Model Portfolio Update for 2017

After two years with no changes to my Couch Potato model portfolios, the 2017 edition comes with an update to the ETF version.

Before I get to the details, I feel compelled to stress that if you’re currently using the older ETF portfolio, there is absolutely no reason to change. The funds I’ve swapped here are a wee bit cheaper, but the cost of selling your existing ETFs and buying the new ones almost certainly outweighs the benefits. And if the transactions would involve realizing taxable gains, then making a switch is downright nutty. To put this in perspective, the new portfolios will reduce your management fees by 0.03% annually, which works out to 25 cents a month on every $10,000 invested.

I’ve also updated my model portfolios page with historical returns to the end of 2016. As always, we’ve used actual fund performance wherever possible: for earlier periods we’ve used index data, subtracting the fund’s current MER to account for costs.

With that out of the way, here are the changes.

Zigging over to ZAG

First, I’ve replaced the Vanguard Canadian Aggregate Bond Index ETF (VAB) with the BMO Aggregate Bond Index ETF (ZAG). BMO’s aggressive cost-cutting has made ZAG the cheapest bond ETF in the country, with a management fee of just 0.09%. (Don’t be fooled by the old MER of 0.23% that still appears on the BMO website: the fee reduction took place in June 2016 and the fund needs 12 full months before it can report its updated MER.)

Another benefit of using ZAG is that it has a companion fund, the BMO Discount Bond Index ETF (ZDB), designed for taxable accounts. So if your portfolio includes bonds in both registered and non-registered accounts, you can use ZAG and ZDB to get similar exposure in both accounts with maximum tax-efficiency.

One small point to be aware of: VAB and ZAG have slightly different risk exposures. The Vanguard ETF is roughly 80% government bonds and 20% corporates, while ZAG is closer to 70% government and 30% corporates, which explains its slightly higher yield to maturity.

Worlds apart

The second change replaces the Vanguard FTSE Global All Cap ex Canada Index ETF (VXC) with the iShares Core MSCI All Country World ex Canada Index ETF (XAW). These funds cover the global equity markets outside Canada: they’re both about 55% United States, 35% international developed markets (Europe and the Asia-Pacific region), and 10% emerging markets.

XAW was launched just weeks after I launched my simplified ETF portfolios in 2015, and two years later it has emerged as a slightly better choice than its Vanguard counterpart. The lower fee is the most obvious advantage: with an MER of 0.22%, the iShares fund it’s five basis points cheaper. Less obvious is XAW’s tax advantage.

Although both of these funds hold several underlying US-listed ETFs, the iShares version uses a Canadian-listed ETF for international developed markets. This difference in structure means the Vanguard ETF will be subject to a greater amount of foreign withholding taxes. According to Justin Bender’s detailed analysis, this amounts to a drag of about 0.10% in an RRSP or TFSA (the difference would be smaller in a taxable account). Add that to VXC’s higher fee and the cost difference becomes significant in registered accounts.

Which option is right for you?

I haven’t made any changes to the other two model portfolio options, though I have stopped including performance data for the Tangerine Equity Growth Portfolio. This fund, which is 100% stocks, recently changed its target asset mix: it was previously 50% Canadian, 25% US, and 25% international. As of last November, it now holds equal amounts of all three asset classes. I think this makes it a more diversified fund, but the change makes its historical performance meaningless for anyone considering the fund today.

One of the age-old questions I get from readers is, “How do I know which option is right for me?” Many new investors look only at the differences in MER and immediately gravitate to the ETF version, even though one of the index mutual fund options would be more appropriate.

To help answer this question, I recently wrote a feature in MoneySense magazine that walks you through the decision-making process. It even includes a selector tool that asks you to describe your preferences and then suggests one of the three options. Both the article and the quiz are now linked on the model portfolios page.


244 Responses to Model Portfolio Update for 2017

  1. Canadian Couch Potato March 24, 2017 at 8:47 am #

    @James: The last segment of my latest podcast should help:

  2. hay March 24, 2017 at 8:38 pm #

    Thanks a lot for your great post!

