My Own Investing Multiverse Of Madness

My Own Investing Multiverse Of Madness

A counterfactual is when we create possible alternatives to events that have already occurred – something contrary to what actually happened. We do this all the time. “If only I had set my alarm, I wouldn’t have been late.” “If only I hadn’t been speeding, I wouldn’t have wrecked my car.”

We also use counterfactual thinking with our investing decisions. “If only I had put $10,000 in the Amazon IPO.” “If only I would have cashed out before the market downturn.”

Counterfactuals can be both negative and positive. “If I didn’t invest that lump sum in April 2020 I wouldn’t have as much money today.”

I made a big investing decision in January 2015 when I sold all my dividend stocks and switched to total market indexing. Sometimes I think about the counterfactuals – what would have happened if I made a different choice?

Related: Exactly How I Invest My Own Money

I could have stayed the course and stuck with my dividend paying stocks. I could have sold the stocks and bought a dividend ETF. I could have gone all-in on the Canadian, US, or international markets. I could have turned into a gold-bug and invested in gold ETFs (or buried it in my backyard!). I could have followed the five-factor investing model.

I thought it would be interesting to run a simulation, an investing multiverse of madness, that showed what my returns would have been if I made different investing choices with my $100,000 back in 2015.

I sought out help from Markus Muhs, a Senior Portfolio Manager at Canaccord Genuity Wealth Management, to pull together the return data and fancy charts to make this multiverse come to life. Markus also shared his thoughts on the various investing approaches and outcomes.

Robb’s Investing Multiverse of Madness

To set the scene, we started with a $100,000 portfolio on January 1st, 2015. That is approximately when, in real life, I sold 24 Canadian dividend stocks and put the proceeds into 25% VCN (Canadian equities) and 75% VXC (international equities). Then, on March 4, 2019, I sold VCN and VXC and bought Vanguard’s All Equity ETF, VEQT (which I still hold today).

In the multiverse, infinite variants of Robb could have made an infinite number of investing decisions from January 1st, 2015, to July 31st, 2022 (the date of our sample).

Markus and I looked at the following examples:

  • Real life Robb’s returns using VCN/VXC to March 2019 and then VEQT to present
  • Robb’s returns had he stuck with his portfolio of Canadian dividend paying stocks
  • Robb’s returns had he sold the dividend stocks and bought iShares’ CDZ (his benchmark index)
  • Robb’s returns had he sold the dividend stocks and bought the global dividend ETF trio of ZDV, ZDY, and ZDI
  • Robb’s returns had he sold his stocks and invested in global equities, ex Canada (VXC)
  • Robb’s returns had he sold his stocks and sunk everything into the S&P 500 (VFV)
  • Robb’s returns had he sold his stocks and invested in French-Fama factor-based global equity portfolio (from DFA)
  • Robb’s returns if he sold his stocks and bought iShares’ Gold Bullion ETF (GLD)

“I ran back tests on Robb’s previous strategy of owning a basket of Canadian dividend stocks, the ETF strategy he shifted to in 2015, and then various other assets he could have potentially pivoted towards instead. These back tests were done using Y-Charts’ portfolio modeller, which allowed me to periodically rebalance his hypothetical dividend portfolio and make the change in March 2019 to his ETF portfolio. Various other asset classes were also charted, measuring total returns from Dec 31, 2014 to July 31, 2022.” – Markus Muhs.

*Note that all return data is gross and excludes any trading commissions or fees.

Which variant of Robb had the best returns over the past 7.5 years? Read on to find out.

Robb’s Investing Decision #1: Total Market Indexing

For the first scenario – my real-life scenario, Markus ran an ETF back test to recreate almost exactly what I did: moving all of my money into 25% VCN (Vanguard FTSE Canada All Cap), and 75% into VXC (Vanguard FTSE Global All Cap ex Canada), with annual rebalancing, until March 4, 2019, when I swapped into the more convenient all-in-one ETF portfolio, VEQT (Vanguard All Equity Portfolio), when it became available.

In this scenario $100,000 grew to $186,930; a compound annual growth rate of around 8.5%.

Robb’s Investing Decision #2: Canadian Dividend Stocks

This is my most common counterfactual – what if I had stayed in Canadian dividend stocks? How would my portfolio have performed?

Unfortunately, a few of my stocks became defunct in the years after 2015, so it was not easy for Markus to back test this perfectly. That included the merger of Agrium and Potash – both of which I held in 2015. We added CDZ as a place holder for the defunct stocks, and to round out the total number to an even 20 (with 5% allocated to each).

We also assumed that this variant of Robb didn’t continue to own Canadian Oil Sands past Jan 1st, 2015 (combining that money with its acquirer, Suncor).

“It’s not perfectly scientific, but let’s say theoretically this is what Robb did. One would assume he may have been more active in selling some companies and adding new ones from time to time, but in this back test I have him equal-balancing the stocks at the beginning of each year and reinvesting all dividends,” said Markus.

