3 Years Ago I Switched To Indexing. Here’s How My Portfolio Performed

On January 7th, 2015 I sold 24 Canadian dividend stocks worth about $100,000 and bought two low-cost index ETFs (Vanguard’s VCN and VXC). It was a bold move to switch to indexing after years of dividend growth investing. Lots of people questioned my decision. I even lost blog readers because of it (seriously). But it was the right thing for me to do for several reasons:

  • I no longer had the patience and discipline to stick with a dividend growth strategy (buying blue-chip dividend growth stocks when they are value-priced and holding them for the rising dividends)
  • I no longer had the time to keep tabs on 24 individual companies, plus research new potential stocks in which to invest
  • Some of my stock picks were flat-out terrible
  • I didn’t have the stomach to watch my oil & gas stocks plummet 30-50 percent
  • I recognized that my home country bias (all-Canadian portfolio) was extremely under-diversified, which increased the risk and reduced the potential for higher returns
  • All the evidence I read didn’t just suggest, it screamed, that low-cost passive indexing would outperform active management (stock picking) over the long term

Switching to Indexing

Selling those stocks was hard to do, but if you read this blog back in 2014 you’d know that I’d been preparing myself for this shift for several months.

Related: How behavioural biases kept me from becoming an indexer

So what happened since then? Talk about liberating! I used to check my portfolio on the daily and fuss over every individual stock (why is it down, why is it up, what do the analysts say?). I used stock screeners to hunt for new investments. I subscribed to email alerts for each of the companies that I owned.

Now I only log into my online brokerage when I’ve added new money and need to make a trade. Indeed, my four-minute portfolio is a breeze to manage. I own more than 10,000 stocks from around the globe so if one stock, one industry, or even one country is having a bad month I’d barely notice.

On to the big question. How has this portfolio performed? And, perhaps more importantly, how did it do compared to my old portfolio of Canadian dividend stocks? Let’s take a look:

2017 Portfolio Rate of Return

2017 was a good year for Canadian and U.S. markets. The S&P/TSX Composite Total Return Index delivered 9.10 percent returns while the S&P 500 Total Return Index was up 13.76 percent for the year. Pretty good, right?

It was a good year for me, too. My personal rate of return for 2017 was 14.06 percent.

Indexing personal rate of return 2017

Remember, your personal rate of return, or ‘money-weighted’ return, reflects the timing and amount of your contributions (and/or withdrawals), as well as the investment performance of the funds. It’s different than a time-weighted return, which measures the performance of a fund or index without the effect of individual contributions or withdrawals.

All investors should now be receiving statements with their annual money-weighted investment returns.

My Three-Year Returns Compared to Benchmarks

Besides freeing up incredible amounts of time, the switch to indexing has also been extremely profitable. I looked up my rate of return for the three-year period between January 7th, 2015 and January 5th, 2018.

It has been a good three-years. My personal rate of return over that time has been 41.43 percent. The annualized returns during that period were 12.26 percent. See below:

Personal rate of return 2015-17

If you follow along my net worth and financial freedom updates you’ll know I use a target rate of return of 8 percent for my investments. That’s what I expect my portfolio to deliver over the very long term, knowing full well there will be plenty of ups and downs along the way.

I know we’re in the midst of a spectacular bull market run and so I’m not patting myself on the back for outperforming my target rate of return. For instance, if the S&P 500 was down 20 percent, I’d be thrilled if my portfolio “only” lost 15 percent.

That’s why I like to compare my returns against other benchmarks to see how my portfolio performed versus other strategies over the same time period. Here’s a look at the three-year returns of the S&P/TSX Composite Total Return Index and the S&P 500 Total Return Index:

Return benchmarks 2015-17

It’s clear from these benchmarks that the Canadian market has been a bit of a laggard, dragging down my overall returns compared to the S&P 500, which has been on fire. Still, overall I’m quite happy with portfolio returns of 41.43 percent over three years…especially when you compare those results with my old portfolio.

My Index Portfolio vs. Canadian Dividend Stocks

When you look at my old portfolio of Canadian dividend stocks the best benchmark to use to replicate the strategy is iShares CDZ – the Canadian dividend aristocrats index.

This ETF holds 86 Canadian dividend stocks – established companies that have increased dividends every year for at least five years.

How has CDZ performed since January 7th, 2015? Let’s take a look:

CDZ Benchmark Returns 2015-17

Not very good. CDZ returned just 15.01 percent for the three-year period compared to the overall Canadian market at 25.35 percent and my portfolio return of 41.43 percent.

I know every investing strategy has its moment, but as you can see I clearly picked the right time to move away from holding strictly Canadian dividend stocks by switching to a diversified global approach. I would be a lot poorer had I stayed the course.

Final Thoughts

I’m not saying indexing is the panacea for all investors. Many aren’t comfortable with DIY online investing to begin with and would be better off with a robo-advisor.

Some dividend investors have the time, discipline, and temperament to stick with their strategy for the long term and their investments may perform just as well as a dedicated indexer’s.

But for me, indexing has been a game-changer. I’ve taken back hours and hours of time. I no longer stress over one stock, one industry, or one country’s performance. And, my investment returns haven’t suffered – they’ve flourished.

