• Whats New With My Model ETF Portfolios and Why

What’s New With My Model ETF Portfolios (and Why)?

By definition, a model is something that emulates real life. No wonder even the best models need to be updated now and then. Take my model ETF portfolios, for example. With the first half of 2017 behind us, I’ve made a few tweaks to them for ongoing excellence.

The quick-take

As the word “tweak” implies, most of the changes are minor, such as swapping a few costlier funds for cheaper choices. There is one notable update I’m particularly fond of. You’ll now find several model portfolios, to reflect the varied tax- and cost-efficient realities within each of these account types:

  • TFSA and RESP
  • RRSP and RRIF
  • Taxable

For example, certain ETF products may be more tax-efficient when held in one account type versus another. Now, no matter which account you’re trading in, you’ll have a model portfolio of ETFs that are best structured for the task at hand.

 

What else can I tell you? If you feel your ETF portfolio is already sitting pretty within your various accounts and this quick-take is all you need to know for now – that’s fine. If I’ve piqued your interest, read on to see the specifics.

TFSA and RESP accounts

In this version of the model portfolios, I’ve replaced the Vanguard U.S. Total Market Index ETF (VUN) with the iShares Core S&P U.S. Total Market Index ETF (XUU). Relative fees are the driving force behind the change. Vanguard has maintained VUN’s MER at a now-pricey 0.16%, while BlackRock has steadily decreased XUU’s MER to 0.07%.

Vanguard also got the boot on their bond ETF for similar reasons. The BMO Aggregate Bond Index ETF (ZAG) has replaced the Vanguard Canadian Aggregate Bond Index ETF (VAB), due to its lower expected MER (0.10% vs. 0.13%).

As there are no foreign withholding tax reductions for holding US-listed ETFs in TFSA or RESP accounts, I’ve used entirely Canadian-listed ETFs in this version of the model portfolios.

 

RRSP and RRIF accounts

Although the model portfolios above are suitable for smaller RRSP or RRIF accounts, investors with larger accounts can save $100s to $1,000s annually in foreign withholding taxes and product fees by investing in US-listed foreign equity ETFs. The caveat is that you must master the dreaded Norbert’s gambit strategy to cheaply convert your Canadian dollars to US dollars before purchasing the US-listed ETFs.  Otherwise, most of the benefit of going foreign will be eroded by the brokerage’s steep currency conversion fees.

If you’re up to the challenge, I’ve created model portfolios using US-listed ETFs specifically for your RRSP and RRIF accounts. Please ensure that you fully understand the additional costs and complexities involved before placing these trades. Or, if you’ve decided life is just too short to jump through so many hoops, there’s absolutely no shame in using Canadian-listed ETFs. You’ll still be miles ahead of most investors who are playing the even more costly active investor’s game.

 

Taxable accounts

For taxable accounts, I’ve tinkered with the model portfolio by switching out a less tax-efficient bond ETF (ZAG) with the more tax-efficient BMO Discount Bond Index ETF (ZDB). In a previous blog post, I calculated the after-tax return for a taxable investor holding various plain-vanilla bond ETFs, and ZDB was the clear winner. ZDB also has an expected MER of 0.10%, so there’s no difference in fees.

 

Foreign withholding tax

It’s hard to manage your foreign withholding taxes if you’re not sure what to expect from them, so I’ve added an estimate for this overall tax drag on the various model portfolios. For example, the foreign withholding tax drag on a balanced portfolio held in a TFSA account would be about 0.12% (in addition to the MER of 0.11%). This should help eliminate some of the confusion that can otherwise arise.

 

A model on the move

So there you have it. Don’t feel as if you have to rush right out and make a flurry of immediate trades. If your portfolio is mostly optimized already, you may want to ride out these recent updates until you’re making changes anyway. But when you are ready for a change, these newest model portfolios should help you keep up with the latest in real-life pricing, products and performances.

