# Feedback on my Couch Potato



## none (Jan 15, 2013)

Hi everyone,

I'm new to managing my own funds. I've had mutual funds in the past and even a highly paid broker but I've decided to go full index couch potato. As I'm new, I was hoping to get some feedback not only about my choices but also about some feedback about logistics of it all.

I've decided to go to TD-bank e-series but also use ETFs (mostly Vanguard for no other reasons than reputation and low fees). To complicate matters, I'll be managing five accounts:

Cash: 100K
RRSP:60K
RRSP:10K
TFSA: 25K
TFSA:15K
 Total: 200K

I suppose my first question is should I manage the whole things as a 'complete couch potato' or should I rather have smaller potatoes for each few accounts (i.e. non-registered and registered)?

To make sure I have the tax things sorted here is what I've gathered from other threads, blogs, and readings:
Non-registered: Canadian equity & Canadian dividend index funds due to the crazy tax sweet heart deal (including Canadian bonds)?
RRSP: International Equity, U.S. equity (although I'm still a little confused about the withholding tax stuff)
TFSA: REIT, International & U.S Equity 

Here is my proposed couch potato. I'm doing a ETF's to start but plan on using the TD e-series for the majority of the rebalancing and only after the overall buys make it worth while to buy more ETFs I'll do so. I figure doing it this way allows me the flexibility of doing a 'rough rebalance' (i.e just buy everything is the rations I want them to be in) and the a full rebalance at the end of the year (hence the 0%s right now). I think this offers me a lot of flexibility here. Also, if I do plan on running the entire portfolio as one big couch potato then using the e-series allows me to 'top up' certain accounts without having to buy the same ETF and kill any MER advantage.

Lastly, because I'm thinking of bringing down the VAB to 20% and throwing in VDY for 10%: any thoughts on this (total 30% bonds)?

Here is my proposed couch potato. Any (and all) feedback would be greatly appreciated. Thanks!


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## My Own Advisor (Sep 24, 2012)

Hey none, 

Good assets, well done with the saving.

It's really up to you, how to manage the portfolio. I suspect some DIY investors manage "big potato" across all accounts and others manage via "small potatoes" in each account.

I tend to invest with the big potato in mind, but I also don't index everything. I'm sure others than index will be able to give you much better perspective.

For me regarding the allocation....
Non-registered = CDN dividend paying stocks only. (Use dividend tax credit for CDN stocks).

RRSP = U.S. and International Equity ETFs + U.S. stocks.

Here is a great article about withholding tax:
http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/

TFSA = CDN REITs and CDN dividend-paying stocks. No U.S. holdings at all.

VDY seems like a good choice for equities. I recall Jonathan Chevreau liked it:
https://www.vanguardcanada.ca/individual/etfs/etfs-detail-overview.htm?portId=9560

http://www.findependenceday.com/cms/2013/01/04/new-year-new-tfsa-room-giant-step-to-findependence/


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## leeder (Jan 28, 2012)

@ none: I don't pretend to be an expert, since I've only at the investing game a little over a year, but I hope my experience can help you in some way.

First, if you are set on investing, you should plan to maximize your investments in your RRSP and TFSA. I would go as far as to say to ignore the nonregistered. After all, if you truly want to avoid taxes, why invest in non-registered at all?

Second, if you do have excess capital that you want to invest, then plan out the non-registered portion. As My Own Advisor said, Canadian dividend paying stocks get good tax treatment here. If anything, that's where your Cdn content of your portfolio should be. To answer your question, bonds do not get preferential tax treatment in non-registered. You want to keep any fixed income in your TFSA or RRSP.

Third, one thing I notice with some couch potatoes is that they overcomplicate their portfolios with ETFs just because people promote it over the water cooler. I would suggest keeping it simple for now with 4 or 5 core index ETFs/funds. When you start being a more experienced investor, then branch out. True couch potatoes are lazy index investors...they wouldn't want to spend much time figuring out how much to rebalance 10 ETFs annually.

Good luck!


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## Barwelle (Feb 23, 2011)

Something to be aware of with VDY is that it is not very diversified - 59% financials and 27.5% energy.

