Admitting ETF defeat.... sort of

While i don't believe in ETF's being the best tools for investors i have to admit that they are by and large a better option for most. As more investors switch to ETF investing it will hopefully make it easier for active managers to beat the markets.

I am going to outline a couch potato portfolio in this post for which i am to adhere to and compare to my actively managed account and my handful of hand picked mutual funds.

The mutual funds i mostly hold are non-index like (similar to TSX.HAV) and usually have a value tilted style. The fund managers are usually invested alongside clients and have only smaller funds so they have a greater investing universe to choose from.

I started with the plain vanilla 25% US equity 25% CDN equity and 50% bonds/cash. I then started to tweak the percentages a bit and then started to add small portions of DGS and XRB. This turned into a disaster as i got carried away and started to add to many ETF's and it looked actively managed.


I then gave myself a mandate, which i will keep here to remind me what ETF's are supposed to be, my written portfolio statement for the potato so to speak.

Because ETF's are about low costs i will hold no more than 4 index funds. Since most stock markets across the world fell together i will try to use all encompassing ETF's like VT.
I want the bonds portion to be weighted between 20-40% and equities 60-80% since my time horizon is longer than 20 years. The smaller percentage moves can be ignored thus removing excess trading and fees by rebalancing less.

Bonds: XBB (0.32%), XRB (0.35%) and VAB (0.20%)

Equites:
United States; VTI (0.07%), VBR (0.23%), VTV (0.12%)
Canadian; VCE (0.09%),XCS (0.55%)
Overseas; VT (0.25%), VSS(0.33%), DGS (0.63%), VEF (0.37%)VEE (0.49%)

Because i am seeking value and small cap stock selections via managed mutual funds i will stick to traditional low cost ETF's. Vanguard has the lowest fees by far so i will likely use them. I want to keep a healthy dose of Canadian as this is likely the currency i will retire with. The US fund is fine for worldwide exposure since many of the companies are global and likely benefit from worldwide growth anyways.

My couch portfolio will be:

VAB 30%
VTI 35%
VCE 35%

I wanted to keep fees low and the above have a blended average of 0.116% MER. VTI also has some small cap exposure.

I had to laugh a few months back when i did some rough calculations using some all star picks in a US magazine from a few years back. A blended ETF beat the pants of the equally weighted all star picks. Which started me on this current post. That and a lack of time to do a good job managing the active portfolio...