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.
do you rebalance allocations quarterly /annually or you just keep adding it in the same ratio
@rav: The model portfolios are assumed to be rebalanced monthly when we calculate performance.
TD has recently added three new One-fund ETFs of its own. I’m still looking them over but wondered what you think of them. They are calling them One-Click ETFs: TD TOCC – One-Click Conservative, TD TOCM – One-Click Moderate, and TD TOCA – One-Click Aggressive. They are so new that the MER hasn’t been established yet but they look about .25% Are they a new option for all-in-one Asset Allocation?
@Gayle: For its family of one-fund portfolios, TD has decided to combine traditional index ETFs with its more active products. The Vanguard, iShares and BMO versions use traditional index ETFs only, which is what I would always recommend.
Hi Dan
I was just wondering if you had any advice on DIY investment strategies for non registered investment accounts. Would the couch potato strategy differ. Just want to minimize my tax payments and maximize growth in this account.
Thank you
@fv: The basic principles are the same. This might help:
https://canadiancouchpotato.com/2017/01/26/ask-the-spud-can-i-make-taxable-investing-easier/
I am just getting started (at age 55) with investing. I will be investing a small (<$200) per month to start and I am wondering if in my case the TD Eseries is a better option than a one fund ETF porfolio to get the ball rolling?
Hi Dan,
I’m looking to help my parents who recently inherited some money setup an asset allocation ETF in their TFSAs. I was thinking of doing a 50:50 split between VCNS and XBAL for them as they are in their mid 50s and fairly risk adverse. I was looking at your model portfolios page but I see the iShares portfolio is showing a 404 error. Just wondering if you’re aware of the issue?
@Eric: Should be fixed now.
Hello
Why does CCP models don’t propose any 100% equity portfolio?
@Gabriel: The model portfolios are all “balanced,” meaning there is some combination of fixed income and equities (There is no 100% bond portfolio either.) In my experience few investors should be holding 100% equities, although if an investor does want an all-stock portfolio it should be obvious how that can be accomplished with asset allocation ETFs (i.e. by simply using VEQT or XEQT).
Hi Dan
Add me to the enormous pile of people grateful for your work.
Per your models a couple years back, I have both a diy TFSA and non-registered account made up of ZAG, XAW, and VCN. I have just decided to go diy on the rest and have moved my RRSP, RESP, and another non-reg account away from the old firm. For future planning (and emotional) reasons I would prefer to keep the second non-reg account (large, say 3xRRSP value) separate from the other basically as a set-and-forget plan.
Somewhere on your blog – perhaps in a response to comments – you indicated that it is unwise/complicated/bad to use the same ETFs across multiple accounts, perhaps all types of accounts or just non-registered I cannot recall. I can no longer find the specifics of that despite looking for a while. My plan was to use your new ETF model for everything (perhaps with balance in one and growth somewhere else),… but before this happens are there consequences I need to know? Go Vanguard ETF on one and iShares ETF on the other?
Thanks!
@Mike: Thanks for the comment. I think what you’re referring to is the idea that it’s generally a bad idea to hold the same ETF in two different non-registered accounts. This is because your adjusted cost base for the ETF needs to be calculated on an overall basis, as though all of the transactions were done in the same account. This makes your bookkeeping a nightmare. So, yes, it does make sense to use ETFs from different providers in the two accounts.
https://www.adjustedcostbase.ca/blog/tracking-adjusted-cost-base-with-multiple-brokerage-accounts/
This is less of an issue with registered accounts: e.g. if you have two RRSPs, you can use the same ETFs in both, since you don’t need to calculate ACB for registered holdings.
Hi Dan,
In your response to Mike. Does your guidance about having to do the calculations on an overall basis still apply for non registered accounts, with 1 being a personal and the other being a joint account?
@Jeffery: If you are splitting the investment income in the joint account 50/50 with your spouse, and you have an individual account, then this complicates things even further. This is definitely a situation where it makes sense to use different securities to make your bookkeeping much easier. If you’re in this situation no9w, I’d suggest working with an accountant to determine the best way forward.
Hi Dan,
Thanks for clarifying. Yes, we are in the later situation where we have the same products across different accounts. A follow up question, this complexity applies to all investment products – It doesnt matter whether I use etfs or the e series, i need to track the acbs overall. Is that correct?
@Jeffery: Yes, the ACB rules are essentially the same for any investment in a taxable account, whether ETF, mutual fund, stock, etc.
Hello, I’m a 46 year old, what would be the best portfolio mix, for me to invest in for my age. Should I, have just one main ETF, that’s diverisfied. Kind of thinking towards a Balanced slight aggressive stragety.
Thanks
@Dominic: Age is not the only factor to consider. This may help:
https://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/
I’ve been investing with tangerine for a few years now, with an ok amount in there (according to previous recommendations on this site). I would prefer to go with a TD e-series. How do you recommend switching over – should I switch what I’ve got in tangerine? Or just put all new investment in TD, and leave tangerine where it’s at?
@Lee: In my view, if you are going to go through the effort of opening new brokerage accounts and setting up an e-Series portfolio, then I would move everything there so you have only one portfolio to manage instead of two.
Hi Dan …. is there a point at which you would reach beyond the couch potato all in one funds? If so, do you have a figure in mind? Maybe mid six figures? Thanks for your time and consideration.
@Steve: First off, I think DIY investors would do just fine using all-in-one ETFs at any asset level if they value the simplicity and the enforced discipline. But if you’re an experienced DIYer and you’re willing to put in more work to lower costs and improve tax-efficiency, then I that might be worth it once your portfolio is north of $200K or so (that’s a fairly arbitrary number).
The potential for improvement is also greater if you have multiple accounts (TFSA, RRSP, taxable) so you can take advantage of asset location, US-listed ETFs in RRSPs, tax-loss selling, and so on. Of course, the more accounts you have, the more difficult it is to manage the portfolio, so this creates potential for mistakes that would undermine your efforts.
Justin looked at this issue a while back:
https://www.canadianportfoliomanagerblog.com/when-should-i-dump-veqt-or-should-i/
Hello Dan. I opened a questrade account in march 2020 and since then, I’ve put 15.000$ in VGRO in a TFSA vehicule. I am wondering if I should also invest in TD eSeries like you proposed in your model portfolio. I am ambivalent if I should only stick to VGRO or also go with eSeries. It would be like having my money in these 2 model portfolio that you propose.
I think you are going to say: Why both? Why make it more complex?
Well, I just want to have your insight. I will transfer around 100.000$ in TFSA and RRSP in 2021. So I am wondering if I should split between VGRO and eSeries or stick with VGRO.
Thanks!
Martin
@Martin: Yes, I think you have anticipated my response. :)
In theory, it could make sense to use both in different contexts. For example, if you are making small monthly contributions to one account you could use the e-Series funds there, and then use VRGO in a different account that you were not adding to. But certainly there is no diversification benefit. If you are investing lump sums in both accounts and they have the same objective, then why not use the same ETF?
First of all thank you for all your precious advice. I had a fortunate inheritance and plan to invest several hundreds of thousands CAD in VGRO. My question is: Should I put it all in once despite the volatility of the market or choose to invest, 10k at the time, for the next months?
Thank you very much
AQP
@AQP: This should help:
https://canadiancouchpotato.com/2018/01/22/ask-the-spud-should-i-use-dollar-cost-averaging/
Hi Dan, I am so grateful for your amazing work! I have read nearly all of the comments on this post, which have answered many of my questions already.
I am 34, and my maxed-out TFSA and RRSP are identical, composed of your 3 ETF growth model portfolio, XAW/VCN/ZAG at 60/30/10. I am comfortable with rebalancing, and as you advised many other readers, there is no reason to switch to XGRO/VGRO if this is the case.
We recently maxed out my spouse’s TFSA, and will soon move it to Questrade ETFs. I am very excited about the 2020 one-fund portfolios, and am leaning towards investing it in VGRO. This also has me curious about possibly switching my 3 ETF portfolios to VGRO, too, (or maybe one with XGRO for fun) when we have new deposits to make in January 2021. (I do an annual dump, and use the deposit to rebalance.)
Any thoughts about this plan? I’m guessing, regarding the 3 ETF portfolios: “if it ain’t broke, don’t fix it”, and simply invest the second TFSA in VGRO…or even wait for the 2021 portfolios. Many thanks for everything you do!
