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.