    I am about to use my TFSA for the portfolio you recommended.

    My question is, as newbie in investment and 30K room for TFSA, and also more than 30K as NON-emergency funds, how much should I invest? I am a little fear as I see the market is in down time recently. Should I just put 10K to start?

    Any advice would be appreciated!

  3. James March 24, 2017 at 11:44 pm #

    @hay his advice to me will hold true for you. Check out the latest podcast episode, especially the part at the very end (reader mail).

    @ccp thanks man. Super helpful. I will check out the podcast more often:) have a great spring!

  4. hay March 25, 2017 at 7:40 pm #

    Thanks @James for the advice. I’ve listened the podcast ep you recommended twice, very helpful!!

    So which do you think is better in my case? CPP’s td e series portfolio or ETF portfolio?

  5. Jeremy March 27, 2017 at 6:11 pm #


    I purchased $50,000 of the balanced portfolio, including ZAG, and only after completing the trade did I re-read your note about ZAG vs VAB and taxation. I am not investing this within a TFSA or RRSP because those are maxed. Am I in a bad position having chosen ZAG over VAB?


  6. Canadian Couch Potato March 28, 2017 at 7:28 am #

    @Jeremy: ZAG and VAB are equally problematic in a taxable account. For tax-efficient bond exposure, ZDB is preferable.

  7. James March 29, 2017 at 10:45 am #

    @hay i’m a newbie too, But CCP here has a great post about the importance of weighing all your options when making that decision.

    Hope this helps:)

  8. Greg March 29, 2017 at 11:02 am #

    Hey, Dan. For my registered account int’l exposure, I’m trying to decide between VXUS and VEU. They seem almost identical with the exception of stocks held. VXUS has 6060 stocks versus 2570 stocks for VEU. Is VXUS really that much more diversified? The country exposures and top 10 stocks are pretty much identical.

  9. Canadian Couch Potato March 29, 2017 at 12:03 pm #

    @Greg: VXUS includes small caps as well as large and midcaps. The long-term performance should be expected to be very similar.

  10. Aravind March 30, 2017 at 10:54 am #

    Are the posted returns including dividends/dividend reinvestment or the growth of the shares alone? Apologies is this was a beginner question. It just seems somewhat odd to me that the 20 year returns are only 6-7 percent.

  11. Canadian Couch Potato March 30, 2017 at 11:45 am #

    @Aravind: The returns include reinvested dividends and interest. The last 20 years included the tech bubble (three straight years of negative returns on a balanced portfolio) and the worst market crash since the Great Depression. I would say you did very well if you got 6% to 7% over this period. Most investors probably got nowhere close to that.

  12. Kirk March 31, 2017 at 10:30 pm #

    Tangerine Portfolios are recommended here for investors with smaller portfolios where diversity and automatic re-balancing will be effective, yet the 1.07 MER won’t impact them as much.

    I’ve searched through the site for some insight into the CIBC IPRS portfolios. These portfolios are a mix of CIBC index funds with slightly higher MER between 1.09 and 1.24, which seem to fit the same goals as the equivalent Tangerine portfolios. PC Financial customers receive a management fee discount of 10 basis points which, if I understand correctly, effectively brings that MER down to between 0.99 and 1.14.

    Are there other reasons why an investor with under $50,000 might choose a Tangerine portfolio over one of CIBC’s similar portfolios through PC?

  13. Canadian Couch Potato March 31, 2017 at 10:33 pm #

    @Kirk: If you can verify that the MER is indeed that low, and if the rebalancing is done automatically, then that seems like a reasonable alternative for those who have $50K at CIBC.

  14. Kirk April 1, 2017 at 12:44 am #

    I searched a little harder (specifically for PC Financial) and found this article from 2010.

    Knowing what to look for in the fine print, I was able to find some additional details. The $12 per year admin fee and $10 withdrawal fee don’t apply to TFSAs. There is no minimum balance (that I can find). The $40 account closing fee still exists. There is a 2% fee for early redemption of the account within 30 days.