In this, “stay the course with Canadian dividend stocks” scenario, the initial $100,000 would have grown to $176,880; a compound annual growth rate of just under 8%.

Indexing versus Dividend Stocks: The Comparison

The overall performance ended up being similar between the two strategies. Since we couldn’t perfectly simulate the dividend stock scenario, we agreed that it wouldn’t be fair to declare the ETF strategy an absolute winner.

“What’s remarkable, though, is how little effort the ETF strategy likely took on Robb’s part, versus researching, following, and rebalancing the dividend strategy,” said Markus, adding “the global vs Canada outperformance is quite obvious for the first six years, while the out-performance of Canadian value companies more recently closed the gap.”

Robb's ETFs vs Robb's dividend stocks

Markus said that while the dividend strategy consistently churned out a high yield, an important metric to a lot of investors, this would have been of no value to Robb in his accumulation years and might just have added to the time he put into the portfolio.

The other variants of Robb in the multiverse did as well as we could have expected, in hindsight.

Robb’s Investing Decision #3: iShares’ CDZ

This variant of Robb still really liked Canadian dividend stocks, but also didn’t want to deal with managing a portfolio of 25+ stocks.

He chose the iShares’ S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ) which returned 6.02% annually.

This was obviously a smarter and easier solution to manage than the stock portfolio, however in both cases it can’t be guaranteed that Canadian dividend stocks will consistently perform as well as they did over this short time period.

Robb’s initial $100,000 investment grew to $155,730.

Robb’s Investing Decision #4: Global Dividend ETFs

Another variant of Robb similarly like dividends but recognized the value of being globally diversified.

He divided the money equally between three BMO dividend ETFs (Canadian, International, and U.S.).

This strategy underperformed, at a compound annual growth rate of 6.9%, due to weak international equity returns (close to 0% over the time period) and missing out on the biggest drivers of returns during that time: large cap U.S. growth stocks.

Robb’s initial $100,000 investment grew to $166,570.

Robb’s Investing Decision #5: Vanguard’s VXC

This variant of Robb went with the simplest solution available in 2015 and stuck with it.

With VEQT not yet available, and not wanting to bother rebalancing two individual ETFs, Robb put everything into Vanguard’s All World ex Canada ETF (VXC) and didn’t look back.

Canadian stocks underperformed during this time period, so this approach would have returned an impressive 9.0% compound annual growth rate between Jan 2015 and July 31, 2022.

Robb’s initial $100,000 investment grew to $191,750.

Robb’s Investing Decision #6: The S&P 500

The variant of Robb who put all his money into the S&P500 via Vanguard’s VFV, eschewing all Canadian and international equity investments, would have seen the best performance of all strategies in the investing multiverse of madness.

Robb’s initial $100,000 would have grown to more than $247,700; a whopping 12.7% compound annual growth rate.

“Obviously, we know in hindsight that the U.S. markets outperformed Canadian, international, and emerging market stocks by a wide margin over the time period, but it would have been impossible to predict this ahead of time,” said Markus.

Robb’s Investing Decision #7: Five-Factor Global Equities

In another universe of the multiverse Robb employed a diversified French-Fama factor-based approach.

Markus said that although the fund wouldn’t have been available to him as an individual investor (nor were similar multi-factor ETFs at the time), he used the Dimensional Fund Advisors (DFA) Global Equity Portfolio in the comparison.

This approach would have also underperformed, slightly, at 7.61% annually, as market returns over the past seven years were largely driven by the large cap growth stocks that are underweighted in such an approach (which tilts to small cap and value stocks).

Robb’s initial $100,000 grew to $174,400.

Robb’s Investing Decision #8: Gold

In the final universe, Robb is a gold bug and simply dumped all his money into the iShares Gold Bullion ETF (CGL). Gold bug Robb ended up with the worst outcome, at an annual growth rate of 4.18%.

This grew his original $100,000 portfolio from $100,000 to $136,400.

Comparing the Investing Multiverse Outcomes

It was clear that the variant of Robb who invested his entire $100,000 portfolio into the S&P 500 enjoyed the best outcome in the multiverse.

And the variant of Robb who fell down conspiracy theory rabbit holes and invested his $100,000 in gold had the worst outcome.

Investment returns of various ETF strategies

We also know, with the power of hindsight, that it was US stocks – large cap US growth stocks in particular, led by Apple, Amazon, Alphabet, etc. – that drove the majority of returns since 2015.

It’s important to understand why a particular strategy might have underperformed, or outperformed. If US stocks led the way, that means on balance an approach that was overweight to US stocks would have likely had a more positive outcome than an approach that was underweight US stocks.

Final Thoughts

It’s interesting to think about counterfactuals – how a scenario might have played out if you had made different choices. But you can easily make yourself sick with regret over missed opportunities.

We should strive to make the best decisions we can with the information we have available. But life is surprising, and so we shouldn’t be surprised when we get a different outcome than we were expecting.

