Arguably no one has done more to educate Canadian do-it-yourself investors than the PWL Capital teams of Dan Bortolotti and Justin Bender, and Benjamin Felix and Cameron Passmore.
It began more than a decade ago with Dan’s incredibly popular Canadian Couch Potato blog and podcast. Since then, Dan teamed up with PWL’s Justin Bender, who has his own Canadian Portfolio Manager blog in addition to a podcast and YouTube channel dedicated to helping DIY investors.
More recently, PWL’s Ottawa team of Felix and Passmore launched their own successful Rational Reminder podcast, which complements Ben’s Common Sense Investing YouTube channel (which now boasts nearly 200,000 subscribers).
It’s an incredible amount of content dedicated to helping Canadians become better investors.
Their advice at its core is to follow an evidence-based investing approach that starts (and usually ends) with a low cost, globally diversified, and risk appropriate portfolio of index funds or ETFs. Simplify this even further by investing in a single asset allocation ETF that automatically rebalances itself.
Indeed, Justin Bender says,
“These simple one-fund solutions are ideal for the majority of DIY investors.”
Dan Bortolotti says,
“Since their appearance in early 2018, asset allocation ETFs have become the easiest way to build a balanced index portfolio at very low cost.”
And, Ben Felix says,
“Total market index funds are the most sensible investment for most people.”
Keeping it Simple
Dan’s writing was influential in my own journey from dividend investing to full-fledged indexing. But I took a long-time to switch to indexing because the product landscape was less than ideal.
In the early 2010’s, Dan’s model portfolios often consisted of six to 12 different ETFs. All one had to do was look at the comments left on his articles by investors who agonized over whether to add 5% to REITs, 2.5% to gold, or put an extra tilt to their U.S. holdings. Meanwhile, these were often new investors with less than $10,000 in their portfolio.
Then Vanguard introduced a groundbreaking ETF called VXC (All World, except for Canada). Now a Canadian investor could set up a low cost, globally diversified portfolio of index funds with just three ETFs (VCN for Canadian equities, VAB for Canadian bonds, and VXC for global equities).
I took the plunge and sold my dividend stocks to purchase a two-fund (all equity) portfolio consisting of VCN and VXC. Ben Felix said that, “back in 2017, the simplest portfolio around was Robb Engen’s four-minute portfolio, which consists of only two equity ETFs.”
Then, in 2018, Vanguard again changed the game when it launched a suite of asset allocation ETFs designed to be a one-fund investing solution. That’s when I switched my two-fund solution over to my new one-fund solution with Vanguard’s VEQT.
Tangled up in Plaid
It would be great if the debate ended there, but this is investing and many of us are wired to look for an edge to boost our returns. Accepting market returns is difficult because we’re constantly distracted by shiny objects, and doom & gloom forecasts, not to mention the notion that when markets are booming or crashing we feel like we need to do something.
Index investors are not immune to this. Not content with a total market, all-in-one solution, some indexers look to reduce their fees even more by holding U.S. listed ETFs and performing the currency conversion tactic known as Norbert’s Gambit.
Justin Bender’s model portfolios include ‘ridiculous’, ‘ludicrous’, and ‘plaid’ options designed to squeeze out some extra return by reducing fees.
Bender’s Ludicrous Model Portfolio
| Security | Symbol | Asset Mix |
|---|---|---|
| Vanguard Canadian Aggregate Bond Index ETF | VAB | 40.00% |
| Vanguard FTSE Canada All Cap Index ETF | VCN | 18.00% |
| Vanguard U.S. Total Market Index ETF | VUN | 8.27% |
| Vanguard Total Stock Market ETF (U.S. listed) | VTI | 16.54% |
| Vanguard FTSE Developed All Cap ex North America Index ETF | VIU | 12.44% |
| Vanguard FTSE Emerging Markets All Cap Index ETF | VEE | 1.58% |
| Vanguard FTSE Emerging Markets ETF (U.S. listed) | VWO | 3.17% |
| Total | 100.00% |
Bender’s Plaid Model Portfolio
| Security | Symbol | Asset Mix |
|---|---|---|
| BMO Discount Bond Index | ZDB | 29.29% |
| Vanguard FTSE Canada All Cap Index ETF | VCN | 16.85% |
| Vanguard U.S. Total Market Index ETF | VUN | 10.71% |
| Vanguard Total Stock Market ETF (U.S. listed) | VTI | 16.06% |
| Vanguard FTSE Developed All Cap ex North America Index ETF | VIU | 19.60% |
| Vanguard FTSE Emerging Markets ETF (U.S. listed) | VWO | 7.49% |
| Total | 100.00% |
Again, the idea here is to reduce the cost of your index portfolio and reduce or eliminate foreign withholding taxes. The plaid portfolio takes into account your after-tax asset allocation, recognizing that a portion of your RRSP is taxable and doesn’t fully belong to you.
