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 Dan, thanks for this awesome blog. I am 30 years old and make 80,000 salary with no expenses. I have about 20,000-30,000 that I’m looking to invest VEQT along with energy etf like ICLN and roughly 20% in stocks that interest me. Anything that I should be wary of.
@Jay: I would just be aware that VEQT will be very volatile, as it is 100% equities, so you’d need to be prepared for that. As you can probably guess, I don’t think adding a sector ETF or individual stocks is an improvement.
Thanks so much for your blog. I am a longtime reader, even got one of your books in print back in the day.
I am curious as I am in the midst of just cleaning up my RRSPs. I had started with your prior recommendations, which include a mix of Canadian Vanguard, USA Vanguard ETFs and now am inclined to simplify with an all in one. But I am hung up on the fact that Vanguard Canada uses US domiciled ETFs for US and foreign stocks as per your prior warnings about tax treatment. They are a bit vague about it, and I thought that would stop once their assets got bigger, but still seems to be the case.
Anyway, I was wondering about the BMO all in ones (ZBAL or ZGRO), as they are composed of all Canadian domiciled ETFs including foreign stocks. Or the Horizons all in one, HBAL or HGRO, though they seem more complex? I notice you tend to just recommend iShares and Vanguard but there do seem to be other options with low fees now. Any thoughts?
Thanks and Happy New year!
@Chris: Thanks for the comment. We should clarify an important point. The iShares, Vanguard and BMO asset allocation ETFs are essentially the same in terms of foreign withholding taxes: in all cases the foreign withholding taxes are lost if you hold these funds in an RRSP.
The only way to reduce or avoid these taxes is to hold US-listed ETFs directly in the RRSP. It sounds like this is what you’re doing now. This is definitely cheaper, but as you’ve found, it brings its own challenges in terms of ongoing management. The reason I recommend the asset allocation ETFs is not because of their optimal tax-efficiency, but because of their convenience and behavioural benefits.
The Horizons ETFs are definitely the wrong choice for an RRSP, so scratch those off the list.
I currently hold VCN (25%), VXC (50%) and VAB (25%) providing a 75%/25% equities/bonds split. As I am open to move to 80% equities is there sufficient benefit to sell the aforementioned ETF’s and solely invest in VGRO or XGRO? If so, is there any justification/value to putting half my funds into each given some of the differences you note in your article of Dec 20/20 entitled ‘Asset Allocation ETF Showdown: Vanguard vs. iShares’?
@Michael: I don’t see any long-term benefit to using both Vanguard and iShares versions: I would just pick one. That said, if you have multiple accounts and want to use Vanguard in some and iShares in the other there’s no real harm in doing so.
Dear CCP, I’m new to investing. I came across your blog from the PersonalFinanceCanada subreddit. That sub does suggest, as you do, Questrade. But I think folks there also speak highly of WealthSimple Trade, where there’s no commission for both buy and sell. How come your post doesn’t mention WealthSimple Trade? Is it because it wasn’t available when you wrote your blogpost?
@BabySpud: I don’t have strong opinions about any brokerage and have never used Wealthsimple Trade. I think investors should use whatever they are comfortable with.
I have a TFSA question, not specifically related to this post (hoping you’d be able to help). I’ve recently opened up a questrade TFSA account, and I am aware of TFSA contribution limits. What I’m not clear on is what constitutes a withdrawal from my TFSA account, which would then impact my contribution room for the remainder of the year. So lets say I’ve purchased $1000 worth of an ETF in my TFSA. If I then sell it all, but leave the cash in my TFSA account, can I reinvest it back into ETFs in the same year without it counting against my contribution limit for the year? Hopefully what I’m asking makes sense.
Other than through commission-free ETF’s, is there a way to automate the ongoing purchase of ETF’s on a regular basis via small monthly contributions (eg. $100-$200) that doesn’t negate the lower MER benefit by way of high relative commission per trade? As I’d prefer not to park the funds in cash for six months to a year to build a reasonable balance before investing, are PACC’s available through any brokerages for ETF’s? Thanks.
