As long-time readers will know, I review my model portfolios once a year and, if necessary, make minor changes when better or cheaper funds have been launched. I made no updates for 2018 or 2019, except to add the new Vanguard and iShares asset allocation ETFs as a fourth option last year.
For 2020, however, I’ve done a little remodelling.
Before explaining the changes, I’ll offer my usual caveat. These models are intended to be a default choice for investors who aren’t sure how to build a diversified portfolio, or are confused by the enormous variety of funds available. The specific fund choices are not definitive: in almost all cases, the major ETF providers (Vanguard, iShares and BMO) have options that are very similar and equally good. The changes I’ve made over the years have usually been subtle, with minor reductions in cost or improved simplicity. If you’re currently using one of the older portfolios successfully, please don’t feel the urge to switch.
All right, on to the changes. The new portfolios and their backtested returns (now going back 25 years) can be found on the Model Portfolios page.
Tangerine gets squeezed
First off, I’ve removed the Tangerine Investment Funds, which had been a staple of my model portfolios for close to 10 years.
For investors with a small RRSP or TFSA and a desire to be almost entirely hands-off, the Tangerine mutual funds used to be an excellent choice. But there are now much more attractive options, even for those with modest accounts and a desire for simplicity. Despite the competition from robo-advisors and an industry-wide trend toward lower fees, Tangerine has stubbornly kept its fund MER at 1.07% for more than decade. It’s hard to justify that anymore.
The E-Series gets an A
For those looking for an alternative to ETFs, I’ve kept the TD e-Series funds, which are now more attractive than ever.
In 2019, the funds changed their structure and now hold underlying ETFs rather than individual stocks and bonds. This change came with a modest fee reduction of 0.05%, but that wasn’t the big news. More important was the announcement that these funds—which for almost 20 years were only available to TD customers—are now available through any online brokerage. For index investors who want the benefits of mutual funds over ETFs, the e-Series funds are the best choice, by far.
ETFs just get easier
Finally, my model ETF portfolios have been simplified even more, and I’ve bumped them up to Option 1, which means they should be the first one to consider.
ETFs still aren’t right for everyone, but the launch of “one-fund portfolios” (also called asset allocation ETFs), combined with the low- and no-commission trades at several brokerages, have made them more appropriate even for small portfolios. For the vast majority of DIY investors, I believe these one-ticket solutions are the best way to build a diversified portfolio that balances low cost with ease of maintenance.
To add more flexibility, I’ve also included options for balanced portfolios that don’t have a ready-made solution—for example, there is no single ETF with a 50/50 mix of stocks and bonds. So I suggest some two-ETF model portfolios, which combine a bond fund and a globally diversified equity fund. These, of course, can be used to build a portfolio with any asset mix you deem suitable.
For example, the Vanguard Balanced ETF Portfolio (VBAL) is 40% bonds and 60% stocks, while the Vanguard Growth ETF Portfolio (VGRO) is 20% bonds and 80% stocks. If you decide you want something in between, my new model portfolios suggest a 30% holding in the Vanguard Canadian Aggregate Bond Index ETF (VAB) and 70% in the Vanguard All-Equity ETF Portfolio (VEQT).
These two-fund portfolios will require occasional rebalancing, but the trade-off is they actually have slightly lower fees that the one-ticket asset allocation ETFs.
Models are not optimal
I’m expecting some pushback about the changes to the model ETF portfolios. After all, the MER on the one-fund solutions is up to 0.10% higher than that of the three-fund portfolios I’ve been recommending for the last few years. There are still many DIY investors who believe that MER is the only factor to consider when building a portfolio.
But let’s remember that a model portfolio, by definition, is not designed to be optimal—if such a thing even exists. It’s a default for investors who are looking for a place to begin. And indeed, even more experienced DIY investors may benefit from using asset allocation ETFs, since they enforce disciplined rebalancing, reduce transaction costs, and discourage tinkering. All of these benefits are easily worth a few basis points of MER.