    The IPRS (index portfolio re-balancing service) is performed at least every 6 months. However, “CIBC Securities Inc. may charge a fee of up to $25 per year for its service.” (seems ambiguous)

    Tangerine Portfolios have a hidden TER of 0.02% (CIBC has 0%) which brings the total fees to 1.09%. However, If there is a $25/year charge for re-balancing with CIBC, Tangerine is the winner.

  15. Jeremy April 1, 2017 at 11:11 am #


    Thanks for the response “ZAG and VAB are equally problematic in a taxable account”. Now I’m concerned about XAW and VCN – are they problematic within a taxable account too?



  16. Jacky April 2, 2017 at 12:47 pm #

    @ Jeremy, sorry I m replying as I had the same question for Dan a few weeks ago.

    His answer was: XAW and VCN are fine in a taxable account.


  17. zwzlife April 3, 2017 at 10:15 pm #

    Hi Dan,

    BMO posted the MER of ZAG, it is 0.14

  18. Martin April 3, 2017 at 10:49 pm #

    Hi i am new at self investing.

    Spent last couple months reading, listening, watching as much as could on the subject. My TFSA is maxed out but all sitting in cash at the moment.

    I came up with portfolio mostly based on your approach. Only investing inside TFSA and looking to buy 20k every year for next 3 years of this portfolio allocation:

    27% Fixed Income: VSB
    25% Can equity: XIC
    25% US equity: VUN
    18% Int. equity: XEF
    5% Emerging: VEE

    Also highlighted CDZ for dividend return and XQQ for technology exposure, was considering taking 5% allocation from each Canada and US equity to buy these 2 equally

    My goal would be to rebalance by reajusting the risk exposure of my assets when need be. Is this a viable long-term strategy?

    Thanks for your time

  19. TheInvestingEngineer April 4, 2017 at 8:43 pm #

    Hey Dan,

    have you every considered a dividend aristocrat etf in favor of your total canada or total market ex canada funds? I was thinking maybe hold XAW, ZAG, and maybe the CDZ? Or likewisehold both ZAG,CDZ,SDY and an emerging markets ETF?

    What are your thoughts?

  20. Canadian Couch Potato April 5, 2017 at 9:28 am #

    @Martin and TheInvestingEngineer: I don’t think there is any reason to believe that substituting dividend funds or sector funds would lead to higher expected returns.

  21. martin April 5, 2017 at 4:19 pm #

    thanks Dan for the reply

    any thoughts on the rest of the portfolio draft i listed in previous comments

    thanks and very cool that you’re trying to help so many people

    And good to know were not alone in this:)


  22. Canadian Couch Potato April 5, 2017 at 7:29 pm #

    @Martin: A fund like XAW is essentially the same as holding VUN, XEF and VEE. So whichever option you choose is fine. One suggestion: use either Vanguard or iShares for international and emerging equities, but not one of each. The indexes the two providers use are somewhat different, so to avoid overlap or gaps go with XEF and XEC, or VIU and VEE.

  23. Nathan April 6, 2017 at 8:20 am #

    Hi Dan, outstanding blog!

    I have a TSFA and an RRSP, both are pretty much maxed out, and I’m working on cleaning up my portfolio to make it as simple as possible, followed the CCP model for the last few years, and I love the simplicity. I’m planning to follow your 3 fund ETF model portfolio, the “Balanced” version, investing with RBC Direct. So to keep things simple should both my RRSP and TFSA be set up with 3 funds each, (eg RRSP ZAG/VCN/XAW, same thing in TFSA), or would it be better to have just 3 funds total, and it so which ones would be better where? Portfolio size is about $600k in early 40’s. Thanks again!


