Weekend Reading: Building A Diversified Portfolio Edition

Weekend Reading: Building A Diversified Portfolio Edition

Nobel Prize winner Harry Markowitz famously said that “diversification is the only free lunch in investing.” For investors, that means diversifying their portfolio across different asset classes, different sectors, and different geographies. The goal is to reduce risk without sacrificing return. Sounds easy, right?

Investing can be simple, but it isn’t always easy. Think about building a globally diversified portfolio of stocks and bonds. You’d want to have Canadian equities, U.S. equities, plus stocks from international and emerging markets. You’d also want a mix of Canadian and foreign government and corporate bonds. That’s at least seven different funds to hold inside your portfolio.

Thankfully, there’s a better way for investors to build a balanced portfolio without sweating over the individual details. All-in-One ETFs, also known as asset allocation ETFs, hold all the building blocks of a diversified portfolio inside a single fund.

All of the major ETF providers have their own suite of asset allocation ETFs, including Vanguard, iShares, BMO, Horizons, TD, Mackenzie, and Fidelity.

Under the hood you’ll typically find seven or eight individual ETFs representing different asset classes and geographic regions. That means holding thousands of global stocks and bonds in one convenient basket, making it easy for investors to get their free lunch and eat it too.

By the way, the opposite of diversification is called concentration. It’s when your entire portfolio consists of meme stocks, or crypto, or Canadian bank stocks, or just Canadian stocks for that matter.

Sure, there’s always a tiny chance you’ll get lottery-like returns with a concentrated portfolio. But there’s also a better than average chance your portfolio will lose money, at least compared to the overall market. Stocks can go to zero (looking at you, Nortel).

Build a balanced, diversified portfolio with an all-in-one ETF and you’ll sleep easy at night knowing your investment strategy is likely to lead to the best long-term outcomes with less short term pain.

Holding a risk appropriate asset allocation ETF is like driving five kilometres per hour under the speed limit in the right lane of a highway during a winter storm. Sure, it might be boring. But there’s a good chance you’ll get where you need to go, on time, and without much risk of getting into an accident or getting a speeding ticket.

Meanwhile, the left lane may be full of traffic speeding, perhaps aggressively or erratically, towards their destination. Vehicles end up in the ditch, or pulled over for speeding, or paralyzed with fear and driving even slower than the vehicles on the right. Risks abound. 

This Week’s Recap:

It’s been a minute since my last weekend reading update. Since then I’ve written the following articles:

I have four TurboTax codes to give away to four lucky readers who commented on that TurboTax review. A reminder that these can be used on any paid product (worth up to $279.99 if you go with Full Service Self-Employed). 

The lucky winners are:

  1. Kathryn, who commented on February 24th at 11:00 a.m.
  2. JimG, who commented on February 24th at 4:01 p.m.
  3. Jamie, who commented on February 24th at 12:51 p.m.
  4. Jane Spratt, who commented on February 24th at 2:53 p.m.

Congratulations! I’ll send out your free product codes by email this weekend.

Travel Update


We recently got back from a seven night holiday in Maui. It was so nice to travel again and get a short reprieve from winter. 

In just over a month we’ll head to Italy for three weeks, staying in Rome, Florence, and Venice (plus a week in a hilltop town in Tuscany). This is a re-booking of our cancelled 2020 trip.

Then we’ll travel to the U.K. in July, spending just over a week in England (London and Lake District) and two weeks in Scotland. 

Finally, we plan to visit Paris for a week in October.

Yes, revenge travel season is upon us.

Promo of the Week:

One credit card that gets a lot of attention from travel and credit card comparison sites but does not get enough love from actual consumers is the American Express Cobalt Card.

This card has always paid 5x points on food and beverage, making it a must have card for groceries and dining out. But a recent change has made those points even more valuable. You see, American Express Membership Rewards points can be transferred 1:1 to other travel programs, including Aeroplan. Aeroplan miles are worth about 2 cents per mile.

Some quick math tells me if you spend $500 per month on groceries you can earn 2,500 points. In one year you can earn 30,000 Membership Rewards points from just $6,000 in spending.

Now transfer those 30,000 points to Aeroplan and you’ll have 30,000 Aeroplan miles. Redeem those miles for a flight at 2 cents per mile and you’ll save $600 on travel.

That $600 reward on $6,000 in spending is a 10% return – on spending you do anyway.

My wife and I each have a Cobalt card and try to charge $500 worth of food and/or beverage to the card every month. It’s an easy way to earn an extra 60,000 Aeroplan miles every year.

Sign up for the American Express Cobalt Card and start levelling up your rewards game.

Weekend Reading:

Our friends at Credit Card Genius have the goods on the new CIBC Costco Credit Card.

