It’s tough to overstate Dan Bortolotti’s impact on Canadian exchange-traded fund investors.
He first dove into investment writing at MoneySense magazine. He championed ETFs and created the Canadian Couch Potato blog, which continues to guide ETF investors, long after he transitioned from a journalist to a portfolio manager at PWL Capital in Toronto.
That’s why his new book, Reboot Your Portfolio, caught my attention. It’s a DIY investment guide that reflects the hard-won wisdom gained from working with hundreds of real people.
“I wanted to share what I’ve learned,” he says, “to focus on what’s most important.”
Mr. Bortolotti lays out the evidence for why a portfolio of low-cost index-tracking ETFs is likely to be the best solution for the vast majority of investors, something he’s been advocating for more than a decade.
When I asked him why he wrote the book now he said: “I worry that investors face bigger risks today than they faced when I started to write about DIY [do-it-yourself] investing. Back then the problem was that people didn’t understand the high fees they were paying. Now the challenges are different.”
The worry he’s referring to here isn’t about volatility, a frothy market, or a pending crash. Instead, Mr. Bortolotti says the 13-year long bull market, low-cost trading platforms, and enthusiasm for speculative investments increase the behavioural risks that could hurt new investors.
“A generation of younger people has overestimated their risk tolerance,” he says. “A lot of them tell me they’re comfortable with portfolios of 100 per cent stocks, but that’s only because they have never seen their life savings cut in half. They didn’t live through the dot-com crash when U.S. stocks had three straight calendar year declines. They didn’t endure the crash of 2008-09 when the markets fell about 50 per cent in six months.”
In his book he writes, “Panicking during a market decline doesn’t make you a coward — it just makes you human.”
Mr. Bortolotti says he also wrote the book to remind people that investing isn’t an end in itself. Before they start looking for the right ETFs, investors need to plan how much they should be saving and consider their tolerance for volatility. Instead of charging into a portfolio of any kind, he says investors should look at the big picture first.
What stands out in Reboot Your Portfolio is that Mr. Bortolotti knows how investors think. He understands how and why they react to fear and greed — because he has seen it. He has guided DIY investors and his clients away from risky ventures and prevented them from bailing on a solid strategy when stocks hit the skids, or when they’re tempted by speculation. I think that’s what makes him one of Canada’s most respected DIY guides.
He stresses that it’s patience and discipline that make a successful investing experience. He understands that even those who start out as ‘couch potato’ investors can easily get seduced into thinking there’s something better out there.
You won’t hear him arguing in favour of “smart beta” or factor-based investing. Such strategies (if you believe the back-tests and marketing material) promise to earn better returns than a simple, diversified portfolio of cap-weighted ETFs.
He writes: “As these strategies become more widely known and pursued, it seems likely their premiums will shrink.” More important, he says, the search for “something better” can distract investors from their long-term financial plan.
Mr. Bortolotti nudges investors toward plain-vanilla, traditional ETFs that promise nothing more than market returns at very low cost. But if you’re looking for a list of ETF recommendations or model portfolios, you won’t find them in this book — although Mr. Bortolotti does include these on his Canadian Couch Potato website.
When he does mention specific ETFs, he’s a huge fan of “all-in-one” asset allocation ETFs such as those offered by iShares, Vanguard and BMO. These ETFs are complete portfolios, built from several underlying stock and bond ETFs, which are rebalanced automatically.
“When you add new money to your portfolio,” Mr. Bortolotti says, “you don’t have to decide where to allocate it. You just buy more shares of the only ETF you own. That way every contribution doesn’t turn into a market-timing decision.”
Investors seeking balanced portfolios of 60 per cent stocks, 40 per cent bonds, for example, could select Vanguard’s Balanced ETF Portfolio (VBAL-T); iShares Core Balanced ETF (XBAL-T); or the BMO Balanced ETF (ZBAL-T).
Plenty of investors prefer individual ETFs because they want slightly lower fees or greater tax efficiency. But Mr. Bortolotti believes the advantages of all-in-one funds would trump these elements for most DIY investors.
“You might think you’re giving something up to get the convenience of these one-fund portfolios. But the behavioural benefits are likely to be well worth any tiny increase in fees.”
I asked if he would buy one for his own account. “Absolutely,” he said. “I build my clients’ portfolios with individual ETFs to ensure the lowest fees and taxes possible. But I use all-in-one ETFs in my personal accounts because it’s just so easy and effective.”
That sort of honesty, combined with his wisdom and clear writing style, is why so many investors revere Mr. Bortolotti.