My New Passive Index ETF Portfolio

Unfortunately this is the second time my portfolio has changed in the past two years. The first change was when I moved from a TD Mutual Funds account to Clearsight last year. My advisor had great plans for my portfolio. He wanted to eventually have me primarily invested in low-cost ETFs and we were going to have a 25-25-25-25 split between Canadian bonds, Canadian equities, international equities, and US equities. Due to the high commissions ($75) charged by Clearsight we bought one ETF and the rest was in mutual funds. Anyways, before we got very far Clearsight was acquired by Wellington West and my advisor was let go, so I began the transition to E*Trade where I could manage my portfolio on my own. I learned a lot from my advisor at Clearsight, like what an ETF is, and importance of lowering cost. I have come a long way since just owning just TD mutual funds and eFunds through a TD Mutual Funds account back in 2005. So before I introduce you to my new portfolio at E*Trade, here’s what my portfolio looked like when I was with Clearsight:

RRSP holding Symbol Type %
CI Value Trust US Equity 11%
Templeton International Stock Fund Global Equity 26%
Canadian TSX60 index ETF XIU Canadian Large Cap 34%
E&P Growth Opportunities Canadian Small Cap 4%
TD Canadian Bond Fund Canadian Bond 25%

Some of the things I did not like about my old portfolio are:

  • High cost – Too many mutual funds with high MERs. I checked all of these funds’ performance again and for the most part they didn’t seem to be capable of beating their benchmarks in the past. The Growth Opportunities has not beaten the S&P/TSX Venture Composite Index in the range I looked at. CI Value Trust (clone of Legg Mason Value Trust) has not been impressive of late, but even worse, it has assumed far more risk than an index, with its investments in Google and other high-tech stocks. The Templeton International Index fund (last time I checked) had not beaten the MSCI EAFE index over the long term. Also, the TD Canadian Bond fund is not all that spectacular compared to ETFs like XSB.
  • No emerging markets – I wanted some emerging markets to provide increased diversification and greater risk-adjusted return due to their low correlation with other markets. The fact that emerging markets have done very well of late is of no concern to me, I realize if I buy emerging markets equities now I might suffer a bit in the near future.
  • No real return bonds, or inflation-sensitive assets – I looked at the Ontario Teacher’s Pension Plan and the CPP Investment Board and both have significant real return bond holdings. The former has 11.1% and the latter has 3.5% in real return bonds.
  • Huge domestic bias – Although I had originally wanted 25% in Canadian equities my advisor had me at 40% because he had concerns about the US dollar, so we weighted Canadian equities more. This is way too much allocated to a handful of Canadian companies that make up a large part of the TSX/S&P 60 Index.
  • No foreign currency exposure – Foreign currency exposure can be a good thing. If inflation is high in Canada, our dollar will decrease in value relative to other currencies. More importantly, some of my investments, such as the CI Value Trust were hedged versions of USD mutual funds so I was paying extra management expense when I could have just owned the USD version and possibly reduced my total risk at lower cost.
  • Lack of US exposure – I only had something like 11% of my assets in US equities. This is extremely underweight for such a large market like the US. My advisor was planning to “ease in” to US equities (he had some issue with the falling US dollar) but I would prefer to just go with some desired allocation and re-balance when necessary rather than thinking one can be smarter than the market.
  • Lack of broad US exposure – Bill Miller’s Value Trust is invested in relatively few investments compared to the size of the US market. He also invested a lot in high tech companies like Google, Yahoo, Amazon, eBay, etc… I wanted to own more blue chips/boring companies, mid-caps, small-caps, etc…

So based on some of the things I did not like about my old portfolio, and some information that I gleaned from various blogs and internet sources, here is my new portfolio that I have putting together for the past couple months:

RRSP holding Symbol Type %
iShares CDN MSCI EAFE Index Fund ETF XIN-T International Equity 35%
Vanguard Emerging Markets ETF VWO Emerging Markets 5%
Vanguard Total Stock Market ETF VTI US Equity 32%
iShares Canadian Short Bond Index Fund ETF XSB-T Canadian Short-Term Bond 15%
iShares Canadian Real Return Bond Index Fund ETF XRB-T Canadian Real Return Bond 5%
iShares Canadian Composite Index Fund ETF XIC-T Canadian Equity 8%

Now I’ll expand on some of the reasons why I chose the above asset allocation as well as the reasons why I chose each investment in my new portfolio. This portfolio is inspired primarily by Martin Gale, Canadian Capitalist, Dan Solin (author of The Smartest Investment Book You’ll Ever Read), and Burton Malkiel (only part way through his book right now).

