Model Portfolios

The following model portfolios can help you get started as a Couch Potato investor. Each option includes three to five different asset mixes: you should choose the one best suited to your risk profile. Conservative investors should allocate more to bonds and less to stocks, while aggressive investors can do the opposite.

GCPThe three options below present a trade-off between cost and convenience. The Tangerine Investment Funds offer “one-stop shopping” with a balanced fund that requires virtually no maintenance. The TD’s e-Series funds are significantly cheaper and allow you to customize your portfolio’s asset mix, though you will need to build an rebalance the portfolio yourself. ETF portfolios have much lower management fees and far more flexibility than the mutual fund options, but they are the most difficult to maintain—and if you are paying trading commissions they may end up being more expensive, too.

Remember that on small portfolios the difference in annual fees may be modest in dollar terms. On a $50,000 portfolio, every 0.10% in fees works out to less than $1 a week. Costs are always important, but in the early stages your ability to save and invest with discipline is much more important than keeping your costs to an absolute minimum.

For guidance on choosing among the options see my Ultimate Couch Potato Portfolio Guide from MoneySense magazine. The article explains the pros and cons of each version and walks you through the process of determining which is right for you.

The model portfolio PDFs include 20-year performance records (from 1998 through 2017), including the lowest 12-month return during that period. Pay special attention to this number and make sure you can stomach a loss that large: the surest way to blow up your investment plan is to sell in a panic during a bear market. Note that the data include actual fund returns when available and index returns (minus fees) when necessary. Past performance is no guarantee of future results.

Option 1: Tangerine Investment Funds

The simplest way to get started with indexing is with one of the Tangerine Investment Funds, which are available online directly through Tangerine. There are no account fees, no minimum account size and once you’re set up the funds are virtually maintenance-free.

Consider the Tangerine funds if:

  • you’re looking for a simple solution for an RRSP or TFSA
  • your portfolio is relatively small (under $50,000 or so)
  • you don’t want to open a discount brokerage account
  • you make automatic monthly contributions from your bank account
  • you want a single fund that is rebalanced automatically

Model Portfolios Option 1 — Tangerine Investment Funds

For complete information on getting started with Tangerine see our white paper, The One-Fund Solution.

Option 2: TD e-Series Funds

TD’s e-Series funds have lower fees than the Tangerine funds, and you can customize your portfolio with any asset allocation. They are an ideal alternative to ETFs for investors who want more convenience at only slightly higher cost. Unfortunately, the e-Series funds are only available through an online account with TD Canada Trust or (preferably) a TD Direct Investing discount brokerage account.

Consider the TD e-Series funds if:

  • your household accounts with TD total at least $15,000 (annual fees may apply on smaller RRSP balances, though these can be avoided if you set up automatic contributions)
  • you like the convenience of mutual funds but want more flexibility than a balanced fund can offer
  • you are comfortable using a discount brokerage to place mutual fund orders
  • you make automatic monthly contributions from your bank account
  • you’re usually unable to make trades when the stock exchanges are open
  • you are willing to rebalance your portfolio every year or so

Model Portfolios Option 2 — TD e-Series Funds

Option 3: ETFs

Exchange-traded funds offer extremely low management fees and much greater variety than index mutual funds. However, most brokerages charge a commission of about $10 when you buy or sell, which makes them unsuitable for investors who make frequent small trades. A small number of brokerages (notably Questrade) offer commission-free ETFs which avoids this problem. However, using ETFs requires you to be comfortable trading on a stock exchange, which is often a challenge for new investors. That’s why it’s important to consider more than just management fees when making the choice between index mutual funds and ETFs.

The three largest ETF providers in Canada—iShares, BMO and Vanguard—all have a range of low-cost products that are suitable for building Couch Potato portfolios. The choices can be dizzying, so we suggest a simple portfolio that will allow you to get extremely broad diversification with just three funds.

Consider ETFs if:

  • your portfolio is at least $50,000 or so (though zero-commission offers make ETFs cost-effective with smaller portfolios)
  • you contribute infrequent lump sums rather than small monthly amounts
  • you are comfortable using a discount brokerage to trade on stock exchanges during normal hours
  • you have the discipline to keep trading to a minimum
  • you have multiple accounts (RRSPs, TFSAs, non-registered) and want the greatest flexibility when it comes to tax-efficiency
  • you are willing to rebalance your portfolio every year or so

Model Portfolios Option 3 — ETFs

For other ETF model portfolios, see Justin Bender’s blog, Canadian Portfolio Manager.