverse history) over the "experts", "analysts", the media, my friends/neighbours/other social consensus, financial statements analysis, the noise. I came to the conclusion that current info that came to me was, aside from being available to everyone, always tainted, in fact often probably deliberately so to harvest willing buyers for the savvy, insider, large sellers (or vice-versa). So I developed my own method/philosophy, trusted myself over everybody else (that was the key), and then losses were no longer an issue. Idiosyncratic, not at all for everyone (it's one reason I generally don't give advice), but worked for me.

And, for sure, I was impatient sometimes. Some of us are imperfect, that's for sure, that caused some misses for me.

Maybe there were other reasons too, I don't know.

  

I really appreciate your honesty, Bill.
I think your experience is not at all unusual in the early phases when you were finding your feet.
A good investor, like yourself, learns from these experiences and doesn't make the same mistakes again. It's even possible for such a person to not experience further losses.

The difference, perhaps, between you and me is that I am by nature more conservative. Also, when young and more likely to make decisions I might regret, I didn't have any money that I felt I could afford to risk.

My involvement with the markets was not a long term thing. I only invested my own money for about a year, and perhaps an additional 5 or 6 years with POA. If I had continued, I think my losses would have remained minimal, if any, because I have an iron will and would not sell when the chips were down. And I would not likely have bought Nortel or Bre-X etc. If I'd bought any individual stocks, it would have been only the very most conservative ones. It's possible I could have lost if I'd kept at it, but not necessarily. Neither losses nor wins or inevitable. And that is one of the reasons I quit.

December 27, 2020
7:52 pm
Loonie
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Norman1 said

Loonie said

I recall reading his advice to "ordinary" investors some years back was to buy broadly based mutual funds or ETFs (I forget which) and hang on to them. He didn't suggest that the little guy can or should do what he does.

Warren Buffet's advice was not that most people couldn't or shouldn't do what he does. It was that people now don't need to.

In earlier times, people had to pick 20 or 30 stocks out of the TSX 300 or S&P 500 because only institutional investors could mimic the TSX 300 or S&P 500.

Minimum commissions used to be around $50 per trade. So, someone trying to replicate the S&P 500 would have to spend at least US$25,000 on commissions initially to buy the 500 stocks! Afterwards, the dividends would need to be reinvested also at US$50 each. If one had "only" $50,000 to invest, the commissions would take a large chunk of that.

Now, one can just buy an ETF that tracks the S&P 500 in a single trade for US$9.99 and never have to spend time reading annual reports, SEC filings, and investment news.  

No doubt Buffett said various things at various times.

However, it is widely reported on the internet that he has advised that the equity portion of his wife's money should be invested entirely in an S&P500 index fund.

"A low-cost index fund is the most sensible equity investment for the great majority of investors," said Buffett. "By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals."
https://www.fool.com/investing/2020/06/27/warren-buffett-says-this-is-the-best-way-for-avera.aspx

Whether people "should" or "could" invest in individuals stocks may be moot. Buffett clearly implies that it's not the most "sensible" decision and he doesn't recommend it for his wife.
I know this is hard for people to hear because it takes all the fun, drama, and bragging potential out of investing, but it's worth taking it in and asking oneself, "do I really have a more sensible strategy than Warren Buffett?"

December 28, 2020
5:56 am
RetirEd
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Thank you all, particularly AltaRed and Loonie. I have heard of Couch Potato but never visited their web site; the other recommendation is new to me.

My understanding is that ETF Index funds are only available through brokers because banks don't like the low margins. Is this still true? I have been thinking of putting my TFSA portfolio into them, as it's tax-free, and making money outside the TFSA would hurt my retirement benefits.
RetirEd

December 28, 2020
6:18 am
Loonie
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I think, but am not certain, that you would need a brokerage to invest in Vanguard or iShares ETFs. Perhaps someone else can comment on that, or you could ask these fund companies directly.