NOTE: I am under 30, I am looking for long term growth only, I am not planning to take out any of this money until I retire at age 55-65, and I can handle some short-term swings in the market.

ETFs vs. mutual funds
Using ETFs instead of mutual funds was a no-brainer for me. I have come to the realization that beating the market is virtually impossible for all but a few very talented people, and that passive investing can yield greater returns with less risk due to its lower costs. For more information, read my recent blog post “Malkiel, Bogle Argue Against Non-Market Capitalization Weighted ETFs” or read “A Random Walk Down Wall Street.” I can also give credit to the Canadian Capitalist and his blog for convincing me of this fact. He has been tracking a “sleepy portfolio” for a while now, consisting of a few ETFs and it seems to do pretty well.

It was clear to me that I was not going to have a 100% bonds portfolio, nor was I going to have a 100% equities (as my advisor wanted me to have last year). Benjamin Graham is very clear in The Intelligently Investor page 56-57 about his opinion on this issue when he says “just because of the uncertainties of the future the investor cannot afford to put all his funds into one basket–neither in the bond basket, despite the unprecedentedly high returns that bonds have recently offered; nor in the stock basket, despite the prospect of continuing inflation . . .” There is much more discussion about this in the book. Martin Gale also has an excellent article about stocks vs. bonds. He says,

Many investors make the mistake of thinking that the least risky portfolio is one containing just cash and short-term bonds; or that the most aggressive portfolio is one containing only equities. Somewhat surprisingly, that is false. The safest portfolio contains a mix of stocks and bonds, as does the most aggressive. For any portfolio containing all bonds there is a less risky portfolio with a better return that contains some stocks. This is counter-intuitive because in and of themselves bonds are safer than stocks.

I saw some similar arguments in a Powerpoint presentation from an investment advisor recently, that basically said, no matter how risky you want to be, at least hold some bonds (like at least 10%). It is pretty widely accepted that you should have some bonds and some equities. How much of each is up to you. I followed Martin Gale’s advice on short vs long term bonds, and decided to stick to buying short-term bonds, because “whatever risk/return ratio you achieved by buying longer duration bonds, you could achieve by holding fewer bonds and more equities. In general I think the equities have the better risk/return ratio. That could always change–but at least historically, it’s been the case that equities have been a better investment than long-term bonds.” This backs up what I was told by my ex-advisor at Clearsight; stick with short duration bonds and avoid long duration bonds.

So, to minimize cost I see only two options. Buying iShares Short-term Bond Index Fund (XSB), or buying individual bonds and making my own bond ladder. I decided to buy XSB since the commission costs of making my own bond ladder would be prohibitive at this point, although when my nest egg is larger this might be more cost-effective because it would eliminate the MER.

Real-Return Bonds
As I said above, one of the disadvantages of my old portfolio was that I had no real-return bond component. Real return bonds are resistant to inflation because the interest is set to be x number of points above the inflation rate. I looked at the Ontario Teacher’s Pension Plan and the CPP Investment Board and both have significant real return bond holdings. The former has 11.1% and the latter has 3.5% in real return bonds. I decided to have 1/4 of my bond portfolio invested in real-return bonds which amounts to 5%. I might re-evalute this allocation later (in about 5 years).

Canadian Equity Component
Now that the foreign content limits are removed we are starting to see more and more people suggesting that Canadians hold somewhere around 3-10% Canadian equities in their equity portfolio, rather than the insane 25-70% allocations we used to see. At the Canadian Capitalist, Dan Solin comments on why investors should have no more than 10% Canadian equities in the equity portion of their portfolio. There is also a good article by Martin Gale here about domestic bias and foreign asset allocation. Finally, according to Carl Spiess at Scotia Macleod, “over the last 20 years, international markets have outperformed Canadian markets by almost 2% a year.” We have had some excellent years in the Canadian equities markets recently as well as in the late 1990s thanks to Nortel so people often forget that Canadian equities have historically underperformed against international markets. If you looked at the risk-adjusted return, the picture would probably be even worse. He continues, “it makes sense to invest globally not only based on historical returns, but also because many economic sectors (eg. Healthcare) are not significantly represented in Canadian markets. In addition, despite several good years recently, Canada only represents 3% of world stock markets.” He’s right; The Vanguard Total Stock Market Index has 12% in healthcare, for example, while the TSX Composite contains less than 1% in healthcare as it is dominated by financials and energy.

Another article here gives “10 key reasons for going global in your RRSP.”