If you’re managing a multi-ETF portfolio successfully now, you should continue to do so. But if you’re new to DIY investing—or if you’re struggling to maintain a more complex ETF portfolio with discipline—embrace the simplicity.
Interesting choice to include Vanguard and Ishares portfolios in Option 1, but not the BMO asset allocation ETFs. Is there a particular reason why you excluded ZBAL/ZGRO/ZCON?
I just started following you and was holding back on my first investments due to ‘analysis paralysis’. After reading this blog post i just jumped in with your 2 fund portfolio model. Gotta start somewhere. Thanks for the plain and simple recommendations.
@Mark H: Thee BMO asset allocation ETFs are a perfectly good choice, too. As I wrote in the post, “The specific fund choices are not definitive: in almost all cases, the major ETF providers (Vanguard, iShares and BMO) have options that are very similar and equally good.” But BMO does not have an all-equity counterpart to VEQT and XEQT.
Are there (archived) copies of the previous multi-ETFs options available for those that still want to reference them?
I wonder if TD will ever to an all-in-one eSeries: have the option of picking (say) 80/60/40% equities and be done with it. Perhaps tack on a (e.g.) 0.01% convenience fee.
I’ll show you.. I’ll move from a 3-fund model to that 5-fund model you helped author on that other site!
Thanks so much Dan for all the fantastic resources you have provided to us in the investing community over the years.
I do miss your 3-fund already, but I hear you on simplicity, and I often consider the comparatively complicated philosophy of your PWL associates – I wonder about the interesting discussions you must have in the office?
What about « Green » or fossil fuel free etfs portfolios?
Thanks for sharing. I love the TD funds! As a TD account holder, the expansion to sell outside of TD doesn’t have a huge impact on me but it is amazing news for all passive investors!
Dan, amazing work as always. I just realized that if people are confortable with a 2 ETF portfolio, even if they are directly serviced by an asset allocation ETF, by buying VEQT and VAB in different proportions you could replicate VBAL or VGRO with a MER of 0.18 rather than 0.25! In your model portfolios for most equity/bond splits you would need 2 ETFs, so this is not a lot of added complexity.
Dan, I am going with XGRO in my TFSA/RRSP. But what would you recommend in my non-registered account? I am thinking of going with HBAL in the non-registered or is it simpler to just stick to XGRO even though you lose money because of taxes?
On your previous model portfolios you listed ZAG as the best bond ETF to make up the bond portion in a multi-ETF portfolio. I currently own a small amount, but need to purchase more (about 3x more than I currently own). Can you clarify, for those of us who are looking to add more all-bond ETF shares to balance our portfolio, do you recommend the new Vanguard or iShares bonds on the 2020 model portfolios, or would you go the route of adding more ZAG if it’s already what we own? Thanks!
Thanks a lot Dan! I’ve been wondering for a while about whether to follow the old portfolio or buy the new asset allocation ETF from Vanguard that you mentioned in your podcast a while ago. I got my answer! Much appreciated.
Great stuff. I have stuck with the same three the past couple of years …VCN, XAW and ZAG. I use Royal Bank Direct Investing. I’m not sure what the MER is?
You are making Canadian investing much easier for all of us. Your always innovating and looking for improvements. Thank you Dan for sharing all of your common sense knowledge. Common sense and diversification go hand in hand.
@dan can you provide any guidance to those of us who did have tangerine? What’s the most efficient way to move to something else (likely TD e-series)? Thanks in advance!
@Davd D: Justin and I never discuss anything in the office because he’s too busy managing his “ridiculous” portfolios. :)
“ETFs still aren’t right for everyone… and …“one-fund portfolios” … more appropriate for small portfolios. Can you give some explanations on those two statements ? I use ETFs and one-fund portfolios on a large portfolio… Th’x.