Also: It's often stated that canadian dividends are taxed favourably, but it's not like it used to be - gov't has been reducing the amount that you gross-up the dividends (see here), meaning you get less of a tax credit.

Looks like you're maxing out your TFSA, but you didn't say if you're maxing out your RRSP... You should probably do the calculations and figure it out for yourself, but if you have room left that you won't be using up, you might as well throw dividend payers in there as well (that way, both dividends and capital gains are tax sheltered, even though you give up what little dividend tax credit you get). Don't automatically assume that it would be better to hold them outside your TFSA & RRSP just because of the tax credit.

Edit to add, I like that you are using a hybrid e-series/ETF plan to save money when rebalancing. This is what I'm doing! (Though my potato is still so small that I haven't gotten to the point where I hold ETFs yet... )


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## Belguy (May 24, 2010)

Your first, and most important, task is to establish your target asset allocation (cash/fixed income/equities) considering your own particular circumstances and time horizon. This allocation should be something that you can live with through all market conditions thus avoiding the temptation to panic sell during the inevitable stock market crashes. Many investors overestimate their risk tolerance and only truly find out when the market enters one of it's periodic swan songs. If you have confidence in your original target asset allocation, it should allow you to sleep soundly whatever the markets are doing.

The actual index products that you choose for your portfolio is of secondary importance but I would recommend a brief portfolio of approximately five funds in order to simply future managing of your portfolio and to keep your trading fees as 'little' as possible. Even with a few funds, you will be invested in thousands of stocks and so adding more funds is not necessary as you will already be diversified enough.

My recommendation would be to invest in the lowest fee, broadest based funds such as those offered by Vanguard. The TD e-series funds would also be a good choice.

Hope that this helps.

Just be confident in your asset allocation so that you don't find yourself trying to time the markets in the future.


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## none (Jan 15, 2013)

Thanks everyone for the advice!

@My Own Advisor: Thank you for the specific advice. I'm going to have to take a closer look at your suggestions tonight after work after I can really dig into your advice a little further. I'm sure I will bombard you with a few more questions but I feel like I'm in the 'fine tuning phases'. As for the savings level I take very little credit. The cash account is pretty much all the proceeds of a house sale after I bought a house at my wife's insistence when it was 'ridiculously overpriced' and sold it for 100K more when it was 'crazzily over priced'. I am a very happy renter now! I have a back of the envelope calculation for 'cost of home ownership' which is simply: True cost = house price * (inflation + mortgage rate + 1% (for taxes and maintenance) - house price * yearly growth. I assume here in the west coast that house prices will at best remain relatively flat so the 600K house we are renting would cost us about 600K * 6% = 36K and our rent in 'only 24K'. That's a pretty good investment I figure!

@leeder: I don't see what you mean about not investing the 'non-registered funds'? What else should I do with it? Just throwing it in a savings account is investing of a sort - I assume you don't mean just stuff it in a mattress!! Regardless, Canada gives a ridiculous sweetheart deal on Canadian Capital gains (so much so that I feel it's significantly eroding the tax base but until the bring capital gains up again I'll take advantage). As for your final point about ETF, I am using a simple 5 or so and just using the e-series funds to allow me to add money throughout the year and balancing. I think that a major e-series exchange for ETFs will only be necessary every three or 4 years to justify the trade expense. 

@Barwelle: Yes, my RRSP is maxed out - actually I have about 15K of no declared deductions that I'm carrying forward until I make a decent salary. I also think using the hybrid ETF/e-series approach is a great idea! I think on the surface it looks like it complicates things but I actually think it greatly reduces the complexity under the hood.

@Belguy: Your advice sounds very wise. It hard to know the time horizon for some of these savings. The RRSP is obvious but the others may ultimately go to a house purchase down the road. Unfortunately, I don't think I'm interested in buying house until they are about 70% of 2013 levels. If this means that house prices stay flat for 10 years to let inflation do the work then fine but there is no way I'm buying a house now. As for market timing I'm using the 'efficient market theory' to heart. All indexes are priced correctly with what currently known about the present or the future. I'm a mathematical modeller myself (actually employ financial prediction time series methods but for ecological data' and this assumption is no bolder than others than I'm forced to employ. It may not be perfect but over time I really do believe this couch potato method will give solid returns over the long term (BONUS: ALMOST NO WORK!). Anyway, I'm pretty excited about getting this set up.