@Erika: Thanks for your comment. I will take one mystery out of your decision and tell you there won’t be any changes to the ETF model portfolios for 2021. :)
This call is really up to you: if you have been disciplined in rebalancing your three-ETF portfolio once a year when you add new money, then there’s no real need to switch to a one-fund portfolio. This is especially true if you’re at Questrade the extra trades are free anyway. I would note (as I’m sure you know) that your three-ETF portfolio is 90% stocks, compared with VGRO’s 80%, so that will make a small difference in performance over time. But sounds like you’re doing everything right, so keep it up!
Can’t thank you enough for your vote of confidence, Dan! Cheers :)
If I want to invest in the TD e-Series Funds, would it be better to buy the TDB909 and TDB900 in my $CA RRSP and the TDB902 and TDB911 in my $US RRSP? (I already have some $US available in my $US RRSP account, don’t need to buy $US). Or it doesn’t change anything?
Same question for if I want to buy either VGRO/XGRO (should I buy in $CA or $US)
Thank you.
@Pascal: TDB902, TDB911, VGRO and XGRO are all denominated in Canadian dollars. If you use USD to purchase them, your currency will get converted automatically by the brokerage at the usual (unfavorable) spread. So you definitely do not want to do this. Better to convert your USD to CAD once using Norbert’s gambit and then just invest in CAD going forward.
Or should I buy TDB902 instead with my USD?
(or the equivalent for VGRO/XGRO in USD, which I’m having a hard time to find)
Thank you again.
@Pascal: There is a USD version of the TD US Index Fund that you could use if you don’t want to convert your USD. The code is TDB952.
There is no USD version of VGRO or XGRO. These funds can only be purchased in CAD.
Yeah, I meant the TDB952 (my mistake).
Thank you for your answers.
Hi Dan, I still own this in my portfolio (RRSP in CAD), based on the couch potato model portfolios from a few years ago:
ZAG: 20%
VCN: 27%
XAW: 53%
Are those three products still recommended?
Should I sell them and buy VGRO/XGRO instead?
For the next investment, should I still buy ZAG/VCN/XAW or should I now buy VGRO/XGRO?
If so, which one should I pick: VGRO or XGRO?
This is a dummy question about multiple deposit in a VGRO through Questrade. If I deposit 5000$ and then a month later I deposit another 5000$ with a different stock price, are they going to be “merged” to make 10000$? Is it going to be shown 2 separate 5000$?
And then, when I redraw money eventually, do I need to redraw the exact amount I’ve deposit, like 5000$ + interests or I could just redraw 2000$ ?
@Martin: If you’re talking about purchases in the same account, then all purchases of the same fund will be considered a single holding, and the price will be averaged. So if you buy 100 shares at $20 each, and then you buy another 100 shares at $20.06 each, your account will show a single holding of 200 shares with an average cost of $20.03.
When it’s time to withdraw, you can take out as much or as little as you like.
Hi Dan,
Looks like Tangerine will come out soon with ETF options. Do you intend on making a review/analysis once the details are known (it would be esp helpful for those of us still with Tangerine).
@Rebecca: Of course, I would certainly be ready to review any new products like this. However, if Tangerine is planning to launch ETFs, than presumably you would still need to open a brokerage account to purchase them: ETFs cannot be purchased directly from the fund provider, as you can do with mutual funds. So these may not be of any particular benefit to investors who are currently Tangerine clients.
Hi Dan,
I started the couch potato strategy a few years ago by opening up a TFSA Tangerine investment account (Balanced Growth). I’d like to move all of those funds over to my newly created Questrade (TFSA) account and purchase VGRO (although I have a defined pension so I might actually just go with the riskier VEQT – but that’s beside the point). Is there a recommended way to transfer my funds without using up any of my TFSA contribution limit for the rest of the year? Thanks!
Also – does the CRA have a tool to help me track my contributions and yearly contribution limits on my TFSA? Do you have any recommended reading or maybe a past post that goes over TFSA basics? I’ve never quite understood the following theoretical scenario: Imagine you are new to investing, and you contribute the max amount into your TFSA in January (For arguments sake lets say the limit is $50 000, and every year the contribution limit increases by $5000). Now, you made some horrible investments, and you’re total amount left in the account is only $20 000 after one year. So after a year the total contribution limit is $55 000, but how much more can you actually invest? Am I correct in saying that you can only invest an extra $5000, as opposed to $35 000?