@vP: There is nothing wrong with using the asset allocation ETFs in a taxable account, especially XGRO and VGRO, where the bond component is so small:
https://www.canadianportfoliomanagerblog.com/tax-efficiency-of-vanguards-asset-allocation-etfs/
@DM In fact, TD does offer e-Series all-in-one portfolios, but the MERs are quite a bit higher than the individual funds, ranging between 1.19 to 1.39%. Check out TDB850, TDB851, TDB852, TDB853, and TDB854.
@Stan: I stress again (as I do every year) that removing an option from my model portfolios does not mean I am recommending that anyone using that option should abandon it. If you’re comfortable at Tangerine, then you should stay there.
@Mark: “ETFs aren’t right for everyone” is a pretty uncontroversial statement. See the table on the Model Portfolios page for an overview of the pros and cons of each option.
My other point was that ETFs are certainly a poor choice for people with small portfolios if they are using multiple funds and paying $10 per trade, which was pretty much the only game in town a few years ago. Today, with one-fund options and zero-commission brokerages, they’re a great option even for small portfolios. They are also a great option for large portfolios.
My (super analytical) son recommended your asset allocation ETFs to us when they were first on offer. We jumped in with both feet and are super thrilled with the ease of investing, the simplicity of monitoring performance and the great results we are getting. Thank you so much for leading the way!
@Greg: ZAG, VAB and XBB are interchangeable. Just keep using whichever one you already hold.
@Patrick: This is not my area of expertise. This site may be helpful:
https://www.sustainableeconomist.com/model_portfolios
Hey Dan, do these funds which are amalgamator of funds break out dividends to eligible Canadian and non Canadian at tax time?
@Trevor: Yes, if hold an asset allocation ETF in a taxable account your T3 slip will include a breakdown of interest, Canadian dividends, foreign dividends and capital gains. So reporting your investment income is easy.
Dan, I would like to hear your opinion about the comparaison of the MSCI ACWI being comprised of the following geographic region US Stocks 56%, Canadian Stocks 3% and International Stocks 41% with the proposed portfolio in your site with an equal percentage spread between can, us and international stocks. Your site and the comments of everyone has been a great ressource of information for me as a DIY investor.
@Jean: Here are a few old blog posts that may help. The one-third allocation to Canada / US / international is not a magic formula, but it can help prevent performance chasing. In the 2012 blog below, I mention that the prevailing conversation at that time was, “The US is past its prime: Canadian stocks are the place to be.” This was because the US was coming off a terrible decade when Canada outperformed dramatically. Investing in 100% Canadian stocks was common. Now that the trend has reversed, the narrative is “I should only invest 3% in Canadian stocks.” This is always how investing trends work.
https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/
https://www.moneysense.ca/columns/bias-towards-canadian-stocks/
https://www.canadianportfoliomanagerblog.com/ask-bender-canadian-stocks-vs-global-stocks/
For the record, all of the asset allocation ETFs assign less than one-third of the equity component to Canada. That’s fine. As long as you have a reasonable target and stick with it over time, the long-term results are likely to be very similar.
Hi,
Speaking of removing Tangerine Index Fund Investment from the list, what would you recommend for replacement instead?. Currently I have TFSA Index Fund with Tangerine. I am familiar with your website and information in regard to this and previous informations. I do have a copy of those in my file.
I am aware of TD e-Series but those you need to do on your own.. and i can not do it myself at this time. So Please advise..
Thx
Marsi
Im building a somewhat balanced portfolio and wondering if you have any advise or any comments.70% stocks ($vwo, $hxt, $vwo)20% fixed income ($zag)10% commodities ($iau)
Your assistance would be greatly appreciated.
Hi,
Have you considered the HSBC wealth compass “robo-advisor”. HSBC has fairly recently lowered their MER and offer a wide selection portfolio risk profiles, I think that makes them on par if not better than the TD-e series, they are definitely easier to get (online and in-branch).