By | 2017-08-22T14:26:04+00:00 August 1st, 2017|Categories: DIY Investing, Portfolio Construction and Management|62 Comments

62 Comments

  1. Joe August 23, 2017 at 8:29 pm - Reply

    Hello Justin,

    I currently own Vanguard U.S. Total Market Index ETF (VUN) in both my RRSP & TFSA. You recommend iShares Core S&P U.S. Total Market Index ETF (XUU). Should I sell VUN and buy XUU’s to get the lower MER 0.07%.? I am new at this any information would be helpful.
    Thanks,
    Joe

    • Justin August 23, 2017 at 10:25 pm - Reply

      @Joe: I don’t think that’s absolutely necessary. I would expect that Vanguard Canada will lower VUN’s MER shortly (as it is over twice as much as XUU). For my clients, I’m continuing to hold VUN, but implementing new portfolios using XUU.

  2. Mark August 21, 2017 at 11:34 pm - Reply

    Have you ever done work on what funds work for Canadians who are also US citizens? There are some complicated issues (I think).

  3. Silva August 16, 2017 at 12:06 pm - Reply

    Justin,

    I understand that ETF are more tax efficient compared to actively managed mutual funds. Since I still hold some of my registered/taxable investments in mutual funds, is there any information/site you can share to determine the tax efficiency of a given mutual fund?

    Thanks,

    Silva

  4. Lester August 15, 2017 at 12:49 am - Reply

    Hello Justin, how come BMO’s ZCN hardly gets any attention? Both ZCN and VCN have the same MER at 0.06%. What does VCN have that ZCN doesn’t?

  5. Joe P August 13, 2017 at 10:20 am - Reply

    Hey Justin,

    Just wanted to thank you so much for creating this website and constantly updating it. It’s a fountain of information for us DIY’s. Although this question most likely sets me up for a large tongue lashing, would the Taxable Model ETF portfolio be suitable for a leveraged portfolio?

    Thanks again and take care

    • Justin August 13, 2017 at 2:59 pm - Reply

      @Joe P: If you’ve decided to borrow to invest in a non-registered account only, then the taxable model ETF portfolios would be most suitable for this account type.

      • Joe P August 14, 2017 at 12:59 am - Reply

        Thanks Justin. We also invest in our RRSP’s, TFSA’s and our kid’s RESP’s. Our leveraged portfolio is just another part of the equation. Thanks again for all the FREE information. All the best.

        • Justin August 14, 2017 at 1:46 pm - Reply

          @Joe P: You’re very welcome! 🙂

  6. Sue C August 11, 2017 at 8:40 pm - Reply

    Hi Justin,
    Thank you for your model portfolio update. I had a question about RESP’s. Would it be best to consider using XAW in this account along with a canadian ETF and ZAG? I am not sure for a 10 year time frame, what would be the best way to go regarding allocation or if it would be best to consider the 5 ETF approach in this account…..I don’t know how one goes about really re-balancing if you had a 70/30 or 80/20 split and you lets say for simplicity, utilized the 2500 contribution and waited until the grant came in, to then buy more shares- this would be for an account that does not have access to free buys like at Questrade. I would appreciate your thoughts. The RESP account has about 50K in it.

    • Justin August 13, 2017 at 3:05 pm - Reply

      @Sue C: I typically use ZAG/VCN/XAW when I implement RESP accounts for clients (or smaller portfolios).

      When a new $2,500 contribution is made, I generally top-up VCN and XAW first (assuming that the grant has already been added to the portfolio when calculating the purchase figures). I’ll leave any amount remaining in cash until the grant arrives a month later. Once the grant is paid into the account, I’ll top-up ZAG.

  7. Pascal August 10, 2017 at 12:23 am - Reply

    Hello Justin, Horizon ETFs are advertised as being tax-efficient. Have you considered these for your taxable accounts and if so, can you share some insight as to whether they would be equivalent, better or worse then your proposed options.

    Thanks,

    Pascal

    • Justin August 10, 2017 at 12:55 am - Reply

      @Pascal: I typically don’t use ETF products that I feel the government will do away with in the short-term (I include swap-based ETFs in this category). Depending on your tax bracket, the type of account you’re investing within, and future government tax proposals, these products may or may not be more tax-efficient after all costs.

  8. Silva August 9, 2017 at 8:22 pm - Reply

    Hi Justin,

    Thank you for all your posts. Being new to self investing, your blogs have been very helpful.

