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.
Hi Dan,
My wife and I have three portfolios (2-RRSP an 1-TFSA) all with about $15,000 in them. Do you suggest we use TD E-series index funds or a variety of ETFs? OR Should we do one portfolio in E-series, one with 3-4 ETFs and one using an All in one ETF? Any help/suggestions is greatly appreciated!
@Dan, I’d been waiting long to convert 3-ETF taxable portfolio into a single ETF. For an account with over 100k, would you recommend doing the switch-over in a single day to keep the number of transactions to minimum? Are there any potential drawbacks of this strategy?
Are we in uncharted waters in terms of the assumptions we make to follow the CCP guidance? It’s likely we are without a SARS-CoV-2 vaccine until next year which means the crippled economy is the new norm. What are the chances the productivity of the global economy will be higher this year than last year? Very unlikely. If my investments follow the market and the economy is shrinking or just hobbling along until next year, I’m tempted to make a move to be more conservative (hold cash, gold or just a higher proportion of bonds) Are my thoughts rational or is this an emotional temptation to time the market? Is this downturn in the market just another opportunity to rebalance and stay the course, or an obvious poor future outcome that can easily be avoided by selling and holding? If the likely outcome of a poor year ahead is widely believed, then is it already priced into the market? Is this a huge scary monster we have never seen before or just another bump along a successful journey of investing for retirement?
I’ve been a huge fan of your work. For the last decade I’ve been following your model portfolios that match my risk tolerance. I’ve been really pleased with the simplicity and the results relative to actively managed alternatives. Thanks for sharing your knowledge.
@melwin: Yes, it makes sense to make the switch in the same day. This will keep your market exposure unchanged, because you will not be out of the market for any length of time.
Hi Dan,
I have adopted a couch potato portfolio recently, and have been thinking about what my retired parents could/should do with their investments. Do you have a model portfolio for those who are retired, or any recommendations as to what funds to invest in?
Thanks,
Ricky
Hi Dan,
I’m wondering if it would be beneficial to setup one of your model portfolios using Wealthsimple trade. Of course re-balancing would have to be done manually but would it be a good idea? Or would you recommend questrade and why?
Thanks,
Kyle
Hi Dan,
I decided to sell my funds just before the recent downturn in the stock market (it’s actually a transfer from Tangerine to Questrade that happened at the right time). Now, I am looking to put back the money in a model Portfolio such as XGRO or XEQT, but I wonder not rather go with BMO ETFs ZDV or ZRE which seem to be much cheaper and attractive right now, and probably go back to XGRO when the economy settles down. Can I have your quick thought about this?
Thanks
Alex
Thanks Dan, for the ‘advisor’s’ link to the TD e series funds because this information is not readily available to individual investors on the TD Direct website. I still can’t find any fund fact sheet or prospectus downloads for the e series funds, only for the more expensive i series funds. Do you know of one?
I was going to recommend these funds to my brother but the lack of transparency and access to necessary documents is mind-boggling, especially when the competition discloses all necessary documents in a transparent and easy manner. Looks like ishares or Vanguard is getting my brother’s business!
@Linda: The fund documents are available on the TD website, if not directly through the brokerage. For example:
TD Canadian Index Fund – e (TDB900)
Scroll to the bottom of the page to find the prospectus and Fund Facts documents.
Any documents pertaining to the I-Series versions would still be useful, as these funds are identical to the e-Series. The only difference is the fee.
@Kyle: Wealthsimple Trade is not a full-service brokerage: it’s just an app. Online brokerages (whether Questrade or any other) offer a much wider range of services, product types and account types.
@Ricky: The model portfolios are appropriate for any investor’s situation, whether they are young and accumulating or retired and drawing drawing down the portfolio. The only difference is the proportion of stocks and bonds, which needs to be adjusted based on risk profile (i.e. more conservative for retirees).
Thanks, Dan! I really appreciate this.
Hi Dan:
I started investing in RRSP’s/Mutual funds with various Managers in my twenties. Now Im in my 50’s and have had 3 crashes since. I’ve never seen the results they were promising me. I’m ready to move my funds into one of the portfolio models you recommend and have a DYI approach since I’m fed up of what’s happened over and over. My portfolio has dropped once again since Covid 19…before I move my funds should: 1. I wait for the market to go back up before moving funds over 2. How will that affect my tax situation? 3. Should I just move everything while market is low and let it grown in my new DIY accounts. Thanks so much….still new at all this. :)
Hi Dan,
New to investing and opened a TD Direct investing account. My question is similar to Bill’s below, I have an RRSP and a TFSA set up. Is it worth having 2 different portfolios such as TD E series funds and Vanguard ETF’s or contribute it to one? Pretty fresh to this, but have some basic knowledge about how it all works.
@Vivian:
1. The current market environment does not matter if you are switching from high-fee funds to low-fee funds with a similar asset mix. (If you are “selling low” you will also be buying low.)
2. There would be no tax consequences for any investments held in TFSAs and RRSPs. If you hold non-registered investments, then you will realize capital gains or losses by selling these to purchase ETFs.
3. I do want you to have realistic expectations before you decide to switch to an ETF portfolio. Index investors also experienced three major crashes since 2000 and they all lost as much as the market during those periods. Indexing does not protect you from market risk in any way. All it does is lower your costs, and if it’s done properly, it also improves your diversification and imposes a disciplined strategy. It’s possible that the more important change to your investment strategy would be to hold a more conservative portfolio.
@Paul: Unless there is a very specific reason to use different products in the two accounts, I would keep things simple by using the same funds in both accounts.
Great post! I personnally like ETF’s that track the S&P as this index is probably the most watched in the world. Also those that are more concentrated on stocks than bonds as they tend to offer better gains and that is the whole point of investing.
Thanks, Dan. Always great useful comments . However, some of us do not have printers which print colour, only black.
The Model Portfolio page is excellent info, which I would like to print. But all the coloured, light blue info will not print.
So it really handicaps me. . Could you provide this to me in all black ink? Maybe send by email? Thanks.
Hello I am a new investor. If I’m buying ETFs with Us Stocks, Is it better to hold them in an RRSP or TFSA . I am currently holding VGRO in a TFSA. Should I switch them over? I know we are not taxed on the dividends in an RRSP.
Thank you
Do you know if it’s still possible to purchase TD e-Series funds through a converted TD Mutual Fund account (as I can see used to be an option), or if I am purchasing through TD, does it have to be through a TD Direct Investing account.
Dan, Daniel here. Amazing job with the blog, information, and particularly taking the time to reply to everyone you can.
I recently opened an account at Questrade with a few thousand dollars on the two ETF portfolios you recommended for 2020. I chose to open positions on both so I can see in the long run how they perform. I am also thinking in getting the TD ETFs just to see how they perform against the other two. I was about to get the E-Series but this brokerage charges for mutual funds so I didn’t. My question is the following.
On another post you commented that only mutual funds are convenient for regular monthly contributions, which was the reason I also wanted to get the E-Series. Why don’t you also recommend contributing monthly to the ETF portfolios you suggest? My idea is to contribute as well as to enroll those ETFs on DRIP. Thank you!
@Daniel: Thanks for the comment. Questrade is unique in that it has no commissions for ETFs but charges for mutual funds. At almost every other brokerage it’s the opposite. If you are paying $9.95 per trade, then monthly ETF contributions rarely make sense. If you are at Questrade, the e-Series funds are inappropriate. Just use one of the all-in-one ETFs:
https://canadiancouchpotato.com/2020/01/28/how-to-set-up-a-hands-off-etf-portfolio/
Hi Dan. I’m using ETF’s in my portfolios. I have a lot of Vanguard VCN shares (which tracks the FTSE as you know).
My concern is the recent runup in SHOP. It has nearly doubled in price over the last month. According to the March 2020 fact sheet SHOP made up about 3% of the entire index. It has now doubled to 6%.
I’m uncomfortable with this; how one single internet stock can be so over-weighted. I don’t want to see another Nortel fiasco.
Is there a safer Cdn equity ETF, perhaps capped, that isn’t so vulnerable to such an over-weighting? Or am I worrying for nothing?
Thanks,
Rob
Hi Dan! I’m new to investing and can’t thank you enough for sharing your preferred model portfolios. For simplicity and the sake of monthly contributions, I’m leaning towards the TD e series funds but one concern that I have is that I’ll be managing 4 funds. If I’ve read correctly managing 4 funds would require “rebalancing” occasionally? Could you explain and if you have a resource to help that would be great!!
@Paula: Some resources that may help:
https://canadiancouchpotato.com/2011/02/22/why-rebalance-your-portfolio/
https://letstalkaboutmoney.ca/step-by-step-how-to-re-balance-your-td-e-series-portfolio/
https://www.squawkfox.com/rebalance-portfolio/ (with downloadable spreadsheet)
Hi Dan – this is very interesting. I am currently working on a comprehensive guide to Fixed Income ETFs – would be great to touch base at some point:
https://bankeronwheels.com/best-etfs-in-2020/
All the best,
BoW
Hi Dan. Really appreciate all the advice you provide us with! Just curious about the closing of your Twitter account? Any particular reason or just had enough?
@Carl: I am finding that social media is increasingly a distraction and I’m making an effort to filter out as much noise as possible.
Hi Dan,
Thanks so much for this detailed article! I have a follow up question to one of the comments here regarding whether to build a portfolio using Wealthsimple trade. If I were to follow one of your model ETF portfolios (let’s say VAB and VEQT) is there a reason why I shouldn’t buy these in Wealthsimple trade? What benefit would I get from buying them from a full service brokerage? Thanks
Hi Dan, I had a rather hypothetical question about asset allocation funds. I understand country-wise allocations
inside those FoFs are based on their respective market caps (with exception of Canada). If or when these market caps change in future, would the fund mandate still allow them to make adjustments and to what extent? I’d love to hear your thoughts!
@melwin: Yes, I think it’s reasonable to expect that the asset allocation funds will update their target allocations over time if the market cap of the various countries changes significantly. Over the last 10 years, the market cap of the US has grown significantly and is now well over 50% of the global total. If that changes, the funds would probably adjust accordingly.
Thanks for the response!
Hi Dan – thanks for always providing wonderful guidance for us new-bies to investments. I have some ETFs set up in Questrade, modelled from the 2017 Assertive portfolio you provided. With your new recommendations for 2020, should I consider selling my ZAG, XAW and VCN to purchase the option 1 or 2 recommendations from this year? Or should I leave my money ( <$5k) where it is doing it's own thing, and instead direct future purchases towards the new model?
@Beth W: There is nothing wrong with the three-ETF portfolio, of course, but it seems inefficient to retain this and to start adding new money to a one-fund portfolio. Next time you have new money to add it’s probably best to eat the three trading commissions and switch to the one-ETF portfolio.
Thanks Dan! I’ll be adding more money this month so will sell off the 3-ETF options to switch to the one-ETF style going forward.
Hi Dan,
We opened one of your model ETF portfolios about three years ago and have been very happy with the results. We have finally made the move to stop our bi-weekly contributions to mutual funds with the intent to put the money into our ETF’s. You typically discourage frequent purchasing due to the purchase fees. Is there an amount of money where you might suggest monthly purchases despite the fees? Currently we invest $10,000 per month. Holding it in an account paying 1.6% does not make sense to me and the annual fees (we hold 4 ETF’s) are much lower than what we have been paying for years. Thoughts?
@Nancy: You’re correct that paying a few trading commissions would likely cost you a lot less than the cost than those high MERs. And at $10,000 per month you can certainly make cost-efficient ETF trades. If you are paying $9.95 per trade, however, then I would not make four trades every month. I would be more inclined to make one or maybe two, just topping up whatever asset classes are furthest below their target. As rule of thumb, I’d want to make each trade at least $5,000 (which is 0.2% if you’re paying $9.95).
Hi Dan,
I own VGRO in a couple different accounts; how would you recommend increasing the bond allocation when I choose to? Wait until i am ready to switch to VBAL or back to a multi ETF solution? or would I would to just buy a bond ETF such as VAB to increase the bonds as necessary?
