Canadian Money Forum banner

1 - 9 of 9 Posts

·
Registered
Joined
·
53 Posts
Discussion Starter #1 (Edited)
All right, I'm very confused as to what ETFs I need to choose for my portfolio and would really like to start a fruitful discussion on several opposing concepts. I'm trying to clear the following concepts in my head.

1. Investing into a market-wide ETF (S&P) vs dividend paying ETF.

Is it worth investing into companies that do not pay dividends? Many companies in the market-wide ETFs don't pay dividends. In Google Finance, if one compares August 9, 1999 vs the present day, Royal Bank has grown by 199% while S&P TSX by 82%, and these figures don't include the 2+% difference in dividends between Royal Bank stock and S&P TSX. Yes, 10 years is not necessarily indicative of the long term trends but not everybody can plan 30+ years ahead.

In practical terms, is it really worth for an individual investor to put money in anything other than XDV + CDZ? If anybody wants to speculate then that person can buy technology/gold/energy ETFs to play around with.

2. S&P 500 vs total stock market ETFs (VTI - 3000 companies). Does it really make a difference?

I'm reading Graham's Intelligent Investor and it's stated there that although S&P 500 outpaced the DOW index in certain decades in the long run they are virtually identical. I've just checked S&P 500 vs VTI over the past 10 years and, yes, they are practically the same.

Even if a smaller cap stock in VTI does grow significantly will the growth make any significant change in VTI given it just one out of 3000 companies?

3. Investing into CAD-hedged funds vs unhedged US funds.
Does it really make sense for a small investor to deal with unhedged funds? If a person has $300-500 dollars a week to invest then the conversion rate is going to be significant drag on the investor's contributions. The only real advantage of US ETFs that I can see is their expense ratios and liquidity, but that's a different argument.

4. Investing into capped ETFs vs non-capped ETFs.

XIC is a capped ETF, but Royal Bank and other banks are still quite overweight in that ETF: 6% weight. XIU and XIC are almost identical in terms of total gain over the last 10 years.


In summary, I will need to make one of the choices below:

Choice 1 (I love the simplicity of this one)
iShares S&P/TSX Capped Composite (XIC)

Choice 2
S&P/TSX 60 Index Fund (XUI) + iShares S&P TSX Completion (XMD)

Choice 3 (I don't quite understand the difference between XMD and XCS)
Inspired by http://canadiancouchpotato.com/model-portfolios/.
iShares Canadian Fundamental (CRQ)
iShares S&P/TSX SmallCap (XCS)

Choice 4
iShares S&P/TSX Cdn Div Aristocrats (CDZ)
Shares DJ Canada Select Dividend (XDV)

Note: for all my comparisons between indexes and ETFs I've used Google Finance, which has data since 1999.
 

·
Registered
Joined
·
258 Posts
I have been comparatively charting individual companies that I hold in my portfolio against some of the ETFs you have listed here and it seems to me owning individuals knocks couch potato out of the park.
The best return I could find for the ETF's listed here is XMD at 93.2% gains for a ten year period. That's pretty good.
But what about just selecting the cream of the crop and leaving all the garbage behind?
These are the securities I hold in my permanent portfolio and there 10 year performance.
MCD 290%
PAAS 163%
RY 101%
SU 134%
G 178%
CCO 327%
POT 678%

or a 267% average.

Now I did not buy these companies based on there ten year charts but it is interesting to see there performance during this time. I am still adding to the portfolio and buying in when I believe it to be right.
I do understand wanting to limit volatility in a portfolio but are you not really just limiting your gains?
Why not pick out 5 to 10 solid blue chip companies that pay a healthy dividend, get one or two in each sector and buy in on dips.

Sorry I know this may not be adding to the fruitful discussion about ETFs but I am just not a fan.... (Edit: at least of very broad based ones)
Best of luck :)
 

·
Registered
Joined
·
53 Posts
Discussion Starter #3
Well, currently I'm picking and buying stocks individually and I definitely prefer this approach but there are several potential issues with this approach for me:

1. It takes significant time to monitor stocks daily and go through company's finances.
2. I'm worried that my portfolio might under perform the market in the long run. According to Graham, it takes incredible effort to beat the S&P 500 index even by a few percentage points, as most active managed funds have shown.
3. With individual stock picking, the risk of capital loss is pretty high. Two great examples that come to mind are Bank of America and Citibank. Those were great dividend payers before the crash and I don't think an ordinary investor could have predicted such an outcome. With an index fund this risk is virtually eliminated since the company would be replaced with another one.

Thus I have decided to do a combination approach: for unregistered accounts and TFSA, I will be buying index funds when no opportunity presents itself to buy the stock that I really want (such so KO or RY for instance). For RRSP I will mostly be doing index funds.
 

·
Registered
Joined
·
649 Posts
Hi Alexei, I like your balanced approach of partially self-managing your portfolio and partially doing a couch potato portfolio. If I recall you are young and will have years to see how things go and choose your preferred method.

I, like Dopplegangerr, invest in companies that are part of those ETFs. When I looked at the stock within the ETF's I narrowed my choices down to (back when I wanted to couch potato invest) I found many of the stock were ones I wouldn't want to buy at that point in time or not at all.

The time management required to self-manage you are concerned about should be okay by taking on a Buffett approach of buying quality companies at value prices and ignoring all the little day-to-day stuff and focusing on the long term outlook.
 

·
Registered
Joined
·
258 Posts
andrewf I find it is the other way around in most cases. I remember ever person I have slighted and some how a whole bunch of amazing memories have disappeared
 

·
Registered
Joined
·
10,364 Posts
What, no one will admit to having owned a lifeco?

Human nature is to remember the wins and forget the losses...
I agree completely. Selective bias is at work which is not helpful to the OP. Individual stock picking will always include a number of winners and losers. It simply cannot be helped. Poo happens. In short, there is absolutely nothing wrong with a broad based market ETF portfolio. There are more important things to do than to watch stocks every day.
 

·
Registered
Joined
·
258 Posts
I still dont get why you would need to watch stocks every day. Go for the long hall and wait. Btw I didnt pick out all my winners and leave all my losers, the only stock I didnt add was 2 I am holding for the short term to make a quick buck. One of them I am up 18 percent already.
 
1 - 9 of 9 Posts
Top