If you’re thinking of making a similar switch to indexing, leave a comment below or send me an email and I’d be happy to share more details.

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  1. Dr. Networth on January 7, 2018 at 11:02 pm

    Congrats on a spectacular 3 year return!

    I agree that one of the most important benefits of index investing is the time you’ve gained from managing a simple boring portfolio (yet beat out the majority of actively managed funds) to do other fun things in your life.

    I sincerely feel bad for investors who spend hours and hours picking their own stocks yet do not come out ahead of the index in the long-term…..all that time lost researching and stressing over which stock to pick, when they could’ve just bought 2-3 ETFs and then used that time instead to spend with family and friends.

    • Echo on January 8, 2018 at 10:37 pm

      @Dr. Networth – that’s the ‘hard to quantify’ message that I try to get across. Investing isn’t easy, but it can be made simple.

    • Brad Williams on January 17, 2018 at 5:29 am

      Interesting article for sure. My wife and I are preparing to sell our home and start renting so we can spend less time taking care of the house and enjoy some relaxation time as well as some travelling. Up to know I have been unable to figure out where I should invest the $400 k to receive quartlerly or monthly income to give us some extra cash to do things with. This article gives me more to think about in regards of investment types for the money which is not a bad thing. We have been investing for a few years on our own using a online broker so that part good to go. I will likely top up our TFSA accounts each year going forward and draw down from these last. With the amount of money involved a non-registered account is likely to be used.

    • Brian Ridgway on January 17, 2018 at 2:25 pm

      Why would anyone invest $100k across 12 or 13 Canadian dividend stocks in the first place? The Canadian equity market represents less than 3% of the Global S&P and is overweight commodities and resources. This isn’t a fair comparison if the alternative is index investing. ETF’s work well in a low volatility market as we’ve seen in the last 18 months and not so well as volatility increase (the story of 2018?). A conservative basket of 12-15 stocks representing leaders in S&P market segments works just as well. Active investing doesn’t mean daily trading, shifting strategy or a thousand mile stare at stock tables.

  2. Dividend Earner on January 8, 2018 at 12:56 am

    Congrats on the performance! 12% is excellent. I like that you focus on your target as I believe that’s what is important since all forecasting is around the desired target.

    Since 2009, my annualized ROR is 12.44% as well compared with my simulated index portfolio at 9.57% (50% TSX and 50% SP500 index ETF).

    • Echo on January 8, 2018 at 10:53 pm

      @Dividend Earner – That’s a great return for your portfolio, too. Well done!

  3. Brenda Brockman on January 8, 2018 at 6:08 am

    Really enjoyed your article! I’ve been looking into doing the same thing. I did look at several index funds such as the S&P, etc. over the 2007 period. I found it took them 4-5 years to go back up to their 2007 high before the fall. My div. stocks, largely recovered within 3 years, a few in 2 yrs. This made me pause.

    So now Im wondering about holding my best dividend stocks but putting new money in index funds when the next “fall” occurs. Then selling the index funds after a 5-6 year good run. Not sure about any of this but again, the long recovery time after a crash, has made me pause…

    Thanks for “listening.


    • Doug Boraas on January 8, 2018 at 8:02 am

      Very good comment Brenda! I know after the 2008-09 crash, my portfolio’ same as yours went back up to what it was originally before the crash within 2-3 years max! Same as yours; I think I’m staying with my large blue chip Canadian dividend paying stocks as they have treated me well over the years! When the market goes down as it eventually will, the dividends have gone up; and they are mainly what I am living off of now that I am retired! I am happy with my 9% return last year!


      • Echo on January 8, 2018 at 11:25 pm

        Hi Doug, the great thing about dividends is the psychological benefit of still getting paid while stocks are slumping (or crashing). Of course, dividends aren’t guaranteed, and we did see some dividend cuts during the crash.

        I maintain that the best strategy is one that you can stick to for the long term, and if Canadian dividend paying stocks got you through the financial crisis then you’re doing just fine.

    • Joey on January 8, 2018 at 7:29 pm

      Hi Brenda,
      I’m assuming you mean by “best dividend stocks” is “the dividend stocks with the best past performance” or possibly “the dividend stocks with the largest yield”. Either way, past performance and yield are NOT indicators of future growth. There’s no success in trying to pick which stocks will beat the index. If you try to do that you are competing against every mutual fund manager, wall street pros, pension funds…The main advantage of index funds over individual stocks is that they provide diversification which means same expected growth with lower risk. The best course is a well-diversified low cost portfolio. ETFs are the best tools in Canada to accomplish that.

      • Echo on January 8, 2018 at 11:27 pm

        Hi Joey, all great points – thanks for sharing.

        One knock against indexing is that you have to take the lousy stocks with the great ones. Why not just pick the great ones???

        Well, if we could know them in advance that would be helpful, but as you’re aware that is next to impossible.

      • Brenda on January 9, 2018 at 4:22 pm

        Thank you for your advice! I need all the help I can get and greatly appreciate everyone’s comments.