    I’m in the process of building your taxable model portfolio in a corporation investment account. I noticed that trading volumes and number of holdings of ZDB is far less than ZAG. ZDB also doesn’t track closely against the index like ZAG. Is that something I should worry about?

    Regards,

    Silva

    • Justin August 9, 2017 at 8:36 pm - Reply

      @Silva: Although ZDB is less diversified than ZAG (as it’s tough to find bonds that are trading at par or at a discount to par these days), both ETFs hold approximately 70% in government bonds (federal/provincial), so the lack of diversification is mainly in the 30% corporate bond allocation. However, BMO does a decent job of spreading up the corporate bond allocation between issuers (so I don’t see large issuer risk here).

      I wouldn’t be too concerned with low trading volumes on ZDB – just use limit orders and place them directly on the current ask price when you’re buying. If the bid-ask spreads are extremely wide, you could just wait a day or two and place your trades when the spreads have tightened.

      As for the tracking error to the index, I believe it is because BMO manages ZDB to more closely approximate the risk/return metrics of the universe bond index (instead of following the discount bond index) – I’ll check with BMO and update my comment when I receive an answer.

      Update: Comment from Kevin Prins of BMO ETFs

      You are correct. A better comparison would be to look at the performance of ZDB vs. a broad market bond ETF (like ZAG) as we are essentially trying to deliver that performance and risk, but with more tax-efficient discount bonds.

      • Silva August 11, 2017 at 4:04 pm - Reply

        Appreciate your prompt reply and follow-up clarification Justin!

        What are your thoughts between ZDB and GIC laddering for the fixed income potion of a taxable corporation (small business) investment account portfolio? Current ZDB weighted average yield to maturity is 2.0 and 2yr to 5yr compound GIC rates between 2.25 to 2.7% paid at maturity.

        Also, any advice on GIC laddering?

        Thanks again,

        Silva

        • Justin August 11, 2017 at 4:13 pm - Reply

          @Silva: For my clients’ larger taxable accounts, I tend to use a combination of ZDB and 1-5 year laddered GICs (ensuring that there are adequate liquid bond ETFs available to rebalance the portfolio back to its target asset mix if we experience a market downturn of about 50%).

          I unfortunately have no idea where interest rates are heading, so I just divide the GIC allocation evenly between 1-5 years (sometimes I’ll skip the first year if I can receive a higher interest rate on cash, investing the cash in a 5-year GIC after a year to complete the ladder).

          • Silva August 11, 2017 at 7:50 pm

            Thanks Justin. I also noticed that ZDB has a high turnover (52.81%) compared to ZAG (10.33%). Isn’t that too high for an ETF and would result in higher short term capital gains that would be taxed as regular income?

          • Justin August 11, 2017 at 7:59 pm

            @Silva: ZDB would be expected to have a higher turnover than plain-vanilla funds (as it has to sell bonds if they start to trade at too high of a premium). This is actually more tax-efficient, as only 50% of the gain will be taxed (Canada does not differentiate between short term and long term capital gains).

  9. Lester August 9, 2017 at 1:06 am - Reply

    Hey Justin, What is the strategy to re-balance a portfolio containing a mix of both Canadian and US-listed ETFs, such as your example under RRSP/RRIF (VCN and ZAG are Canadian, and ITOT, IEFA and IEMG are US)? With a mix of Canadian and US assets, doesn’t this make re-balancing more difficult due to the currency exchange?

    • Justin August 9, 2017 at 1:10 pm - Reply

      @Lester: Investing in US-listed ETFs definitely complicates the investment of new cash as well as rebalancing. For new cash contributions, you could consider adding them to the Canadian-listed ETF equivalents until the amounts are large enough in size to switch to a US-listed ETF (using Norbert’s gambit). For large rebalancing (when you are required to sell equities), you would need to implement a reverse gambit (sell US-listed ETFs, buy DLR.U, sell DLR).

      Another reason most DIY investors may prefer to simply avoid US-listed ETFs.