@Chris:
RE: “Is there a recommended way to transfer my funds without using up any of my TFSA contribution limit for the rest of the year?” Transferring assets from one TFSA to another TFSA at a different brokerage has no effect on your contribution room. (The same is true when transferring from one RRSP to another.) This is fundamentally different from withdrawing the funds from the TFSA and then recontributing them to another.
RE: “Does the CRA have a tool to help me track my contributions and yearly contribution limits on my TFSA?” Yes, the CRA keeps track of all TFSA contributions and withdrawals and updates your contribution room annually, usually in late February or March. If you have an online MyCRA account you can find your details there. Or you can call 1-800-267-6999 to get this information.
RE: how investment losses affect contribution room, you are correct that in your example you can only contribute an additional $5,000. Losing money on the investments does not entitle you to make additional contributions!
Hi Dan,
I’m 30 and months ago put 10K in a Wealthsimple account (risk level 8) to get my feet wet. I’ve been doing lots of research (thanks for your content!) and feeling more comfortable to save on fees and purchase my own ETFs. I’m considering a higher amount 90-100% in stocks, divided between Canada and ex Canada…I’m wondering what your advice is about:
1) if I should keep my Wealthsimple account to diversify or consolidate it all, and
2) how I should choose between XIC vs VCN and XAW vs VXC?
@Janet: There’s no diversification benefit to using both Wealthsimple and your own ETF portfolio: the holdings would be essentially the same. The question is more about whether it makes sense to close your Wealthsimple account before you get comfortable managing your own portfolio. You might find that you prefer having the roboadvisor do the work, and then you might regret acting too quickly. Whichever one you decide on, consolidating everything in one place will be much easier.
As for VCN/XIC or XAW/VCN, just flip a coin. They are essentially identical and there’s no compelling reason to choose one over the other.
Hi Dan,
If one is okay with more risk than say 80-20, does it make sense to go purely VEQT, without any bond ETFs? I’ve heard of people doing this for added growth, but was unsure that this was necessarily true. For one there is no rebalancing.
@Dustin: If you’re prepared to endure the volatility of 100% equity portfolio, then a fund like VEQT would be ideal. You should be prepared for a portfolio like this to lose 40% to 50% of its value in a brutal downturn like we experienced in 2008–09.
Hello Dan. In Canada, I think we have a law that protect us agains fraud of an institution that max at 100.000$ for each institution. Am I right? It so, investing in Questrade, should I add another broker after my investments with Questrade reach an amount of 100.000$ ? Thanks again Dan.
@Martin: A couple of points to clarify. First, brokerages and investment dealers are covered by the Canadian Investor Protection Fund (CIPF), but this covers insolvency, not fraud. CIFP coverage is up to $1 million. The $100,000 figure is the limit for the Canadian Deposit Insurance Corporation (CDIC), which guarantees products such as savings accounts and GICs. More information here:
https://canadiancouchpotato.com/2014/06/02/ask-the-spud-how-are-investors-protected/
In my view, it is not necessary to use more than one brokerage even if you have more than $1M invested. Remember that if you hold stocks, funds, ETFs or other securities and your brokerage becomes insolvent, your investments do not disappear. In the vast majority of cases, your accounts would simply be transferred to another brokerage. The biggest risk would be to cash balances in the accounts, which in theory might be lost. But unless you are in the habit of keeping huge amounts of uninvested cash, the risk is extremely low.
This is probably a really stupid question, but I’ll ask it anyway.I started with the TD eSeries for my son’s RESP and RDSP. But I do this all through TD’s WebBroker because I have an old (seldom used) TD chequing account. I also have Tangerine accounts for my and my partner’s RRSPs. Do you know how easy it would be to transfer the accounts from Tangerine to the eSeries via Webbroker? And is web broker an “online brokerage” that I could potentially use to purchase ETFs if I ever get brave or knowledgeable enough?
Hi, Dan:
In your 2020 CP portfolio, you suggested VAB + VEQT have slightly lower fee than VBAL or VGRO; Can you explain more in details? because expense ration on VEQT is 0.25% and VBRL and VGRO is also 0.25% each as per finance.yahoo.com website. not sure if i am looking at the right place to figure out.. Thank you very much!