Thanks,
Brad
@Brad: I’d suggest you just combine a bond ETF with VGRO if your target allocation is somewhere between 20% and 40% fixed income. Once it gets to 40% you can make a few trades and switch to VBAL.
“There is nothing wrong with the three-ETF portfolio, of course, but it seems inefficient to retain this and to start adding new money to a one-fund portfolio. Next time you have new money to add it’s probably best to eat the three trading commissions and switch to the one-ETF portfolio.”
What about just retaining the 3 model portfolio and ignoring the updated models? Is there any benefit of one model over another?
Hello, I really like your site. Not sure if I should be posting my question here or on an older but more relevant posy.
I’m a long term investor with 30 years left before I’ll need my funds for retirement. For my S&P 500 fund (CAD) I was wondering if it makes any sense to purchase 50% unhedged and 50% hedged right now? Here is my reasoning: I was thinking since right now the Canadian dollar is quite low, and I think it might go up in the next 5-10 years, I could contribute half of my US investments to the currency hedged fund and then when the Canadian dollar rises to a higher value eventually, like maybe an exchange rate of 1.20 or 1.15 or so (a rate where I fear the CAD may go down again), then I would sell the hedged fund and put it all in the unhedged, and then keep contributing into the unhedged fund until the Canadian dollar gets really low again, and then repeat the process? Potentially I’d go through that process a few times until I retire. Does this make any sense?
@Steve: If you are using the three-ETF portfolio successfully (i.e. rebalancing regularly, not spending too much on trades, etc.) then there is no need to change. The benefit of the one-fund portfolio is mainly behavioural.
@Brent: Overall, leaving foreign currency (for equities) unhedged is generally a better long-term strategy:
https://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/
If you feel strongly about hedging half the currency, I would just use a 50/50 long-term target and not try to get clever by adjusting it based on your feeling about where the Canadian dollar is headed. You would just be guessing and you’re likely to be wrong about half the time. This is similar to the idea of shifting between short- and long-term bonds based on where interest rates may be headed. Sounds logical, but it’s really just guessing, because currency and interest rate movements are unpredictable.
Thanks Dan. I plan to do 25% US index hedged, 25% US index unhedged, 25% Canadian index, 25% international index fund. Not really doing bonds because i have so long until retirement and I have a lot of money in GICs and want to focus on equities right now since bond rates are so low.
Are they any rebalancing considerations with the US funds in particular? (same exact US index fund, just one is unhedged). Should I group them together as if they are one 50% allotment and not care if one is higher than the other, as long as I’m contributing equally to them, OR should I ensure once a year that each remains at exactly 25%.
THANK YOU
@Brent: I would tend to stick to the 25% target when rebalancing. It certainly doesn’t need to be exact, and the overall 50% allocation to US equities is more important. But having a disciplined rebalancing strategy for the hedging is likely to prevent you from getting tactical. :)
Hi Dan
I have three Mutual fund accounts set up with TD EasyWeb. In these accounts I purchase the e-series. I recently had another child and set up an additional RESP for that child and learned that you can no longer purchase the e-series in Mutual Fund accounts. They have grandfathered accounts that had this option, but it cannot be done going forward. I was disappointed by this change (I now have one account where I can’t purchase this portfolio), and am not certain how to proceed. Should I move to WebBroker? Another discount brokerage? Other? Thanks for your thoughts!
@Lyssa: If you are TD Bank customer it probably does make sense to make the switch to WebBroker (i.e. TD Direct Investing). The branch staff should be able to help you with this transition.
Hi Dan,
Right now, my portfolio is 50% XGRO/ 50% XEQT.
Would it make more sense to go with XEQT + bonds ETF, like XBB/ZAB/VAB ?
TD-Having to have an account in order to buy eFunds is easy, 10 minutes. Also their Web Broker is an easy way to check your investments BUT getting info about performance is not easy and I go to a 3rd source, perhaps Morningstar for this. Many searches at TD suggest that you make an appointment at a branch–in this day and age considering the self-investing options, this is stupid AND the staff at the branches often do not understand your question never mind give an answer.
@Pascal: Yes, if you want to be 90% equities, it’s easier to use one equity ETF and one bond ETF. It’s also cheaper.