Few Canadian seniors are deferring their retirement benefits, even when doing so could mean tens of thousands of extra dollars:

Few Canadians deferring CPP

If I recall correctly, the number of Canadians taking CPP at 70 used to be 1%, so I suppose 4% is a decent improvement.

Jason Heath continues his excellent series on what to do with money in a corporation – this one looks at corporate investments for retirees and how to withdraw with minimal tax implications.

Portfolio Manager Markus Muhs explains why dollar cost averaging is good for the soul.

A Wealth of Common Sense blogger Ben Carlson explains eight of the biggest investing myths.

Canadian Couch Potato blogger Dan Bortolotti says it’s a bad idea to retire with more money than you need.

Are you eager to start investing but also worried that the stock market might crash soon? Then you must watch this excellent video by Preet Banerjee to help you get started:

Morgan Housel shares the two things that must be experienced before they can be understood.

Are interest rates going to go up? Is the stock market going to crash? Michael James on Money answers big questions about personal finance and investing.

Millionaire Teacher Andrew Hallam explains how to find the right balance between happiness and spending:

“So here’s how to test whether a purchase might provide an experience that boosts your happiness or well-being. Ask yourself if it creates experiences you wouldn’t otherwise have. A new phone, purse, brand-name clothes, or car likely wouldn’t do it, simply because of hedonic adaptation.”

Erica Alini wrote that renting is supposed to offer mobility and flexibility. So why do so many tenants just feel stuck?

Canada’s housing market could crash or soar, but there’s a more likely third option that nobody is talking about (subs)

Finally, an absolute gem from Fred Vettese on which assets should be drawn down first in retirement (subs). Here’s the conclusion for those who can’t read behind the paywall: Retirees will generally be better off drawing down assets from multiple sources on an annual basis rather than trying to keep their RRSP intact for as long as possible.

Have a great weekend, everyone!

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  1. Gin on March 5, 2022 at 7:27 pm

    My husband is not much into personal finance reading but Preet Banerjee’s videos always engage him. Thanks for including these and other bloggers. The variety helps reach a bigger audience.

    • Robb Engen on March 6, 2022 at 2:30 pm

      Hi Gin, thanks for the kind words. There are some great content creators on different platforms, like blogs, YouTube, podcasts, even Instagram to help people learn through different mediums.

  2. Charlie on March 6, 2022 at 4:08 am

    Hi Robb,
    I’ve also been a proponent of the all in one ETFs as you are and hold VBAL and VGRO. Heading into retirement and looking for more steady income, these ETFs average 1.7-2.0% income. Is there any other solution that would boost the income side while continuing to hold an all in one diversified ETF?

    • Reuben on March 6, 2022 at 10:46 am

      If you want higher income you should just cash in some of your capital gains, or look to an ETF like VRIF to do it for you. Otherwise your only way to achieve a higher yield would be portfolio concentration.

    • Robb Engen on March 6, 2022 at 2:37 pm

      Hi Charlie, with these ETFs you would use what’s called a total return approach to give yourself a more tax efficient and reliable stream of income. That means withdrawing the 2% distributions and topping that up by selling some ETF units to give you your desired income. This way you get a mix of capital gains, dividends, and interest income.

      Meanwhile, your all-in-one ETF automatically rebalances to maintain your target asset mix even as you make withdrawals.

      This is the best article I’ve ever read on generating retirement income from ETFs. It was written in 2015, before the launch of all-in-one ETFs which now make this approach even easier.


      • Charlie on March 6, 2022 at 3:28 pm

        Great advice and article, thanks Robb!

  3. Jim on March 6, 2022 at 9:50 am

    Another great article. I really like this 1 ETF for a diversified portfolio.
    I hold way to many individual stocks and should switch over to VEQT. But I am being greedy as some of my individual holdings are doing great (ENB,TRP,SU,CNQ ) but I know the correction will hit those winners sooner or later.
    I am being greedy and trying to time the market and get top buck for my winners, then buy into the 1 ETF portfolio. And I know trying to time the MARKET IS SO WRONG!!!
    Slow and steady wins the race, now I have to follow my own advise.

    • Robb Engen on March 6, 2022 at 2:40 pm

      Hi Jim, it’s important to be honest with yourself about your investing approach and it sounds like you are aware that it’s irrational to hand onto a handful of individual stocks just because they’ve done well in the past. It might be helpful to know that if you sold them and immediately bought VEQT you wouldn’t necessarily be timing the market – you’re still 100% invested, and in fact you’d still own a small sliver of those individual companies.

      It’s also helpful to understand the power of loss aversion. The idea that we feel the pain of losing twice as much as we feel the pleasure of winning. So if you hold the individual stocks too long and they take a big haircut, you may feel more regret than if you sell them and they continue to go up.

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