Passive Portfolio: I'm in...sort of.

[Zeeshan Hamid]

For the stock portion why wont you just pick up XWD?

ISHARES S&P 500 FUND 53.03%
ISHARES MSCI EAFE INDEX FUND 41.97%
ISHARES MSCI CANADA INDEX FUND 4.98%


EAFE gives you Europe, Far East and Australia. Add XEM to get emerging market exposure. That's two funds that give you the world. IF you wanted to get sector specific then you could add small and / or midcap. Beyond that there's no reason to be overly granular.

[fatcat]

i think you have way too many funds

at age 35 where you will just keep adding and adding to you positions (and incurring trading costs and doing all the maintenance and taxes) for 30 years

i think keeping fees as low as possible is really important

i would have VTI,VEA,VWO, and XIU or XIC

trying to target the way you have will be smoothed and equalized over 30 years

like for all intents and purpose VB,VTI,VSS and VTV will do about the same over 30 years as just holding VTI and yet you have to manage 4 funds instead of 1 (and pay higher costs)

[prollywrong]

Y'know, I think you guys are probably right.

Simple and cheap is the way I should have gone. As a beginner I'm willing to tinker a bit now to arrive at something I can sit on for a while. And if I want to do 'core and explore' later, that option is available.

Two weeks in and I'm already second guessing my strategy...

[Belguy]

Keep it simple by just holding four or five of the lowest fee, broadest based ETF's according to your target allocation and then just forget about it aside from rebalancing once a year.

"Wearing yoga pants doesn't make you fit, and swinging a titanium driver doesn't make you a great golfer. In the same way, holding a bunch of ETF's in your portfolio doesn't make you a Couch Potato investor if you end up falling into the same old bad habits, like thinking you can outsmart the broad indexes."

--Dan Bortolotti, MoneySense, March 2012

Keep it simple, easy, and cheap and don't try to get fancy in an attempt to achieve superior returns. That's where many investors end up going wrong!

[prollywrong]

I guess that, psychologically, I have a difficult time believing passive investing works.

I'd like to believe, but it's tough to ignore/discount the endless chatter about this or that investment trend, what's hot what's not, the constant focus by media on sexy active strategies, the tireless braying and gossip, etc, etc. There's a part of me that asks, "If something as relatively straightforward as passive investing can work, why isn't everyone doing it?"

And I do think - despite how popular the conversation of active/passive is among people who have done some reading and on sites such as this - that for the most part truly passive investing remains a deeply contrarian strategy. Saying to a newbie investor: "Buy three or four ETF's, rebalance, and otherwise forget about it" runs counter to decades of input claiming that successful investing is immensely complicated, risky, time-consuming, hard work, and so on.

The flip side of the question is: "Is passive investing yet another easy-money fad?"

I know (ballpark) what I'd like to have in twenty-five years. I can almost get there by saving alone. I have zero interest in spending a large portion of my day managing my portfolio. So it's passive for me.

[leoc2]

I guess that, psychologically, I have a difficult time believing passive investing works.

I'd like to believe, but it's tough to ignore/discount the endless chatter about this or that investment trend, what's hot what's not, the constant focus by media on sexy active strategies, the tireless braying and gossip, etc, etc. There's a part of me that asks, "If something as relatively straightforward as passive investing can work, why isn't everyone doing it?"

The etfs needed to passively index invest are relatively new products. The financial advisory empire would not find it in its own best interest to advocate passive investing. It's like saying that you don't need to pay up for their advice anymore.

And I do think - despite how popular the conversation of active/passive is among people who have done some reading and on sites such as this - that for the most part truly passive investing remains a deeply contrarian strategy. Saying to a newbie investor: "Buy three or four ETF's, rebalance, and otherwise forget about it" runs counter to decades of input claiming that successful investing is immensely complicated, risky, time-consuming, hard work, and so on.

The flip side of the question is: "Is passive investing yet another easy-money fad?"

I know (ballpark) what I'd like to have in twenty-five years. I can almost get there by saving alone. I have zero interest in spending a large portion of my day managing my portfolio. So it's passive for me.