Thx,
John
@John: Thanks for pointing me to the HSBC option. I will check it out.
Hey Dan, thanks so much for the updated model portfolio. I’ve been a recent listener of the podcast and blog follower. Out of curiosity, how are the weighted MER’s calculated in the Asset Allocation ETF’s? For example, when I calculated the weighted MER’s based on the allocation and MER of the individual ETF’s I’ve calculated 0.157% as opposed to 0.25% for VGRO.
I’m pretty comfortable with rebalancing (and find it somewhat fun) and would like to find opportunities to cut MER costs.
@Lu: The ETF providers add an extra fee for the convenience of the asset allocation ETFs. Your estimate of the weighted average MER for VGR sounds correct. The Vanguard adds an additional 0.08% or 0.09% on top of that. Remember that managing a multi-ETF portfolio will have higher trading costs that can easily eat up that benefit.
I use the VSB bond fund which hasn’t done very well compared to VAB. Should I switch to VAB? It’s in my RRSP so it wouldn’t trigger a capital gains.
@Dan: Many thanks once again for your tireless efforts to educate us and to simplify matters for our easier decisions and action.
At the risk of being too obvious, I would remind new readers that the decisions that the newly simplified Model Portfolios lay out for us are only simple once you have completed the prior steps that you have so painstakingly laid out for us in your blog over the years.
1. Understand the Principles of Couch Potato (Long Term, Non-Clairvoyant, Passive Index-driven, Risk-managing) Investing
2. Come to an understanding and acceptance of the particular mix of Core Asset Classes and Allocations that you can live with on a day to day basis (and particularly without the need to compulsively and frequently check the ongoing ETF values).
Once these steps have been completed, but only then, does the choice of which to pick from your Model Portfolios become almost trivial. There is some preliminary emotional and intellectual work to be done before the selection of one’s own ideal portfolio, but once done, and it truly is that simple, the payoff in freedom from worry and uncertainty what to do is huge.
I’ve been benchmarking my stock portfolio against a Couch Potato Global equivalent (VCN, VUN, XEF,and VAB 20/20/20/40) going back the last six years and can tell you that the Couch Potato benchmark far out-performed my own in total returns. So I’m planning to move to index ETFs but am puzzled about allocations. There is a seven figure unregistered account, two smaller RRSPs and two small TFSAs. One option is to use the same allocation within each account for simplicity. The other option is putting the less tax efficient types into registered accounts and favoring more tax efficient types in unregistered. Have you done any blogs or papers that discuss smarter ways or tricks to finesse allocations, when enough funds are available, to minimize taxes?
Thanks Dan. I’m always impressed by your tireless contribution and patience. And glad too that Oldie is still weighing in with his wise old common sense.
@jamie: Wise??? Haha, thanks but not really. A few short years ago I was as unknowing and fearful as any other puzzled investor exploited by all the brokers, experts and gurus of the Investment industry peddling their snake oil. All the wisdom or information one needs and the “uncommon sense” that stems from it (the number of investors that have the patience and discipline to read what’s here and actually follow through on it are actually the minority) is sitting right here in plain sight in this marvelous resource of a blog!
It’s not rocket science. Bottom Line — You Can’t Accurately Predict The Future. No one can. Once you have accepted this truth, you’re ready to be a Couch Potato and enjoy the serenity that goes with it.
I think it would have been easier and cleaner to just combine two of the asset allocation ETFs (VCNS, VBAL, VGRO) to make the in-between allocations. And psychologically, I feel that in a downturn it would be harder to handle the sharp drop of an all-equity ETF (despite having the bond ETF on the side), compared to seeing two ETFs drop moderately. Oh well, the models are still good, and I agree with the move to drop Tangerine.
Great topic! I have also the same interrogations as Harvey2 above, as to asset allocation.
How to manage a large portfolio using many types of accounts (taxable, RRSP, LIF, TFSA)?