In my case, the overwhelming evidence convinced me to abandon my individual stock picking and switch to index funds. My second, but equally important goal was to simplify my life and reduce the time spent on my investment portfolio. A one-fund solution that automatically rebalances requires exactly zero effort to manage.

The investing multiverse was a fun thought experiment on how my big investing decision could have led to a wide range of different outcomes.

My portfolio performed third-best out of these particular options.

Do I wish I had invested all my money into the S&P 500? Not really. I know that certain sectors, countries, and regions will have their ups and downs over time. US stocks may have a long period of underperformance, in which case I would regret not diversifying. 

Markus Muhs, CFP, CIM is based in Edmonton and works with families in Alberta, B.C. and Ontario, providing comprehensive financial planning and managing their wealth through a low-cost evidence-based approach.

The above is for general information only and does not constitute investment advice. Any opinions are those of the author/contributor and do not represent those of Canaccord Genuity Corp. All information included herein has been compiled from sources believed to be reliable as of the date of the article. Investing in equities, mutual funds and ETFs is not guaranteed, values change frequently, and past performance is not an indicator of future performance.
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  1. My Own Advisor on September 1, 2022 at 10:16 am

    20/20 is always helpful!

    “It was clear that the variant of Robb who invested his entire $100,000 portfolio into the S&P 500 enjoyed the best outcome in the multiverse.”

    We do not live in any rearview mirror, ever.

    Good concepts to share, Robb.

    Hope the house building process is going well!


  2. Senior on September 1, 2022 at 11:10 am

    This was fascinating, thanks Robb, and Markus.

  3. James R on September 1, 2022 at 4:26 pm

    I too have (often) reflected on one massively critical error I made in 2015 which was selling about 1900 shares of constellation because my advisor thought it was already over priced.

    Worse than that though I invested the proceeds with extreme recklessness. So many regrets, and so many lessons learned. Today I’m pretty much all a blue chip portfolio, with a couple of modest exceptions that have done okay.

    When I get the itch to sell my core holdings I look back at the 2015 version of my spreadsheet and realize holding is my best decision.

  4. Brad H on September 1, 2022 at 4:43 pm

    1900 shares of csu!!! OMG

    • James R on September 2, 2022 at 6:25 am

      I know …

  5. Julie on September 2, 2022 at 6:43 am

    This is fascinating! Thank you 🙂

  6. Brad H on September 2, 2022 at 7:30 am

    James, At least you are learning from it, that’s the important thing. The stock market is full of regret. I only have 40 shares, wish I had more, but diversification is best. Great stock but always considered too expensive. FSV is another one.

    • James R on September 2, 2022 at 7:53 am

      Thanks Brad….once in a while I multiply X * Y and realize I could have long ago retired. I have way over-simplified the scenario in my comment above – but as a former employee of CSU I did earn those shares over several years (I didn’t sell them at once, but I may as well have).

      The original intent was to diversify, and it started out on the right foot with a bunch of ETFs and blue chip dividend payers but very quickly degenerated into the next pump stock on BNN. I did not have the discipline to hold my recently purchased stocks in the first 8 months of 2015. Had I stuck with my original plan of diversification I might not yet be retired, but I’d be in a much better position today. I expect to retire reasonably comfortably in about five years, at age 60.

      I try not to dwell on the mistakes, but also to not forget!

      Just a shout out to Rob, who’s writing I really enjoy, and this one in particular hit home to remind me of how to stay the course.

      • Brad H on September 2, 2022 at 8:10 am

        My biggest regret was selling 200 shares of SHOP (pre split) at $145 after a double, thought I was smart……not so much. That one would have been life changing. Oh well. I would have never held to the ath of $2,000 so I can’t get too upset. Cheers.

  7. Nicole on September 3, 2022 at 9:00 am

    Thank you to those of you willing to share your regrets and lessons. I have recent regret selling all my vested company options at once near my target price due to disengagement and desire to reduce the shackles, and a looming fiscal year end blackout period where things could go many ways. In the end Russia invaded Ukraine and I missed out on the commodity run, over $150k after tax had I not let my emotions get the best of me.

    Not a life changing mistake… but perhaps a life changing lesson. I realized I had become over confident in my system. I realized I had let my work situation cloud my decision making. I was reminded of my propensity for risk aversion and the need to be more measured in decision making when emotions are at play. I was reminded index investing remains the best fit for me.

    I needed this lesson at this stage of my investing journey. I suspect it will serve me well in the long run.

  8. Bob S on September 3, 2022 at 8:01 pm

    I bought Apple at a split adjusted price of $1.38 back in 2005 and sold a few months later for a small profit. Recent close at $158, so more than a 100-fold increase.
    The proceeds of that sale were invested elsewhere, which did generate some returns, though not as great as if I had Diamond-Hands.
    Ah well, live and learn.

  9. Bob Wen on September 9, 2022 at 5:11 pm

    An immensely interesting analysis.

    I was going to do the same analysis from when I switched from dividend stocks to index ETFs. Now I don’t need too. Thank you.

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