Need help building your Couch Potato ETF portfolio?
The formula for successful do-it-yourself investing is simple: diversify broadly, keep your costs low, and stick to your plan over the long term. Asset allocation ETFs tick all of these boxes. With just one or two holdings, you can build a sophisticated portfolio with extremely low fees and minimal maintenance. These all-in-one ETF portfolios are the best solution for the vast majority of DIY investors.
The largest ETF providers in Canada— Vanguard, BlackRock (iShares), and BMO—offer a family of asset allocation ETFs with options ranging from aggressive to conservative. Their products are not identical, but the differences are minor, and they are all excellent choices.
All of these ETF portfolios below include Canadian stocks, US stocks, and international stocks (from both developed and emerging counties), giving you broad exposure to the global equity market. They are balanced by an allocation to bonds to reduce volatility and risk. Finding the appropriate combination of stocks and bonds is the most important decision you’ll need to make. My colleagues Justin Bender and Shannon Bender have created an excellent video to help you make this important choice.
If your chosen asset mix is 100%, 80%, 60%, 40% or 20% stocks, then you can build your portfolio with a single asset allocation ETF. With this one-fund solution, you’ll never need to rebalance your portfolio.
|Asset Allocation||Vanguard ETF||iShares ETF||BMO ETF|
|100% stocks||Vanguard All-Equity ETF Portfolio (VEQT)||iShares Core Equity ETF Portfolio (XEQT)||BMO All-Equity ETF (ZEQT)|
|80% stocks / 20% bonds||Vanguard Growth ETF Portfolio (VGRO)||iShares Core Growth ETF Portfolio (XGRO)||BMO Growth ETF (ZGRO)|
|60% stocks / 40% bonds||Vanguard Balanced ETF Portfolio (VBAL)||iShares Core Balanced ETF Portfolio (XBAL)||BMO Balanced ETF (ZBAL)|
|40% stocks / 60% bonds||Vanguard Conservative ETF Portfolio (VCNS)||iShares Core Conservative Balanced ETF Portfolio (XCNS)||BMO Conservative ETF (ZCON)|
|20% stocks / 80% bonds||Vanguard Conservative Income ETF Portfolio (VCIP)||iShares Core Income Balanced ETF Portfolio (XINC)||N/A|
|Annual fee (MER)||0.24%||0.20%||0.20%|
If your chosen asset allocation falls between one of the above options (for example, 70% or 50% stocks), you can combine an all-equity ETF with a bond ETF. In this case, you will occasionally need to rebalance your portfolio by selling a portion of one of the ETFs and buying more of the other in order to return to your target.
To keep your costs to a minimum, consider using an online brokerage that allow you to buy ETFs with no trading commissions.
For a comprehensive guide to using the Couch Potato strategy, please see my book, Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs.