Q: MoneyGeek vs. Canadian Couch Potato Portfolios - What's The Difference?

Last update on March 13, 2015.

The Canadian Couch Potato (CCP) is a popular blog run by a journalist named Dan Bortolotti. The site offers its own model portfolios, as well as other information of interest to investors. What's more, its portfolios are available for free, whereas access to MoneyGeek's regular porfolios cost $70/year.

Some readers have asked me what the differences are between MoneyGeek's and CCP's portfolios. In my view, there are 5 main differences.

1. Portfolio Variation

MoneyGeek offers 5 different regular portfolios. Each of these regular portfolios contains the same ETFs, but in different quantities. The portfolios differ from one another in their respective risk levels - i.e. portfolio 5 is riskier than portfolio 4, which in turn is riskier than portfolio 3, etc.

As of the time of this writing, CCP has 3 different portfolios on its site. However, they're divided more along the lines of complexity, rather than riskiness. CCP's simplest portfolio contains 4 ETFs, while its most complicated portfolio contains 10 ETFs. However, all of them retain the same 40% bond and 60% stock mix, suggesting that they have similar risk levels. Note that I'm intentionally counting CCP's REITs as stocks. Since many of these REITs operate real estate based businesses such as hotels, I believe the inclusion is fair.

2. Choice Of ETFs

I have a very different investment philosophy than Bortolotti, and this shows up in the way he and I choose ETFs. As a value investor, I try to choose ETFs with a value investing bent. In other words, I choose stocks/ETFs that favour undervalued stocks, at the cost of slightly higher (perhaps 0.1% per year) expenses. I do this because I think the performance gains will outweight the extra costs.

Bortolotti on the other hand, adheres to the school of efficient market hypothesis, and chooses ETFs that minimize cost. You can read what I think about efficient market hypothesis here.

3. Portfolio Changes

As another consequence of our philosophical differences, we take different approaches to portfolio changes over time.

CCP's portfolios have remained constant over the years. This makes sense in light of his belief in efficient markets. Efficient market hypothesizers have argued that if any one asset class (e.g. stocks, real estate, etc) is expected to generate superior returns after having adjusted for risk, then investors will have bid up the price of those assets until the advantage disappears. Conversely, if asset prices continue to go up over time, then it must be because the outlook of that asset class continues to improve. This is why such people deny that bubbles can exist.

As a value investor on the other hand, I go by the famous words of Benjamin Graham, who said that the markets are a voting machine in the short run, and a weighing machine in the long run. I believe that fueled by emotions, people sometimes drive up the prices of certain assets irrationally high, and vice versa. This leads me to underweight or eliminate certain assets when they're expensive, and to overweight others when they're cheap. As a result, MoneyGeek's portfolios change over time, albeit very slowly with major changes expected about once a year.

4. Risk Optimization

Many big financial firms use a mathematical equation called 'Modern Portfolio Theory' (MPT) to optimize their investment portfolios. In short, given a desired rate of return, MPT allows one to find portfolio allocations that minimize risk. To find out more, read this blog post.

Bortolotti has written in the past that he doesn't believe in optimizing portfolios. To summarize his argument, he says that MPT is highly sensitive to its numerical parameters, meaning, small changes to the inputs spit out very different allocations. Since it's very hard to precisely measure the inputs, he says you're always going to get arbitrary allocations. Therefore, it's not worth optimizing your portfolio using MPT.

I think his objections stem from a misunderstanding of MPT. I'm not trying to slight Bortolotti's intelligence, but as this paper on MPT states, "prerequisites for understanding it (MPT) include the formidable trio of statistics, linear programming, and modern portfolio theory". These are qualifications that very few people have (luckily, I learned it through doing my PhD).

I've previously written an article as to why I believe MPT is useful. For now though, as this paper illustrates, arguments against MPT are overhyped, and most sophisticated financial practitioners still use it today despite its limitations.

5. Tools

Lastly, though this doesn't pertain to the actual portfolios per se, MoneyGeek offers different tools that you can use in conjunction with your portfolio. You can use these tools to develop a deeper understanding of the risk level of your portfolio, and to make implementing the portfolio easy for you.

Bortolotti on the other hand, will help you implement his portfolio for $3,000. He may provide other services in conjunction with that, but the point is that his services don't come any cheaper.

Last Words

The purpose of this article is not to criticize Bortolotti and the Canadian Couch Potato. In many respects, CCP does a great job of covering topics related to ETFs, taxation, etc. I've also met Bortolotti in person, and I feel that he is a genuinely nice guy.

True, I don't believe he's correct in every assertion he makes, but no one is, myself included. Still, it's worth mentioning that when I first started MoneyGeek, I knew of the Canadian Couch Potato's existence. I started this site, because although you'll do OK with CCP, I genuinely believe that you can do much better.

Still, don't take my word for it. You can track the respective performances of our portfolios here.

If you enjoyed this article, you might be interested in our free newsletter. Enter your email to get free updates.

Web Analytics