Stay on the couch...do nothing till you retire.

 

Thanks for the reply, however, I was looking for a better explanation as to why my strategy is ideal or not.

 

http://www.taxtips.ca/stocksandbonds/investmentreturns.htm

Try here...if you are investing for retirement don't damage returns by churning. Also if you are using a mutual fund for indexing reread the Couch Potato website. Hope that helps.

This will explain
http://www.taxtips.ca/stocksandbonds/recommendedstocks.htm

 

You are trying to time the market.

Stay the course: strategic asset allocation

A key reason for devising an asset allocation strategy is to help an investor reduce the risk inherent in volatile equity asset classes that are expected to provide higher returns by combining these asset classes with more stable fixed-income assets. These balanced portfolios help reduce volatility and down-side risk, thus better enabling an investor to maintain a long term investment program (stay the course) without panic selling during bear markets.

For most investors, the hardest part is not figuring out the optimal investment policy; it is staying committed to sound investment policy through bull and bear markets and maintaining what Disraeli called "constancy to purpose." Sustaining a long-term focus at market highs or market lows is notoriously difficult. At either market extreme, emotions are strongest when current market action appears most demanding of change and the apparent "facts" seem most compelling.

Create an Investment Policy Statement and stick to it.

Drawbacks of not using an IPS

Someone who doesn't have a written policy often bases decisions on day-to-day events, which often leads to chasing short-term performance that may hinder them in reaching long-term goals. Having a policy encourages maintaining focus on the long-term nature of the investment process, especially during turbulent or exuberant times.

That last quote pretty much describes what you are proposing and why it is not a good idea. If you are really concerned about drawdowns of your portfolio due to an overvalued market you should rebalance. If you are concerned about volatility in your portfolio you should consider changing your strategic asset allocation to something with more fixed income.

 

You are trying to time the market.

Yeah. Trying to time the market goes against the CP strategy.

... but I was a modified couch potato exclusively until 2012. When I was a couch potato, I used to adjust the bond portion of the portfolio with a formula tied to the Buffett indicator. It wasn't all that profitable but I think I made a little more than I might have otherwise.

One of the problems with adjusting the bond ratio is that bond ETFs go to crap when everyone sells them. In other words, they don't behave like bonds. They can go down and stay down forever, unlike bonds which can eventually be sold at the original face value plus interest.

I still have indicators to track the relative market valuation. These days, I use this to adjust cash. I never sell anything and didn't when I was a CP either, but I am always adding cash and I like to have as bit more cash around when the markets seem to be peaking.

So, should you sell and realize some gains... I haven't a clue.

 

^+1 to GreatLaker. Very sound advice. The very best returns an investor can make is 'time in the market'. not 'timing the market'. If the OP truly has a Couch Potato portfolio that contains an asset allocation across the 3 asset classes (or what I prefer to call 2 cleasses of equities and fixed income), then 'time in the market' over the course of 10-20-30 years will be the soundest principle there is. Annual, or bi-annual re-balancing to bring one's asset allocation back into what one's IPS says is also sound policy to avoid excessive exposure to one asset class, but that can be solved by simply adding new money to the underpeforming asset class, e.g. likely GICs/bonds/bond ETF at the current time.

Generally a young investor should be more heavily weighted to equities in the first decade or two because while equities have more risk and/or volatility, they will tend to outperform fixed income for those precise reasons. It is only if an investor has considerable trouble sleeping at night over the equity weighting of their portfolio should they consider re-assessing the equity percentage of their portfolio downward. But whatever the case, it is absolutely critical for an investor to think longer term and forget about short term (1-5 year) noise.

 

Now that is what I call some great feedback!

Thank you all for everyone's advice. Being new to this type of investing I did not want to deviate from the plan unless there appeared to be a good reason. The posts here solidify this wait and grow plan and I agree that sticking to it is prudent.

 

... The posts here solidify this wait and grow plan and I agree that sticking to it is prudent.

Good to hear. You are in a CCP of diversified low-cost etfs precisely so you don't have to second guess the markets.

Realize that you are very likely to have some periods (especially early on) when the value of your account dips below cost. It will recover and it will grow with time if you leave it alone. Similar to now, DO NOT be tempted to sell at a loss and get into something 'safe'. Continue to contribute and add to/rebalance (also not trying to wait for a 'correction') and - IMO - DRIP the etfs so that no money sits idle.

You should find that once your account has grown a few thousand, 10's or eventually 100's of thousands over cost, that daily gains or losses of thousands or even 10's of thousands are just static in a long slow upward growth in value.

 

Incidently, ginn7 hasn't described the investments in their RRSP but I'm assuming a coach potato is pretty well identical to a Canadian couch potato (maybe with wheels added?) :tickled_pink:

 

This right here is why the average investor under performs the market.

Step 1) Make a plan.
Step 2) Don't follow that plan.
Step 3) Blame the plan.

If you want to time the market by all means go ahead, there are some people who have strategies to do it and can supposedly do well at it. But if your goal is to be a long term couch potato investor you shouldn't be pulling your gains out into something safer. You should be reinvesting them to gain the compounding effect which is what makes investing so powerful to begin with.

Now if you're portfolio is balanced in a way that you don't have enough of your money in cash, then you should definitely re-balance to the right allocation. But it shouldn't be done on a blind guess if you think the market is going to go up or down.

 

... My reasoning is that the guaranteed initial investment in the GIC would mean the money is safe from any market corrections and down-ticks. Additionally, if the GIC is attached to an index/security it may perform very well. Either way the principal is safer...

I forgot to add earlier that your comment here appears to be describing a market-linked GIC (they go by various names). You DO NOT want to put your money into these.
They have been discussed extensively in other threads (search market-linked gic). In short, they are a bank product designed to give you a sense of capital security with potential market upside. But the fine print makes it clear that the vast majority of times you will come out worse off than even a simple GIC, and the bank will capture most upside. They are designed to the bank's benefit - not yours. No surprise there.

 

Hello,

would it be wise to sell the Index mutual funds

Mutual should not be in the same sentence as Index.

 

The well-known TD e-series index funds are a mutual fund. TD compares them to index(?) etfs here:
https://www.td.com/ca/products-services/investing/td-direct-investing/investment-types/mutual-funds/index-investing.jsp

 

I was trying to point out (unsuccessfully) that indexes should be followed using ultra low MER ETF's. The TD fund you linked seems not bad at .33% with no trading fees...would suit many new investors. I guess I like to shoot first too often lol.

 

It is a good point. There are so few really low-cost index mutual funds in Canada. TD eSeries are the main exception, and even they have MERs that are several times higher than ETFs when following similar indices.

In the US Vanguard offers very low-cost mutual funds, and some of their Admiral shares of mutual funds have the same MER as their ETFs.

 

If the OP is looking for a more conservative portfolio, then I'd suggest leaving the existing holdings and adding more ZAG: BMO Aggregate Bond Index ETF. (MER 0.12%)

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf