The Couch Potato’s 10-Year Report Card - MoneySense

The Couch Potato’s 10-Year Report Card

I’m regularly asked why I don’t provide performance data for my Model Portfolios. It’s a fair question, but unfortunately, compiling that information isn’t as straightforward as it sounds. First, just one lonely ETF in my model portfolios has a 10-year track record: the iShares DEX Universe Bond Index Fund (XBB), which was launched in November […]

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I’m regularly asked why I don’t provide performance data for my Model Portfolios. It’s a fair question, but unfortunately, compiling that information isn’t as straightforward as it sounds.

First, just one lonely ETF in my model portfolios has a 10-year track record: the iShares DEX Universe Bond Index Fund (XBB), which was launched in November 2000. Many others were launched just five or six years ago, and a few are less than two years old. Short-term performance data is worthless for long-term investors.

Second, even if all the individual funds had a 10-year histories, computing returns for entire portfolios is more difficult —or at least more time-consuming — than many people realize. It means hunting down a lot of annual reports and entering the data into a spreadsheet that rebalances the portfolio every year. Even that would be fine for Canadian funds, but New York–listed ETFs report their returns in US dollars, so I would have to convert these into Canadian dollar terms — and for international funds, which hold stocks in several currencies, I don’t even know how I’d do that.

Performance anxiety

Finally, I have to confess I was worried the results wouldn’t be impressive. Not because I harbour secret misgivings about the Couch Potato strategy, but simply because the last decade has been so difficult. Index investors accept what the markets deliver — no more, no less — and over the last decade the markets didn’t give us very much.

By unfortunate coincidence, the growth of the ETF and index fund industry has overlapped with a terrible period for equity markets around the world. The first wave of ETFs was launched just as the dot-com bubble was on the verge of bursting, ushering in a three-year bear market. The second wave began during the four-year bull run of the mid-2000s, only to be met with the worst market meltdown since the Depression.

But enough excuses. I figured it was time to collect the best data I could to see just how well index investors would have done over the last 10 years. So I tracked down the returns of the four TD e-Series funds that make up the original Global Couch Potato, created by MoneySense magazine. The e-Series funds have been around since 2000, so they now have a full decade of performance data.

Some explanatory notes before we get to the results:

  • The strategy calls for the portfolio to be annually rebalanced back to this target allocation. In the tables below, the portfolio starts with $10,000 on January 1, 2001, and is rebalanced annually on January 1 of each subsequent year.
  • The TD e-Series funds tracking US and international equity markets are available in different versions. The “currency neutral” versions hedge all foreign currency to Canadian dollars, while the unhedged versions are exposed to foreign currency risk. There are different opinions about which strategy is best: my Model Portfolios page includes the unhedged versions, while MoneySense has traditionally recommended the currency neutral funds. I have included the results for both.

Global Couch Potato 2001–10 (with currency hedging)

Canadian Canadian US Int’l Portfolio
bonds equities equities equities TOTAL value
2001 7.6% -12.3% -13.4% -18.7% -5.84% $9,416
2002 8.3% -12.3% -22.7% -26.7% -9.02% $8,567
2003 6.0% 26.6% 30.0% 21.7% 18.06% $10,114
2004 6.5% 14.0% 11.1% 11.1% 9.84% $11,109
2005 6.0% 23.3% 3.3% 27.8% 13.28% $12,584
2006 3.6% 16.9% 14.0% 16.6% 10.94% $13,961
2007 3.2% 9.6% 3.1% 3.4% 4.50% $14,589
2008 5.7% -32.9% -39.0% -42.2% -20.54% $11,593
2009 4.6% 34.6% 22.2% 19.5% 17.10% $13,575
2010 6.4% 17.2% 12.6% 4.0% 9.32% $14,840

The annualized 10-year return of the rebalanced portfolio was 4.03%.

Global Couch Potato 2001–10 (no currency hedging)

Canadian Canadian US Int’l Portfolio
bonds equities equities equities TOTAL value
2001 7.6% -12.3% -6.7% -16.7% -4.10% $9,590
2002 8.3% -12.3% -23.2% -17.0% -7.18% $8,901
2003 6.0% 26.6% 4.3% 13.4% 11.26% $9,904
2004 6.5% 14.0% 2.2% 10.9% 8.02% $10,698
2005 6.0% 23.3% 1.7% 10.2% 9.44% $11,708
2006 3.6% 16.9% 14.7% 25.5% 12.86% $13,214
2007 3.2% 9.6% -11.1% -6.0% -0.22% $13,184
2008 5.7% -32.9% -21.7% -27.9% -14.22% $11,310
2009 4.6% 34.6% 6.7% 9.5% 12.00% $12,667
2010 6.4% 17.2% 8.4% 1.7% 8.02% $13,683

The annualized 10-year return of the rebalanced portfolio was 3.19%.

In my next post I’ll analyze these numbers and consider how the Global Couch Potato stacked up against the alternatives. Any predictions?

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