I believe the big banks all have house-brand ETFs now and that you can buy them directly from a branch without using a brokerage, but, again, am not certain about that. A phone call should clarify. I am more certain that they all have fairly low cost mutual funds now. Couch Potato recommends TD's.

In all cases, you would need to ask specifically if the route you are interested in allows for telephone transactions and mailed statements. I simply don't know the answer on that one.

Bear in mind that some of these things come in various series, and that different series apply to different kinds of investment situations. Don't ask me to explain it all! but make sure you get the right one. Somebody here undoubtedly knows more about this then I do.

P.S. Looks like you do indeed need brokerage account for Vanguard: https://www.vanguardcanada.ca/individual/how-to-invest.htm

December 28, 2020
7:25 am
Norman1
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One needs a brokerage account to buy and hold ETF's. ETF means exchange-traded fund.

For example, according to the iShares ETF prospectus (page 65), there are no certificates for the iShares ETF's and they need to be held though a CDS account or an account at a CDS Participant:

Registration and Transfer through CDS

Units of the iShares Funds may only be held through the book-entry only system administered by CDS. Unitholders in the iShares Funds will not have the right to receive certificates for Units. CDS is the owner of record for all Units of each iShares Fund. Unitholders owning Units are beneficial owners as shown on the records of CDS or CDS Participants. The iShares Funds allow Unitholders to exchange or redeem Units but in order to exercise this right, a Unitholder must rely on the procedures of CDS and CDS Participants. …

It is not really an issue these days. Many banks own a full service broker or a discount broker. A RBC Royal Bank branch, for example, can refer people to their full service broker RBC Dominion Securities or their discount broker RBC Direct Investing.

December 28, 2020
7:55 am
Norman1
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Loonie said


However, it is widely reported on the internet that he has advised that the equity portion of his wife's money should be invested entirely in an S&P500 index fund.

"A low-cost index fund is the most sensible equity investment for the great majority of investors," said Buffett. "By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals."
https://www.fool.com/investing/2020/06/27/warren-buffett-says-this-is-the-best-way-for-avera.aspx

Whether people "should" or "could" invest in individuals stocks may be moot. Buffett clearly implies that it's not the most "sensible" decision and he doesn't recommend it for his wife.
I know this is hard for people to hear because it takes all the fun, drama, and bragging potential out of investing, but it's worth taking it in and asking oneself, "do I really have a more sensible strategy than Warren Buffett?"

That is his advice for "know-nothing" investors. A broad index fund is the most sensible for such investors.

His wife, Astrid Menks, is a waitress. She likely fits that "know-nothing" investor label and is not interested in learning how to read balance sheets, annual reports, and other SEC filings.

There is quite a bit of skill needed to maintain a portfolio of stocks that regularly outperforms an index like the S&P 500. Not everyone can do it. That Beardstown Ladies fiasco showed that it is not easy for even a group of amateurs to do. This is from Chicago Tribune: The Lesson From Beardstown (March 28, 1998):

The Beardstown Ladies, as they have come to be known, became a phenomenon because they were so darn Heartland cute--a folksy clutch of 70-something women whose Downstate investment club handily beat the stock market.

It turns out the Beardstown Ladies didn't really beat the market either. An audit of their average annual results over the 10-year period in question--1984 to 1993--revealed actual returns of 9.1 percent rather than the 23.4 percent claimed. The S&P 500 in those years returned an average 14.6 percent.

December 28, 2020
8:46 am
Bill
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ETFs (e.g. Vanguard, iShares) and index mutual funds (e.g. TD e-series) are not synonymous, the page at this link summarizes the differences:
https://canadiancouchpotato.com/model-portfolios/

Not usually an issue but before you open a discount brokerage account you might want to make sure they offer what you're interested in, e.g. RBC Dir Inv does not offer Mawer family mutual funds, TDDI does.

December 28, 2020
10:16 am
AltaRed
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RetirEd said
Thank you all, particularly AltaRed and Loonie. I have heard of Couch Potato but never visited their web site; the other recommendation is new to me.