  10. Alan August 8, 2017 at 1:19 pm - Reply

    Justin, thanks once again for a highly informative post, and thanks to everyone who comments with questions and suggestions that help to illuminate both possibilities and pitfalls. One common theme that pops up in this comment thread, and has before, relates to how to map (a model) over a set of RRSP, TFSA, and nonregistered accounts. Similar to others others in this thread, between my wife and I we have two TFSAs, two RRSPs, and a joint non-registered account. For ETF holdings that include Canadian equities, US equities, global equities, universal bond, and short-term bond, juggling the allocation of assets to account types, given the prospective yield on each class and the different tax treatment of each class, continues to be an interesting struggle. The blog posts that deal with the treatment of, for example, US equity ETF’s in each type of account are quite valuable. How about a blog post that, with suitable caveats, provides a simple guide indicating the preference order for allocating each type of asset? I suspect I might not be the only one who would find this both educational and useful. Thanks!

    • Justin August 8, 2017 at 1:24 pm - Reply

      @Alan: This is definitely on my list of topics to write about (unfortunately, there is no shortage of ideas…just time). Once I’ve completed the corporate taxation series, I may move into the asset location discussion.

  11. Heather August 5, 2017 at 1:26 pm - Reply

    Hi Justin,
    Great post – thanks. My question is concerning the fixed portion of my portfolio. I am lucky enough to have a Defined Benefit Pension plan, so I only hold about 10% fixed income (although now that I’m within 3 years of retirement, I may increase this). In your opinion, is it better to hold this as a GIC, or as a bond ETF? And if you recommend a bond ETF, would it be best held in my RRSP?

    • Justin August 7, 2017 at 10:18 pm - Reply

      @Heather: I would say that a 1-5 year GIC ladder would be preferably to a short-term bond ETF, as the yields are generally higher with GICs. A broad-market bond ETF has a yield-to-maturity that is slightly higher than 1-5 year GIC ladder, but with more term risk. If you’re someone who doesn’t like fluctuations in their fixed income allocation (and doesn’t require liquidity), you could consider the GICs. If you likely do not require the funds for the mid to long term and are comfortable with the additional term risk, you could consider the bond ETF.

  12. David August 2, 2017 at 4:31 pm - Reply

    Hi Justin,

    Great update – thank you. What would be a general recommendation as to when it makes sense to bite the bullet and switch to US-listed ETFs in RRSP or TFSA accounts? How large(ish) is large?

    “… investors with larger accounts can save $100s to $1,000s annually in foreign withholding taxes and product fees by investing in US-listed foreign equity ETFs…”

    • Justin August 2, 2017 at 4:59 pm - Reply

      @David: There’s not much benefit of holding US-listed ETFs in a TFSA account (it’s actually worse to hold a US-listed international equity ETF in a TFSA account, relative to a Canadian-listed international equity ETF that holds the underlying stocks directly).

      Holding US-listed foreign equity ETFs in RRSP accounts does save on taxes and product fees relative to holding Canadian-listed foreign equity ETFs (if implemented properly using Norbert’s gambit). If you compare the total FWT and product fees on my TFSA/RESP model ETF balanced portfolio (0.23%) to the total FWT and product fees on my RRSP/RRIF model ETF balanced portfolio (0.13%), the difference is only 0.10% per year. On a $50K RRSP, that’s $50 per year. On a $100K RRSP, that’s $100 per year.

      I likely wouldn’t bother for anything less than $100 per year.

  13. Brian August 2, 2017 at 3:11 pm - Reply

    Thanks Justin, model portfolios for the various account types is very useful. I understand that some people may only have one type of account (i.e. TFSA), and I figure that’s why each account type has both equities and bonds. But if a person has all three types of accounts, do you recommend treating them as a single portfolio and putting particular asset types in each account? If so, I’d be very interested in what ETF is best suited for each account.

    BTW, love the new website!

    • Justin August 2, 2017 at 3:35 pm - Reply

      @Brian: Every asset location strategy has its positives and negatives. For example, having a naïve approach of holding the same asset allocation in your TFSA, RRSP and taxable can help defer taxes when it’s time to rebalance (i.e. you could sell equities in the TFSA or RRSP accounts, and leave the equities in the taxable accounts alone).

      As a general rule of thumb, I tend to hold all equities in TFSA accounts. I then max out the taxable accounts with the remaining equities (unless liquidity may be required) in the following order: Canadian equities, US equities, emerging markets equities and international equities. If equities must be held in the RRSP account, I hold equities in the reverse order as above (i.e. international equities first, emerging markets next, etc.).

