ETFs are fine if you want a portfolio with no work and no thought and are willing to pay because of this. There are several ways of paying. First there are fees although some ETFs have very low fees. The blogger mentions a MER of 0.05%. However, the site for Vanguard says there are management fees of 0.05% and MER of 0.06% which will total 0.11%. Still it is low. A lot of ETFs can be gotten for MERs of 0.50%. You also pay the cost of associated with any purchase and sale of stocks within the ETF.
A way I personally would pay is that I think ETFs would be more volatile than my portfolio and would have an overall lower return. They would also take longer to recover from bear markets. Later on in this post I use the bear market of 2008 to compare my portfolio with the TSX and ETF of CDZ. In the past I also compared my portfolio with the TSX and the bear market of 2000.
However, this is only my stock portfolio that I use for comparison so who knows what others would do. Also for the ETFs I used only CDZ for one bear market. I really cannot go further as ETFs have not been around that long and CDZ was not around for the 2000 bear market. I hope in the future to compare my portfolio with the TSX Index in other bear markets and look at US S&P 500 in comparison to my portfolio during the last bear market.
All ETFs tend to try to match an index. The Vanguard ETFs VCN says that it follows FTSE Canada All Cap Index. This ETF has not been around that long, just from the middle of 2013, so I cannot see how well it did coming out of the last bear market. This Index is described here. It currently has 271 large, median and small Canadian Stocks.
The problem with all indexes is that you get the good with the bad. Generally indexes are set up by filters. If you have ever used filters to find good stocks with some good characteristics, you will know that they can throw up some really awful stocks. It is not that I have not had some stocks that did not turn out well. For example my investment in TransAlta Corp (TSX-TA, NYSE-TAC) comes immediately to mind.
My son has a 20 stock portfolio worth a few hundred thousand and has both TransAlta Corp (TSX-TA, NYSE-TAC) and Reitmans (Canada) Ltd. (TSX-RET.A, OTC-RTMAF). His portfolio was momentarily depressed as was his dividend income because of these stocks. But it recovered quite well. You are going to make mistakes in buying stocks. This is something that needs to be accepted.
Indexes that I have checked do not do as well in bear markets that my portfolio does. I never do as well in a bull market, but I also never do as poorly in a bear market. I think that I am better off with less volatility.
This first chart shows that the CDZ did better than the TSX Index in recovering from the last bear market. From May 30, 2008 to 30 May 2014 the TSX was still down by 0.75% and the CDZ was up by 21.2%.
| Date | Time YoY | Y to Beg | TSX | YoY | Y to Beg. | CDZ | YoY | Y to Beg. |
|---|---|---|---|---|---|---|---|---|
| 30-May-08 | 14,715 | $21.47 | ||||||
| 27-Feb-09 | 0.75 | 0.75 | 8,845 | -39.89% | -39.89% | $12.16 | -43.36% | -43.36% |
| 31-Aug-10 | 1.51 | 2.25 | 11,914 | 34.70% | -19.03% | $18.90 | 55.43% | -11.97% |
| 28-Feb-11 | 0.50 | 2.75 | 14,137 | 18.66% | -3.93% | $21.35 | 12.96% | -0.56% |
| 31-May-12 | 1.25 | 4.00 | 11,513 | -18.56% | -21.76% | $21.56 | 0.98% | 0.42% |
| 30-May-14 | 3.25 | 6.00 | 14,604 | 26.85% | -0.75% | $26.01 | 20.64% | 21.15% |
| 31-Aug-16 | 4.25 | 8.25 | 14,598 | -0.04% | -0.80% | $25.00 | -3.88% | 16.44% |
The next chart shows that I did even better with my portfolio up by 54% compared to the CDZ up by 21.2% between May 30, 2008 and 30 May 2014. I have added present values and I have done even better with CDZ up by 16% but mine up 70%. I can only guess at the reason I have done so much better and that is probably because I have very little in the way of resource stocks.
| Date | Time YoY | Y to Beg | Trad. Accts | YoY | Y to Beg. | CDZ | YoY | Y to Beg. |
|---|---|---|---|---|---|---|---|---|
| 30-May-08 | $21.47 | |||||||
| 27-Feb-09 | 0.75 | 0.75 | -27.63% | -27.63% | $12.16 | -43.36% | -43.36% | |
| 31-Aug-10 | 1.51 | 2.25 | 40.28% | 1.52% | $18.90 | 55.43% | -11.97% | |
| 28-Feb-11 | 0.50 | 2.75 | 13.96% | 15.69% | $21.35 | 12.96% | -0.56% | |
| 31-May-12 | 1.25 | 4.00 | -0.91% | 14.64% | $21.56 | 0.98% | 0.42% | |
| 30-May-14 | 3.25 | 6.00 | 34.48% | 54.17% | $26.01 | 20.64% | 21.15% | |
| 31-Aug-16 | 4.25 | 8.25 | 10.36% | 70.15% | $25.00 | -3.88% | 16.44% |
Note that the CDZ stock prices have changed since I looked at them last. I picked up the new values recently. It seems that CDZ has mini splits.
The last point to make is that it is not as easy or no work with ETFs as you might image. There are more Canadian ETFs than there are Canadian Stocks. This is the same with mutual funds. You still have to sort through a lot of information to pick ETFs for your portfolio. I would think a good blogger to look at is Canadian Couch Potato and his information on model portfolios. An alternative blogger is Million Dollar Journey.
If you are going to invest in the market, you have to be prepared for bear markets. With dividend stocks you might be more reassured because you dividends are still coming in.
What I exclude from my values is my emergency fund (as I have no health insurance benefit and might have other expenses during the year), my line of credit, my US trading account (because Quicken does not handle exchange rates well) and my insurance policy. Quick always uses the current exchange rate for all values. I believe that you need to use the exchange rate appropriate to the date of a value to properly assess an account's growth. The cash value of my insurance policy only grows. In any event, all these items comprise only 1.7% of my assets.
On my other blog I wrote yesterday High Liner Foods (TSX-HLF, OTC-HLNFF)... learn more. Tomorrow, I will write about Smart REIT (TSX-SRU.UN, OTC-CWYUF)... learn more on Friday, September 16, 2016 date around 5 pm.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.
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