# 'Couch Potato' Portfolio Returns



## Belguy (May 24, 2010)

I was just looking at the five year returns for the components of the 'Classic Couch Potato' portfolio, as of January 31, and they are as follows:

iShares DEX Universe Bond Index (XBB): +4.93%

iShares S&P/TSX 60 Index (XIU): +5.82%

iShares S&P 500 Index (XSP): -0.14%

iShares MSCI EAFE Intl. Index (XIN): -2.98%

Thus, holders of the XBB and the XIU would have started out with five year returns of between 5 and 6 per cent but this would have been reduced by their holdings in the XSP and the XIN.

In addition to holding these as core investments, I was able to enhance my personal returns with my added holdings of the RBC Global Precious Metals Fund, some emerging markets holdings, some smallcaps, and some high yield bond investments.

Any thoughts?


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## hypo (Aug 11, 2010)

Not sure what you're getting at...

The returns are kind of boring?


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## larry81 (Nov 22, 2010)

Belguy said:


> I was just looking at the five year returns for the components of the 'Classic Couch Potato' portfolio, as of January 31, and they are as follows:
> 
> iShares DEX Universe Bond Index (XBB): +4.93%
> 
> ...


Look like **** on paper i agree 100%, however we need to consider the 2008-2010 crisis... most index just recovered their initial pre-crisis value.

Also, you need to add about 2% annual yield in the mix for the 3 equities ETF you named


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## andrewf (Mar 1, 2010)

You're also not factoring in the effect of rebalancing. Rebalancing fixed income into the equity positions after the crash would have enhanced returns.


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## Belguy (May 24, 2010)

I believe that the only Canadian equity ETF with a ten year performance history is the iShares S&P/TSX LargeCap 60 Index (XIU) which has a Globe 5 star rating of 2 stars and a ten year return, ex dividends, of 5.79%.

By comparison, the 4 star Dynamic Value Fund of Canada has posted a ten year return of 10.04%.

The Beutel Goodman Small Cap D has a 10 year return of 14.15% and a 15 year return of 15.23% reflecting the greater potential long term returns from smallcap stocks albeit with more volatility along the way.

I have just been going over some longer term performance data for various funds that I track.

Oh, and the Globe 4 star RBC Global Precious Metals fund had a 15 year return of 15.64% which is the best long term performance of the funds that I follow.

I have always been a strong proponent of index investing but am playing the part of a devil's advocate with this topic.

Nothing is black and white!!


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## Mike59 (May 22, 2010)

It's too bad past returns have no bearing or guarantee about future returns...

The winning mutual fund lists and 5 star ratings remind me of that photo wall at the Casino of past winners. I wonder if those past winners are still pulling slots?


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## Argonaut (Dec 7, 2010)

Those returns are beyond horrible. How can the couch potato doctrine defend itself with numbers like that?

Lessons learned:
1. Everyone needs an allocation of precious metals approaching 25%. Nothing else is better at protecting your purchasing power.
2. Indexes are junk. Pick good stocks. You need a good mix of high yielders and stable blue chips in different sectors. Throw in a high growth stock if you like.
3. Don't be afraid to trade. Buy low, sell high.
4. Anyone who is unsure of themselves in investments should probably have a 100% savings account allocation.


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## hypo (Aug 11, 2010)

> Those returns are beyond horrible. How can the couch potato doctrine defend itself with numbers like that?


Couch potato returns are supposed to be average and boring. What did you expect? You forget that the whole idea of the couch potato portfolio is that you don't even need to look at it for years and will be automatically protected against below average returns. 



> 2. Indexes are junk. Pick good stocks. You need a good mix of high yielders and stable blue chips in different sectors. Throw in a high growth stock if you like.


Indexes are not junk, they are the average. To pick individual stocks, you need the skills to interpret financial statements. This requires a non-trivial investment of time and effort to acquire. 



> 3. Don't be afraid to trade. Buy low, sell high.


In order to truely buy low and sell high, you need skills to be able to make an educated guess on prices. This requires a non-trivial investment of time and effort. You are just speculating otherwise. 

If you are talking about trading rather than investing, then you by definition are not an average investor. The couch potato portfolios are targeted to the majority of investors who do not wish to actively manage their own investments. 



> 4. Anyone who is unsure of themselves in investments should probably have a 100% savings account allocation.


No, even with little to no financial knowledge a person can invest in a broad based ETF portfolio that captures the overall return of the market, which will give higher returns compared to a savings account given the increased level of risk to your capital. This is the whole point of the couch potato.