And it’s true. By selecting certain individual ETFs over the all-in-one asset allocation ETF an investor can save a not-so-insignificant 0.28% in an RRSP (VBAL’s MER + foreign withholding tax = 0.42% while the combination of individual ETFs in Bender’s model portfolio costs just 0.09% MER + 0.05% FWT).
WTF (What the Factor)?
The PWL team of Felix and Passmore use funds from Dimensional Fund Advisors to build their client portfolios. These funds target the five known risk factors used to explain the differences in returns between diversified portfolios.
The risk factors include market (stocks beat t-bills), size (small cap stocks beat large cap stocks), value (value stocks beat growth stocks), profitability (companies with robust profitability beat companies with weaker profitability), and investment (companies that invest conservatively beat firms that invest aggressively).
Since it’s not possible for a Canadian DIY investor to access Dimensional Funds, Ben proposed a model portfolio designed to target the five factors.
Felix Five Factor Model Portfolio
| Security | Symbol | Asset Mix |
|---|---|---|
| BMO Aggregate Bond Index ETF | ZAG | 40.00% |
| iShares Core S&P/TSX Capped Composite ETF | XIC | 18.00% |
| Vanguard U.S. Total Market Index ETF | VUN | 18.00% |
| Avantis U.S. Small Cap Value ETF | AVUV | 6.00% |
| iShares Core MSCI EAFE IMI Index ETF | XEF | 9.60% |
| Avantis International Small Cap Value ETF | AVDV | 3.60% |
| iShares Core MSCI Emerging Markets IMI Index ETF | XEC | 4.80% |
| Total | 100.00% |
This factor-tilted portfolio is slightly more expensive than Bender’s ludicrous option but the main objective of Felix’s Five Factor model portfolio is to increased expected returns.
Ben does present a compelling case for indexers to tilt their portfolios towards these factors to potentially juice expected long-term returns.
What index investors need to determine is whether that juice is worth the squeeze. I’d argue that it’s not.
The Behavioural Argument To Avoid Complexity
I have a huge amount of respect and admiration for what Dan & Justin, and Ben & Cameron have done for individual investors. But I think these model portfolios should be locked behind a pay wall, only to be accessed by investors who can demonstrate the experience, competence, and discipline needed to execute the strategy. That includes:
- Having a large enough portfolio for this to even matter.
- Using an appropriate investing platform that allows you to hold USD, perform same-day currency conversions, and keep trading commissions low.
- Creating an investing spreadsheet that’s coded to tell you what to buy and when to rebalance.
- Being an engineer or mathematician who not only loves to optimize but who also understands exactly what he or she is doing (and why).
- Having the conviction to stick with this approach for the very long term, even through periods of underperformance.
- Being humble enough to admit that you’re probably not going to execute this strategy perfectly.
Beginner investors shouldn’t worry about U.S. listed ETFs or factor tilts when they first start building their portfolio. It’s only once your portfolio gets into the $250,000 territory that you’ll start to see any meaningful savings in MER and foreign withholding taxes. Focus on your savings rate.
The investing platform matters. Wealthsimple Trade offers commission-free trades but doesn’t allow clients to hold US dollars, making it expensive to buy U.S. listed ETFs. Questrade is a more robust trading platform for DIY investors, and allows for free ETF purchases, but it takes a few days to process Norbert’s Gambit transactions leaving investors exposed to opportunity costs while they wait. Some platforms, like RBC Direct Investing, allow for same-day Gambits but also charge $9.95 per trade.
A investing spreadsheet, like the one Michael James has created for himself, takes decisions like what to buy and when to rebalance away from the investor and replaces them with a rules-based approach. This is critical, as humans are not likely to make good decisions consistently over time – especially in changing market conditions.
“Statistical algorithms greatly outdo humans in noisy environments.” – Daniel Kahneman
Multi-ETF investing models were designed by incredibly smart people who put in the research to create an optimal portfolio. It certainly looks elegant on a spreadsheet to see such precise allocations to emerging markets, international stocks, or U.S. small cap value stocks. But that precision gets thrown out the window when markets open the next day and start moving up and down.
Your carefully optimized portfolio is now live and immediately out of balance. Behavioural questions abound. When to rebalance? Where to add new money? What happens when I run out of RRSP or TFSA room?
In the case of the five factor model portfolio, how will you react if this approach doesn’t outperform a traditional market weighted index portfolio? Small cap value stocks have been crushed by large cap growth stocks for many years. How long will investors wait for the risk premium to come through?
Final Thoughts
My own investing journey and experience reviewing hundreds of client and reader portfolios tells me that the vast majority should be invested in low cost, globally diversified, risk appropriate, and automatically rebalancing products. Today, the easiest way to do that is with a single asset allocation ETF or through a robo advisor.
Again, one just has to look at the comment sections of their blogs and videos to find that these complicated portfolios lead to many more questions than answers. Dan likely realized this and simplified his Canadian Couch Potato blog model portfolios to include just the single-ticket asset allocation ETFs or TD’s e-Series funds.
But it’s clear that inexperienced investors are trying and failing to implement the more complicated portfolios in real life. In fact, it’s possible we’ll see thousands of Bender and Felix investing refugees flocking back to a one-ticket solution in the years to come.
That’s why the ridiculous, ludicrous, plaid, and five factor model portfolios should have been kept under wraps. Index investors don’t need more complicated solutions when they can beat the vast majority of investors with a simple, single-ticket asset allocation ETF.
Much has been written about optimizing your portfolio(s) for tax efficiency by placing certain investments or asset classes in certain accounts. This tax planning strategy is called asset location.
In this article I’m going to explain what asset location is all about, what optimal asset location can achieve, and why you should forget about it and just hold the same asset mix across all your accounts.
What Is Asset Location?
Most investors know about asset allocation – the mix of stocks, bonds, and other asset classes (gold, real estate, etc.) used to build a portfolio. For example, a classic 60/40 balanced portfolio would hold 60% stocks and 40% bonds.
But what happens when you hold investments inside an RRSP, a TFSA, and maybe a LIRA from a previous employer? What happens when you add a taxable or non-registered investment account to the mix?
This is where asset location comes into play. Asset location is about determining which assets to hold in each account. Why? Two reasons:
- The returns from capital gains, interest, and dividends are all taxed in different ways.
- Each of your accounts (RRSP, TFSA, non-registered) have different tax rules.
I’ll summarize what Preet Banerjee wrote in this 2013 MoneySense piece (“Everything in its place“):
- Interest income earned from savings accounts, GICs and bonds is taxed at your highest marginal rate.
- Capital gains are taxed more favourably and only when the gains have been realized (i.e. when you sell). You’ll pay tax on 50% of the gain – again, at your highest marginal rate.
- Canadian dividends get special treatment with the dividend tax credit, with a greater advantage to those in a lower tax bracket.
- Foreign dividends are taxed at your highest marginal rate, just like interest. Many countries also impose a withholding tax on dividends paid to foreign investors – most notably the 15% foreign withholding tax on U.S. dividends.
Many investment advisors look for ways to optimize asset location to better take advantage (or lessen the disadvantage) of these different tax treatments. They accomplish this by placing certain assets in either a tax-deferred, tax-free, or taxable account:
- An RRSP is a tax-deferred account, meaning all investment growth (from capital gains, interest, and dividends) is sheltered from tax until withdrawal. RRSPs are also exempt from foreign withholding taxes on U.S. dividends.
- A TFSA is a tax-free account where all investment growth is sheltered from tax and future withdrawals are also tax free. Foreign withholding taxes apply and are not recoverable.
- A taxable account is a non-registered account where any interest and dividend income is taxable in the year it’s earned. Capital gains are taxable if and when they are realized. Foreign withholding taxes do apply, but they can be offset by claiming a credit on your tax return.
An optimal asset location strategy puts interest-bearing investments (fully taxable in the year earned) into a tax-deferred or tax-free account. It puts Canadian stocks and preferred shares in a non-registered or taxable account. Foreign dividend paying stocks (particularly U.S. stocks) go into a tax-deferred account. Same with REITs, thanks to their not-so-tax-efficient income.
In summary:
- Bonds, GICs, high-interest savings – RRSP or TFSA
- Canadian stocks and preferred shares – Non-registered (taxable) account
- U.S. and foreign dividend paying stocks – RRSP
- REITs – RRSP or TFSA
What Does Optimal Asset Location Achieve?
In a 2013 paper from Morningstar, the authors determined that an optimal asset location strategy might lead to a 0.23% per year increase in after-tax returns (versus holding the same asset mix in each account).
In a 2014 paper, PWL Capital’s Justin Bender and Dan Bortolotti looked at an ETF portfolio held from 2003 – 2012 and found that optimal asset location would have added 0.30% per year to the after-tax returns.
Finally, in a 2017 paper, PWL Capital’s Ben Felix found that optimal asset location could ideally add 0.23% per year to after tax returns.
In a world where ETF investors change portfolios just to save 0.25% per year in fees, striving for an optimal asset location strategy to increase after-tax returns by as much can sound compelling.
Unfortunately, once again what looks optimal on a spreadsheet can prove to be impossible to manage in real life. As Ben Felix explains, the analysis is based on expected future returns, which are unknowable in advance. Other issues include:
- Regulatory risks – What if tax rates or other tax laws change?
- Room for error – Given all the future unknowns, even financial professionals and academics often heatedly debate just what qualifies as “optimal” asset location.
- Added complexities – Obviously, it takes a lot more time and energy to engage in asset location than to simply duplicate the same asset allocation in each account. Is the potential value-added worth it?
- Debilitating distractions – Asset location may cause more harm than good if it distracts you from other investment best practices, such as remaining fully invested and engaging in periodic rebalancing.
The bottom line: investors should be wary of going too far down the asset location rabbit hole. It’s allowing the tax tail to wag the investment dog.
Forget About Asset Location
Asset location is an idea that sounds good in theory, but can be a nightmare to manage in practice.
First of all, asset location shouldn’t be a concern at all for investors who only contribute to an RRSP and/or TFSA – especially if the portfolio is small. The asset location question should only come into play once your tax-sheltered accounts are maxed out and you start to hold investments in a taxable account.
Also, investors have been beaten over the head with the idea of optimal asset location that many are either:
- paralyzed to make an investment decision for fear of making a mistake, or;
- overcomplicating their portfolios and making them impossible to manage.
So, what’s the solution?
Forget about asset location. That’s right. Forget it.
Instead, simply hold the exact same asset mix across all accounts. That means if your ideal asset allocation is 60% stocks and 40% bonds, then the simplest and most effective solution is to hold the exact same 60/40 portfolio in your RRSP, TFSA, and non-registered accounts.
My own target asset mix, for now, is 100% equities and so I practice what I preach and hold Vanguard’s All Equity ETF Portfolio (VEQT) in each of my RRSP, TFSA, and newly set-up LIRA.
In fact, asset allocation ETFs like Vanguard’s VBAL (60/40) and VGRO (80/20) are ideal for investors who want to hold the same asset mix across all accounts and don’t want the hassle of monitoring and rebalancing their portfolio.
Final Thoughts
Can an optimal asset location strategy add value? In hindsight, the evidence showed that optimal asset location might have increased annual after-tax returns by between 0.23% to 0.30%. But “optimal” also meant an investor in the highest marginal tax rate who executed the strategy perfectly over many years.
Related: 5 investing rules to follow in good times and bad
In reality, there are too many future unknowns and too much room for investor error to conclude that optimal asset location is a strategy worth pursuing.
Instead, my advice is to forget everything you’ve read about asset location and instead hold the same asset mix (i.e. the same portfolio) across all accounts to reduce complexity and behavioural bias.
The federal government increased the annual TFSA contribution limit to $7,000 for 2024 – an increase of $500 over the annual TFSA limit that we had in 2023. It’s good news for Canadian savers and investors, who as of January 1, 2024, will have a cumulative lifetime TFSA contribution limit of $95,000.
The Tax Free Savings Account (TFSA) was introduced in 2009 by the federal conservative government. The TFSA limit started at $5,000 that year – an amount that “will be indexed to inflation and rounded to the nearest $500.”
With inflation once again coming in hot at 4.8% in 2023 (versus 6.3% in 2022) the TFSA limit was widely expected to increase again next year.
TFSA Contribution Limit Since 2009
The table below shows the year-by-year historical TFSA contribution limits since 2009.
| Year | TFSA Contribution Limit |
|---|---|
| 2024 | $7,000 |
| 2023 | $6,500 |
| 2022 | $6,000 |
| 2021 | $6,000 |
| 2020 | $6,000 |
| 2019 | $6,000 |
| 2018 | $5,500 |
| 2017 | $5,500 |
| 2016 | $5,500 |
| 2015 | $10,000 |
| 2014 | $5,500 |
| 2013 | $5,500 |
| 2012 | $5,000 |
| 2011 | $5,000 |
| 2010 | $5,000 |
| 2009 | $5,000 |
| Total | $95,000 |
Note that the maximum lifetime TFSA limit of $95,000 applies only to those who were 18 or older as of December 31, 2009. If you were born after 1991 then your lifetime TFSA contribution limit begins the year you turned 18.
You can find your TFSA contribution room information online at CRA My Account, or by calling Tax Information Phone Service (TIPS) at 1-800-267-6999.
TFSA Overview
The Tax Free Savings Account is a flexible vehicle for Canadians to save for a variety of goals. You can contribute every year as long as you’re 18 or older and have a valid social insurance number.
That means young savers can use their TFSA contribution room to establish an emergency fund or save for a down payment on a home. Long-term investors can use their TFSA to invest in ETFs, stocks, or mutual funds and save for the future. Retirees can continue to save inside their TFSA for future consumption or withdraw from their TFSA tax-free without impacting their Old Age Security or GIS.
Unlike an RRSP, any amount contributed to your TFSA is not tax deductible and so it does not reduce your net income for tax purposes.
- Your contribution room is capped at your TFSA limit. Excess contributions will be taxed at 1 percent per month
- Any withdrawals will be added back to your TFSA contribution room at the start of the next calendar year
- You can replace the amount of your withdrawal in the same year only if you have available TFSA contribution room
- Any income earned in the account, such as interest, dividends, or capital gains is tax-free upon withdrawal
How to Open a TFSA
Any Canadian 18 or older can open a TFSA. You are allowed to have more than one TFSA account open at any given time, but the total amount you contribute to all of your TFSA accounts cannot exceed your available TFSA contribution room.
To open a TFSA you can contact any bank, credit union, insurance company, trust company or robo-advisor and provide that issuer with your social insurance number and date of birth.
The most common type of TFSA offered is a deposit account such as a high interest savings account or a GIC.
You can also open a self-directed TFSA account where you can build and manage your own savings and investments.
Qualified TFSA Investments
That’s right – you’re not just limited to savings accounts and GICs. Generally, you can put the same investments in your TFSA as you can inside your RRSP. These types of allowable investments include:
- Cash
- GICs
- Mutual funds
- Stocks
- Exchange-Traded Funds (ETFs)
- Bonds
You can contribute foreign currency such as USD to your TFSA. Note that your issuer will convert the funds to Canadian dollars. The total amount of your contribution, in Canadian dollars, cannot exceed your TFSA contribution room.
If you receive dividend income from a foreign country inside your TFSA, the dividend income could be subject to foreign withholding tax.
Gains Inside Your TFSA
Some investors may be tempted to put risky assets inside their TFSA account to try and earn tax-free capital gains. There are two advantages to this strategy:
- Earn tax-free capital gains
- Potentially increase your available TFSA contribution room
For example, I maxed out my annual TFSA contributions in 2009, 2010, and 2011. That meant contributions of $15,000. I invested these funds in dividend paying stocks, which, over time, increased the total portfolio value to $19,500.
I withdrew the entire amount in mid-2011 to top-up the down payment on our new house. When the calendar turned to 2012, I had a new lifetime TFSA contribution limit of $24,500.
How did I have $24,500 in unused TFSA contribution room available even though most other Canadians had $20,000?
Any TFSA withdrawals are added back to your available TFSA contribution room at the beginning of the next calendar year. That amount was $19,500. In addition, the 2012 TFSA limit of $5,000 was added to my overall TFSA contribution room for a total of $24,500.
Losses Inside Your TFSA
The risk cuts both ways, though.
Let’s say the dividend stock picks inside my TFSA incurred a loss of $4,500. I contributed $15,000 but they’re only worth $10,500 when I need to withdraw the money for my house down payment.
The next calendar year, after I withdrew the funds, I would have only saw $10,500 added back to my TFSA contribution limit, plus the new 2012-dollar limit of $5,000 – for a total TFSA limit of $15,500.
The other downside to an investment losing money inside your TFSA is that you cannot claim a capital loss.
“In kind” TFSA Contributions
You can make “in kind” contributions to your TFSA – for example transferring stocks or funds held in your non-registered account to your TFSA.
According to the CRA, you will be considered to have disposed of the security at its fair market value at the time of the contribution. If that value is more than the original cost of the security, you will have to report the capital gain on your income tax return. However, if the value is less than the original cost, you cannot claim the resulting capital loss.
The amount of the contribution to your TFSA will be equal to the fair market value of the property.