A fad? I don't know. I do know that being an aggressive active investor with few stocks that go wrong could ruin your whole retirement. Being 100% in stocks instead of an asset allocation of stocks and fixed income could ruin your whole retirement. Always cashing out when the market tanks because you are not diversified and you miscued on your risk tolerance could ruin your whole retirement. Having friends who recommends the next investment that earns a steady 10%-12% per year every single year could ruin your whole retirement. Passive investing using index funds with a conservative asset allocation of Fixed income and Total Stock? Better, worse, who knows, but it's not going to ruin your whole retirement.

[Belguy]

You say that you have zero interest in spending much time on your investment portfolio. That pretty much leaves you with investing in some buy-and-hold strategy or paying the fees to have someone manage your portfolio for you. I feel that one of the best buy-and-hold strategies is potentially buying four or five low-fee, broad-based ETF's in a cheap and simple to manage Couch Potato portfolio. Alternatively, you could invest in approximately 15 dividend paying stocks from solid companies who you feel will remain in business for the long term and who have a history of increasing those dividends over time. The current issue of MoneySense magazine has a list of 20 Canadian and 20 U.S. such stocks for your consideration. This second method takes a little more time and effort on your behalf but many swear by this dividend growth formula for long term investing and the jury is out on which of these two strategies will provide better returns in the long run. Good luck and get back to us in 50 years and let us all know how it worked out for you.

By the way, getting your asset allocation target set up according to your circumstances and risk tolerance is probably more important than the actual investments that you ultimately select. Also, periodically rebalance your portfolio but do not constantly trade in order to chase after hot sectors or stocks which can be a losing proposition in the long term unless you plan to spend a lot of time researching individual stocks.

Buy, HOLD, rebalance and prosper.

[fatcat]

I guess that, psychologically, I have a difficult time believing passive investing works.

I'd like to believe, but it's tough to ignore/discount the endless chatter about this or that investment trend, what's hot what's not, the constant focus by media on sexy active strategies, the tireless braying and gossip, etc, etc. There's a part of me that asks, "If something as relatively straightforward as passive investing can work, why isn't everyone doing it?"

And I do think - despite how popular the conversation of active/passive is among people who have done some reading and on sites such as this - that for the most part truly passive investing remains a deeply contrarian strategy. Saying to a newbie investor: "Buy three or four ETF's, rebalance, and otherwise forget about it" runs counter to decades of input claiming that successful investing is immensely complicated, risky, time-consuming, hard work, and so on.

The flip side of the question is: "Is passive investing yet another easy-money fad?"

I know (ballpark) what I'd like to have in twenty-five years. I can almost get there by saving alone. I have zero interest in spending a large portion of my day managing my portfolio. So it's passive for me.

very interesting points and well said ... i think the value of passive investing is really a function of time ... you are young and heading out to work for 30+ years ... i am heading into retirement and old age ... i think the value of passive investing will absolutely reveal itself to be true in your case ... very few people can beat the index over 30 years ... since trading stocks is essentially predicting the future, eventually the weight of the job becomes too much, it is too difficult to do ... i use etf's because i do target specific areas for diversification and i like the generally low fees and the safety of owning 6 banks instead of one in ZEB for example ... but over 30 years i would absolutely buy the broadest cheapest indexes and then just forget them ... i think now you could make a case for putting all of your money in 2 funds VT, the vanguard all world stock fund and then pimco's bond fund ...

[prollywrong]

Another question for those recommending simple three (or less fund) portfolios: how does one work in exposure to, say, precious metals or REITS? Or is this a form of slice n' dice, being 'sector-specific' again? Any links posted will be read and are appreciated.

[leoc2]

Another question for those recommending simple three (or less fund) portfolios: how does one work in exposure to, say, precious metals or REITS? Or is this a form of slice n' dice, being 'sector-specific' again? Any links posted will be read and are appreciated.

VCE/XIU/XIC have precious metals stocks in the form of gold miners. Adding REITS is up to you, as long as you treat them as equity. Adding these sectors complicates your portfolio and the re-balancing process. Consider the Vanguard USA target retirement funds. They recommend a 3 fund portfolio for someone your age:
https://personal.vanguard.com/us/fun...t#targetAnchor

If it's good enough for vanguard then it would be good enough for me.

In case you missed this reference:
http://canadiancouchpotato.com/model-portfolios/