    • Echo on January 8, 2018 at 11:01 pm

      Hi Brenda, if you look at the worst 12-month period for the Canadian Couch Potato model portfolios (March 2008-Feb 2009) you’ll see the most aggressive portfolio had a 30 percent decline. A balanced portfolio (40/60 split between bonds and equities) had just a 19 percent decline.

      I’d say rather than trying to time the market and guess the top and bottom, you’d be better off adding new money regularly and rebalancing whenever your target allocation gets out of alignment.

      I should also point out that the 2008 crash was an incredibly rare event. A ‘correction’ of 10-20 percent is more likely than a 30-50 percent collapse.

      The best approach is one you can stick to for the long term, through good years and bad. Otherwise you’re chasing a new approach every few years and likely making mistakes along the way.

  4. Kent on January 8, 2018 at 2:12 pm

    Robb – As a new subscriber I’m enjoying the education provided by your posts and the comments of others.
    I’m curious: why does your portfolio include 25% VCN, rather than another ETF with greater average returns? Is your choice due to home country bias?
    Also, what do you consider to be a desirable overall % balance between different regions ( Canada, US, Europe, Far East, Etc.) within a portfolio?
    If you purcased only one Vanguard ETF, ( and from which region? ) for your total investment, which ETF would you choose?
    Many thanks for sharing your investment journey.

    • Echo on January 8, 2018 at 11:13 pm

      Hi Kent, thanks for the kind words and for following along. Remember VXC holds 10,000+ stocks from the entire globe (All World, except for Canada). So I get all the international exposure (weighted proportionately to each country’s economy) with just one fund.

      So to answer your question about purchasing only one Vanguard fund, VXC would be the one. It’s a one-stop shop (iShares XAW works as well).

      I invest 20-25 percent of my portfolio in VCN because if I want to retire in Canada and spend Canadian dollars it makes sense to hold more than just 3-4 percent of my portfolio in the Canadian market. Currency fluctuation has a major effect on the value of my portfolio in Canadian dollars so giving a higher weight to Canadian markets helps mitigate that risk.

      Besides, the Canadian stock market has performed just fine over the very long term. It has a higher historical average return than international markets while lagging just a bit behind the U.S. (http://investmentsillustrated.com/clients/osc/bigpicture/graph.html)

      • Kent on January 14, 2018 at 12:48 am

        Robb- In explaining why you hold 20-25 percent VCN
        you stated: “Currency fluctuation has a major effect on the value of my portfolio in Canadian dollars so giving a higher weight to Canadian markets helps mitigate that risk.”

        Please can you explain simply, to a novice, how, where ( VXC fund?) and when ( at what point in the life of a portfolio – withdrawal of funds?) currency fluctuation has a major effect ( positive or negative) on the value of your portfolio in Canadian dollars?

        • Echo on January 14, 2018 at 9:39 am

          Hi Kent, in short – funds like VXC hold foreign assets but VXC is priced in Canadian dollars. So if the loonie happens to be stronger relative to the foreign assets (i.e. the American dollar) then it takes more American dollars to convert it back to loonies, meaning the fund value is worth less in Canadian dollars.

          The reverse is true as well. If the USD is soaring compared to the loonie, then the assets inside of VXC will go up.

          If you don’t want your retirement portfolio gyrating around with every currency swing, then it’s best to hold more Canadian specific investments like VCN and VAB (Canadian Bonds).

          In retirement you might want a pot of money in one bucket called foreign equities (VXC) that you hold for the long term. Another bucket, called Canadian equities, for medium term access, and a third bucket, called fixed income, to fund 1-3 years of expenses. That third bucket could be broken down into three more buckets; the first being the cash you need to live for one year (savings account), the second could be one year’s expenses in a 1-year GIC, and the third could still be held in Canadian bonds.

          Each year you’d analyze your returns and ideally move one year’s living expenses from foreign equities into Canadian equities, one year’s living expenses from Canadian equities into fixed income, and so on so that you’re always replenishing your available cash but you’re not withdrawing directly from your riskiest assets.

          Okay, that wasn’t a short (or simple!) explanation but I think it gets to the point.

    • Brian on January 8, 2019 at 9:51 am

      Vanguard has 3 new products that hold global stocks and bonds rebalanced for a very low fee and gives you the option to hold a larger portion of stocks or bonds according to your comfort level. I retired so my choice as VBAL which is 60% stocks, 40% bonds, but if you are younger I suggest VGRO which is 80% stocks, 20% bonds. So, yes, you can do all your investing in a one stop investment. Set it & leave it.

  5. Peter on January 8, 2018 at 3:48 pm

    I think a simple , low cost index ETF strategy works well for investing in the accumulation / saving phase of life. However, for a retired person interested mainly in an income generating portfolio I think a selection of blue chip dividend paying stocks is a good option. These should be principally Canadian in order to get the dividend tax credit. Most of the dividend paying ETFs have relatively high MERs and hold far fewer stocks than the simple market based ETFs.

  6. Lloyd on January 9, 2018 at 10:28 am

    ETFs are great, I have a couple for parking cash (Canadian) and for some international holdings. Having said that, I mostly hold my Canadian stocks directly. At this place in my life I just can’t justify paying a lot of money in fees that I don’t have to.

  7. Zane on January 9, 2018 at 1:12 pm


    I looked up VXC’s holdings, and a few other international ETFs, at least for now they are often very weighted to US stocks. Fair enough, but we may not be seeing the diversification that we think we are getting. It is actually harder that I thought it would be to find international non-US ETFs, so far I have only been able to find a few.

    • Echo on January 9, 2018 at 3:38 pm

      Hi Zane, that may be true but VXC and XAW (the two All World ex Canada ETFs) are weighted by market capitalization and the U.S. market cap is $19.8 trillion, or 52% of the world’s overall market cap.

  8. Rob akk the Property Guy Germany on January 9, 2018 at 1:37 pm

    Very interesting article, Garth has been promoting this for quite a few years and my sister switched to the couch potato portfolio a number of years ago and is very happy, me on the other hand struggle with giving up my dividends. But then my portfolio violates every rule out there. I’m close to retirement and only have a few, 4 to be exact, high dividend paying stocks. I did that purely for the income, the stocks are solid ant he dividend safe.

    I’ve also taken it one step further by utilizing a dividend capture strategy. I’m early in the process but I trade ENF several times a week, buying dips and selling when I have 10 or 15 cents profit. Enough to pick up a 50 or 100 bucks profit per trade. I’m fairly early in this so I don’t know long term if it will continue to work. But the best part is that if it doesn’t work I’m still collecting a fat dividend. As always I’m an experienced investor and have diverse multiple stream of income. I’d be much less hesitant if this was my only retirement income.

  9. Revanche @ A Gai Shan Life on January 9, 2018 at 1:40 pm

    Thanks for this post, I’ve been contemplating if I should move into ETFs!

    I’m fairly new to dividend investing, having gotten serious in the past two years, and don’t spent much time looking at my selections after I buy them so the ROI of my time on the portfolio has been pretty good, and only one of my stock picks has been a loser. BUT. I know some of that is luck, some is the current bull market, and my luck can’t hold forever. Especially since I’m not willing to turn into a full time stock picker!

    It does pain me a bit to consider selling off my whole portfolio to move into ETFs, though 🙂 I would appreciate more details on how you made the move, if you wouldn’t mind.

    • Echo on January 9, 2018 at 9:09 pm

      Hi Revanche, thanks for your comment!

      To answer your question, it wasn’t easy but I started by changing the way I thought about my portfolio. Instead of looking at it as individual parts (24 individual stocks, of which some were up and some were down) I thought of it as a lump sum of $100,000. And with that mindset I asked myself, “if I had this $100,000 sitting in cash today would it be better off invested in these 24 dividend stocks or would it be better off invested in low cost broadly diversified ETFs?”

      I knew the answer was to go with indexing and that change in mindset was the ‘nudge’ I needed to help me pull the trigger.

      I had been reading the Canadian Couch Potato blog and when Vanguard introduced its All World except for Canada ETF (VXC) I knew it was time to make the switch. So I put $75,000 into VXC and $25,000 into VCN and the rest is history.

      Hope that helps!

  10. Loonie Doctor on January 9, 2018 at 1:56 pm

    Sounds like we made the switch around the same time and for similar reasons. It’s funny – investing is a lot like practicing medicine. There is good evidence that simple is usually better in medicine. I have stopped doing more interventions than taking up new ones in my practice (ICU) over the past decade due to that. However, we all love a good narrative, feeling like we are “doing something”, and that we are justifying unique situations/conditions. So, it takes us a long time to change. My results with passive investing have been similar, but I think the redirection of my time from investment management to my family instead has been the biggest return.

    • Echo on January 9, 2018 at 9:11 pm

      @Loonie Doctor – that’s a great analogy, thanks for sharing! Feeling the same way about the return on my time.

  11. Richard on January 9, 2018 at 7:24 pm

    Great article, Robb.

    A little off topic, but I’m looking at perhaps switching my brokerage accounts from Scotia iTrade. I like the look of the charts you posted, and wondered which brokerage you use, and if those charts are from the brokerage or if you created them yourself.

    Thanks for your time.


    • Echo on January 9, 2018 at 9:13 pm

      Hi Richard, thanks! The charts were taken straight from TD WebBroker. They did an upgrade a few years ago and ‘got with the times’, so to speak: https://boomerandecho.com/td-direct-investing-webbroker-platform-review/

    • Barbara on January 13, 2018 at 1:57 am

      Richard, I have brokerage accounts at iTrade and at TD and also manage a small one for my husband that is at Questrade (no trading there, just a small indexed RRSP).
      I really dislike TD and will be moving it over to iTrade at some point, it just isn’t even close to being as good with the information given and at trading time.
      I realize it is hard to know until you have used them, so just wanted to offer that.

      • Dividend Earner on January 13, 2018 at 5:26 am

        Just be careful with iTrade and their US accounts if you buy US as it’s not a real dual currency account (at least when I dealt with them).

        I moved from iTrade to RBC Direct Investing. I also have a Questrade account for a spousal account.

        You should list your requirements and research the different offering. If you trade ETFs vs US stocks, there are differences between them.

