Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs is a new book written by Canadian Couch Potato blogger and PWL Capital portfolio manager Dan Bortolotti.
Simply put, this book is the definitive guide to building an index investing portfolio today, brought to you by the author who is synonymous with this low cost, passive investing approach.
If you’re new to index investing, Reboot Your Portfolio takes you through everything you need to know from the research on active versus passive investing, the difference between ‘average’ returns and ‘market’ returns, how to pick an appropriate asset mix, which investments to avoid, how to avoid analysis paralysis, and how to select the right ETFs to meet your goals.
You’ll also learn about more tactical strategies, like how to choose the right discount broker (or robo advisor), how to transfer your existing accounts, tricks of the trade on how to place an order, use DRIPs, when it makes sense to use US-listed ETFs, and whether to adopt a ‘smart-beta’ approach to your indexing strategy.
One of the challenges of writing specifically about how to invest in ETFs is naming the specific funds to use to build the portfolio. New products are constantly coming to market (or closing shop), costs change, and so a newly published guide can quickly become stale.
Dan deftly avoids talking about specific ETFs throughout the book by emphasizing process over products. In fact, selecting your ETFs doesn’t even come up until step 5, after setting your financial goals, identifying your savings rate, finding the right asset mix between stocks and bonds, and determining an appropriate geographical representation for your portfolio.
I like this approach because there’s so much more to investing than saving 0.04% MER by picking this fund over that one. The book offers a complete roadmap to becoming a successful index investor with ETFs.
Yes, product selection is important and Dan explains how to pick the right ETF(s), but the principles of keeping costs low, diversifying broadly, staying within your risk tolerance, and tuning out the noise is ultimately what matters more.
Dan started blogging around the same time I did (2010) and his writing was a huge influence on my own investing journey. I was a stock picker for many years, if you recall, focusing on Canadian dividend payers. Dan’s excellent writing, not just around the merits of index investing but also on busting dividend myths, helped me eventually switch to an indexing strategy and I haven’t looked back.
I think I would have switched sooner if the ETF product landscape was as evolved as it is today. Dan’s Couch Potato model portfolios often contained 7-10 individual ETFs, which I thought (and still think) was far too complicated for a supposedly lazy portfolio.
Today, index investors can build a low cost, globally diversified, and risk appropriate portfolio with just a single ETF.
Related: Exactly How I Invest My Own Money
The book isn’t just for index investing newbies. There’s something for everyone. I love the analogies Dan uses throughout the book and I’ll share some of my favourite ones that I plan on incorporating into my conversations with clients.
On risk tolerance:
You may have been asked to consider scenarios such as: “If your fund dropped in value by 10% in one year, would you sell, buy more, or do nothing?”
Dan says such hypothetical scenarios can only tell you so much. “It’s like being asked, how long could you keep your arm in a bucket of ice water before the pain caused you to remove it?” Could you really make a useful estimate?
He says unless you have experience submerging your limbs into freezing liquids, you can only guess. In the same way, no investor truly knows his pain threshold until he’s watched his portfolio get ravaged.
On home country bias:
Some investors argue that Canada’s market is too small to justify an equal share alongside the US and overseas markets. But Dan says there are good arguments for over-weighting Canadian equities that have nothing to do with patriotism.
A 2014 Vanguard paper found that the least volatile equity portfolios (for Canadian investors) contained between 20% and 40% Canadian stocks.
Ironically, this Vanguard report was actually designed to encourage investors to hold a smaller share of Canadian equities, not a larger one. Their data suggested the average Canadian investor held about 60% of their equities in domestic stocks.
On investing a lump sum:
Investors may feel paralyzed by the thought of investing a large lump sum: “What if I invest it all today and the market drops 5% next week? I’m going to feel like an idiot.”
Dan says this decision might be easier if you reframe it. Imagine you received a $200,000 cash inheritance and you’re nervous about investing it because you feel stocks are overvalued and bonds will suffer if interest rates rise. Should you hold onto the cash until it feels right to invest?
“Now flip the question around and imagine you instead inherited a $200,000 portfolio of stocks and bonds. Would you immediately sell everything and sit on the cash? This is exactly the same decision presented in two different ways, yet most people would likely answer yes to the first and no to the second. If you wouldn’t be willing to sell your inherited stocks and bonds, then you shouldn’t be reluctant to invest your cash.”
In Reboot Your Portfolio Dan shows exactly why he’s an award winning journalist and has a cult-like following online. This book is a must read if you’re curious about index investing, looking to take the plunge into ETFs, or even if you’re already a dedicated indexer.
Dan was generous enough to offer Boomer & Echo readers a chance to win a free copy of Reboot Your Portfolio. Just leave a comment below and let me know what type of investor you are (bank managed mutual funds, robo advisor, individual stocks, ETFs, or some hybrid approach).
I’ll leave the contest open until Friday November 12th at 5 p.m. EST and then announce the winner in the next edition of Weekend Reading.
More from Dan Bortolotti:
Dan returns to MoneySense to share how overcome investing FOMO.
Preet Banerjee interviews Dan (the godfather of index investing in Canada) on the Mostly Money podcast.
Promo of the Week:
My friend and travel expert Barry Choi has released a beginner’s guide to travel hacking for lazy people.
Barry’s tips have directly improved my own travel hacking techniques and allowed me to save thousands of dollars on flights and hotels, not to mention levelling up my game to be able to book business class tickets and other luxury perks.
This 10-part guide (or full e-book) teaches you everything you need to do to maximize your credit card rewards (earning) and maximizing the redemption of these rewards (burning).
Speaking of travel hacking, here’s a free tip from our partners at Credit Card Genius – the best bonus value EVER from RBC Avion Visa Infinite card.
Earlier this week I offered a sensible RRSP versus TFSA comparison.
On Young & Thrifty I shared the smart and lazy millennial’s approach to investing using all-in-one ETFs.
Robin Wigglesworth says it’s time to relearn lessons about the power of passive investing.
Rob Carrick shares six things a brutally honest banker would tell you about mortgages, HELOCs, and market-linked GICs:
“The problem with Financial Literacy Month is that it allows the conversation about smart money habits to be co-opted by the very companies that effectively force us to raise our financial literacy game. Mostly, the big banks.”
Global’s Erica Alini interviews Ben Felix and Bridget Casey about how to protect your savings from inflation.
Millionaire Teacher Andrew Hallam calls crypto investing the world’s largest behavioural experiment.
Of Dollars and Data blogger Nick Maggiulli discusses the fear and loathing in cryptoland.
Here’s Ben Felix explaining how to decide between renting and buying a home:
Fee-only planner Jason Heath walks through how to draw money out of your corporation in retirement.
Finally, here’s Rick Steves on the return of travel and why it matters.
Enjoy the rest of your weekend, everyone! Don’t forget to leave a comment for a chance to win a copy of Reboot Your Portfolio.