US Equity Component
I relied heavily on Martin Gale’s advice on his Efficient Market Canada website. Specifically, his “Building A Globally Efficient Index ETF Portfolio (updated)” article (and it’s predecessor) and also “Foreign Asset Allocation in your RRSP.” I ended up making US Equities 40% of the equity portion of my portfolio, which corresponds to 32% of my total portfolio. The obvious choice here was some sort of S&P 500 Index, like XSP or SPY, but instead I went with the lowest-cost option out there, which is probably the Vanguard Total Stock Market Fund (VTI). It is even more diverse than the S&P 500 in that it currently holds 3692 different stocks. The US market is huge and this is a great way to own it all without having to purchase both the S&P 500 Index ETF (SPY) and the S&P Mid-Cap Index ETF (MDY) for example.

International Component
Again, as above, I looked at the global market capitalization and decided to put 50% of the equity portion of my portfolio into international stocks. This corresponds to 40% of my overall portfolio. Since Vanguard does not really have much for international index ETFs, and the iShares $USD MSCI EAFE Index ETF (EFA) has the same cost as the iShares $CAD MSCI EAFE Index ETF (XIN), the best option was to go with XIN (see “Exchange Traded Funds: Recommendations“).

I was worried that with my much lower Canadian equity component that I would end up having a lot of US dollar investments in my RRSP. As I mentioned above, since Vanguard does not really have much for international index ETFs, and the iShares $USD MSCI EAFE Index ETF (EFA) has the same cost as the iShares $CAD MSCI EAFE Index ETF (XIN), the best option was to go with XIN, which is traded in Canadian dollars. So now my only USD holdings are the Vanguard Emerging Markets Fund (VWO) and the Vanguard Total Stock Market (VTI) which take up about 37% of my total portfolio. Having less than 50% of my RRSP assets in USD seems alright to me. When I get older and closer to retirement I could move more of my money into CAD investments if I feel the need.

Emerging Markets
There are two emerging markets funds to choose from, the iShares one (EEM) and the Vanguard one (VWO). After much searching on Google for “EEM vs. VMO” and reading many articles I could not discern much difference between the two. The Vanguard one uses a slightly difference underlying index as I discussed in my previous blog post entitled “Foreign Exchange Costs Associated With USD Investments in an RRSP” and, like most Vanguard funds, has a much lower cost than its competitors. So I went with the Vanguard fund. Because of the high risk associated with emerging markets and because of their recent stellar performance, I put only 5% of my total portfolio in emerging markets, even though emerging markets make up about 9% of the world market capitalization. I may increase my desired allocation of emerging markets later, relative to my other international holdings.

REITs are a good addition to the fixed-income portion of a portfolio and they provide good negative correlation with other asset classes. Most of the large pensions funds hold a significant amount of REITs. XRE is the iShares offering and I will probably be adding this in eventually. I don’t want to do too many things at once. I need to decide if I should reduce my bond allocation from 20% and add in the REITs or if I should reduce my equities from 80% and add in REITs. Or lower both? My original thought had been to have 20% bonds, 5% REITs, which is why I went with 20% bonds rather than 25% bonds as I had before.

Please let me know if you have any comments and I will add any details to this article that I may have left out.

Canadian Tour of Personal Finance Blogs

35 thoughts on “My New Passive Index ETF Portfolio”

  1. Appears to be well thought out and reserched. Thank you for a thorough and educating blog entry. For VTI and VWO, are you purchasing odd lots to acheive your allocations (and given their price)? I’m just reviewing my positions and was wondering if odd lots of ETFs were common (or use low cost TD e-funds until ready). One thing not mentioned, although I suspect you thought about it, is the rebalancing cost (commissions) of the ETFs versus the higher MER on mutual funds (once portfolio reaches a certain level then ETFs are definitely the winner).

  2. Yes I buy odd lots of VWO and VTI and it has not been a problem. I didn’t really think about it too much, just punched in a number of shares into E*Trade that would get me closest to my desired amount. So my actual allocations differ very little from my desired allocations.

    Since I was switching my portfolio over to ETFs, my commissions were extremely low relative to the amounts invested. Certainly ETFs are not something most people can buy monthly. I will build up cash or put the cash into a mutual fund and buy some more ETFs when the cash/mutual fund reaches $2000 or so. I may use E*Trade’s Cash Optimizer account which pays >4% rather than a mutual fund because that is simpler. When my portfolio gets big enough, I will just build up cash for sure because the cash drag effect will be so small relative to the size of my portfolio.

  3. Hi Dave,

    Nice to see you move away from those high MERs fund to some low-cost ETFs. Back in your original post of your Clearsight portfolio, you had mentioned that for at least one of them, you were locked in for 3 years. I assume that since it has only been 1 year, you had to pay a penalty? Nothing more frustrating than paying a high MER AND a penalty.

    I know that retirement is an extremely long way off for you, but have you given any thought as to where you plan to retire? Will you be retiring in Canada? Retiring in Florida? Retiring in Europe?