      • Bruno August 3, 2017 at 2:43 am - Reply

        Hi Justin, you did an amazing job. Thanks for sharing it.

        As @Brian, I have tons of questions related to how invest in each account (TFSA/RRSP/Taxable) using your Rebalance spreadsheet as support. When you have time, can you do a post using some examples?

        Here is some some context. My wife and I have 3 investment goals. Each goal uses a different allocation from your Model. Today we put each goal in one type of account (eg. Retirement inside RRSP) and buy equities and bonds in the same account. We tried once to divide ETFs per type of account (as you explained to @Brian). However, it became too complicated to manage using the spreadsheet.

        Thanks again for all your support.

        • Justin August 3, 2017 at 2:54 pm - Reply

          @Bruno: Would you be able to provide more detail regarding the account set-up (it’s still not clear to me)? Thanks!

          • Bruno August 4, 2017 at 12:46 am

            @Justin

            I will try to do my best. My questions are related to how correctly use the spreadsheets from your Toolkit.

            My and I have 3 different goals: 1 short-term 5yrs, 1 medium-term 10yrs and retirement +30years. We use the same ETFs (VCN/XAW/ZAG/XSB) for all of them, but in different distribution because of the timeframe of each goal.

            We have 8 accounts (2 TFSAs, 2 RRSPs, 1 SRRPs, 1 Pension RRSP, 2 Non-Reg).
            Our first strategy as beginners defined that RRSPs will hold the Retirements, TFSAs will hold the medium-term goal and Non-Regs will hold the short-term goal. Reading your blog + CCP, we figured out this is not a tax efficient strategy. Also, the limits for RRSPs and TFSA will not allow us to keep this strategy forever, forcing us to invest part of the money using Non-Regs.

            We have tried to use the rebalance spreadsheet to help us, however:
            – Controlling the limits of TFSAs and RRSPs is hard. We are worried to cross them and pay penalties.
            -We would like to keep more less the same distribution avoiding my wife or I holding all the stocks or bonds.
            – One account (e.g. non-Reg) holds the same ETFs, but for different goals (e.g. 10 shares of VCN for goal 1 and 20 shares for goal 2). We start to lose control to calculate the rebalance every month we need to invest part of our salary.

            I tried to build my own spreadsheet based on yours, but it still very complicated.

            I loved the videos you did for Norbert’s Gambit. Now I hope we have series how to use the toolkit. Jokes a side, I can pay you a hourly rate to teach me, but sharing the knowledge as part of the blog content will also be great.

          • Justin August 4, 2017 at 3:19 pm

            @Bruno: Why not set-up a separate non-registered account for your short-term and mid-term goals (holding mostly GICs, tax-efficient bond ETFs (BXF/ZDB), and investment savings accounts)? This would be your “safer” money, and not exposed to stock market fluctuations.

            You could then have a single long-term (and likely riskier) asset allocation for the TFSAs, RRSPs and existing non-registered accounts (you may have to move cash from the existing non-registered account to the new non-registered account, based on the timeframe of your goals).

          • Bruno August 4, 2017 at 8:15 pm

            @Justin: Sounds a good advice. I will study it tonight, thanks.

            Question: Should I not prioritize equities inside non-regs accounts and bonds inside reg. accounts because of tax efficiency? Thanks in advance.

          • Justin August 7, 2017 at 10:12 pm

            @Bruno: The issue with traditional asset location advice is that it doesn’t account for lump-sum requirements. If you require a certain amount of cash from your non-registered account at a specific point in time, you likely don’t want to hold equities there, in case of a market downturn at the worst possibly time.

          • Bruno August 8, 2017 at 3:25 pm

            @Justin: Does your advice above still applicable if I have an emergency fund to cover short-term needs inside a non-reg account?

          • Justin August 8, 2017 at 4:05 pm

            @Bruno: If you have short-term goals (i.e. 1-5 years), the investments for these goals should be relatively safe. If you have a separate account for very short-term expenses (i.e. within a year), they should just be in a savings/chequing account (or an investment savings account product).

