Top ETFs and Model Portfolios for Canadian Investors

By Robb Engen | August 31, 2022 |
Top ETFs and Model Portfolios for Canadian Investors

The investing landscape has certainly evolved for the better over the past two decades. Gone are the days when the only way to invest was to work with an expensive broker or mutual fund salesperson. Self-directed investing platforms, robo-advisors, and all-in-one ETFs have democratized investing – making it cheap and accessible for investors to build a portfolio at any age and stage.

Today, just as mutual funds dominated the investing scene in the 1990s, exchange-traded funds (ETFs) are exploding in popularity as investors flock to low cost passive investing products. The challenge for investors is to separate the wheat from the chaff. Indeed, according to the Canadian ETF Association (CETFA), there are now more than 1,000 ETFs offered by 42 ETF providers.

In this article, I’ll break out the top ETFs for Canadian investors to help you avoid analysis paralysis and make an informed decision about which ETFs to hold in your portfolio.

Then I’ll take it one step further and show you one simple portfolio to get started with a self-directed index investing portfolio, and one more complicated version to help investors with larger portfolios save on fees.

Top ETFs for Canadian Investors

First, let’s sort out the top ETFs from that list of 1,000+ funds. I’m going to stick with ETFs from the three largest ETF providers in Canada:

  1. BlackRock Canada: 144 ETFs and $92.56B in assets under management
  2. BMO Asset Management: 128 ETFs and $86.45B in assets under management
  3. Vanguard Canada: 37 ETFs and $48.21B in assets under management

I’m also going to screen out any ETFs that are actively managed or that focus on a specific sector (I’m looking at you, BetaPro Crude Oil 2x Daily Bull ETF).

Instead, we’re looking for ETFs that track as broad of an index as possible to give investors the ultimate diversification of global stocks and bonds. I’ve narrowed down the list to the top 20 ETFs on the market.

Canadian Equity ETFs

Each of these two ETFs offer exposure to approximately 200 of Canada’s top small, medium, and large companies for an ultra-low fee.

  • Vanguard FTSE Canada All Cap Index ETF (VCN)
  • iShares Core S&P/TSX Capped Composite Index ETF (XIC)

U.S. Equity ETFs

Each of these two ETFs offer exposure to the entire U.S. stock market by tracking the CRSP US Total Market Index.

  • iShares Core S&P US Total Market Index ETF (XUU)
  • Vanguard U.S. Total Market Index ETF (VUN)

International and Emerging Market ETFs

Vanguard’s VIU and iShares’ XEF offer exposure to thousands of stocks in the developed world outside of North America (Europe and the Pacific), while VEE and XEC, respectively, give investors exposure to thousands of stocks from emerging markets around the globe.

  • Vanguard FTSE Developed All Cap ex North America Index ETF (VIU)
  • Vanguard FTSE Emerging Markets All Cap Index ETF (VEE)
  • iShares Core MSCI EAFE IMI Index ETF (XEF)
  • iShares Core MSCI Emerging Markets IMI Index ETF (XEC)

Global Equity ETFs

Investors can avoid holding individual ETFs for U.S. equity, international equity, and emerging markets by choosing one of these two global equity ETFs (All World, ex Canada).

  • iShares Core MSCI All Country World ex Canada Index ETF (XAW)
  • Vanguard FTSE Global All Cap ex Canada Index ETF (VXC)

Bond ETFs

These popular Canadian bond ETFs give investors exposure to the broad universe of Canadian government and corporate bonds.

  • BMO Aggregate Bond Index ETF (ZAG)
  • Vanguard Canadian Aggregate Bond Index ETF (VAB)

All-in-One ETFs

Vanguard, iShares, and BMO all offer all-in-one balanced ETFs that come in several different flavours depending on your risk tolerance. These one-decision ETFs circumvent the need to hold multiple ETFs.


  • Vanguard All-Equity ETF Portfolio (VEQT)
  • Vanguard Growth ETF Portfolio (VGRO)
  • Vanguard Balanced ETF Portfolio (VBAL)


  • iShares Core Equity ETF Portfolio (XEQT)
  • iShares Core Growth ETF Portfolio (XGRO)
  • iShares Core Balanced ETF Portfolio (XBAL)


  • BMO Balanced ETF (ZBAL)
  • BMO Growth ETF (ZGRO)

Model ETF Portfolios (Putting It All Together)

I’ve pulled out the top 20 ETFs, but that’s still a lot for investors to sort through when deciding which ones to use for their own portfolio. Now I’m going to break things down even further by showing you an ideal model ETF portfolio depending on the size of your account(s).

Along the way you may need to make trade-offs that include simple versus complex, low cost versus even lower cost, and automatic monitoring and rebalancing versus a more hands-on approach to portfolio construction.

The need for these trade-offs becomes more apparent as your portfolio grows over time.

One-Fund ETF Portfolio vs. 3-Fund ETF Portfolio

First, we’re going to look at an example of a young investor with an initial $10,000 to invest. We’ll assume the appropriate asset mix for this investor is a portfolio with 80 percent equities and 20 percent bonds.

Keep the process as simple as possible when you’re building an ETF portfolio. That means you should likely choose one of the asset allocation ETFs (one ETF solutions), such as iShares’ XGRO or Vanguard’s VGRO.

One-Fund ETF Portfolio ($10,000)

Ticker MER % Allocation $ Allocation $ Fee
XGRO 0.21% 100% $10,000  
Total 0.21% 100% $10,000 $21


The trade-off for a slightly higher fee is the simplicity of these products. They automatically adjust your allocation behind the scenes, so you don’t have to monitor or rebalance on your own.

Select a self-directed investing platform, fund your account, and then purchase the single ETF. It’s that easy.

I’d recommend choosing Questrade, which offers free ETF purchases, or Wealthsimple Trade, the mobile-only investing platform that offers zero-commission ETF trades.

Since you’ll likely be adding new money regularly, and likely in smaller amounts, a one-ETF solution is ideal to avoid having to tinker and rebalance your portfolio with every contribution.

As you can see by the model portfolio breakdowns for the more complex portfolios, you’d be tweaking each individual ETFs amount with every purchase to try and stay true to your original asset mix. 

Three-Fund ETF Portfolio ($10,000)

Ticker % MER % Allocation $ Allocation $ Fee
VCN 0.06% 25% $2,500  
XAW 0.22% 55% $5,500  
VAB 0.09% 20% $2,000  
Total 0.15% 100% $10,000 $15


That’s why I highly recommend a one-ETF solution for new investors who plan to invest a small amount to start, and want to add small, frequent contributions with every paycheque.

Adding Complexity to Save on Fees

When you’re first starting your investing journey it makes sense to value simplicity over fees. That’s because in the early stages of investing your savings rate and contributions will have much more of an impact than fees.

But when your portfolio grows to the six-figure range, perhaps even around $200,000, these extra costs can certainly add up. At this point it makes sense to add some complexity, such as unbundling a one-ETF solution in favour of adding some lower fee U.S. listed ETFs.

U.S.-listed ETFs come with lower MERs and less foreign withholding taxes. But they require you to invest using U.S. currency. Since it can be expensive to convert currency, investors perform a manoeuvre known as Norbert’s Gambit to convert CAD to USD and vice-versa.

The good news is that if and when you’re ready to do this, a discount brokerage platform like Questrade can support USD and the Norbert’s Gambit move.

Let’s now look at model ETF portfolios for an investor with a $200,000 portfolio.  

One-Fund ETF Portfolio ($200,000)

Ticker MER % Allocation $ Allocation $ Fee
XGRO 0.21% 100% $200,000  
Total 0.21% 100% $200,000 $420


The one-ETF solution is still incredibly cheap compared to any mutual fund or actively managed portfolio.

But let’s show how low our costs can get when we dissect the portfolio into three ETFs.

Three-Fund ETF Portfolio ($200,000)

Ticker MER % Allocation $ Allocation $ Fee
VCN 0.06% 25% $50,000  
XAW 0.22% 55% $110,000  
VAB 0.09% 20% $40,000  
Total 0.15% 100% $200,000 $308


With a $200,000 portfolio you’ll save $112 per year by using the three-ETF model portfolio.

Let’s take things one-step further with a five-ETF solution courtesy of PWL Capital’s Justin Bender and his “ridiculous” model ETF portfolio.

Lowest Fee ETF Solution (RRSPs – $200,000)

Ticker MER % Allocation $ Allocation $ Fee
VAB 0.09% 20% $40,000  
VCN 0.06% 24% $48,000  
VTI 0.03% 31.83% $63,660  
VIU 0.22% 18.00% $36,000  
VWO 0.10% 6.17% $12,340  
Total 0.09% 100% $200,000 $180


With this low-fee solution our investor would save $240 per year by unbundling the one-ETF solution in favour of this five-ETF portfolio.

  • Vanguard Canadian Aggregate Bond Index ETF
  • Vanguard FTSE Canada All Cap Index ETF
  • Vanguard Total Stock Market ETF (U.S.-listed)
  • Vanguard FTSE Developed All Cap ex North America Index ETF
  • Vanguard FTSE Emerging Markets ETF (U.S.-listed)

Two of the ETFs are U.S.-listed, meaning you’ll need a USD account and USD currency to purchase the funds. As mentioned, you’ll also need to perform the currency conversion move called Norbert’s Gambit to exchange CAD and USD and avoid currency conversion fees.

The extra tinkering, monitoring, and rebalancing may not be worth it for some investors (me included), but as your portfolio grows the cost savings may become too tempting to ignore.

Final thoughts

When you’re starting out with $5,000 or $10,000 to invest it doesn’t make a ton of sense to slice-and-dice your portfolio into a handful of different ETFs.

A one-ticket ETF is all you need at this stage while you build up your investment portfolio. Later on, as your portfolio grows and the fees start to creep up, then consider a more complex portfolio that can help you save on MER and foreign withholding taxes.

I know that 780 ETFs can be overwhelming, and you may not know where to start. Hopefully this guide can help you avoid analysis paralysis so you can start investing confidently in ETFs.

Decide on a model portfolio and an asset mix that’s suitable for your situation. Use a self-directed investing platform like Questrade or Wealthsimple Trade to save on transactional costs. Put your money to work regularly by setting up automatic contributions.

And, finally, stick to your investing plan through good times and bad. Passive investing through index ETFs is designed to deliver market returns, minus a small fee. That means your investment portfolio will go up and down with the direction of the market.

Over the long term, that risk has paid off handsomely.

Sustainable Investing Solutions For DIY Investors

By Robb Engen | August 30, 2022 | Comments Off on Sustainable Investing Solutions For DIY Investors

Sustainable Investing Solutions For DIY Investors

A growing number of investors are concerned about the environmental, social, and governance (ESG) aspects of economic activities and want their investment portfolios to reflect this concern. This demand has been met by the investment industry with an explosion of new mutual funds and ETFs described as sustainable and socially responsible.

However, as the landscape for sustainable investment products grows, investors need to look with a critical eye to ensure that what’s under the hood (the investment methodology) aligns with their values.

Last July, CIBC Asset Management launched a suite of sustainable ETFs designed to help DIY investors build their own sustainable portfolios. The product suite includes three individual ETFs representing Canadian equities, global equities, and Canadian bonds. It also includes three all-in-one ETF solutions for conservative, balanced, and growth investors.

I reached out to Aaron White, Vice-President, Sustainable Investments at CIBC, to get his take on these issues and more. Here’s our Q&A session:

CIBC Sustainable ETFs

  1. Sustainable or responsible investing can mean different things to different investors. How did CIBC determine the appropriate ESG criteria for these funds? Is there a lot of turnover in these funds?

This is a great point and highlights the challenge facing investors looking to integrate their values with their investment portfolios. With no two solutions being the same, investors can find it confusing to navigate the market and really must do an extra layer of due diligence and understand the methodology that drives the responsible or sustainable outcome.

