Blessed by the Potato

I wasn’t sure how I would react to Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs by Dan Bortolotti after his announcement post, which said “What was needed, I recognized, was a step-by-step guide to designing, building, and maintaining a portfolio of ETFs over the long-term.” My Dude, I thought, that book already exists and it is called the Value of Simple.

But that’s the reaction of someone who spent too long in Science, where you have to cite prior work and it’s hard to publish replication studies. In art there’s all kinds of room for cover songs, and RYP actually has a really nice harmony with VoS.

Preaching to the Choir

RYP fully assumes that this is not your first book on investing, and so doesn’t spend much time on the basics like “what’s a stock?”. It dives right into “stop trying to beat the market!” Which I suppose fits very well with the title: you must first have a portfolio to reboot it.

Dan clearly and convincingly makes the case for why you shouldn’t try to beat the market, and why indexing (and specifically market cap weighted indexes) are the way to go. There’s a good section on factor/smart beta and why he doesn’t go for it.

He also has much more on building your plan before you invest, and how that influences your choice of investments and your ability to stick with them. Importantly, the planning section includes some key questions you should ask yourself as you’re building your plan.

RYP includes much more detail on how ETFs are built and the alternatives (e.g. smart beta), currency implications, etc. The book spends a bit of time digging into tracking error and transaction costs: the more advanced stuff that VoS doesn’t touch — again, a great complement. He also addresses head-on the common misconception about ETFs that track similar indexes having different prices: one is not “cheaper” or “a better value” just because the price per unit is lower. The price per unit is fairly arbitrary.

He also has a section on cutting ties with your advisor, to prepare you for the common arguments they might make. One addition I like a lot is his point that “You don’t need to change each other’s minds.” “There’s no point engaging in an argument with an advisor you’re planning to fire. He or she may be using fear tactics to encourage you to stay, which is unprofessional and provides another reason for you to cut ties.”

Then he has guidelines for how to buy your ETFs. He doesn’t go into quite the screenshot-level detail of VoS (which will also save him from having to release a new edition every 3 years — smart compromise), but hits all the main generalizable points, including using limit orders and rounding down your number of units.

Nitpicks

It wouldn’t be a BbtP review without nitpicking, but I have basically none. {gasps from the crowd}

The one thing that got me was my own bugbear (which is admittedly being pedantic on one page): in the TFSA-vs-RRSP bit, his RRSP description is missing the pre-tax nature of RRSP contributions. You should not pick an RRSP over a TFSA because it gives you a tax refund — you should be re-investing that refund anyway (or getting it back after grossing up or whatever). Yet Dan says “And if your income is significantly higher–once you’re in the six figures, you’re being taxed at more than 43%–then prioritizing the RRSP is almost a no-brainer, because that tax deduction is so valuable.” [Emphasis mine] This is the thinking that gets people to not add more to their RRSP to account for that gross-up/pre-tax bit, and then complain when they hit retirement that they have to pay tax on their RRIF withdrawals.

If you’re in a high tax bracket the RRSP is usually the better choice because there’s a higher chance you’ll be in a lower tax bracket later. The current tax deduction has nothing to do with it. If you have say $5k to save today and are debating between putting $5k in your TFSA or RRSP, putting $5k in your RRSP and enjoying a tax refund means you’ve really only saved $2850 — you had to contribute $8.77k to your RRSP [at that 43% tax rate] to have an equivalent situation to $5k in your TFSA (and then your tax deduction just brought you back to the same state as the TFSA, it was not valuable on its own).

I will note that he got it right immediately before that: “if you were in the same tax bracket for your whole life, the TFSA and RRSP would be essentially the same… an RRSP is particularly useful if you make contributions when your tax rate is high, and then make withdrawals when it’s low.” And to be fair, that this is something tonnes of otherwise careful experts get wrong (sometimes on purpose — people are irrationally motivated by tax returns, so selling them on saving and investing in their RRSP to get one works to get them to save and invest something much more so than a long, carefully worded explanation about pre-tax amounts — investing the same amount in a TFSA may be better, but that’s not always the counterfactual).

So Which One Should I Get?

As much as I have a conflict of interest, get both Reboot Your Portfolio and The Value of Simple. The lessons are important and it’s good to reinforce it, and now you’ll get it from two different voices from different angles to really help drive it home.

VoS is very purposefully designed for people who are not (yet!) DIY investors. It’s main criticisms have been that it is too simple, which I eat up. So if you’ve never made a trade on your own before (or are shopping for a friend or relative in that situation), I would suggest that you start with VoS, and then read RYP to reinforce the take-home messages of indexing and the value of all-in-one funds, and get those extra details on why you should pick certain index funds.

If you are already an investor, and are confused by all the different strategies out there (growth? dividends? crypto? meme… stonks?) then get RYP. VoS has more detail on what happens next for beginners (how do you read a statement, what are taxes and what do I have to do) if you’re confused on that after reading RYP, but if you’ve already opened a brokerage account and know how to use it, and are mostly stuck on convincing yourself to go with a simple index ETF route, BYP will probably be better at convincing you of that and will likely be all you need.