            If you have mid-term and long term goals in two non-registered accounts (where you intend to invest in equities), one account could hold all Vanguard ETFs (i.e. VCN, VUN, VIU, VEE) and the other account could hold all iShares ETFs (i.e. XIC, XUU, XEF, XEC). This would avoid the situation of having to track the consolidated ACBs of the holdings in both accounts.

          • Bruno Alves August 9, 2017 at 9:02 pm

            @Justin: I think now I am close to solving my issues.I took your rebalance tool and converted it to work with shares (instead of working with values). Now does matter if I have 2 or more investing goals inside the same non-reg account because I know the number of shares each one has there. This way it seems easier to keep track of ACB.

            I will use RRSPs to support my retirement (long term) and TFSA to support medium term goals. It seems logic for me based on the purpose of each account. I just need to decide now the strategy of keeping bonds or equities inside the registered accounts when my portfolio exceeds their limits. I took an article from you and Dan to study, but the topic still very complex for me. (http://canadiancouchpotato.com/2014/04/24/do-bonds-still-belong-in-an-rrsp/ ) .

            The last thing I am trying to find is a list of GIC providers. I could not find any references inside CCP/PWL/Money Sense. I am using ZAG/VSB to invest my fixed income allocation, but I think I should diversify with some GICs. I use Questrade and TD today, but I would like to compare them with other providers. Do you have any tips here?

            Thanks again for all support here.

          • Justin August 9, 2017 at 9:13 pm

            @Bruno Alves: Glad to hear things are starting to come together 🙂

            I’ll be posting a blog (or two) in the next couple of weeks regarding the asset location decision, which you may find useful.

            In terms of GICs, most of the brokerages’ GIC lists have fairly competitive rates (these change daily though). RBC Direct Investing has a fairly long GIC list of issuers last time I checked.

          • Bruno August 14, 2017 at 5:37 pm

            @Justin: Thank you very much for constantly updating your site. Your support is amazing.

          • Justin August 14, 2017 at 5:39 pm

            @Bruno: Happy to help 🙂

          • Bruno August 22, 2017 at 1:14 am

            @Justin: Hi again 🙂 I have researched GICs/HISA rates and the most attractive are from Oaken Financial. I know it is off-topic, but could you give us your opinion about Home Capital situation? Should I put money there to get some extra basis points even in their delicate situation? I know CIDC covers them, but I am not sure if I could have future headaches with it. My goal is to invest half of my 6 months emergency fund there to combat inflation, and also part of the fixed income portion from a 5 years goal. Thank you!

          • Justin August 22, 2017 at 1:08 pm

            @Bruno: You could have future headaches with any GIC issuer if they run into financial difficulty. I don’t see an issue with this if you’re comfortable with the inconvenience risk (and possibly a loss of interest while things get sorted out). Just be certain to stick to the CDIC limits.

            You may also want to consider worst case scenarios: What happens if you need the emergency fund but the company has just gone bankrupt (leaving you without access to the cash)? Do you have a line of credit that you could draw from in the meantime?

        • Brian August 5, 2017 at 3:50 pm - Reply

          @Bruno I’m just an amateur but for the sake of discussion, this is what I did with our six accounts. I treat my accounts (RRSP, TFSA and Non-reg) as a one portfolio, and my wife’s accounts as another portfolio. That means I have two portfolios to manage/rebalance. I’ve created a rebalancing spreadsheet for each portfolio.

          Feel free to have a look at an example of my rebalancing spreadsheet: http://goo.gl/gvI2VD (Hovering over the headings hopefully explain how to use it.)

          • Bruno August 8, 2017 at 3:14 pm

            @Brian: Thank you very much for sharing your spreadsheet and knowledge. Apparently, your case is very similar where I started. Now my portfolio developed, and I am facing some challenges:

            1) My wife and I have multiple goals with different time frames. I build one spreadsheet for each one as you mentioned.
            2) Our registered accounts achieved their limits. We are immigrants, so our limits are meager right now. As a result, we need to invest both in registered and non-registered accounts.
            3) Because I need to invest in non-regs, now I need to control average cost base (ACB). Dan Bortinolli (from CCP) recommended keeping one non-reg account only to facilitates ACB tracking. Makes a lot of sense from a tax perspective, but now I have money for 3 different goals in the same non-reg account. As a result, re balancing has become a little bit complicated to manage.

