For DIY investors, asset allocation ETFs may be the greatest gift to come along in decades. It’s never been easier or cheaper to build a globally diversified portfolio that needs almost no maintenance. But compared with a balanced mutual fund, even one-ETF portfolios have a few potential drawbacks.
First, at most brokerages you still need to pay a commission of up to $9.99 any time you buy or sell ETF shares. If you’re making smallish monthly contributions, that’s a major obstacle. It simply isn’t cost-efficient to trade unless you’re investing at least a couple of thousand dollars each time.
Moreover, mutual funds give you the opportunity to automate your purchases. With the money taken from your chequing account every month, your savings become more consistent, and soon you may not even notice them. Unfortunately, when you use ETFs, you don’t get that benefit.
Finally, mutual funds make it easy to reinvest all distributions (dividends and interest payments), which means there’s no cash sitting idly in your accounts.
Of course, index mutual funds have their own drawbacks. The Tangerine Investment Funds, for example, offer all the benefits mentioned above, but carry a fee of 1.07%, which is no longer competitive. The TD e-Series funds offer these three benefits at about one-third the cost of Tangerine, but you need four funds to build a globally diversified portfolio, and you need to rebalance these yourself from time to time.
You can argue that robo-advisors combine many of the benefits of mutual funds and ETFs. It’s easy to set up automatic contributions from your bank account, and any time dividends or new contributions land in the account, the cash is quickly reinvested in new ETF shares. And most robos don’t charge commissions for trades. Problem is, these services aren’t free: robo-advisors typically charge about 0.50% annually (less on large accounts), which is $250 a year on a modest $50,000 portfolio, and that’s in addition to the management fees on the ETFs themselves.
What if you were able to combine the useful features of a mutual fund or robo-advisor with the lower fees of an asset allocation ETF? If you’re willing to put in a little effort at the beginning, it turns out you can create a DIY portfolio with the ideal mix of low cost and hands-off convenience. Here’s how.
1. Choose a brokerage with zero commissions
While most online brokerages charge between $4.95 and $9.99 per trade, there are a few options for trading asset allocation ETFs with zero commissions. These brokerages are ideal for investors who are regularly adding small amounts of money to their portfolio.
• Questrade offers all ETF purchases for free. (The normal commission of one cent per share—minimum $4.95, maximum $9.95—applies when selling ETFs.). While this presents an opportunity to build a portfolio of multiple funds, using an asset allocation ETF means you never need to rebalance, which has behavioural benefits even if you’re not paying commissions.
• National Bank Direct Brokerage now offers commission-free trades on all ETFs, the only big-bank brokerage to do so.
• Disnat (Desjardins Online Brokerage) also offers commission-free trades on all ETFs.
• BMO InvestorLine has a menu of commission-free ETFs, including 14 asset allocation ETFs. The list includes the major one-fund portfolios from Vanguard (VCNS, VBAL, VGRO) and iShares (XCNS, XBAL, XGRO) as well as BMO’s own family (ZCON, ZBAL, ZGRO).
• Scotia iTRADE lets you trade about 50 ETFs with no commissions. Unfortunately, the list is no longer on their website: you need to have an iTRADE account to access it. While most of these ETFs are not useful for traditional index portfolios, eligible funds include XBAL and XGRO.
• Qtrade offers a selection of commission-free ETFs, and the list includes both XBAL and XGRO.
A note for investors who are starting from zero: some brokerages charge a quarterly $25 inactivity fee on small accounts. The minimum balance to avoid these charges is $1,000 at Questrade, $10,000 at Scotia iTRADE, and $25,000 at Qtrade. Read the fine print before you open your account.
2. Automate your deposits
In general, you can’t set up an automatic purchase plan for ETFs the way you can with mutual funds. But every brokerage allows to you set up regular deposits of new cash to your accounts. Even if that cash doesn’t get invested immediately, there’s value in automating your savings rather than relying on ad hoc contributions that can easily get forgotten—or spent.