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## Argonaut (Dec 7, 2010)

hypo said:


> No, even with little to no financial knowledge a person can invest in a broad based ETF portfolio that captures the overall return of the market, which will give higher returns compared to a savings account given the increased level of risk to your capital. This is the whole point of the couch potato.


Higher risk does not equal higher reward. Unless one had an overweight allocation to the TSX, a savings account has beat the broad market in the past 10 years with no risk. People with little to no financial knowledge should either educate themselves or not be in the market at all. Sometimes I wonder if Blackrock, Vanguard, et all have started this couch potato cult.

I don't mean to disparage anyone who follows a certain strategy, but it's sad to see how many people have had upwards of 10 years with dead money. That's a long time.


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## andrewf (Mar 1, 2010)

10 years of dead money is nonsense. Neither TSX nor S&P total returns have been dead money for ten years. If you add more asset classes, such as commodities or real estate, 'couch potato' is pretty far from dead money.

Choosing your investment strategy on the basis of previous ten years of return is a recipe for disaster anyway. It's pretty myopic.


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## Sampson (Apr 3, 2009)

Argonaut said:


> but it's sad to see how many people have had upwards of 10 years with dead money. That's a long time.


It is also unrealistic to think that people invest money once, at the peak of an over inflated Dot.com bubble and not put any money in before or after.

The 'lost decade' is a prime example of picking the worst period of time to gauge market returns. 

It is also wrong to believe there have been no returns in 10 years. That was true as of March 2009, at the market lows, clearly things have turned around significantly since then. Take a 10 year market return as of March 2011, and I'm sure the return is not 'dead'.


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## andrewf (Mar 1, 2010)

Total return on XIU since March 2, 2001 has been 7.3% per annum. Dead money indeed.


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## Sustainable PF (Nov 5, 2010)

Belguy said:


> By comparison, the 4 star Dynamic Value Fund of Canada has posted a ten year return of 10.04%.
> 
> The Beutel Goodman Small Cap D has a 10 year return of 14.15% and a 15 year return of 15.23% reflecting the greater potential long term returns from smallcap stocks albeit with more volatility along the way.


Why are you quoting the 10 yr performance of the above with the 5 yr numbers from the CPP?


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## CanadianCapitalist (Mar 31, 2009)

Belguy said:


> I have just been going over some longer term performance data for various funds that I track.
> 
> Nothing is black and white!!


Did you start tracking these funds *before* they were showing stellar performance data? Or did you start tracking them *after* they were winners already?

There is a big difference between the two. Even I can pick out the Stanley Cup winners of the past five years. Not many can forecast this year's winner, let alone the next five.


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## Argonaut (Dec 7, 2010)

Sampson said:


> It is also wrong to believe there have been no returns in 10 years. That was true as of March 2009, at the market lows, clearly things have turned around significantly since then. Take a 10 year market return as of March 2011, and I'm sure the return is not 'dead'.


Simple theory tells one that more people were buying during the overweight periods, and more people were selling during the downturn. If panic had set in, as it does to some people when it comes to money, the returns would have been even less than zero.



andrewf said:


> Total return on XIU since March 2, 2001 has been 7.3% per annum. Dead money indeed.


That's good return, yes. But the couch potato itself only has a 20% Canadian allocation. The US and international allocations would have weighed on returns indeed, especially if one was continually rebalancing out of XIU. No couch potato portfolio has any mention of gold, which has outperformed everything.

The biggest winners from these strategies have been, and will continue to be, Blackrock, Vanguard, Claymore, etc.


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## HaroldCrump (Jun 10, 2009)

Argonaut said:


> The biggest winners from these strategies have been, and will continue to be, Blackrock, Vanguard, Claymore, etc.


True, but it is still a dramatic improvement from the mutual fund rip offs.
Because of companies like Vanguard, etc. passive investors are now getting better returns and paying lower fees than with mutual funds.

Also, it is forcing more and more investors to become DIYers rather than depend on the financial advisory industry.
The mutual fund industry and the advisor industry were just cohorts - propping up each other.
Now at least investors are becoming more conscious and aware of choices.

I think it's trending in the next direction.

The next step is for investors to corelate savings with investing and realize what a boost they can give to their returns by saving more.


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## Argonaut (Dec 7, 2010)

HaroldCrump said:


> The next step is for investors to corelate savings with investing and realize what a boost they can give to their returns by saving more.


Agreed, how much you save is more important than how much you make on your savings. Especially in the beginning.


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## I'm Howard (Oct 13, 2010)

EWC and MDY have given consistantly better returns , no matter what time frame you compare.