        • Barbara on January 13, 2018 at 1:18 pm

          Yes, that is true. I will probably leave the USA portion at TD, and take my Canadian cash account and TFSA to iTrade.

  12. Ardy on January 9, 2018 at 10:08 pm

    Happy New Year and Congrats on your results.

    I’ve read that CCP portfolios performed nearly identical in spite of a passive, balanced, or aggressive weighting. That would suggest that embracing risk and volatility are unnecessary. However, I’m not convinced the portfolio performance analysis included regular contributions of new money.

    Since you are early in your accumulation phase, and given your two ETF approach with a bond bull market probably nearing is end, what are your thoughts on performance of all equity vs 60/40 balanced portfolios?


    • Echo on January 10, 2018 at 12:56 pm

      Hi Ardy, I think the fact that the conservative, balanced, and aggressive couch potato portfolios delivered nearly identical 10-year returns reveals just how important bonds can be to a portfolio.

      That said, I do believe over the very long term that an all-equity portfolio will outperform a balanced portfolio. Just remember that we’re in year 9 of a tremendous bull market and so an all-equity portfolio comes with some serious risk.

      • Ardy on January 16, 2018 at 5:47 am

        Thanks for your reply!

        I’m still finding myself psychological stuck on this matter. When accumulating wealth, one is constantly adding new money, so if the equity market turns bearish, they can be bought at a discount with new money. One would not need to sell bonds, making me wonder the importance to begin with. If simply to pad the blow of a 10% to 20% decline, then it’s really sacrificing gains for peace of mind. A young earner with necessary emergency fund reserves, proper budgeting and sustainably lifestyle should be less concerned.

        Are you aware of the CCP portfolio results were time weighted or money weighted?


        • Dividend Earner on January 16, 2018 at 9:05 am

          I have ZERO bonds in my all stock portfolio because I am in the accumulation years with many years ahead. The rules of diversification are often put in place to attenuate fear.

          Warren Buffett said; “Risk comes from not knowing what you are doing.”

          I am not sure if I will have bonds in my portfolio when in retirement either. If I can get my portfolio to generate the cash in dividends, then I won’t but if I need to withdraw cash from my holdings, then I will approach it like Robb explained with the buckets. That’s to avoid selling equity during a downturn.

        • Echo on January 16, 2018 at 10:58 pm

          Hi Ardy, the CCP portfolio returns are time-weighted.

          I hear you on the decision to hold bonds. It comes down to peace of mind. Yes to all of this:

          “A young earner with necessary emergency fund reserves, proper budgeting and sustainably lifestyle should be less concerned.”

          Plus, I also consider that I have a workplace pension which acts as my fixed income in retirement.

  13. GYM on January 11, 2018 at 12:09 am

    Amazing work, Robb! 40+ % return in 3 years is no small feat! I wasn’t able to fully commit to 100% ETFs so I still have some dividend paying stocks in my portfolio. I also decreased my Canadian exposure (I think it was 50% before I implemented the changes). I now dollar cost average and my returns have also been better with ETFs. In 2017 I was 13% which is not too shabby for me, though the S&P500 was up 19%. Previously in 2016 it was 7% and then in 2015 it was negative returns because I was more focused on dividend income unfortunately- chasing yield.

    Keep up the great work of your minutes-a-month portfolio in 2018!!

    • Echo on January 11, 2018 at 11:20 am

      @GYM – thanks! Sounds like the changes you’ve made have been positive. 13% is awesome!

      I hear you on chasing yield – that got me into trouble before, too.

  14. Gert on January 11, 2018 at 8:01 am

    Currently with BMO Nesbitt & Burns but have thought many times about switching to Vanguard but don’t know how to go about it. I’ve felt uneasy about asking this question but the other day someone asked me so I now understand I’m not alone. I feel a little stupid in asking but can you provid some insight to me and perhaps others?

    • Echo on January 11, 2018 at 11:37 am

      Hi Gert, thanks for your comment. It’s not terribly difficult to switch to an indexed portfolio…but don’t rule out the robo-advisor option if you’re having any angst over managing your own investments. It’s probably still much cheaper than your current bank-managed investments.

      What you need to do is open up a discount brokerage account online (you can do this at BMO) and ask them to transfer your funds into the brokerage account. From there you simply “buy” the ETFs that you want. So say for example you had $100,000 transferred over to your brokerage account and you wanted to do the three-fund Canadian Couch Potato portfolio, you could do something like this:

      $25,000 in VAB (Canadian bonds)
      $25,000 in VCN (Canadian stocks)
      $50,000 in VXC (All World stocks, except for Canada)

      Hope that helps!

      • Gert on January 11, 2018 at 12:29 pm

        It does help, thanks Robb! I have somewhat more than the 100K, do you recommend moving everything? I ask because I wonder how my advisor might react and what might happen to my balance. The reason I’m considering a move is due to your reported gains. Last year my report showed gains of just under 5% and as I understand it I pay just under 2% management fees and I beleive that’s outside of TFSA mutual funds.
        You say “…except for Canada” why is that?

