Exposed on Banks

Even as a simple country Index Investor (to paraphrase Bones McCoy), you need to understand the Index you invest in. If you own a TSX-based, Canadian S&P Based or Dividend Royalty based index you hold a lot of Banks.

Two examples of this are:

  • S&P/TSX Composite Index, (OSPTX) which holds 36 % “Financials“. The top 10 holdings 4 are banks (Royal Bank RY, Bank of Nova Scotia BNS, TD Bank TD and Bank of Montreal BMO).
  • S&P/TSX Composite High Dividend Index ETF (TXEI) which holds 30% “financials”. You find 4 banks in their top 10 holdings (Bank of Montreal BMO, Bank of Nova Scotia BNS, Canadian Imperial Bank of Commerce CM, National Bank of Canada NA)
exposed on banks

Why this imbalance? Banks are doing very well lately, and have done well for over 15 years.

Are banks likely to “Nortel out“, in the near future? No, but realize that you are holding a lot of Banks if you are investing in Canadian Indexes.

My problem is that I am highly exposed on Banks. From my days as a Stock holder, I still hold TD and BMO in one of my larger investing portfolios. In this same portfolio I also hold a TSX index fund, which means my exposure to banks is too large (given I may retire within the next 10 years).

As Interest Rates slowly rise to more normal rates, I should start thinking about some more stability and start building a GIC Ladder in my portfolio. I should be looking for more stability given I am within 10 years of retirement.

Treat This as Informational

I am not offering advice. I am simply pointing out that many passive investors are heavily exposed to the Financial Sector in Canada.

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Risk Profiles and E-series Orders Rejected

My daughter is running into the same issue that I did when I had my TD E-series orders rejected, due to my investment risk profile. She has set up a TFSA, unfortunately with TD Mutual Funds (not TD Direct investing). As we learned to use TD E-series funds in a TD Mutual Fund account, you must complete many steps. None of these steps include the change your investment risk profile to stop having your TD E-series orders rejected.

e-series orders rejectedI have talked about how to use the E-series funds to set up a simple Couch Potato investment portfolio, so my daughter is going to use this for her TFSA account.

The application to allow you to use TD E-series Index Funds in your TD Mutual Fund account is straight forward and easy to fill in. You must do this if you end up with a TD Mutual Fund account, which is what you end up getting steered into if you go into a TD Branch. My daughter thought she was opening a TD Direct Investing account, but it ended being a TD Mutual Fund.

If you fill in the form, you assume that you then buy E-series funds (they even show up in your list of funds that you can buy), however, that is incorrect.

The E-series funds are Index funds with low MER fees (and I use them in many of my accounts, as full disclosure, but I am not receiving any recompense for talking about them). Many different web sites have talked about them, and how useful they are, but they are tricky to use in a TD Mutual Fund account.

A TD Mutual Fund Investing Risk Profile is filled out when the account is first opened, and periodically after that (every year or two). The profile questions usually push folks into a lower risk Balanced profile, and evidently the E-series funds are far more riskier funds.

The E-series Funds have turned into the red-headed step-child of the TD Mutual Funds group. None of their staff seem to want to sell them or use them in any kind of form. It is easier to use TD E-series funds in a Questrade account than a TD Mutual Fund account.

My opinion is that due to the E-series being lower cost, the TD Mutual Fund reps don’t make much money (if any) off them, so they are less motivated to sell them. Why the TD Mutual Fund on-line system seems to default to E-series orders rejected, is another issue.

Simple Solution to E-Series Orders Rejected ?

A simple fix which I will suggest to TD Mutual Funds who be to add the following “initial” block.


Ο  I allow the TD Mutual Funds group  to alter my Investment Risk Profile to allow me to use the E-series funds in my investment portfolio.

Name:  ________________           Initials: _____________


Seems straight forward to me. I doubt this will happen, it is too straight forward and nobody makes money.

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Index Investing Downsides

Even though I do Index Investing (mostly) I do realize that with all investing plans there are downsides. I read an interesting article in the Kiplinger magazine (by Elizabeth Leary) that talked about the obvious Index Investing downside, you are investing in the Index. In these raucous days of market corrections, this is a concern to Index Investors

The best quote from the article is:

“By definition, index funds guarantee that you will suffer 100% of the next bear market’s decline,” — Jim Stack, president of InvesTech Research.

Given  you are an Index Investor, you already knew that, but for others the subtleties of the statement is lost. When the Indexes are in a Bull Market, you enjoy the low MER and growth, but when the Bear Market comes (and it has?) you will feel the brunt of the market drop. The argument that actively traded funds make are that they can react quicker to market corrections.