Automating cash deposits is particularly easy if your online brokerage is associated with the bank where you hold your chequing account. But even if you’re using Questrade or Qtrade to take advantage of commission-free trades, you can arrange an automatic transfer of, say, $500 per month to your TFSA from your third-party chequing account. If you can’t find the forms on your brokerage’s website, call them and ask for instructions.
You’ll still need to log in to your investment account to make a trade and invest that cash. But if you forget from time to time, it won’t make much difference: you can just make a larger trade next month. The important thing is that you won’t neglect to save.
3. Set up a dividend reinvestment plan (DRIP)
Robo-advisors automatically reinvest the cash when ETFs pay dividends or interest, which allows you take full advantage of compounding. For small portfolios, this is a pretty minor benefit, especially if you’re able to reinvest that cash with commission-free trades. But, hey, every little bit helps.
If you’re using an asset allocation ETF in a self-directed account, you can get the same advantage by enrolling in a dividend reinvestment program (DRIP). All discount brokerages offer these plans, and you can usually enroll easily online. Unfortunately, not every ETF is eligible at every brokerage, so it’s worth a call to the customer service desk if you’re not sure whether your asset allocation ETF is on the list.
When you’re enrolled in a DRIP, you’ll receive your dividend and interest payments in the form of new ETF units rather than cash—with the caveat that only whole units can be purchased. For example, if the ETF is currently trading at $25 per unit and your holding pays a $127 dividend, you’ll receive five new units plus $2 in cash. (No commissions are ever charged on DRIPs.)
DRIPs are a great way to way to keep your investments compounding in a TFSA, RRSP or other tax-sheltered account. But I generally don’t recommend them in non-registered accounts, as they can complicate your recordkeeping. If you’re making a few commission-free trades every year anyway, it’s easier to just mop up the idle cash in your taxable account at that time.
The (minimal) effort is worth it
If you’ve put the above three steps in place, then you’ve ticked the important boxes for a solid investment plan: you’ve got a broadly diversified portfolio that requires no rebalancing, your annual fees are super-low, you’ve got a regular savings plan, and your transaction costs are close to zero.
The investment plan I’ve suggested here isn’t entirely hands-off compared with, say, the Tangerine Investment Funds or a robo-advisor. With those options, once you’ve opened your account and set up your regular contributions, you could safely lapse into a coma for a few years and your portfolio would likely be in great shape when you woke up. But you do pay a significant amount for that benefit.
I’ve long argued that paying a little more for convenience is well worth it: that’s the reason I recommend asset allocation ETFs rather than assembling a portfolio from three or four funds, which would have a lower MER. What I’ve outlined above, in my view, strikes the right balance: it’s not the absolute cheapest option, and it’s not the absolute easiest, but it scores very high in both categories. If you can muster the energy to log into your accounts a few times a year and make a single ETF trade each time, then you’ll be well on your way to long-term success as a DIY investor.
Hi!
Coming from someone who is just learning about all of this. With the world as it is, is this a good time to start investing and with what brokerage?
Been spending quarantine reading all your articles!
Thanks!
Hello Dan, I have a very modest amount to money to invest. I am a bit clueless but I want to get started as soon. I want to open a TFSA ($500) and a RESP ($1000) with Questrade and make small monthly contributions. I am planning on reading lots of books to become educated. Is this right approach?
I decided to go with Tangerine and Wealth Simple, I do have a TD account I thought I would go with the four types of mutual funds, but I do not want to figure out how to re balance my portfolio. I want fees low as possible, but I don’t want to worry about doing the wrong thing. Reading what Tangerine has to offer fit my goals and wealth simple just makes it easy to set up and check my statements once in a while.
Dan, Your blog has been very informative. I have been reading about how high MER can eat into your returns and was ready to make the move. Currently, my RRSP and RESP are with a big bank, in mutual funds.60% EQT, 40% Bonds. But with recent volatility the portfolio is down, so now not sure if it is worth selling my funds now and to lock in the loss.
Should I wait for funds to recover? Or does it come out as wash in the end as I will be investing the transferred cash back into either XGRO or XBAL. I am leaning towards XGRO for RRSP as would like to take advantage of the market dip and gradually add more XBAL to increase bond component.
If you recommend to wait, as a second option, does it make $ sense to transferring my mutual funds as is to Questrade. Their mutual funds maximizer will refund the trailing fund fees, more than enough to offset their $30/month service fee. Of course, it will cost me $10/fund to sell my 6 mutual funds.
Thanks for your help and insights.
Hi Dan,
Regarding Wealthsimple Trade, just wanted to point out that transfers of investments from other institutions is not only possible, but it is also free for transfers greater than 5000$ and pleasantly painless, requiring only a few minutes to submit the request.
Thanks for CCP,
Andrew
@Raj: You are correct to note that it will “come out as wash in the end as I will be investing the transferred cash back into either XGRO or XBAL.” The current market environment does not matter if you are switching from high-fee funds to low-fee funds with a similar asset mix.
I have been thinking about investing approx. $350000 in one or two ETF’s, perhaps VBAL and VCNS, for simplicity.
Would that move be wise?
Hi Dan,
Great website, lots of good info on here. I’d be interested to know your thoughts on investing in the US market with CAD or USD. Your models use CAD, is to keep things basic so beginners have simple steps to follow?
Take your eSeries model which includes TDB902; to have a diversified portfolio, would it not make more sense to still invest in the other three Series, exchange CAD to USD via Gambit and invest in a broad based US index fund instead of TDB902? Is there a cost differential?
Same question for ETF’s with US exposure; thoughts on using CAD vs USD to invest.
Finally, are there any factors that should be considered when using USD instead of CAD in a non-registered account? DRIP and withholding tax on foreign dividends aside.
Thanks,
Bryan
@Bryan: The first point to understand is that if you use a Canadian mutual fund or Canadian-listed ETF to hold US stocks, your currency exposure is exactly the same. The currency exposure comes from the underlying holdings, not the trading currency. In other words, a finds like TDB902 has the same exposure to the US dollar as a US-listed ETF. So there is zero diversification benefit from using US-listed ETFs.
With that in mind, I don’t usually recommend Us-listed ETFs because they make managing a portfolio much more complicated, and the cost of exchanging currencies often outweighs the benefits (such as lower MER). In a non-registered account, tacking your adjusted cost case and reporting capital gains and losses is also much more complicated with US funds.
Hi Dan,
Any advice for those couch potatoes who overreacted when the market crashed? For over a decade, I have kept a pretty cool head and just ignored the market fluctuations, but it was hard to do this recently with losing my job, the media hype and many of my friends and family talking about how they pulled out early and did X Y Z.
I foolishly sold when the market was pretty low (non-registered accounts). I’m looking at buying back the investments I sold, but having realized some capital gains, I’ll now need to put money away some of the money to pay the tax man. (sigh)
Hey Dan,
Thanks for the reply. Would you offer commentary on using CAD vs USD to invest in US stocks directly? Realizing the point of your website is couch potato investing, would you recommend converting to USD before making an investment? Seems like a better option given the spread brokerages charge to use CAD to invest in the US.
Additionally, would it be as complicated as you outlined above to use CAD or USD to invest in a non-reg account?
Thanks,
Bryan
Hi Dan,
Can we get an update on how couch potatoes can be socially responsible? I’m trying to divest my portfolio from fossil fuels (an exclusionary approach) rather than inclusionary and am looking for low fee ETFs (Vanguard, or through low fee mutual fund etf wrappers) that can be used? What do you think?
Julie & Dave
https://canadiancouchpotato.com/2013/05/13/can-couch-potatoes-be-socially-responsible/
Hi Dan, I’m a 40 year old small biz owner with a self-employed wife and 3 kids, lucky to be in a pretty stable financial situation, even in these times. Since COVID’s impact on the economy, I haven’t flinched with my or my wife’s retirement funds, nor have I done anything with my kids’ RESP which has about $85k in ETFs with a ~75-25 split towards equities (my oldest has ~10 years until university). I have $10k in cash in the RESP account, now that the CESG came thru. I’m wondering, should I hold cash for now? Buy same 75-25 split asap and hope for the best knowing I can’t time the market (this is my most likely approach), or buy all bonds to push my fixed allocation up a bit in this volatile timeframe? In the back of my mind I’m considering buying some stocks that are low at the moment (i.e. COF, DIS, SBUX) but I think you might slap me on the wrist for the thought :-)
Thanks for your two cents. Rick
My take on investing in US Dollars: I agree fully that it’s not worth the effort, normally. But my situation is this. Outside of my RRIF I have a large non-registered investment account that I try to keep inexpensive by owning a diversified mix of (Can$ priced) Horizons Total Return Swap Index ETFs which defer taxable dividend payments, and instead swap any income by transforming these amounts into increases in the value of the ETFs. (A bonus to the deferral of tax is that the eventual tax would be on capital gains). That does the trick, and I would recommend it for anyone else in that situation, rather than go the US$ route.
But I have a small side complication. I make frequent on-line purchases, often from the US (mostly bike parts to support my expensive Triathlon hobby). It just kills me to pay 2.5% Exchange fee, which is what happens each time I use my Canadian Dollar Credit Card. After a lot of flailing around, I finally have a viable system. I have a US based RBC Bank US$ Bank Account and VISA Credit Card. I also have a Canadian RBC bank account with a US Dollar savings account (very modest interest, but it’s better than nothing). I have a proportionate holding in VBR, a US Small-Cap Index ETF in US$ to balance off a larger holding in HXS which is the Horizons ETF for US S&P 500 Total Return (which is part of my overall balanced diversified portfolio) priced in Can$. VBR pays a regular quarterly dividend in US$ which I’m quite content to pay tax on. I transfer this dividend to my Canadian US$ account, and at monthly intervals do a free cross-border transfer to my US US$ account which automatically pays off my US$ VISA bill. It’s a bit of tail wagging the dog, but I built it in small adjustments and it has worked well when I finally finished my system and requires minimum work. And if I ever go to the US I can use my US$ cash without Foreign Exchange gouging. Only problem was that the Capital Value grew until it exceeded the threshold to require reporting to CRA. A hassle, but now I understand it, it’s easily done. I think the COVID Hit may have temporarily fixed that, LOL.
Oh, I set up the original VBR investment with US$ obtained using Norbert’s Gambit, so I didn’t lose anything on the exchange (OK, maybe 0.025%). A hassle, but part of my initial investing education, and well worth it to me. I won’t need to do it again.
Hi Dan,
I really like the all-in-one funds but was bemoaning the fact that there were no ESG versions available. Then I noticed that BMO recently launched a balanced ESG ETF (ZESG). It’s new so it’s hard to evaluate but I was wondering if you might consider doing so in a future post?
Hey Julie
Not sure if you will check this but I do socially responsible investing as much as you can. Here are funds I use some of them listed on the webpage you referenced but some are not
ETFS
XEN iShares Jantzi Social Index ETF (Canada SRI Large Cap)
DSI iShares MSCI KLD 400 Social ETF (US SRI Large Cap)
ESGD iShares ESG MSCI EAFE ETF ( EAFE Developed Countries)
ESGE iShares ESG MSCI EM ETF (EAFE Developing Countries)
MUTUAL FUNDS
RBF1610 – RBC Vision Bond Fund
RBF1045 – RBC Vision Global Equity Fund Series D
RBF 1043 – RBC Vision Canadian Equity Fund Series D
Seem to be hearing a lot more of this chatter recently, what do you think?
https://www.theglobeandmail.com/investing/markets/etfs/article-theres-a-downside-to-passive-etf-investing/#comments
Hi Dan,
Just as a heads up, there is a way to also auto-invest (not just auto-deposit) with Questrade!
Using a tool called Passiv (getpassiv.com) – which offers its Elite package for free to Questrade clients – you can setup automated purchases of ETFs. I think that takes the effort from minimal to zero, haha!
P. S. I discovered that not “all” brokerages offer auto-deposit & DRIP. Wealthsimple Trade, for now, does not.
P. P. S. I am not in any way affiliated with Questrade. Just a humble beginner Couch Potato who did a lot a research :P
I’m 40 years old, and i am considering XEQT and XGRO.