CIBC Asset Management undertook a consultation with our existing clients to understand what criteria were most important to investors. We developed a methodology that offers broad exclusions that we believe aligns with a diverse group of investors seeking more sustainable investments. The funds will typically be lower turnover due to their focus on higher quality ESG companies.

  1. What’s the difference between positive and negative screens and how did CIBC use these to build their sustainable funds?

Negative screening refers to restricting the investible universe by excluding companies based on their business involvement. Positive screening, on the other hand, focuses on investing in companies based on favourable characteristics. 

For example, with CIBC Asset Management’s Sustainable Investment Solutions, our portfolio uses a combination of both. We restrict investment in industries like tobacco, alcohol, gambling, adult entertainment, weapons, recreational cannabis, and fossil fuels. The specifics of how we determine the companies to restrict are outlined in our publicly available framework. 

We then employ positive screening by implementing a “best-in-class” approach, where portfolio managers will only invest in companies who relative to their sector peers are median or better at managing ESG risks as determined by our own primary research. We believe this approach provides investors with values alignment by avoiding companies with certain business involvement and produces a portfolio of high quality companies that have strong peer relative ESG characteristics.

  1. Do ESG investors sacrifice returns by investing with their values? How do ESG funds compare to similar non-ESG funds over time?

First, I think we need to reframe what it means to be an “ESG investor”. The term has become a catch-all that does not clearly define what it means to invest responsibly and has created a lot of confusion for investors. 

ESG is primarily focused on uncovering non-financial factors that are financially material to a company and ensuring that those considerations are integrated into the holistic assessment of a company and industry. This leads to more informed decision making and we believe to better results for clients. This type of investing does not restrict in any way the investment universe. 

There are then investment solutions that are focused on delivering additional outcomes to investors beyond financial returns. These include negative and positive screening that we have already discussed but also include thematic and impact investing. Depending on the specific strategy that an investor selects the investment universe may be constrained or the opportunity set more narrowly defined.

Ultimately, investors need to weigh their non-financial objectives alongside their financial goals to determine an appropriate approach that meets their holistic needs. Some investment options that are more restrictive may perform very different from a broad benchmark and may narrow the set of available investments. 

For example, an investor who chose to not invest in traditional energy companies due to their personal values would have outperformed from 2015-2021 and would have underperformed over the last 18 months. An investor who chooses to align their investment portfolio with their values must understand the implications and how the decision may impact their portfolio over a cycle.

  1. Let’s talk about portfolio construction. I’m a big fan of all-in-one products, and I see that CIBC offers three all-in-one sustainable ETFs, depending on the investor’s risk profile (conservative, balanced, and growth). You also offer three individual ETFs (Canadian bonds, Canadian equities, and global equities), presumably for investors to construct their own portfolio weightings. Do you see these as core portfolio holdings, meaning investors can properly diversify with a single all-in-one ETF or a selection of the three individual ETFs?

Yes, we believe that our balanced portfolios provide broad enough diversification to meet the needs of the majority of investors. These all-in-one solutions are tactically managed to take advantage of market opportunities as they present themselves. This allows investors to select a portfolio that matches their risk tolerance and take a set it and forget it approach. 

For investors that would like to be a bit more hands on, our three core asset class options allow them to customize a portfolio that meets their unique needs and complement those core positions with other solutions.

  1. The clean energy ETF (CCLN) looks interesting. Is this an add-on, more speculative play for investors looking for exposure to the clean energy sector? Is there a manager at the helm, or does the clean energy index follow a more systematic approach to stock selection?

We view the clean energy ETF as an add-on for longer term investors that would like to participate in the opportunities presented by the climate transition. Investors in this industry need to be prepared to weather volatility as there has been significant speculation in the space.  However, we believe that a patient investor that is committed to the long term can significantly benefit from the structural tailwinds afforded by government regulation and the pressure to transform our energy system.

While the index follows some systematic guidelines, our energy specialist team in Denver, headed by Lance Marr is responsible for the oversight of the index. The intent is to ensure investors have a pure play exposure to the companies and industries that will be the leaders of the new clean energy economy.

  1. As ESG investing becomes more mainstream there’s concern about so-called greenwashing. How would you say that CIBC and its sustainable investment strategies represent a commitment to ESG mandates and is not just following a popular investing trend?

At CIBC Asset Management, we believe in authenticity and transparency. Investors need to understand exactly what you’re trying to accomplish and then you must do what you say. On this basis, we have published the framework that outlines the exact methodology that underpins our sustainable investment solutions. This allows investors to understand exactly how the investment universe is constructed and whether that aligns to their values and personal goals. 

We also produce monthly commentaries, annual ESG and Stewardship reporting, and various pieces of thought leadership, which allows our investors to understand our firm’s beliefs and how we are actioning those beliefs in the market. We believe this transparency allows investors to judge our authenticity and make an informed decision when choosing to invest with us.

  1. Finally, tell us about impact donations and where that money goes.

We felt it was important to align the causes our organization participates in with the values of our clients. To this end, we are donating a portion of the management fees we earn from our Sustainable Investment lineup to charities and non-profits that are focused on facilitating the climate transition.

In 2021 we donated to the Pembina Institute, a Canadian think tank that advocates for strong and effective policies that support Canada’s clean energy transition. We are excited about continuing to grow our annual charitable footprint and contribute to facilitating a just energy transition.

Final Thoughts

Thanks to Aaron White for taking the time to answer my questions about sustainable investing and CIBC’s approach to its Sustainable Investing Solutions.

Readers can learn more about CIBC’s sustainable ETF products here.

Again, these funds include:

  • CIBC Sustainable Canadian Core Plus Bond Fund (CSCP) – MER 0.40%
  • CIBC Sustainable Canadian Equity Fund (CSCE) – MER 0.60%
  • CIBC Sustainable Global Equity Fund (CSGE) – MER 0.75%

And the all-in-one ETFs:

  • CIBC Sustainable Conservative Balanced Solution (CSCB) – 40% stocks / 60% bonds – MER 0.65%
  • CIBC Sustainable Balanced Solution (CSBA) – 55% stocks / 45% bonds – MER 0.70%
  • CIBC Sustainable Balanced Growth Solution – 70% stocks / 30% bonds – MER 0.75%

This article was sponsored by CIBC Asset Management. All opinions are my own.

Why It Would Be Ludicrous To Invest In These Model Portfolios

By Robb Engen | August 29, 2022 |

Why It Would Be Ludicrous To Invest In These Model Portfolios

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

SecuritySymbolAsset Mix
Vanguard Canadian Aggregate Bond Index ETFVAB40.00%
Vanguard FTSE Canada All Cap Index ETFVCN18.00%
Vanguard U.S. Total Market Index ETFVUN8.27%
Vanguard Total Stock Market ETF (U.S. listed)VTI16.54%
Vanguard FTSE Developed All Cap ex North America Index ETFVIU12.44%
Vanguard FTSE Emerging Markets All Cap Index ETFVEE1.58%
Vanguard FTSE Emerging Markets ETF (U.S. listed)VWO3.17%

Bender’s Plaid Model Portfolio

SecuritySymbolAsset Mix
BMO Discount Bond IndexZDB29.29%
Vanguard FTSE Canada All Cap Index ETFVCN16.85%
Vanguard U.S. Total Market Index ETFVUN10.71%
Vanguard Total Stock Market ETF (U.S. listed)VTI16.06%
Vanguard FTSE Developed All Cap ex North America Index ETFVIU19.60%
Vanguard FTSE Emerging Markets ETF (U.S. listed)VWO7.49%

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

SecuritySymbolAsset Mix
BMO Aggregate Bond Index ETFZAG40.00%
iShares Core S&P/TSX Capped Composite ETFXIC18.00%
Vanguard U.S. Total Market Index ETFVUN18.00%
Avantis U.S. Small Cap Value ETFAVUV6.00%
iShares Core MSCI EAFE IMI Index ETFXEF9.60%
Avantis International Small Cap Value ETFAVDV3.60%
iShares Core MSCI Emerging Markets IMI Index ETFXEC4.80%

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. 

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