My understanding is that ETF Index funds are only available through brokers because banks don't like the low margins. Is this still true? I have been thinking of putting my TFSA portfolio into them, as it's tax-free, and making money outside the TFSA would hurt my retirement benefits.
RetirEd  

For all practical purposes, you do need to open brokerage accounts, e.g. discount brokerage accounts, to purchase ETFs. There are many discount brokerages (and reviews of them annually by MoneySense and Rob Carrick of the G&M) and many (most?) would choose the discount brokerage associated with their primary big bank to facilitate ease of money transfers. The annual reviews often focus too much on transaction costs, e.g. Questrade over a big bank brokerage, but if one is not making 20-50 transactions a year, $10 commissions are negligible. I have 3-5 transactions a year across all my accounts (RRIF, TFSA, RESP, non-registered) for my entire portfolio.

ETFs are a relatively new structure (versus mutual funds) over the past 20 years with the last 10 years gaining lots of traction. They generally have very low MERs (0.03-0.50%) relative to mutual funds, and can be bought/sold on the open market every trading moment of every trading day. Mutual funds are only bought/sold based on Net Asset Value at the close of each business day. Bill provided a link for differences.

A very popular choice these days are the Asset Allocation ETFs which provide global diversification in stocks and bonds in one holding. Canadian Couch Potato covers this off quite well as does Justin Bender at https://www.canadianportfoliomanagerblog.com/model-etf-portfolios/ Justin Bender has done a tremendous job in dissecting and analyzing the Asset Allocation ETFs provided primarily by Vanguard (V series), Blackrock (X series) and to some extent BMO (Z series). Each series has some differences but generally are interchangeable.

For what it is worth, many investors are moving to these AA ETFs, with one holding, yes you read that right, in each of their taxable, RESP, RRSP and TFSA accounts. I am moving my entire RRIF to one VCNS (40/60) holding, and my entire TFSA to one VEQT (100/0) holding. My taxable (non-reg) account has far too much unrealized cap gains to convert, but I have recommended to young folks who ask.... to seriously consider ONE Asset Allocation ETF in each of their account types. If one wants to follow progress of a VBAL portfolio, check in with this thread on the Growth of VBAL and its components. https://www.financialwisdomforum.org/forum/viewtopic.php?f=33&t=121965

With the exception of Japan, every market in the world trends to the northeast over time, with major haircuts at times like 2008/2009 and March 2020. On a global scale, markets in their totality will always recover and move to the northeast over time and as long as one does not panic sell at the worst of times, global markets will deliver. Hence the attractiveness of globally diversified Asset Allocation ETFs.

Added: Some mutual companies do a similar thing with globally neutral balanced funds. Mawer is one of those companies which has had success at it with their MAW104 or MAW105 (60/40 balanced) mutual funds. That is partly because they keep their MER low (they don't pay trailer fees) and can achieve enough alpha to overcome their MER plus some. Morningstar almost consistently lists MAW104 as a 5 star fund and it is almost always first quartile performance (historical of course). The future is unknown.

One either needs a lot of money to hold an account with Mawer directly, or one needs to have a discount brokerage account in order to buy Mawer funds. BUT as has been cautioned, not all discount brokerages (like RBC Direct Investing) will sell Mawer funds to you. TDDI does, and I know BMO Investorline and Scotia iTrade do because I hold MAW104 in accounts at both of those discount brokerages.

December 28, 2020
11:22 am
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October 27, 2013
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To pursue Asset Allocation ETF portfolios just a bit further, it is worth studying Justin Bender's analysis for each of the Blackrock and Vanguard models https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2020/11/Model-ETF-Portfolios-iShares-2020-09-30-Light-2.pdf and https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2020/11/Model-ETF-Portfolios-Vanguard-2020-09-30-Light-2.pdf respectively.

These analyses rely on 'actual' data from circa Feb 2018 and back testing for earlier periods. I have found these two pages invaluable in selecting which asset allocation may be best for any particular individual. For a year like 2020, it is clear how the bond component has contributed to YTD performance as of Sept 30th. It would be more favourable to higher equity allocations if done to today's date and no doubt Justin will update this data for year end something in January.

But beyond YTD being a far too short a period to look at model portfolios, one can decide what tradeoff they are willing to give up in CAGR performance over 5-25 years versus the 'worst year' decline. Many could not tolerate 'worst year' performance of -25% to -35% in which case a 60/40 asset allocation may be as risky as they can stand. There is a good reason why 60/40 balanced funds/porfolios are the most popular.

December 28, 2020
5:24 pm
Loonie
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Just to connect the dots, Justin Bender is the founder (or a founder) of WealthSimple, which I mentioned earlier.
Although I don't deal with them (or any such company), I do follow what he says and have found him to be honest and forthcoming. If I were to deal with such a company, this is the one I would choose, FWIW.

December 28, 2020
6:11 pm
Loonie
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Norman1 said

Loonie said


However, it is widely reported on the internet that he has advised that the equity portion of his wife's money should be invested entirely in an S&P500 index fund.

"A low-cost index fund is the most sensible equity investment for the great majority of investors," said Buffett. "By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals."
https://www.fool.com/investing/2020/06/27/warren-buffett-says-this-is-the-best-way-for-avera.aspx

Whether people "should" or "could" invest in individuals stocks may be moot. Buffett clearly implies that it's not the most "sensible" decision and he doesn't recommend it for his wife.
I know this is hard for people to hear because it takes all the fun, drama, and bragging potential out of investing, but it's worth taking it in and asking oneself, "do I really have a more sensible strategy than Warren Buffett?"

That is his advice for "know-nothing" investors. A broad index fund is the most sensible for such investors.

His wife, Astrid Menks, is a waitress. She likely fits that "know-nothing" investor label and is not interested in learning how to read balance sheets, annual reports, and other SEC filings.

There is quite a bit of skill needed to maintain a portfolio of stocks that regularly outperforms an index like the S&P 500. Not everyone can do it. That Beardstown Ladies fiasco showed that it is not easy for even a group of amateurs to do. This is from Chicago Tribune: The Lesson From Beardstown (March 28, 1998):

The Beardstown Ladies, as they have come to be known, became a phenomenon because they were so darn Heartland cute--a folksy clutch of 70-something women whose Downstate investment club handily beat the stock market.

It turns out the Beardstown Ladies didn't really beat the market either. An audit of their average annual results over the 10-year period in question--1984 to 1993--revealed actual returns of 9.1 percent rather than the 23.4 percent claimed. The S&P 500 in those years returned an average 14.6 percent.

  

Buffett didn't, at least in this quote, say anything about "know nothing" investors. He recommends an ETF for "the great majority of investors".
When you combine this with the fact that even investment professionals with actively managed portfolios have a very hard time outperforming index funds and even throwing darts has sometimes been shown to be about equally likely to succeed, the conclusion seems obvious to me: don't kid yourself that you are going to be the one person who is so much wiser than the rest. If you really wish to test this, just do it with a small portion of your funds; if you succeed, that small portion will grow and may eventually be a major portion of your holdings; if not, you didn't lose much.
If anyone wants to go it alone, first take an intensive look at the performance of existing very well paid professional mutual fund managers. One can argue (and I think there is truth in this) that they are under pressure to outperform, which causes them to make investment decisions they might not otherwise make, but, even if you discount a bit for that, the result is not so stellar that one should think that as someone who has another day job, that one can likely do better on one's own. A few will, of course, whether by luck or diligence, but there is no guarantee and it involves an awful lot of work for an uncertain reward. Some people enjoy it, as a hobby or sport, and that's fine if that's how they want to spend their time.

As for Mrs Buffett, I wouldn't write her off because she is or was a waitress. I know nothing about her except that she managed to marry one of the richest people in the world. What I know about her husband is that he knows how challenging it is to be successful in investing. He could have set her up with hand-picked portfolio managers to run her account or told her to keep it all in Berkshire-Hathaway, but he didn't; he said to put it in an ETF.

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