  24. Canadian Couch Potato April 6, 2017 at 8:25 am #

    @Nathan: There’s no simple answer to your question, expect to say that traditional bond funds like ZAG should not be held in a taxable account (you could substitute ZDB). Some thoughts to get you started:

  25. Nathan April 6, 2017 at 8:38 am #

    Thanks for the reply. I don’t have any other holdings other than RRSP and TFSA, and forgive me is this has been explained elsewhere, but neither of those are considered “taxable” accounts correct? I guess the more accurate question to ask would be; is there is any difference in how each of three funds are treated depending on if they are held in an RRSP or a TFSA. Its no problem for me to hold all 3 in each of RRSP and TFSA, just trying to see if there is any advantage to simplify any further! 🙂

  26. Canadian Couch Potato April 6, 2017 at 8:48 am #

    @Natahan: If it’s all RRSPs and TFSAs, it’s usually best to hold all the bonds in the RRSPs and hold equities in the TFSA to take full advantage of the tax-free growth. Just make sure you keep track of your overall asset allocation (i.e. considering both accounts together, not separately) to ensure your overall risk level is where you want it to be.

    For example, assuming $540K in the RRSP and $60K in the TFSA and a target asset allocation of 40% bonds, 20% Canadian equity and 40% foreign equity:

    $240K bonds (40%)
    $100K Canadian equity (16.7%)
    $200K Foreign equity (33.3%)

    $20K Canadian equity (3.3%)
    $40K Foreign equity (6.7%)

  27. martin April 6, 2017 at 10:38 am #

    @Canadian Couch Potato and Nathan, wow im in a very similar position except less assets lol

    really enjoyed reading last comments as im days away from starting my self invested portfolio

    Dan, For that example : “For example, assuming $540K in the RRSP and $60K in the TFSA and a target asset allocation of 40% bonds, 20% Canadian equity and 40% foreign equity”
    Would you have any recommendation on good free spreadsheet that help tracking buy-sell, allocation-rebalancing…
    And in the case of me and Nathan, since its all “tax-sheltered” we dont have to worry about ACB tracking, right?

    thanks and its really great what your doing on this platform!!

  28. Vik April 6, 2017 at 4:16 pm #

    Looking at your model ETF portfolio performance results – do they include dividends or are the historical returns on based on price?

  29. Canadian Couch Potato April 6, 2017 at 7:48 pm #

    @Vik: All returns are reported with dividends included (and assumed to be reinvested).

  30. hay April 6, 2017 at 9:57 pm #

    Why RRSP less risky and TFSA more? as in

    $240K bonds (40%)
    $100K Canadian equity (16.7%)
    $200K Foreign equity (33.3%)

    $20K Canadian equity (3.3%)
    $40K Foreign equity (6.7%)

    I thought TFSA should be conservative and RRSP can be bond as RRSP is for longer term.

  31. Manny April 14, 2017 at 12:09 pm #

    @CCP is the MER for the ZAG 0.09 as you mentioned or 0.14 as Dan mentioned above? if it is .14% which is the same as the VAB, which one would you recommend if I have not invested in either yet and have $50k to invest?

  32. Canadian Couch Potato April 14, 2017 at 3:54 pm #

    @Manny: The 0.14% MER recently reported includes a few months when the fund had its higher fee. Going forward it should be expected to be 0.10% (0.09% management fee plus a little more for taxes). On a $50K investment, one basis point in fees is $5 per year and not a significant factor in the decision.

  33. Akshay Kalaria April 14, 2017 at 10:40 pm #

    Any portfolio advice if I wanted to follow something similar to your model but have separate etf for US. I was thinking something like


    Any advice would be great. Thanks

  34. Canadian Couch Potato April 15, 2017 at 12:35 pm #

    @Akshay: That would be fine: you can also add VEE for emerging markets if you want to get closer to what is in a global ETF such as VXC/XAW. See also:

  35. Kristy April 16, 2017 at 11:46 am #

    I have approximately $55,000 in a high interest TFSA and I would like to invest this in ETFs. I have a TD Direct Investing account. I have no immediate need for this money and am able to tolerate some risk.

    I have had a look at your model portfolios, which seem to suggest an investment as follows: 40% ZAG 20% VCN 40% XAW. Are these still your recommended ETFs for a balanced TFSA?