@Chris: Selling an investment within your TFSA is not a withdrawal. You can do all the transactions you want, as long as you don’t actually take the cash out of the TFSA account altogether. If you do that, you may need to wait until the following calendar year you recontribute.
@Michael: You’ve hit on the perennial issue with ETFs: unlike with mutual funds, it is generally not possible to set up PACCs, so they are not ideal for small regular purchases. If you contribute small amounts each month, consider the e-Series funds or switching to a brokerage that offers commission-free trades, as suggested in this post.
Hi CCP. I’m entirely new and clueless at investing but I really need an additional 10,000 CAD by June 2021. I have 10,000 to spare apart from my savings and emergency fund. What do you recommend that I do? Thanks for your time!
As a 34y old dad to three young children, I feel blessed that I discovered this blog during the pandemic (thanks to Reddit).
I began my relationship with my financial advisor, whom was referred to us by a family member, almost 5 years ago when we bought our first house and I became a father. I was uneducated financially and trusted him completely to find the best products for our needs and risk tolerance levels.
I realized during the pandemic as I read life-altering books like The Millionaire Teacher that I had been scammed. The iA mutual fund the “advisor” had pushed was performing abysmally, and the MER extremely high at 3.62%. I can’t begin to imagine the generous commissions he was getting for signing us, and probably for each monthly contributions we were making.
I’m thankful I realized the scam early enough in my life and was able to take control of my financial future. I have transferred all three RESP (which I will turn into a family RESP), my RRSP and TFSA to Questrade and followed this blog post to the letter. Opened a DRIP for each, set up pre-authorization for bi-weekly deposits and just login twice a month to set up buy orders on each account. Takes a few minutes and I’ll be saving so much.
Since I won’t need the funds for over 20+ years I’ve invested everything into a 80/20 fund (XGRO).
My question is this: at what point does it make sense to consult a fee-based advisor (that actually understands asset allocations ETFs)? After I’ve passed 100K? 1M? My strategy was to just keep buying these iShares ETFs until I retire (or I die) and switch to a 60/40 ETF as I get closer to retirement (or when my kids will go to college and I need access to their RESP funds).
All the books that proudly boast about asset allocations ETFs seem to agree that most financial advisors work for themselves and their firms first and will always suggest mutual funds that are unlikely to beat index funds. So what’s the point of consulting?
Thank you so much for this resource.
You’ve mentioned that there’s no benefit investing in different asset-allocation products in various accounts. So my wife and I would both like to begin index investing in our TFSA’s. Would it make sense for both of us to buy the 4 TD e-series and hold them in our respective accounts? We’re with TDDI.
@James: In general, it’s just easiest to hold all of the asset classes in each account. Rebalancing becomes difficult when you hold, for example, bonds in your RRSP but all equities in the TFSAs. So in general, yes, it would likely be best for both of you to hold all four asset classes in each TFSA.
Hi Dan, my name is Alan Im 22 yrs old and relatively new to investing. Im looking to invest around 30k in index funds and bonds, however in Canada Im finding it hard to distinguish between index funds and ETFS? Im trying to find the best online Canadian brokerage for setting up an account for index funds and bonds but all of the info for online brokers only references ETFS on their sites and not index funds.
Can you suggest the best online brokerages for setting up an account specifically for index funds and bonds that I can manage manually?
Thank you in advance for the help. Looking forward to starting the potato approach as soon as possible!
I was wondering if you had any thoughts on TD’s new all in one ETFs that were launched in August 2020. Do you know how these new ETFs compare to the Vanguard and iShares ETFs you recommend in your model portfolios? I’m a young, new investor and I’d like to hear your thoughts. I am curious whether the TD ETFs are worth considering, especially since they boast zero commission buying or selling and no minimum.
I’ve been a longtime fan of your blog and podcast. You present a lot of much needed information in a way that makes sense to average Canadians, thank you.
@Emily: Thanks for the comment. Justin and I are working on a review of the TD One-Click Portfolios: stay tuned! Spoiler: they are definitely not recommended over the Vanguard or iShares versions.
@alan: All of the bank-owned brokerages offer index mutual funds as well as ETFs, and they all offer individual bonds (although I don’t recommend this when you can use a bond index fund instead). I don’t have any specific preference for brokerages, but TD Direct might be worth a look for easy access to the e-Series index funds and large inventory of bonds.
Ive been following the couch potato method for a few years now and started out with the TD E series funds. I think i’m now at a place to begin moving over to ETFs. I have 70k in my RRSP and around 40-50k in my TFSA. I was planning to move over to a zero commissions broker like Wealthsimple. Would you recommend the switch over at this point or are the fee difference not worth it?
If i was to move over would you recommend buying all my shares in one trade or spread them apart?
@Edmond: The difference in fees is modest, but if you you switch to a one-ETF portfolio you have the additional benefit of never having to rebalance. So it’s up to you to decide whether you would value that convenience.
You can definitely make the transition with a single trade, as long as you’re comfortable with the platform. But if there are no commissions, you could definitely do a small practice trade or two, just to make sure you don’t start with one big mistake.
Hi Dan, I just deposited $12K to my TFSA to max out my room and I plan to buy all XGRO. Is it better to buy all at once now, or space out the purchases evenly through the year? Also I have few Ks of dividend paying stocks (ENB, EIF, IPL, BCE) in my TFSA that I purchased summer last year, do you recommend I hold those or sell and use proceeds to add more XGRO? Thanks!
@Kevin: I can’t advise you about whether or when to sell stocks.
In general, if you have many tears of investing ahead of you, then I don’t think it’s necessary to split a $12K investment into monthly purchases. It would be different if this were a very large lump sum (such as the proceeds of a house sale, or an inheritance). I that case, dollar cost averaging can make sense. But for a routine TFSA contribution it seems unnecessary.
I’ve recently left my advisor that’s been pushing high MER mutual funds to me. I have about 400000 to put in Vanguard asset allocation ETF. Would you recommend staggering my purchase or to make just one?
@Dean: If your $400K is already invested in a diversified portfolio (or if it was until very recently), then making the switch all at once would not be changing your market exposure significantly: all you would be doing is lowering your fees. I would try to avoid using this switch as an opportunity to time the markets. I worry that you may end up sitting on cash for months waiting for “the right time.”
Hello, thank you immensely for making investing so much more approachable.
I decided to follow the 80/20 Vanguard ETF allocation for my first portfolio.
But since I’m not a smart person I bought VEQT and VAB instead of just VGRO which would achieve the same result if I understand correctly. Is there any downside to doing this? Minus having to rebalance occasionally?
@Pabz: The results will not be the same, since VAB holds Canadian bonds only, while the Vanguard asset allocation ETFs hold Canadian, US and global bonds. Over the long term the differences are likely to be small, but in any given year they could be significant.
first of all thank you for all your great work !
Now that Tangerine has new Global ETF Portfolios will you get them back in your Portfolio ?
Or will you review them ?
@Christine: I plan to review the new Tangerine funds soon, though I will not be adding them to the model portfolios. Please note that despite the confusing name these are actually mutual funds (that use ETFs as their underlying holdings).
First off, THANK YOU for this wealth of information! It’s incredibly helpful, and I’m so appreciative of how you direct your efforts to genuinely helping people.
I’m 41 years old and have inheritance money I want to move into all-in-one ETF(s), in both RRSP and non-registered accounts. I recently read about the tax advantages of weighting greater bond exposure into a registered account.
So, would it make sense to purchase something with a higher bond content (like VCIP and/or VCNS and/or VBAL) in the RRSP account, and then something more aggressive (VGRO and/or VEQT) in the non-registered account? Given I will have a good pension, I think ending up with an overall ~90% equity / ~10% bond split seems reasonable.
Finally, as already implied, would it be okay to buy (just as an example) mixes of both VCNS and VBAL in the RRSP account, and VGRO and VEQT in the non-registered one? Or is that counterproductive? I know it defeats the meaning of “all-in-one,” but I’m trying to determine if there are advantages to diversification in this area. I’m with Questrade, so don’t think transaction costs would be a hindrance.