And what ETFs to use for US dollars in taxable account?
Hey Dan,
Is there a link to the old 3 ETF portfolios you previously had on here? Thanks.
Hi there.
In the past you had a model portfolio listed that was made up of low MER ETFs split I think by U.S. equity, International equity, Cdn equity and bonds. We’re retired and trying to clean up our portfolios contain a lot of stocks and we wanted to move some fairly large amounts from stocks to those type of ETFs. It makes sense (we think) to use those versus the E-series funds, because everything is within registered accounts, and those ETFs would have a lower MER which can be significant savings. Because we are keeping some of our stocks we can’t just move into the asset allocation ETFs because we have too much Canadian, we are trying to diversity to the U.S and international. Any thoughts on non e-series ETFs?
@harvey2 @Jack K.: I have a reasonably large portfolio spread over a large number of different accounts. To manage asset allocation I simply use the CCP Rebalancing spreadsheet (https://canadiancouchpotato.com/2019/02/04/a-new-rebalancing-spreadsheet-for-etfs/). This allows me to ensure that my overall asset allocation is close to target regardless of what individual accounts may hold.
With regard to tax optimisation I use the Investment Tax Optimizer by moneygeek.ca (https://www.moneygeek.ca/tools/tax-optimization/). This is discussed here : https://www.moneygeek.ca/weblog/2014/06/02/divide-investments-tfsa-rrsp-non-registered/. This isn’t a recommendation by me, even moneygeek state that you shouldn’t regard the results of this tool as advice, but I use it as a guideline. For example, with my particular circumstances, the tools suggested that my TFSA be 100% US and after evaluating this I decided to follow that suggestion.
Hi Dan,
Can you comment about Wealthsimple trade? They advertise no fee for buying and selling stocks and ETFs. They only make money by exchange rate. How do we compared?
Thanks,
Hugh
@Doug and Jack K: My colleague Justin Bender has created model portfolios that include ETFs for individual asset classes, including recommendations specific to account type. These may be helpful:
https://www.canadianportfoliomanagerblog.com/model-etf-portfolios/
Thanks. There is massive value in a 1 fund portfolio and a quantum leap over 2 or 3 funds. Like you say, well worth the couple points on MER. The reason is if you want to explain to someone how to invest in ETFs, it’s much easier to say “Buy VBAL” than it is to say “Well, you want exposure to bonds and stocks, as well as balancing Canadian investments with the rest of the world. So first you want to go to an ETF that tracks Canadian stocks… “etc etc
The response to the first sentence is usually “oh, that’s easy” while the second one is a blank stare and them sticking with their bank’s 2.5% MER funds.
After comparing the unit cost of the TD ETFs compared to the E-Series mutual funds (for example $19.66 for TTP versus ($28.72 for TDB900) would it not be more cost effective to buy the ETFs rather than the mutual funds if you don’t plan to do frequent trades? It looks like you would save on the total cost of the units if the ETFs were purchased rather than the mutual funds, unless I am missing something?
Thanks Dan, and to the others who also contribute their comments!
@Brenda: The unit price of an ETF or mutual fund tells you virtually nothing. It’s like saying this restaurant charges $2 for a slice of pizza and that one charges $3. Unless you know how large the slices are, the comparison is meaningless. It reminds me of the Yogi Berra joke where the waitress asks if he wants his pizza cut into six or eight slices, and he says, “You’d better make it six. I’m not hungry enough to eat eight.”
Imagine a fund tracking a Canadian equity index (like TTP or TDB900) has $100 million in assets. It might have 5 million outstanding shares, which would mean a net asset value (NAV) of $20 per share. Now imagine a second fund tracking the same (or similar) index has $150 million in assets. It might also slice that pie into 5 million shares, in which case the NAV per share would be $30.
If you had $10,000 to invest, you could buy 500 shares of the first fund or 333 shares of the second. Both would have an identical value and there is no reason to prefer one over the other.