    If not, what ETFs would you recommend now (as opposed to earlier this year when you posted) for a lump sum investment within a TD Direct TFSA? Is a lump sum investment my best option?

    Any suggestions would be appreciated. Thank you.

  36. Canadian Couch Potato April 16, 2017 at 12:30 pm #

    @Kristy: No changes in the model portfolios since the beginning of the year.

  37. Nick April 16, 2017 at 6:54 pm #

    This is a great article.

    Currently I’m holding the following ETFs in my TFSA and Rrsp:


    I’m also holding 2 mutual funds, MFC1917 and MFC090.

    how does this look in terms of the funds themselves? I’m looking to get out of XFN and funnel that money into some more XIC once sold. But right now I’m down on that position and waiting till a more breakeven or profitable return on it.

  38. Akshay Kalaria April 16, 2017 at 9:57 pm #

    Thanks so much for the reply and link you provided. I have listed both of portfolios and accounts in order for which it is best for etf to be held in rrsp or tfsa has I am just beginning and have room in both to take advantage from any tips? I tried to piece together the proper order for account to be held in from other article and the comments sections. Also just wanted to say great job for replying to these comments so helpful for people.

    ZAG (RRSP or TFSA)
    VCN (TFSA or RRSP)
    XAW (TFSA or RRSP)

    VAB (RRSP)
    VCN (TFSA or RRSP)
    VUN (TFSA)
    XEF (TFSA or RRSP)
    XEC (RRSP)

  39. Canadian Couch Potato April 16, 2017 at 10:23 pm #

    @Akshay: If you are using only Canadian-listed ETFs in RRSPs and TFSAs, then your asset location is a very small decision. In general, it is best to keep the bonds in the RRSP, as higher-growth equities make better use of the TFSA’s tax-free status. But beyond that, you won’t go too far wrong, so don’t worry about trying to optimize.

  40. Akshay Kalaria April 17, 2017 at 12:19 pm #

    Okay thanks again. I thought it would also be good to place XEC in rrsp like zag or vab.

  41. Sam April 18, 2017 at 9:52 pm #

    How does canada phasing out savings bonds affect the model e-series portfolio? Presumably it doesn’t tip the Canadian Bond Index Fund enough to go with another bond index since you haven’t changed the e-series model, but was curious nonetheless.

    Secondly, any rule of thumb on how aggressive the stock/bonds ratio should be to start? I’m mid-thirties, my wife is early-thirties, and we’re looking to start a long term investment for retirement. We would’ve just gone with Vanguard’s Target Date retirement fund if it was available to us in Canada. It apparently has a ratio of 90% stocks/10% bonds even at our age. But Andrew Hallam suggests having your bond ratio match your age, which would put us somewhere between the assertive and balanced e-series model portfolios.

    Since we’re getting started late, I see valid arguments for both: be conservative because of our age…be aggressive because we started late and it’s still a long-term investment of about 30 years. What factors should we consider to help determine the balance?

  42. Manny April 21, 2017 at 9:51 am #

    @CCP what do you think of Mr. Bogle about not investing in international stocks?

    To be honest, I am too concerned about the markets in UK, Japan, and even France. Don’t you think with Trump as president the US market will be stronger?

    my concerned with the XAW is the 55% US and 45% International which I find too high.

    Aren’t you concern with such high international allocation? why or why not?

    Would you strongly suggest not having international allocation in my portafolio is a very bad idea or I can do fine with US, Canada, and bonds?

    In the case you suggest I can eliminate international stocks, would you suggest equal % in US and Canada or have higher % for the US market?

  43. Sue C. April 22, 2017 at 8:05 pm #

    Hi Dan,
    Would XAW be an appropriate ETF in a corporate investing account from a tax efficiency point of view?

  44. Canadian Couch Potato April 23, 2017 at 9:39 am #

    @Sue: If you need to hold foreign equities in a corporate account, then XAW is as good as any other fund.

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