            I rebuild Justin’s spreadsheet trying to solve the problem, but it still complicated. I am trying to find people facing same issues to gather some advice as you did 🙂 I am also a complete amateur.

      • Brian August 5, 2017 at 12:47 pm - Reply

        Thanks Justin, much appreciated! 🙂

      • Park August 7, 2017 at 1:47 am - Reply

        Could I ask you why, when it comes to stocks, you invest in the order of TFSA then taxable then RRSP?

        I agree with your order in taxable accounts. Canadian equities first in taxable, as they are the most tax efficient dividends. Then US stocks, because with their lower dividend yield, you lose less to tax on dividends. After that emerging markets, because lower divdends then EAFE, but higher than US stocks. Finally, EAFE stocks, as they tend to have the highest dividends of international stocks.

        Similarly, your order when it comes to RRSP makes sense. You maximize the tax advantage with that order, which is the opposite of the taxable account order.

        But I still don’t understand TFSA first then taxable then RRSP. For example, you can’t recover dividend withholding taxes on US listed ETFs in an RRSP, but you can in a TFSA.

        • Park August 7, 2017 at 1:49 am - Reply

          My last sentence is wrong. You can recover such taxes in an RRSP, but not a TFSA.

        • Justin August 7, 2017 at 10:22 pm - Reply

          @Park: With tax decisions, you usually can’t win all the time. I prefer equities in the TFSAs first (over RRSPs) as the income and growth is never taxed (even though there is a slight tax drag each year). The RRSPs will eventually be fully taxable, so you would likely not want to hold your highest growth asset classes in these accounts first.

  14. Pete August 2, 2017 at 11:40 am - Reply

    Hello Justin,
    If XUU, XEF, XEC is replaced with XAW do you think the overall return will be the same?
    Thanks for the model portfolios. Much appreciated.

    • Justin August 2, 2017 at 2:58 pm - Reply

      @Pete: The overall return should be similar (XAW has slightly different global equity weights than my model ETF portfolios, but the differences are relatively modest). Year-to-date, a 3-ETF balanced portfolio would have returned 4.16%, while the 5-ETF portfolio would have returned 4.29%.

      • Bruno August 3, 2017 at 11:43 pm - Reply

        @Justin: I noticed you replaced XUU/XEF/XEC inside RRSP. Do you have a replacement for XAW? (I would like to keep the basic 3 ETF portfolio).

        • Justin August 4, 2017 at 3:01 pm - Reply

          @Bruno: XAW is perfectly fine if you’d like to stick to a 3-ETF portfolio. If you want to complicate things by using a US-listed ETF in order to mitigate some foreign withholding taxes and product fees (ensuring that you use Norbert’s gambit to convert your CAD to USD first), the closest single ETF would be the Vanguard Total World Stock ETF (VT), although it allocates a small portion to Canadian stocks (whereas XAW doesn’t).

  15. Colby August 2, 2017 at 4:26 am - Reply

    Hey Justin, I just wanted to say many thanks! This is a tremendous amount of legwork saved for your average investor looking to be as efficient as possible across the board in Canada that’s provided for free! Thanks again for all the hard work and in-depth reviews, I look forward to future posts.

    • Justin August 2, 2017 at 2:47 pm - Reply

      @Colby: You’re very welcome – glad I could help 🙂

  16. Sid August 1, 2017 at 9:48 pm - Reply

    Comparing the returns to the standard deviations, it seems like the higher percentage of stocks to bonds you go, the higher the risk, but the returns barely increase. Comparing the 50/50% mix to the 100% stock mix, the returns differ by 0.1% but the standard deviation doubles (across your TFSA/RSP/Taxable portfolios). With these portfolios, wouldn’t it make more sense to go with a 50/50% allocation regardless of your risk profile from the questionnaire?

    • Justin August 2, 2017 at 2:23 am - Reply

      @Sid: Bonds did very well over this period of decreasing interest rates, which is why the long term return figures look similar across different asset allocations. Going forward, it could be argued that bonds are expected to underperform equities (but there is no guarantee of this – which may nudge investors towards a more balanced portfolio).

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