        • Echo on January 11, 2018 at 10:35 pm

          Hi Gert, I can’t say whether you should move everything over – that’s up to you. I will say this; a $500,000 portfolio at 2% MER will cost you $10,000 every single year. The Couch Potato portfolio will cost you less than 1/3 of that ($2500-$3000). Would you rather keep $7,000 per year for yourself?

          If you do move, do it because of the lower fees, not because you’re chasing gains that happened over the last three years. All we know going into the future is what your portfolio will cost – not what it will return. All the studies show that costs are the best predictor of future returns (the lower the cost, the higher the returns).

          Don’t worry about how your advisor will react – he or she should apologize to you for taking so much of your money while delivering so little in return. Send an email if you don’t feel comfortable talking on the phone. Or call someone at the discount brokerage and ask them to initiate the transfer.

          You say “…except for Canada” why is that?

          The ETF called VXC holds 10,000 stocks from around the globe, but excludes Canada. This ETF has your U.S. and international stocks. The ETF called VCN holds all Canadian stocks.

          • Gert on January 12, 2018 at 1:20 pm

            Thanks again Robb
            I’m going to look into opening a couch potato as you suggested. I assume I will likely be charged for transfer fees as well, correct?

  15. Mike Jeffries on January 11, 2018 at 10:12 am

    I think etf indexing is the way to go in the accumulating years. But when you are retired and without a pension it can get more challenging! Yes, one can sell the etfs to get income but that is difficult in a bear market that can last five years, although it’s true the average bear is <3 years.
    In retirement the focus should be a budget estimating required annual income for a realistic lifestyle. Then manage investments to give you that income and there are many ways of doing that with combinations of gov't pension + fixed income investing + dividend equities or indexing etfs. Personally, I've chosen to buy dividend equities to give me the added income I require. I don't need to keep researching companies since I don't have additional money to invest and I like the companies I own. The thing I don't like about index etfs is I hate owning companies I detest!

    • Doug Boraas on January 11, 2018 at 5:18 pm

      I’m doing the same as you Mike; have been retired for 5 years now and every thing is fine! Going to Mexico for two weeks next Tuesday! Went on a Baltic cruise last year and am enjoying grandchildren immensely!

  16. cannew on January 11, 2018 at 7:38 pm

    3 years is an extremely short time frame to get excited. Both of these funds have only been around for a few years, but if one looks at the 5 year charts for both the gains have only come form 2016 & 2017.

    Your concerns about holding dividend stocks (not dividend growth stocks) is understandable, as you seemed to want to hold them across all sectors, including cyclicals. We hold only 13 quality DG stocks in all accounts, never worry or watch price changes (we only record market prices at year end) and they have provided a consistent and growing income averaging 6.8% increase annually over a 10 year period. Price growth follows dividend growth eventually.

    Nothing wrong with going to etf’s, but lets see how they hold up during the next crisis.

    • Echo on January 11, 2018 at 8:13 pm

      @cannew – The age of the funds is not concerning (re: historic track record) as one could back-test the indexes to see how they would’ve performed had they been available to purchase.

      Nothing wrong with the Tom Connolly approach, either, although it’s not as diversified as I’d like and takes incredible patience and discipline to stick to for the long term. I didn’t have it, and that’s why I switched to something easier to manage.

      It would be rare to find an investor in his or her accumulation phase that could sit on the sidelines for years waiting for “better” valuations, but perhaps that’s why the strategy seems to be more popular with retirees. Patiently wait and collect the growing dividend income.

      • cannew on January 11, 2018 at 8:52 pm

        After years of spinning our wheels and panicking when prices dropped, I discovered Connolly. I read two sentences “If a company does not pay a dividend, don’t buy it. If they don’t grow their dividend don’t buy it either.”
        It seemed to simplify investing to something measurable, which we were unable to do in the past. We switched to DG investing, though we did chase yield to our loss, till we finally realized that the slow and steady growth of solid companies allowed us to achieve our goals. We’ve retired for over 10 years and our income has continued to grow, such that we only draw a portion of the income generated.
        As we had no pension, other than cpp/oas the Connolly route made it easy.
        It may not be for all, but I’m only one of many who owe our success to his advice.
        As for diversification, I’ve found that holding less than more is better.

  17. Joe B. on January 16, 2018 at 5:29 pm

    Hi, great article. I’m a diy investor and liked the illustrations showing your personal rate of return. I’m a diy investor and use heavily customized Excel spreadsheets for all my personal rate of return calculations.

    Do you use a tool or website to take your brokerage transaction history and calculate your personal rate of return?

    • Echo on January 16, 2018 at 11:02 pm

      Hi Joe B. – thanks! When I was picking stocks I used the personal rate of return spreadsheet that Justin Bender posts on his Canadian Portfolio Manager website (the modified Dietz method).

      Now that I have a simple two-ETF portfolio and TD WebBroker has upgraded its platform I just use the information they provide on my portfolio (all the charts are taken directly from my portfolio in WebBroker).

  18. Steve Oliver on January 16, 2018 at 6:28 pm

    This began as a good article but then the author does not clearly identify what index, what old portfolio, what new portfolio he is talking about for me to follow the story. I have read it twice, it is not clear.

    For example, his old portfolio seems to have done the I shares Dividend Aristocrats benchmark, so this suggests his old portfolio management is better.

    Would the author please have a colleague or someone else read his blog and provide feedback.

    • Echo on January 16, 2018 at 11:11 pm

      Hi Steve, sorry for the confusion. I sometimes forget that not everyone reading has been following along since I started the blog seven years ago.

      Short story: I started investing in dividend stocks in 2009 using the Dogs of the TSX approach (buying high yielding, beaten up stocks). That sort of evolved into buying dividend growth stocks (following the Tom Connolly approach). I built up a portfolio of 24 dividend stocks from Canada, but it became a pain to manage and to find where to put my new contributions.

      I started reading more research about passive investing and behavioural biases and began to see those biases in my own investing approach. I was making mistakes, but afraid to admit it.

      I started benchmarking to see how well I was performing as a stock picker and the one that made the most sense was iShares CDZ (it followed a rules-based methodology, whereas I used my judgement to determine which dividend stocks to invest in).

      By 2014 it was clear that my judgement was not adding any value to my investment returns, so I might as well just switch to passive indexing and take what the market gave me.

      I sold all the stocks, bought two ETFs, and here we are.

      Does that help fill the holes in the story?

      • rob on January 17, 2018 at 7:25 am

        I hear you about the Dogs of the TSX. I was doing the samething the problem is it’s really hard to rebalance as well as adding money. I did look at ETFs but I’m too much of a DIYer so took some profits to put into real estate here and the balance into high dividend REITs.

  19. Rob Schaaf on January 16, 2018 at 6:34 pm

    I’m not sure why you are benchmarking your portfolio to the S&P 500 when you hold an international fund that is only 54% invested the the US. By nature it is not possible for an index fund to outperform the index itself.

    • Echo on January 16, 2018 at 11:14 pm

      Hi Rob, I’m not really benchmarking to the S&P 500 – I just include it as a broad index to help see why my international holdings are up or down. If the S&P 500 is on fire, as it has been, then it stands to reason that VXC will be doing well (since it’s made up of 54% U.S. stocks).

  20. Joh G on January 16, 2018 at 8:27 pm

    I read your comparisons with interest and (perhaps) profit. I did not see a figure comparing the returns from your ETFs with the returns of the portfolio of dividend-paying stocks that you sold to buy the ETFs.

    I have a bundle of pretty blue-chip diversified dividend stocks, mainly Canadian. I do not watch them carefully – I let them sit and pay me, in general. I am retired, so I just need to keep the income coming in. I have a couple of ETFs as well, though, and am likely to increase their number.

    The harder decision is to go to fixed-income, in part because it is less income and in part because it is income taxed at a higher rate than Canadian dividends. Maybe a bond ETF will help.

    Anyway, thanks for the interactive discussion.

    • Echo on January 16, 2018 at 11:21 pm

      Hi JonG – yes it would be a much more difficult decision in retirement and with a non-registered portfolio to consider.

      I should have kept a shadow portfolio of my old Canadian dividend payers so I could continue tracking the returns year-over-year. Sadly I did not, so the best I can do is compare it to CDZ.

  21. Gert on January 17, 2018 at 8:26 am

    Well with all the talk about switching…index vs dividend I’m still feeling a little anxious.
    Last year my investment advisor reported to me gains, after fees, of just under 5%, I’ve mentioned this before and the feedback is I could do better. Reading others reporting averages of 12% makes me wonder.
    I plan on meeting with my advisor from BMO shortly and wonder, what are some tough questions I should be asking him?
    I love reading this blog but shamefully feel well out of my comfort since I’ve never paid attention to the money I’ve put away. Now that I’m 55 and retired it concerns me to know if I’ll be okay and what my steps moving forward should be.

    • boomer on January 17, 2018 at 5:55 pm

      Hi Gert. I recently corresponded with a lady in Alberta (also in her 50’s) who wanted to switch to an ETF portfolio and she admitted she was very nervous about doing so. She was dealing with BMO so she opened an Investorline RRSP account, transferred everything to there in cash and purchased 3 ETFs – bond, Canadian, and global. Investorline reimbursed the transfer fee and helped her a bit with the ETF purchases (online agents are very helpful), but she did say it was a lot easier than she thought it would be. Her only complaint was the length of time it took to do the actual transfer – you need some patience. So, Gert, I hope this assures you a bit.

  22. John Vladimir on January 17, 2018 at 11:51 am

    Sounds great for individual investors… there is a theory out there tho’, that passive investing adds inefficiency to markets 🙂

  23. Phil on January 17, 2018 at 3:09 pm

    Hi, I am interested in how you made the switch? Can I get a link to the article that you described your switch to indexing?

    I am a dividend investor, but I beleive I would like the passive approach.

  24. Joseph_Albert on January 19, 2018 at 4:18 pm

    Very interesting! Yet, I’m still confused about a few things. My companion and I just retired at 65, no company pensions. We took CPP and OAS. We have a bit more than $1.1M in taxable, RRSP, TFSA and LIF accounts.

    Today, your 3-ETF portfolio yields:
    VXC – 1.61% VCN – 2.24% VAB 2.71% (avg a bit more then 2%, not counting MER.)

