Model ETF Portfolios
The model portfolios included below invest in a mix of stocks and bonds, ranging from very conservative (80% bonds, 20% stocks) to very aggressive (100% stocks). By following the steps we’ve outlined below, you’ll be well on your way to becoming a successful index investor!
Step 1: Choose Your Portfolio’s Asset Allocation.
When determining your ideal mix between safer bonds and riskier stocks, a good place to start is by completing a risk profile questionnaire. Vanguard Canada has provided a decent online form, which we’ve linked to below. It includes 11 questions to help you consider your personal risk profile, as well as your investment circumstances. Be sure to also check out our video below on how to choose an appropriate asset allocation for your portfolio. The video includes important information that will help you make more informed decisions as you build and manage your personalized portfolio.
Step 2: Choose Your Asset Allocation ETF
With the advent of one-ticket asset allocation ETFs, getting started as an index investor has never been easier. The click of a mouse now lets you invest in a low-cost, globally diversified portfolio of stocks and bonds that aligns well with your personal financial goals. The ETF providers will even take care of the rebalancing for you, freeing you to focus on more important things (like your savings strategy, or your real life).
Vanguard and iShares offer five flavours of asset allocation ETFs, with options for 20%, 40%, 60%, 80%, and 100% stocks. BMO has similar options, although they do not yet offer a portfolio with a 20% stock allocation. And so far, Mackenzie has only released options with 40%, 60%, and 80% stock allocations, but this selection should still fit most investors’ risk appetites. Each model portfolio also includes 50 years of back-tested returns. You know the drill: Past returns don’t predict future outcomes. But they can give you a relative sense of the risk/reward ratios to expect as you compare available allocations.
What if the investor questionnaire you completed in Step 1 has recommended a target asset mix that is not available in a single asset allocation ETF (such as 70% stocks)? The model portfolios also provide suggestions for combining two ETFs to achieve your ideal target weight.
When it comes to choosing between the Vanguard, iShares, BMO, and Mackenzie asset allocation ETFs, you really can’t go wrong. But to help you decide, we’ve created videos discussing the slight differences among these three providers.
Step 3: Buy Your Asset Allocation ETF
Once you’ve chosen your asset allocation ETF, the next step is to place your trades at a Canadian discount brokerage. We know, placing your first trades can be intimidating. To help you navigate the process, we’ve created step-by-step videos for each brokerage.
There are currently three brokerages to consider, depending on your personal circumstances:
Option #1 (for younger investors, students, and professionals):
National Bank Direct Brokerage
National Bank now offers buy and sell commission-free trading on all ETFs. You can also avoid their $100 annual administration fee if any of the following apply:
- You are a young investor aged 30 or under
- You have assets of $20,000 or more as of May 31
- You participate in a financial program for engineers, teachers, business, or healthcare professionals
Option #2 (for smaller accounts):
If you’re just starting off on your investing journey, with only a modest amount to invest, we believe Questrade is your best option. They do not charge annual fees on TFSAs, RRSPs, or RESP accounts. ETF purchases (but not sales) are also commission-free, although you will generally pay a small electronic communication network (ECN) fee. These ECN fees are charged on most ETF purchases and will set you back $0.0035 per share. For example, if you buy 97 shares of the iShares Core Balanced ETF Portfolio (XBAL) at Questrade, you will generally pay around $0.34 in ECN fees, (97 shares × $0.0035 per share).
Option #3 (for larger accounts):
BMO now offers buy and sell commission-free trading on most asset allocation ETFs in our model portfolios, including the Vanguard and iShares options. The only caveat is you cannot buy and sell the same ETF in a single day—so no day trading allowed.
This offer sounds too good to be true, and it can be if your account size subjects you to BMO’s annual fees.
For example, BMO charges $100/year on RRSP accounts below $25,000, and $50/year for RESP accounts below $25,000. Unless you also hold a registered account with BMO, a $25 quarterly fee also applies for non-registered accounts below $15,000. TFSAs are the only account type where BMO doesn’t charge an annual fee.
In other words, only consider using BMO as your brokerage if you can avoid these pesky fees.
Step 4: Track Your ETF’s Adjusted Cost Base (ACB)
If you hold your asset allocation ETF in a non-registered account, we also suggest tracking its adjusted cost base (ACB). Sure, you could just assume your brokerage is tracking this accurately for you, but in our experience, they rarely get it right. To assist with this tedious annual task, we’ve included our ETF ACB tracking guide below, as well as a step-by-step video to walk you through the entire process.
Step 5: Let’s Keep in Touch!
If you’ve not yet done so, we hope you’ll sign up to receive our CPM blog posts directly to your inbox. In our periodic posts, we’ll share general investment insights, as well as any industry updates that may impact your ideal model ETF portfolio.