Index Investing

Both of those statements are true, but the losses you incur from Actively Traded funds MERs are usually not mentioned (especially during Bull Markets, so you lose some of your profits). Do all actively traded funds manage to stop-loss during market corrections? No (some do), and some might argue they are some of the market forces that cause the market corrections.

The other point folks forget is that the “Yard Stick” that most Index Funds use correct themselves as well. The S&P (and others) regularly update (add and drop) stocks from their Indexes, depending on what the Index is tracking. They don’t typically do this during a market correction, but the “bad apples” do eventually go away.

Ms. Leary points out that if you buy into the argument about Indexes and how active traders can be more nimble, you are assuming that your Mutual Fund manager are smart enough to deal with rapid market changes. This is a very big assumption to make, you must choose the wisely managed Active Trading Mutual Funds or risk being worse off than if you simply use well-defined indexes. The hard part is figuring out which funds are the wisely managed nimble ones.



My Opinion

I will stick with index investing for now. I tried to be an active investor myself and lost enough money to realize that Market Timing is not possible for an individual investor. Are there Actively Traded Mutual Funds that beat the market (i.e. out strip the Indexes)? Yes, however, it is interesting that it is rare to find any that can make that claim over 10 years.

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Stock Picks 2018

For my regular readers you must be shocked by this title, but a new year brings some new ideas and concepts. For the first time in a while, I will be putting out my stock picks for 2018. Hey if I can put out swag Financial Predictions for 2018, I can do this.

Yes, I have espoused Index Investing for a long time, but if you really want to make big money you will need to take some big risks. Some might tell you that Bitcoin is your way to sure money, others might say that Marijuana is a sure-fire money maker in the coming year, but I am here to say they are missing the boat. You buy that stuff and all you’ll have is bad-parity and a craving for Chips and Brownies.

I give you the portfolio that you should have for 2018.

Stock Picks



📈 Click here to unlock this amazing stock tip 📈

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What is Couch Potato Investing?

I had a friend ask me this question, What is Couch Potato Investing? For those starting out, it may not be obvious what I mean when I talk about this investing concept. There are great primers on Couch Potato Investing out there, read them as well.

Couch Potato Investing

Happy Couch Potato Investors

Do These Potatoes have Eyes ?

The Couch Potato Investor label is actually quite descriptive. These are investors who do not wish to be bothered by day-to-day investing issues. They simply want to set up their investments and occasionally come back and take simple actions on their portfolio (in military terms, fire and forget).

Most of the time, Couch Potato Investors are typically Index Investors (i.e. they are not investing in individual stocks, or investment vehicles, they will invest in an area), thus single day changes in the markets become less of a concern (to quote a well-known investor, “I am an indexer, I don’t care what the Index did today”). I suppose you could be an individual stock investor and be couch potato investing, but you’d have to buy something like Berkshire-Hathaway.

Example Portfolios?

How big or small your portfolio ends up being, is up to you. It is possible to have the greatest couch potato portfolio, which is a two Index Fund (yes, that is possible). Others might argue that you are not diversified enough with 2 funds, and should have a more funds, so typically your portfolio ends up being:

  • Canadian Index – to invest in your country and such
  • US Index – you may as well invest in the economy that is mostly driving the world’s economy
  • International Index – this is murkier water, as there really is no definitive index, so you will need to do some research in this area
  • A GIC-like fund or a Bond Fund – remember Bonds can go down in value in the short-term
  • Maybe a REIT of some kind? Maybe not for a specific city, or you might really get burned when the inevitable correction happens?
  • Cash? Cash is always nice to have around, but don’t put it in your mattress

How much of each you buy is up to you, but keep track of your initial investment percentages, because you will need to re-balance your portfolio (so you take your profits on occasion). What is re-balancing? Every little while (a period you choose typically either every quarter, 6 months or yearly), you look at your portfolio and either:

  • Add funds to the portfolio. Use these funds to get back to your original investment percentages. You do this by buying more of the lower total value indexes.
  • Sell off higher valued indexes and buy lower valued indexes to get back to your original investment percentages

It Can’t Be That Simple ?

Yes, you re-balance, and you sit back on your Couch and eat potato chips, maybe watch Netflix and Relax.

This is meant as a simply primer on the Coach Potato Investing. There are many great articles written by other folks outlining good Couch Potato portfolios (using either Index Funds or ETFs) that you can research and simply choose which one you are comfortable with.

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