    1) Let’s say we need $50K a year, that would represent at least a $2.5M dollar portfolio just to achieve that with 3 ETFs. Not taking into account income tax, otherwise we would need about $3M to achieve the same goal. How to make it up using what we have in our “simple” portfolio?

    2) Let’s say we have 20 div. stocks with an avg yield of about 4%. Then, how can a 3-ETF portfolio (averaging 2%) generate as much yield as those dividend stocks?

    3) “Bucket-wise” how to deal with multiple accounts? And how to keep a 60/40 balance (stocks/Fixed income) with multiple accounts?

    Sorry for that many questions, but they have been on our mind for many years. Their answers will help us decide how and when to switch to an all ETF portfolio.

    You have one of the most interesting Canadian financial blog around! Keep it up!

    • Dividend Earner on January 19, 2018 at 11:10 pm

      @Joseph_Albert you have very good questions. Point 1 & 2 are related. Your thinking is to use the income to pay for retirement without withdrawal and while that’s a noble goal, often times, withdrawal is expected. That’s why the 4% withdrawal rule was established long ago as an estimate to ensure your money will outlive you.

      Next, while you focus only on yield for income, index or stock will have appreciation which is included in the 4% withdrawal strategy. While an index may have a 2% yield, it may have had an 8% increase which is a total of 10% return. You are 6% ahead overall even if you needed to withdraw 2%.

      This leads to point 3), fixed income is used to avoid market fluctuations in withdrawal and it also means you lose the market appreciation. If your fixed income doesn’t produce more than your withdrawal rate, you need to make up for it elsewhere. That’s where the ratios of 60/40 have been established. Find your ratio.

      The decision to switch between dividend or index should not be about yield but the overall performance of your picks. Look at your portfolio as one big bank vault and if it can keep up with your withdrawals year after year from a total value. You need to consider the multiple bucket strategy to have this year in cash and possibly the next year so that you are not forced to withdraw at a bad time. That’s where the bond ladder strategy can be used for rolling cash access year after year.

      Overall, your retirement funding seems to be based on income from your portfolio and a switch to indexing changes your withdrawal model since you discovered that the yield isn’t enough. The thinking on funding retirement changes.

      Hope that helps.

      • John G on February 2, 2018 at 2:57 pm

        The short version of the response (which is basically right, it seems to me) is that the index may produce a total return (dividends + capital gains) equivalent to the dividend return on selected stocks (which themselves may have capital gains too.)

        So one has to decide which is safest: an index that averages out the market, or one’s own selection. And ETFs may be chosen that focus on ‘dividend aristocrats’ etc, so as to try to increase the income part of the holding.

        I have a follow-up question about keeping laddered bonds to pay out cash requirements for a couple of years if the stock market crashes, so one does not need to sell stocks at their low prices just to live. Are these actual bonds, rather than a bond index? Because bond indexes go up and down too, and with an index, one never gets one’s principal back – unlike buying the bonds themselves, which pay interest over their lifetime then return the principal. With a bond ETF or fund, one gets the current price of that asset, which may be less than the principal that one bought it with.

        Too bad to need cash to live when one’s stocks are down, only to find the bonds are down too (because interest rates have gone up).

        If the bond index produces enough income to live off for a year or two, that’s different – but that would require a lot of bonds, as the original question pointed out.

        Bonds are a good way to preserve capital (if their return is more than the rate of inflation), but maybe bond indexes or bond funds are not.

  25. Barbara on January 30, 2018 at 12:39 am

    I have a Questrade account with ETF’s mainly $57,000 & a TD E-Series account $28,000. An RRSP that was DCPension related @ Sunlife $17,500 that will be moving out & over to ETF’s. An RRSP Lira sitting waiting to be invested $90,000 & cash from inheritance waiting to top up my TFSA $49,000 & last bit of RRSP room $9083. I was going to move it all to Questrade (no fees on ETF’s) & simplify my portfolio to
    2-4 ETF’s. I was looking at VCE, VUS, VEF & VAB with a combined MER of .1375
    I’m not crazy about the weighted % recommended for each for my age group, 57 but like the 2 ETF’s also that you hold without any bond fund. I don’t want to drag down the returns on my portfolio
    with 40% in VAB. I may hold 20% max & split the other 80% between 2 funds. Do you recommend VXC over VUS/VEF & VCN over VCE & if so, why?
    Also do you recommend Itrade or TD Direct investing over Questrade ?

  26. Phil on February 2, 2018 at 10:16 am

    Quick question… In an ETF when a company increases the dividends do you get the increase as an ETF holder? For example if BMo increases their divided does the ETF dividend go up by whatever fraction it owns in BMO?

    • John G on February 2, 2018 at 11:16 am

      My understanding of an ETF of dividend funds (or any equities) is that the income from those stocks goes through to the unit holders in proportion to their holdings. The manager of the ETF gets its usual percentage management fund, but the MER does not increase because dividends increase. Of course .06 of a larger number is a larger number. I presume the MER is applied to the market value of the equities held, and not to the cash flow. The market value may increase because the company has raised its dividend, but it’s not a direct or proportionate result.

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