Thanks SO much!
@Michael: Thanks for the comment. If you are planning to keep only 10% of the portfolio in bonds, I don’t think you need to worry about “asset location,” i.e. holding bonds in the RRSP rather than a taxable account. Even if your bond allocation was higher than that, there is no clear advantage.
In theory, you can hold more than one asset allocation ETF to tweak your overall risk level: for example holding equal amount of VGRO (80% stocks) and VABL (60% stocks) would give you 70% stocks. But at some point you can end up making a simple solution much more complicated than it needs to be. If you can be comfortable with a single ETF in both of your accounts, I think it will make your life much easier.
What an amazing site and community resource – well done!!
I’m looking to redeploy ~$65k in my RRSP from a horrifically-underperforming MF into indexed ETFs. I’ve got another 20k there in a mix of individual stocks + $5k in my TFSA, also in individual stocks. If my time horizon is 15-20 years, and my risk tolerance is medium+, would it be imprudent to aim for a 70/30 mix by splitting the $65k into VBAL (50%) + VGRO (50%), or does that put me too far down the equity line? I’d ideally curate my own model and rebalance as needed, but my time is probably better spent leaving that to the ETF while I play with my individual stocks. I should flag, at least for the next 5ish years, I’m paying into a pension and not regularly adding to the RRSP; adding to the TFSA ad-hoc when spare funds available.
Also – at 65k, thoughts on one-off purchase (I do pay per trade fees) vs. dollar cost averaging?
Only wish I’d found this place 10 years ago, but thankful to be here now.
found your website, thank you for providing great guidance into index investing. Based on that, I have changed allocations of my retirement RRSP to VBAL. I have a question: I just retired, but in view of low bond returns, would you advice to change VBAL to index with higher equity content?
Hi there, I’m very new to this. I’ve been using investment advisors for quite a few years and I’m quickly realizing that I am wasting money!
I set up a TFSA with Wealthsimple Investment and was thinking about migrating my accounts there, but would like to save even more money with self-directed investing through Questrade.
The investments managed with my financial advisor include RRSP, TFSA that is being used for individual stocks, and a personal and joint “savings” account.
We are also expecting a child in the fall so it would be good to set up a long-term investment account for them as well.
I’m looking for advice on the best way to set up accounts on Questrade, prefferable VGRO or if there is an equivalent SRI version that would be even better. I liked the idea behind Wealthsimple SRI.
The main issue I’m having trouble with is that I will be moving to Australia in 2 years with no real plan on if/when I will be returning. My wife is Australian and we want to spend some time over there. Potentially a very long term move.
So I could set up an RSP account on Questrade but when I move the contribution room freezes. Same with all tax-sheltered accounts.
Does anyone have an idea what the best course of action would be for setting up my accounts now, knowing I won’t be a Canadian resident in 2 years? And, what the tax implications are in Australia for holding Canadian investment accounts? Maybe not the right place to be asking these questions, but worth a shot. Feel free to point me in the right direction if there is a better place to ask these questions.
@Jerry: Low bond yields do not make equities less risky. If you’re retired, think carefully about a portfolio that is more than 60% stocks (the allocation in VBAL). Make sure your portfolio matches your risk profile.
Hello and thank you so much for all the sound advice. I am in my late 50’s and new to investing. I have never had the means, but finally with a little cash, I would like open up a TFSA and invest into ETFs. I will probably open up an account with qtrade, and set up the automatic $100 deposit to avoid the quarterly charge. I plan to hold them for at least ten years. I am considering 100% of the money into purchasing XBAL. I have also thought about 75% into XBAL and 25% into XGRO. Do you see any advantages to having the two ETFs?
@Rhonda: There’s no benefit to mixing XBAL and XGRO like this: it’s likely to just confuse you, since you won’t know what your overall asset mix would be. (XBAL is 60% stocks and XGRO is 80%, so a combination of 75% XBAL and 25% XGRO would be 65% equities.) I’d keep it simple by just using one. Good luck!