Thanks for the advice everyone!


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## leeder (Jan 28, 2012)

@none: Please don't get me wrong. As I stated in point #2, if you have excess capital after maximizing your TFSA and RRSP and want to invest, go for it.


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## none (Jan 15, 2013)

leeder said:


> @none: Please don't get me wrong. As I stated in point #2, if you have excess capital after maximizing your TFSA and RRSP and want to invest, go for it.


Ah, I see. Yes, my TFSA and RRSP are maxed out.


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## none (Jan 15, 2013)

I think based on this article: http://canadiancouchpotato.com/2013/01/21/does-a-6040-portfolio-still-make-sense/

I will reduce my VAB holdings to 20% (for a total of 30% bond in the portfolio) and throw in 10% of VDY.

That canadiancouchpotato blog is really very awesome.


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## Cal (Jun 17, 2009)

Looks good, your plan seems to work for you. You are maxed out TFSA and RRSP, so that means one of the TFSA's are down a bit, correct?

What are your intentions with the cash balance? (also, when I added your totals above I got 210K)


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## none (Jan 15, 2013)

@Cal: No, the TFSA wasn't opened immediately so my wife didn't get her full deduction from the start. We actually only dumped cash into them last year (we were stuck in financial procrastination). Fortunately, it was my first exposure to index funds - we put it all in the ING direct balanced index (1.07 MER). I had become convinced by the approach after reading this a few years back: http://www.modernluxury.com/san-francisco/story/the-best-investment-advice-youll-never-get but I never pulled the trigger because we were living in the states and the financial future was a bit uncertain. Although I should be blinded by short term returns, the ING funds have gone up about 6% over the last year.

The cash will be in the non-registered portion. We're going to hold 20K back for emergencies and easy access in an ing-direct high interest savings account but the remaining will be in the 'potato sack'.

Thanks for pointing out the error! Rather than give exact figures I rounded around as it didn't really change what I was trying to do.


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## none (Jan 15, 2013)

I'm starting to think that I've misinterpreted the TFSA guidelines: I thought you get $5000 of contribution room per year ($5,500 this year) AFTER you have opened up the TFSA account. Is this incorrect?

I.e regardless of when the account was opened does everyone who was >18 by the time the program was started have $25,500 of room in their TFSA? To a greater extreme, if someone opened up a TFSA now would they start with $25,500 of contribution room?


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## Spudd (Oct 11, 2011)

You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA. 

From here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html


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## Barwelle (Feb 23, 2011)

none said:


> I.e regardless of when the account was opened does everyone who was >18 by the time the program was started have $25,500 of room in their TFSA? To a greater extreme, if someone opened up a TFSA now would they start with $25,500 of contribution room?


I was just about to address this when I saw you posted! This is correct.


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## none (Jan 15, 2013)

Barwelle said:


> I was just about to address this when I saw you posted! This is correct.


Wow - I stand correct. I will have to fix this in my plan.

Here is a great article on TFSAs. God help me, I'm turning into a big Garth Turner fan. 
http://www.greaterfool.ca/2013/01/20/the-gift-2/

EDIT: THANKS!


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## Barwelle (Feb 23, 2011)

I should add that this is as long as she turned 18 or greater in 2009. And as long as she had a SIN then. (just in case she wasn't born in Canada)

Best way to find out tax info (so you don't get incorrect info) is to see the CRA website. For TFSAs, spudd's link above, or this pdf are the best options.


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## none (Jan 15, 2013)

Barwelle said:


> I should add that this is as long as she turned 18 or greater in 2009.


 _If only this was an issue....._ Just kidding. Nope she has been over 18 for more than a decade - and she's been a Canadian since she was born.

Well this is good news! Thanks!