This can be an excellent strategy for seniors and retirees to transfer securities from their taxable investment account and into their sheltered “tax-free” TFSA.
Transfer from your RRSP
You can also transfer an investment from your RRSP to your TFSA. Again, according to the CRA, you will be considered to have withdrawn the investment from the RRSP at its fair market value.
This amount is reported as an RRSP withdrawal and must be included in your income for that tax year.
“The tax withheld on the withdrawal can be claimed at line 437 of your income tax and benefit return.”
If the transfer from your RRSP to TFSA takes place immediately, the same value will be used as the amount of the contribution to the TFSA. If the contribution is delayed or deferred, the amount of the contribution will be the fair market value of the investment at the time of that contribution.
TFSA Over-Contribution Penalty
Unlike the RRSP Over-Contribution limit of $2,000, TFSAs have no such room for error.
Some Canadians have run afoul of the CRA for over-contributing to their TFSA. The excess contributions are subject to a 1 percent penalty tax per month. For example, if you’ve over-contributed $1,000 you would have to pay $10 per month.
If you receive a TFSA excess amount letter from the CRA you should remove the excess amount immediately. Go to CRA My Account for your room limit as of January 1, or complete Form RC343, Worksheet – TFSA contribution room if you have contributed to your TFSA in the current year.
TFSA Impact on Government Benefits
The TFSA has been a tremendous boon for seniors and retirees. The main advantage is that any income earned inside your TFSA, or amounts you withdraw from your TFSA, won’t impact means-tested government benefits such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
That means retirees could get a portion of their retirement income from their TFSA and not have that amount increase their total net income. This is beneficial to either preserve GIS benefits or to avoid the dreaded OAS clawback.
TFSA income or withdrawals will also not affect employment insurance benefits, or your eligibility for other credits such as the Canada child benefit (CCB), the working income tax benefit (WITB), the GST credit, or the age amount.
TFSA Beneficiaries and Death of TFSA Holder
There are two types of TFSA beneficiaries:
- A survivor who has been designated as a successor holder
- Designated beneficiaries, such as a survivor who has not been named successor holder, a former spouse or common-law partner, children, and qualified donees
A successor holder is a spouse or common-law partner of the holder at the time of death and is named by the deceased as the successor holder of the TFSA.
The successor holder acquires all of the rights of the holder, including the right to revoke any beneficiary designation. This spouse or common-law partner becomes the new TFSA account holder.
The TFSA continues to exist and both its value at the date of the original holder’s death and any income earned after that date continue to be sheltered from tax under the new successor holder.
The successor holder can make tax-free withdrawals from the deceased holder’s TFSA account. He or she can also make new contributions to that account, subject to their own unused TFSA contribution room.
Investing Ideas for your TFSA
The TFSA is an incredible savings tool. Low income earners should primarily use their TFSA to save for retirement, while higher income earners should maximize their RRSP contributions first, but ideally contribute to both their RRSP and TFSA.
Related: A Sensible RRSP vs. TFSA Comparison
Here are my recommendations for the best TFSA investments for long term savers:
Invest with a Robo Advisor: Robo-advisors offer Canadians an easy and hands-off way to automatically invest for the future. Open a TFSA at a robo-advisor like Wealthsimple and you can invest in a diversified portfolio of index ETFs for a management fee of 0.50 percent, plus the MER of the ETFs, for a total cost of about 0.65 percent.
DIY Invest with ETFs: Investors who are more inclined to take the wheel themselves can open a self-directed TFSA account at a discount broker like Questrade and build their own investment portfolio. With the introduction of one-ticket asset allocation ETFs from the likes of Vanguard, iShares, and BMO, it’s never been easier to build a globally diversified portfolio on the cheap. Vanguard’s VBAL, for example, represents the classic 60/40 balanced portfolio and comes with a MER of just 0.24 percent.
Invest in bank index funds: Maybe you’re more comfortable staying at your home bank and investing through an advisor. Know that every bank offers its own suite of index funds, which are considerably cheaper than their actively managed cousins and tend to outperform. Open a TFSA account at your bank and insist on getting a portfolio of index funds. TD’s popular e-Series funds are the most highly rated and lowest cost of the bunch and will cost around 0.45 percent. Expect the other banks’ index funds to cost closer to 1 percent.
As for me, I’ve explained before exactly how I invest my own money, holding Vanguard’s All Equity ETF (VEQT) across all accounts – including inside my TFSA at Wealthsimple Trade. I prefer to use my TFSA for long-term investing rather than as a place to stash cash in a high interest savings account. Tax free growth for the win!