Hi Dan :) I wanted to open a TD e-series account for my wife but the bank said they don’t have that option anymore where you can buy it directly when you log into your account. Instead, they suggest to use TD Direct Investing and buy those funds from there. Would you recommend that option or to go with an external provider such as Questrade or Wealthsimple? I read in your articles that Questrade had some fees when performing each transaction, and since my wife would be looking at making regular (eg. monthly) small contributions, I was wondering what platform you would be suggesting. Thank you so much for your insights on this!
@Robert: It’s true that TD has stopped supporting e-Series mutual fund accounts and is steering people to TD Direct Investing. But I actually think this is a good thing, as a brokerage account allows you much more flexibility. For example, you can also incorporate GICs and ETFs in the same account. And if you bank at TD it will still be integrated with your bank accounts on the same website.
If you decide you would like to use the e-Series funds rather than ETFs (and with small monthly contributions this seems like the best idea), then it would be best to stay with TD. Questrade would actually be your worst choice, as they are the only major brokerage that charges commissions on mutual funds.
Hi Dan, and thanks as always for the continuous knowledge and support you share with us!
Just wondering if the asset allocation ETF’s like VGRO etc. can be set up to receive the dividends as cash, as opposed to a DRIP? Also, what actual advantage do these ETFs hold over creating a classic CCP portfolio using individual ETFs? I currently have about $115k to use, and wish to set up a passive index portfolio, and I’m on the fence as to which side to jump on-can you you give me a little push? Thanks!
@Donna: The default for all ETFs is to receive the distributions in cash, so that’s never a problem. (If you want to use a DRIP< you would need to set that up with the brokerage.) There are several advantages of the one-fund portfolio (compared with several individual ETFs), including no need to rebalance, reduced complexity and fewer trades. I'd encourage you to consider this option rather than using multiple funds.
Yes. After reading ALL of the blog feed, you have answered the question many times about the benefits of Asset Allocation ETFs.
I would just like to say Dan, even though people ask you the same questions repeatedly, you have the patience to answer them like it was the first time-so thanks for that!
So is there any advantage( in the case of VGRO etc.) in receiving the dividends as cash, and reinvesting yourself, as opposed to the DRIP?
@Donna: Happy to help if I can succeed in helping people embrace simplicity. :)
In an RRSP or TFSA, there is zero advantage to taking the dividends in cash if you planning to reinvest them: a DRIP does this automatically and with no trading commissions. In taxable account, however, DRIPs can sometimes make your bookkeeping more difficult, so I tend to recommend taking distributions in cash in this case.
@CCP – I’m a new reader of your content and I just wanted to say thank and your doing a great job!
I currently have 3 vanguard ETF indexes. I wanted to keep it as simple as possible and reduce the overall cost.
I have the following with their allocations:
VAB – 20%
VCE – 40%
VFV – 40%.
My plan is to cash rebalance bi weekly and there’s currently no cost to buy ETF.
I wanted to get more of a global index ETF but the MER is twice as much as the VFV, even though VFV is pretty pricey at the moment.
I wanted to get your input if this was diverse enough and will quality for a DIY couch potato portfolio?
@Joe: Thanks for the comment, and welcome to the blog.
I would recommend you look at my model ETF portfolios. Since your asset mix is 80% stocks and 20% bonds, have a look at VGRO or XGRO, which have this asset mix in a single fund. These funds have the added benefit of adding international diversification to take you beyond just Canada and the US. They also require zero rebalancing. Rebalancing biweekly is much too frequent.
The MER on these funds is a little higher on these ETFs than it would be if you bought the underlying holdings separately. But the benefits are easily worth it. Try not to fall into the trap of making decisions based primarily on tiny differences in MER. Remember that 0.10% works out to less than $1 a month on every $10,000 invested. Frequent rebalancing will, without question, cost you much more than that even if you are not paying commissions.
Thank you so much for all of your hard work – I’ve read all of the comments/responses on this thread and some of my questions were answered along the way but I have two scenarios that I’m craving your insight into.
I have 0 investing experience.
I have about 20K ready to invest (and then going forward I will try to make $200 monthly contributions but I don’t have a steady paycheck).
I am debating about putting 10 into a TFSA w Wealthsimple invest (you can get first 10 managed free for a year). I thought this could be interesting to see what ETFs they would pick for me, and how often they would rebalance them.
At the same time put 10 into a TFSA w Questrade in either VEQT or XEQT.
I guess when I step back from it all I am wondering – is an all in one fund like VEQT kind of the same as a roboadvisor? In that you don’t have to do any rebalancing for either scenario?
In the long run I know that the Questrade option would be cheaper, however as I’ve never bought ETFs I’m nervous that I may not be as diligent as I would like to and feel somehow safer w the roboadvisor option.
This “experiment” definitely deviates from KISS, (as I would at some point need to amalgamate funds in either direction) however I may learn something and feel more empowered to commit to either direction. Again, Thank you so much for your ongoing work with this education.
*Please excuse a very basic question underlying all of this regarding compounding – does breaking that initial 20K in half reduce the compounding benefits?*
@May: Thanks for the questions. I’m not sure I would open two separate TFSAs and try running both: I think that may end up just creating more confusion. It might be better to start with the roboadvisor option for a year or so and see how that goes. If you’re comfortable there, then there isn’t much reason to switch.
Using VEQT/XEQT at Questrade would mean no commissions and no rebalancing, but you would still need to gain some comfort with placing trades on the exchange. This is not terribly difficult, but it’s certainly a little more work than a roboadvisor, which places all the trades for you. The fact that you have specifically said you would feel safer with the roboadvisor option is key. You should do what makes you feel more comfortable when you’re starting out.
(For the record, the benefits of compounding are not reduced if you split the portfolio in two.)
First off, thank you for sharing so much insight information and continuously answering questions in the comment section (even in old posts). There is a lot of great information here (even if it can be overwhelming and scary sometimes).
As you know, Tangerine has released 3 new Global ETF mutual fund portfolios. I know they are still very new and so there’s not much information on them (yet) but I was wondering if you feel they are worth investing in for non-registered accounts opposed to the TD E Series for people who may not be comfortable with the buying/selling rebalancing aspect. These mutual funds seem to be Tangerine’s offer in response to robo advisors as the fees seem similar. Though I am also kind of confused why I’ve seen a 0.65% MER in my searches but see 0.77% on the Tangerine website.
Also on the topic of mutual funds in non-registered accounts, is there anything we would need to track on our own for tax purposes? Or is the T3 or T5 that is provided by the bank sufficient?
Any insight would be greatly appreciated. Thank you.
@Linda: Many thanks for the comment. I hope to look at the Tangerine portfolios in a blog soon. For now, the main issue you should be aware of is that, unlike the asset allocation ETFs from Vanguard and iShares (such as VABL and XBAL), the Tangerine portfolios weight each country relative to its share of the global market. Vanguard and iShares give a much larger share to Canada: for example, VBAL is about 30% Canada, 40% US and 30% international equities. The Tangerine portfolios are only 3% Canada, 58% US, and 39% international.
This isn’t necessarily a bad thing: some people would argue that overweighting Canada is just home-country bias. But it’s something to be aware of. The Tangerine funds’ performance will vary significantly compared to my model portfolios because of this difference in weighting.
RE: the fee structure, there is a 0.50% management fee, plus a 0.15% administration fee, which is where the 0.65% comes from. There is also the cost of the underlying ETFs, plus some taxes, so 0.77% seem right for the total MER. As you note, this is roughly the all-in cost for most robo-advisors as well.
Mutual funds, unlike ETFs, almost always track your ACB at the fund level, so you don’t need to make any adjustments. This is really a blessing in non-registered accounts. You will get a T3 at tax time, and that’s all the reporting you need to do. When you eventually sell the fund, Tangerine should provide you with an accurate report of the gain or loss.