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## Barwelle (Feb 23, 2011)

Haha.. now what if she read that!?

You're welcome, glad to help. Stick around, there's lots to learn here.

Off topic... Re: Garth Turner. just watch what you take from his blog... I used to read it, but (in my opinion anyway) sometimes, to make his points, he'll manipulate stats or use extreme examples which don't always coincide with an average person's situation.

He sure is bang on about some things though. (example, the woman who thought her 2.5% 90-day GIC gives her 2.5% every 90 days, as per the post you linked to. I hope he educated her.)


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## none (Jan 15, 2013)

She will never read that! Anyway, if she asks what name I'm registered under, I just say 'none' and I'm in the clear. I'm using poor spousal communication to my advantage!

I think the thing I'm having to remind myself with some of these things is trying to be objective about 'what do I objectively know?'. To paraphrase Donald Rumsfeld <shudder> "What are my knowns, what are my known unknown, and what are my unknown unknowns. That's the thing I really like about the couch potato approach - you don't really need to know anything about individual stocks! Once things are allocated appropriately it doesn't matter - just rebalance yearly and your done and will beat 90%+ of people over the long term. I find it odd that I hadn't heard about this stuff seriously before as I consider myself fairly well versed in 'interesting internet things'. I've been asking everyone I know about indexes and couch potatoes and it seems I'm flying solo here. It doesn't help that I know quite a few people who own houses and are convinced house prices will continue to go _up up up!_ Anyway, in their defence, I thought a crash was coming 5 years ago so what do I know. Oh right, I don't know anything - hence the index investing 

Yup, seems like a good group of people - glad to be aboard.


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## Belguy (May 24, 2010)

Garth Turner once offered to set me up with a financial advisor which he did. I will not go into the sad details but my relationship with that advisor was not a positive one and it did not end well. The advisor, that he set me up with, was nothing more than a mutual fund salesperson who made money off of my money while I slowly watched my hard-earned savings disappear. Suffice it to say that, as a result of this experience, I would not read one single word of anything that he has to say.


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## none (Jan 15, 2013)

I can certainly see why that would turn you off on the guy. I mostly just started reading him because he's as bearish as me about west coast housing. My wife really wants a house and it will not be great if I am wrong.



Belguy said:


> Garth Turner once offered to set me up with a financial advisor which he did. I will not go into the sad details but my relationship with that advisor was not a positive one and it did not end well. The advisor, that he set me up with, was nothing more than a mutual fund salesperson who made money off of my money while I slowly watched my hard-earned savings disappear. Suffice it to say that, as a result of this experience, I would not read one single word of anything that he has to say.


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## none (Jan 15, 2013)

Based on your advice, this is what I've come up with as far as fund allocation goes. I split up things a little bit so that things weren't too heavily weighted in one thing although I think my wife may have issue with her entire RRSP at this point being international index. Then again, she will have a government pension in 25 years so this is just gravy. I have also changed my initial target from 40% bond down to 30% bonds and instead add 10% Dividend index. Lastly, I bumped up my wife's TFSA to 25K. I've rounded things to closest 5K to make things easier to critique. Any suggestions or further advice is appreciated. Thanks potatoes!










I focused the Canadian equity in the Non-registered account for tax reasons and also threw in a majority of the bonds to stabilize it a little. We may need this money in 5-10 years for house buying (much to my displeasure - I love renting). Hopefully I'm close. Thanks again!

PS Another idea is to manage this account as two (or more) potatoes. I was thinking perhaps the non-registered as one potato and the other potato made up of the TFSAs and RRSPs. Any thoughts on this anyone?



My Own Advisor said:


> Hey none,
> 
> Good assets, well done with the saving.
> 
> ...


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## none (Jan 15, 2013)

Hi Everyone! I gave it some more thought and I think I've got this down just right. I fixed the TFSA account (now both 25K - rounded) and I decided to manage the small RRSP as a small potato rather than try to squeeze it in somehow. I think I have all of the tax allocation correct. Please let me know if I don't. Thanks for all the help!

Using the TD e-sereies international index fund made the partitioning a lot easier!


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