When choosing the building blocks for your Couch Potato portfolio, try to focus on the big picture. Your fund choices are important, but it is more important to focus your energy on getting your asset mix right, being broadly diversified, having a commitment to regular saving and disciplined rebalancing.
If you feel overwhelmed by the choices available, consider starting with one of my model portfolios. If you would like to customize your portfolio, consider the funds below. The list is not comprehensive: experienced investors may make different choices, especially if they want to follow non-traditional strategies or have specific tax considerations.
Exchange-Traded Funds (ETFs)
ETFs are the most popular investment vehicles for index investors, thanks to their low cost, transparency and variety. The following lists include good choices for broadly diversified, plain-vanilla funds in each asset class.
In most cases you should stick to using Canadian ETFs listed on the TSX. However, using ETFs that trade on US exchanges may be appropriate in RRSPs. Funds marked with a dagger (†) are the US-listed equivalent of the recommend Canadian ETF.
Once you have determined your target asset allocation, start by choosing a single Canadian bond ETF. Broad-market bond funds offer higher expected returns but more volatility. Short-term bonds have lower yields but their price movements tend to be less dramatic. For more, see How Changing Interest Rates Affect Fixed Income.
|Canadian bond ETF
|Vanguard Canadian Aggregate Bond||VAB||0.13|
|iShares High Quality Canadian Bond||XQB||0.13|
|Vanguard Canadian Short-Term Bond||VSB||0.11|
ETFs covering the broad Canadian equity market hold about 240 large, mid-size and small company stocks. The major ETF providers have similar offerings, all with very low fees:
|Canadian equity ETF||Ticker||MER|
|Vanguard FTSE Canada All Cap||VCN||0.06|
|iShares Core S&P/TSX Capped Composite||XIC||0.06|
|BMO S&P/TSX Capped Composite||ZCN||0.06|
A total-market US equity fund includes well over 3,500 stocks in the largest and most diversified economy in the world:
|US equity ETF||Ticker||MER|
|Vanguard U.S. Total Market||VUN||0.16|
|iShares Core S&P U.S. Total Market||XUU||0.10|
|Vanguard Total Stock Market †||VTI||0.05|
An ETF of international equities includes stocks from developed countries in Europe (including the UK, France, Germany, Switzerland) as well as Japan and Australia:
|iShares Core MSCI EAFE IMI||XEF||0.22|
|iShares Core MSCI EAFE †||IEFA||0.12|
Round out your portfolio with an emerging markets ETF, which includes countries such as China, South Korea and Taiwan:
|Emerging markets equity||Ticker||MER|
|iShares Core MSCI Emerging Markets IMI||XEC||0.28|
|iShares Core MSCI Emerging Markets †||IEMG||0.16|
To keep your portfolio simple without sacrificing diversification, consider using a global equity ETF that includes the United States, international equity and emerging markets in a single fund:
|Vanguard FTSE Global All-Cap ex Canada||VXC||0.27|
|iShares Core MSCI All Country World ex Canada||XAW||0.22|
|Vanguard Total International Stock Market †||VXUS||0.14|
While ETFs get far more attention, index mutual funds are still an excellent choice for Couch Potato investors, especially those who want to keep things simple, those who contribute small amounts every month, and those with smaller accounts.
TD’s e-Series index funds are the best choice for most Couch Potato investors who choose not to use ETFs. However, they are only available to investors who open an online account with TD Canada Trust, or (preferably) through a TD Direct Investing discount brokerage account.
|Fund name||Fund ID||MER|
|TD Canadian Bond Index – e||TDB909||0.50|
|TD Canadian Index – e||TDB900||0.33|
|TD US Index – e||TDB902||0.35|
|TD International Index – e||TDB911||0.50|
The Tangerine Investment Funds are only available directly from Tangerine. Although the fees are relatively high for index funds, there are no account minimums, and investors do not need to work with a discount brokerage, pay annual account fees, or rebalance their portfolios. That makes these funds an excellent choice for novice investors with small portfolios.
The funds are listed below in order from most conservative to most aggressive. For more, see our white paper, The One Fund Solution.
|Fund name||Fund ID||MER|
|Tangerine Balanced Income Portfolio||INI210||1.07|
|Tangerine Balanced Portfolio||INI220||1.07|
|Tangerine Balanced Growth Portfolio||INI230||1.07|
|Tangerine Equity Growth Portfolio||INI240||1.07|