Would it make sense to have XETQ in TFSA account and XGRO in RRSP ?
Or am I young enough to go “all-in” XEQT?
Any thoughts?
Hi Dan,
I am new to all this so thank you for all the information.
If I invest in the All in One Vanguard VGRO ETF through Questrade can I make monthly deposits of $500 to grow my portfolio? When I trade I am just buying more shares of VGRO? Because VGRO automatically rebalances itself?
Thanks!
@Charley: Yes, if you want to invest $500 per month you simply need to buy shares of VGRO or whichever other all-in-one ETF you decide is appropriate. Everything else is done for you by the fund. That’s the beauty of these products. Good luck!
HI Dan – VBAL yield is 1.6%. I have GIC as my safety net – rest I can invest – – I can get 4% plus on big companies like Telus and BMO etc – just not sure if I need VBAL etc – I am in other funds – XIC, VDY as well etc. I
Hi Dan,
Much better options are available to investors with USD, e.g. you can access factors. What are your thoughts on converting the entire equity portion of your portfolio to USD and allocating to US ETFs from there? Assuming you can avoid the bank’s currency exchange spread by buying and selling a cross-listed stock… Thanks
@Marco: I disagree with the premise that factor-based ETFs are “much better options.” I also feel that, outside of RRSPs, transacting in USD adds too much complexity and cost.
Wow that was a super fast reply – thank you! I’ll try my luck with another question.
Conventional wisdom is to hold your fixed income allocation in tax protected accounts. How does that advice change given near zero expected bond returns (so no tax protection happening…)
@Marco: I have no issue with holding fixed income in taxable accounts, as long as you avoid traditional bond ETFs that are particularly tax-inefficient. And you’re right, as long as fixed income has extremely low yields there may be relatively taxable income to worry about. In practice, asset location is often more complicated than it appears, and there aren’t many hard-and-fast rules.
Hi! I think that previously, you indicated that holding VBAL/VGRO in taxable accounts was not optimal. However, I see that in later posts, you indicate that it won’t make much difference.
If the taxable account is quite sizeable, does this make a difference in your analysis? Would VBAL or VGRO be good solutions for a large taxable account and across all accounts (RRSP included)?
@Claire: I would stand behind both statements, i.e. it’s true that asset allocation ETFs are not optimally tax-efficient, but the additional tax drag is not likely to be very significant, especially when you consider all of the benefits you will be giving up (fewer transactions, less complexity, automatic rebalancing).
There is a trade-off between optimal and convenient. If you want optimal, then you would likely need to use multiple ETFs, an asset location strategy (different funds in different accounts), US-listed ETFs in your RRSP, and you’d need to rebalance regularly. By using an asset allocation ETF you avoid all of this, at the cost of a moderate amount of tax-inefficiency.
In a taxable account, for example, you could use a tax-efficient bond fund such as ZDB in conjunction with VEQT. But in this blog, Justin estimates the tax benefit would be about 0.05% annually compared with VGRO. Almost certainly not worth it.
https://www.canadianportfoliomanagerblog.com/tax-efficiency-of-vanguards-asset-allocation-etfs/
Hey Dan, big newbie here, been reading your blog and doing and lots of other research for a couple months now, would love any input you might have for my weird situation.
I’m a non-resident in Canada, currently living in the UK; I am leaning towards moving back to Canada in 3(ish) years. No debt, small RRSP (14K, from previous employer) and a small pension in the UK (8K). I have just received an unexpected inheritance of 600K, which is now sitting in my Canadian Chequing account.
I am thinking of investing 550k in a non-registered account with Questrade, DIY, passive investing, focused on growth not income. I will likely want to use a chunk of this money in 2/3 yrs to buy a house/car/moving expenses etc., then keep the rest in investments, and would start transferring it to TFSA, and RRSP. So a couple of questions which i would love any input on.
1. Just any general comments/suggestions on my situation.
2. DIY investing – I have checked and would be able to open a questrade account (have to get my passport verified by a lawyer here in london). I would love to hear thoughts on how i should allocate my portfolio (equities v bonds) (types of products was mainly thinking ETFs) (which products/ETFs to consider), is focusing on growth not income wise? Mainly due to taxes as a non-resident. Cost-dollar averaging – an approach to take? or just dive in with all of it?
3. Tax efficiency – Any knowledge or resources regarding taxes as a non-resident for the time being. From what I can tell there would be a withholding tax of 15% applied on capital gains/dividends/interest, do i need to send through forms to questrade so they take these off automatically? If i’m focusing on growth and holding on to ETFs in my portfolio and not selling them then this would limit my exposure to withholding taxes?
Sorry that its a bit of a ramble, this has been a huge (and emotional) life event, and would like to get the money working instead of idling asap.
Any other input from readers dealing with non-resident investing or dealing with unexpected inheritance would also be greatly appreciated.
@Corey: congratulations on stumbling upon this deep and useful source of investment wisdom (my opinion, but supported by just about every sober rational non-partisan investing advice source you can search out.) FYI I came upon this insight late in life, in 2012 when I retired (in a state of absolute investment ignorance). The revelation was instant and overwhelming. But I should warn you, the emotional solidification of that intellectual insight (you absolutely can’t predict the future, so the best you can do is assess your own risk tolerance and diversify rationally and allocate accordingly) took a while to settle, for me, at least, and maybe it was a couple of years before I stopped second-guessing myself and wondering if I should change my allocation at every wind-change in the economic climate. I believe I’m absolutely resolute now, and completely serene, knowing I can’t improve my choices, no matter what.
So, the rational logical plan might be to invest everything that you don’t need in 5 years into your risk-appropriate lifetime Couch Potato plan right now, as Couch Potato logic would suggest. (Couch Potato Rule is you absolutely can’t predict what’s going to happen in a 5 year period, so anything you need in that time spot should be segregated and put in a seperate interest bearing, Canada Savings Bond or GIC type holding, I don’t think there is any question on that wisdom). But the human-failings-allowance approach might be, yes, to start planning and building your Master Plan immediately, but don’t act on it yet. Wait a few months to see how the short passage of time and financial reality affects your confidence and your risk assessment. I don’t think a short delay would affect your eventual retirement financial balance. This might not be the standard Couch Potato recommendation, but takes into account the human emotional fragility that I experienced temporarily; of course you might be made of more rational stuff than I was lol.
Once you get to Canada, you’ll want to exploit your TFSA contribution room (after using your RRSP allowance) to save what tax you’ll be assessed on your taxable account. On that note, while you’re waiting in the UK, you might want to consider investing in a UK Investment Savings Account if and while you’re eligible. I investigated this for my son who lives in London and is eligible; although it was a little awkward researching this as a Canadian completely ignorant of UK investment peculiarities; essentially it acts like a UK TFSA and you can buy the UK equivalent of a Canadian Bond Index , plus a diversified World Market Index in your risk-appropriate ratio and just let it sit. When you move back to Canada just leave it sitting, like you would your TFSA.
Thanks for the insight Dan.
Yes in the UK you have a yearly £20000 contribution to an ‘ISA’ which can include a ‘stocks and shares’ account. I’m hesitant of bringing money overseas (that i don’t need) because losing a % of it during the FX and then perhaps bringing it back and losing a % again (and the exchange rate isn’t ideal for CAD>GBP at the moment, BUT I have not thought about leaving it sheltered in an ISA long term. You are correct that it is basically like a TFSA, once a non-resident can keep whats existing, but cannot contribute anymore. Definitely food for thought.
@Corey: For the record, the pervious comment addressed to you was not from me. While I would like to help, I have no experience with non-resident investing and cannot offer any useful information. Sorry I couldn’t be of more help.
We are moving ~$400,000 from a financial advisor/manager to Couch Potato. They have our RRSP’s in 2/3 CAD$ and the other 1/3 in US$. When we move the funds over to TDWaterhouse, should we maintain our US$ portion (maybe in VUN) or should we move it to CAD$? We use VGRO only for our current Couch Potato portfolio.
@Glen: If you keep the USD in your RRSP, then you would not be buying VUN, as this fund trades in Canadian dollars. Its USD equivalent is VTI.
There is some tax benefit to keeping the USD in the RRSP, but of course, it will make the portfolio more difficult to manage. Things will be much easier if you use a one-fund ETF here, as you’re doing in your other accounts.
Dan, I’m leaving my high fee mutual fund advisor and have about $300,000 to invest. Being near-retired I’m comfortable with a “balanced” type of ETF. Does is make any sense to split amonst multiple balanced ETFS, such as VBAL, XBAL and ZBAL, or should I just stick with one?
(About 2/3 is in RRSP and 1/3 in our TFSA’s presently)
Thanks,
@Ian: There is no meaningful advantage to using asset allocation ETFs from more than one fund provider. It’s much simpler to just choose one and use it in both accounts.
Hi Dan,
I’m a new investor and was more inclined towards all in one ETFs strategy, but I was confused between XGRO and VGRO. It seems like VGRO has significantly higher volume than XGRO, does that mean it’s going to be hard to sell the ETF down the road? Should I be buying 50% XGRO and 50% VGRO, just so that I’m not putting all my eggs in 1 basket?
Another thing is that I see XGRO was released in 2019 but they show past 10yrs performance, how does that work?
Appreciate your advice.
@Nitish: Thanks for the great questions. Trading volume means very little with ETFs: there is absolutely no concern that VGRO will be hard to sell, and certainly no need to buy both VGRO and XGRO. Just choose one or the other. The “one basket” is actually six or seven underlying ETFs and tens of thousands of individual stocks and bonds.
XGRO and XBAL were not brand new ETFs: they were originally different balanced ETFs that got a makeover in late 2018. Their long-term performance (i.e. from before this change) is completely misleading and should be ignored.
Hey Dan, great content! I’m a beginner in investing, in my early 20s and looking to invest long term.
I get paid in USD and CAD every month so I’m thinking of opening a TFSA ( for CAD ) and a RRSP ( for USD ) I’m planning to buy XGRO in my TFSA but I’m not sure what to do with my RRSP. Any advice? Thanks!
@Kenny: Once you introduce USD to the portfolio you’re definitely making things more complicated. There is no USD equivalent of XGRO. So while you can use US-listed ETFs for US and international equities you’ll then need to add holdings in bonds and Canadian equities (in CAD) in order to keep the portfolio in balance.
One suggestion might be to use a fund like VT in the RRSP. This is Vanguard’s global equity ETF, covering the whole world with a single holding, and it’s traded in USD. Then you can use a bond ETF and a Canadian equity ETF to balance things out. To get a similar asset allocation tp XGRO, you could hold 20% in the bond fund, 25% in the Canadian equity fund, and 55% in the global equity fund.
The challenge will be managing this going forward, with new money being added in both currencies, and with global equities only in your RRSP and not the TFSA. What happens when you’re already overweighted in global equities and you have new USD to add to the RRSP? What do you buy with that new cash? This is why managing multiple accounts in different currencies quickly becomes complicated.
You might want to consider simply converting your USD to CAD a couple of times per year and just using XGRO in both accounts. So much easier.
@Kenny:
Ishares US has the following which could use and buy directly in USD:
iShares Core Conservative Allocation ETF (AOK)
iShares Core Moderate Allocation ETF (AOM)
iShares Core Growth Allocation ETF (AOR)
iShares Core Aggressive Allocation ETF (AOA)
@Linda and Kenny: These funds are designed for US investors and are not suitable for Canadians. The bonds are all denominated in US dollars, which is a major problem for Canadian investors. The fixed income component should be in your native currency or it will not reduce volatility in the portfolio. Funds like VGRO and XGRO hold Canadian bonds as well as foreign bonds that are hedged to the Canadian dollar.
Moreover, the Canadian asset allocation ETFs overweight Canadian equities, typically with with 25% to 30% of the overall equity allocation, which should lower volatility as well. The US products have only a tiny allocation to Canadian stocks.
It does not make sense to completely change your investment strategy just because you have some USD that you don’t want to convert. Make sure you don’t let this small obstacle become the driver of your decisions.
@CCP: These ETFs like all other US-listed ETFs were primarily designed for US investors but they’re accessible to all investors.
Owning US bonds is not a problem for someone who’s deriving a significant portion of its income for US sources. Also, not having an equity home bias is also not a problem and it will not really reduce volatility over a long period. Most large Canadian companies are doing business all over the world so stock markets are much more correlated now than they were before.
Like Kenny, I get a chunk of my income in USD and I’ve been investing it for years in these products without any complaint.
Hey Dan, thank you for your wisdom, I started with reading the millionaire teacher and then listening to your podcast. I started an ETF portfolio with 5 ETFs in a TFSA and then realized I was basically using the underlying etfs of VEQT. Is there any major downsides cost wise to managing the separate ETFs myself? Looking for how I can calculate the weighted average of my MERs I guess to compare my portfolio to VEQT. I don’t mind rebalancing myself since I’ll be contributing monthly. Thanks.
@Dan, I’m opening my first Corporate Investment account and was wondering if I should prefer VEQT over XEQT just because it has a higher allocation to Canadian equities. I hold XEQT in my personal accounts.
My research shows that canadian dividends are somewhat more tax-efficient in such accounts; whereas interest income and foreign dividends are taxed at whopping ~50%. Changing location of etfs may not be wise because it would mean realizing a huge capital gain in non-registered account (holds XEQT). I’d love to hear your thoughts!
@Ryan: Thanks for your comment. Using VEQT instead of its individual underlying ETFs will be slightly more expensive, but almost certainly worth it, especially if you are contributing monthly (and therefore making frequent transactions). The difference is about 0.10%, or about $10 a year on every $10,000 invested. Other than this very modest savings in fees, there is no advantage to using the individual ETFs in a TFSA, and there are a number of disadvantages, such as more transactions and irregular rebalancing.
@melwin: A few thoughts here. First, the proportion of Canadian equities in XEQT versus VEQT is not that different to begin with (25% versus 30%). Also remember that although US dividends are taxed less favorably, the yield on US stocks these days is very low (barely 1%), so a Canadian index fund may well generate more in the way of taxable income. See this blog from Justin and keep in mind the yield on US equities is even lower than when this was written:
https://www.canadianportfoliomanagerblog.com/asset-location-across-canada-some-rules-are-made-to-be-broken/
I think XEQT vs. VEQT is a very small decision. There is really no significant advantage of one over the other in any context.
@Dan Appreciate your response! As a DIY investor following CCP strategy, all-in-one etfs have been such a blessing! I’m glad I can apply the same learning to my corporate investing journey. I’d stick with XEQT/ ZDB in the corp account. Thank you again!
Hi Dan I am a former self directed trader, new to this site. I am with the RBC. I started trading in the fall of 2009 and began purchasing various shares inside my RRSP I learned on the job :). Some of these were in US funds (when we had the upper hand on the currency diff), I sold almost everything last summer in an attempt to overhaul how I was investing..we tied the market I would say, luckily we could not decide what to do other than wait…so we lost nothing in the recent chaos. I gained on the appreciation of the US $ vs CDN over those years..these (with one exception) are all US cash now. I am thinking of sell this one last position which is very strong it will be in USD cash. So…should I convert this cash back to USD , I am thinking that is what you would recommend. Once this process is done I am very sure we will be following your templates here. Incidentally my retirement horizon is no sooner than 5 years, and as far as 10 years, depends on interest rates and how my family business does. Is there information on this site for some of us that can maybe just see the retirement just over the horizon?
Another option is to do what I did. I managed to automate my investments using only TD bank + TD direct investing. I set up an automatic monthly payment to the TD Direct investing account and automatic investing into different TD e series funds (no commission) on the Direct Investing side. Then all I have to do is log in once a year (which I would have to do anyway after I get my tax return to invest into TFSA and RRSP), sell all but last month’s e series funds (to avoid the early selling fee) and buy long term ETFs. Not perfect (I am paying a bit extra for the MER for e-series funds for one year, but this is only for the money saved that year) but close enough.