Yahoo.finance is where I do my Charting.


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## fatcat (Nov 11, 2009)

> No couch potato portfolio has any mention of gold, which has outperformed everything.


 my hindsight is also perfect ... i could cite you all kinds of companies and commodities that have creamed the market

the problem is that the performance of johnson and johnson or the big 5 canadian banks is much more predictable over a long time frame than the performance of precious metals which, for all their spectacular returns, are clearly driven by animal spirits (and yes, i know that precious metals have many practical real-world applications) 

when the tulip bulb craze ended, you couldn't find a living soul who bragged about how much money he lost in tulip bulbs ....


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## Argonaut (Dec 7, 2010)

fatcat said:


> when the tulip bulb craze ended, you couldn't find a living soul who bragged about how much money he lost in tulip bulbs ....


That's a great analogy right there. Comparing a bubble in a brief time period in the 1630's to something which has been the world's currency almost since the dawn of civilization.

Seems like we're always breaking down into the same discussions! Indexing vs. non-indexing, or gold vs. anything else.


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## I'm Howard (Oct 13, 2010)

A Couch Potato Index Fund based in Canada would include some golds.

GLD has beated GDX, and on the subject of gold, don't forget it was artifically pegged to $35/ounce and Americans were not allowed to own Gold.

The States are broke, Wisconsin is waging a war with its' unions, they will print more IOU's, it will take more IOU's to buy finite resources.


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## andrewf (Mar 1, 2010)

The great thing is that it doesn't matter to me whether gold is a bubble or not. If it goes down, I'll sell my allocation. It's good for your mental state to be able to stop worrying about where things will go.


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## bean438 (Jul 18, 2009)

fatcat said:


> my hindsight is also perfect ... i could cite you all kinds of companies and commodities that have creamed the market
> 
> the problem is that the performance of johnson and johnson or the big 5 canadian banks is much more predictable over a long time frame than the performance of precious metals which, for all their spectacular returns, are clearly driven by animal spirits (and yes, i know that precious metals have many practical real-world applications)
> 
> when the tulip bulb craze ended, you couldn't find a living soul who bragged about how much money he lost in tulip bulbs ....




You can't compare tulip bulbs to gold. This time it's different!!!


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## I'm Howard (Oct 13, 2010)

bean, take an ounce of gold, plant it in the ground, fertilise and water it, in the Fall, you will have an ounce of gold.

Tulips, they are differant.


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## Sampson (Apr 3, 2009)

Argonaut said:


> Simple theory tells one that more people were buying during the overweight periods, and more people were selling during the downturn. If panic had set in, as it does to some people when it comes to money, the returns would have been even less than zero.


I don't see how this fits with your argument that index investors held dead money.

As you point out, ANYONE holding equities and especially those selling during downturns would have lost money, regardless of whether they held individual securities or if they held and index tracking fund.

If we separate the market timing aspect out of this, by your note equity investors all lost out.


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## Belguy (May 24, 2010)

Over the years, I have done a ton of reading on the subject of investing and have spent hundreds of happy hours watching the business channels.

All of my research has led me to where I am today--with a portfolio of mainly the lowest fee, broadest based ETF's with a smattering of other investments including the RBC Global Precious Metals Fund, some emerging markets, and some REIT holdings.

Nothing that I have read, either here or elsewhere, has convinced me that trading in individual stocks is the right thing for me.

However, everybody's circumstances and personality and time horizon is different. What works for me may not be everyone's cup of tea.

One of the main things that I have learned is to not panic sell during one of the equity markets' frequent gut-wrenching drops.

What goes down, eventually comes back.

CC, on the subject of when I started tracking some of the top performing funds, I couldn't give you specific dates but I have been following many of them for quite a few years in order to compare them to related ETF returns. I use a 'Watchlist' at Globeinvestor to do this.


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## LBCfan (Jan 13, 2011)

If your REIT holdings are XRE, you can duplicate it yourself for ~$130 per full re-balance. With an MER of .55%, you need about $27,000 in it to break even by DIY (assuming $10 per trade). Worth considering.


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## larry81 (Nov 22, 2010)

I'm Howard said:


> bean, take an ounce of gold, plant it in the ground, fertilise and water it, in the Fall, you will have an ounce of gold


thanks for destroying my retirement strategy in a single phrase !!!


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## fatcat (Nov 11, 2009)

> You can't compare tulip bulbs to gold. This time it's different!!!


"this time it's different"

that's what the tulip bulb investors said when all their friends brought up the notorious greek falafel scandal of 1316


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