    I am just concerned about your very low Canadian weighting. If you expect to retire in Canada, you need Canadian dollars. For arguments sake, lets assume that in 30 years from now, the US dollar is worth 50 Cdn cents. When it comes time for you to start living off your RRSP portfolio in Canada, and converting back to Cdn dollars, you may end up with a shortfall. Of course, if it happens the other way, you will have a windfall.

    Currency exposure is good. But I am just wondering if you set your Canadian exposure too low. Just something to think about.

  4. Dave: Excellent post and I think you have a great portfolio (much better than mine, its going to take me a while to sell my individual positions).

    Couple of comments: though the EFA is denominated in USD, its holdings are denominated in foreign currencies (pound, yen, euros etc.), so the net effect for Canadian investors is exposure to these international currencies. The problem I have with XIN is that it is hedged (unnecessary for long-term investors, IMO) and the hedge costs 15 bps per year. If I am starting to invest now, I’d probably go with VGK & VPL (from Vanguard 0.75 VGK 0.25 VPL = EFA) because they are even cheaper than EFA’s 0.35% MER.

    I am going with the XBB because it should normally have a slightly better yield and the duration is slightly more than 6 years, so it won’t have the poor risk/reward ratio of long bonds.

    Average Joe: My portfolio allocation is similar to Dave’s and my rationale is that as we get older, we are going to allocate more to bonds anyway. Closer to retirement, the currency exposure would be much lower because of the higher allocation to bonds.

  5. How much should you have in your portfolio before you start to buy ETF’s? Right now I am in TD efunds, but in the future would like to switch over.

  6. Dave, you may want to consider at least some allocation to REITs. There is a very good argument to be made that right now, REITs are overvalued, but they are still interesting for long-term investors because their risk/reward profile falls between bonds and equities and far more important, from a portfolio point of view, they are uncorrelated to other asset classes.

  7. Regarding REITs, excellent point. I actually meant to have a brief comment about that. In my previous portfolio I had 25% fixed-income/bonds. One of the reasons I went with 20% bonds in this portfolio was that I was thinking of putting 5% in REITs, but then I decided against it for now (just to start out simple and not do too much at once). I ended up sticking with 20% bonds after I decided against REITs. I know you have talked about REITs a bit, and I also had it re-iterated to me a few weeks ago during a Powerpoint presentation from an advisor. He showed us some charts that really demonstrated the lack of correlation with other asset classes.

  8. Average Joe, I don’t know what I was talking when I said I had to hold on to those mutual funds for 3 years. 🙂 I just looked at that old post of mine now and I think I was looking at the wrong fee style. My funds were all front-end loaded but Clearsight was not charging me any front-end load so they were essentially no load. The only restriction was the standard 90 days. It looks like I had already corrected myself in this post “Mutual Fund Loads.”

    We will most likely be retiring in Canada (although I would live to move to Maui if possible 🙂 ). As for my low allocation in CAD, do not forget that I have bonds in Canadian dollars. So that’s 28% in CAD total. Ok, so if the CAD is worth $0.50 CAD = $1 USD in 30 years, spread that out over 30 years and that’s -2.7% per year. But I am saving on the hedging expenses so the real amount would be a bit less. Significant, but I would not say that is a sure thing (unlike an MER). It’s a risk though, for sure, that can’t be overlooked. Thanks for bringing this even more to my attention, I’ll have to think about this some more.

  9. Joe, just imagine you switched over right now. How many ETFs would you be buying? How much would your commission costs be relative to the value of your portfolio. Try to keep the commission costs under 1% of your portfolio’s value(this assumes you are not trading every day but just making a one-time purchase every 1 or more years). So if you are going to buy 5 ETFs and your commission costs are $20 per trade, you should be dealing with at least $10,000 total in your portfolio.

    In my portfolio I am probably going to buy an ETF (or add to an existing ETF holding, rather) every time I have about $2000-$3000 in free cash. My commission costs are $20 per trade.

    You have eFunds so be careful. Your costs are already very low with those (0.35% MER?). Switching to ETFs has less benefit for you. I would make sure your commissions are going to be well under 1% of your portfolio before switching out of them.

  10. My portfolio is around 50k. Would this be a good starting point or wait until I get to 100k? If you make purchases of ETF’s once a year, where do you put the money you are going to invest with in the meantime? I will save gradually and then buy. Would you save it in a high interest savings account?

  11. Also my allocation is Canadian Equity 30%, Canadian bond 20%, International Equity is 25% and US Equity is 25%. Basically doing the Couch Potato deal.

  12. Joe, ours is about 40k. That’s split between two RRSP accounts so it’s even less idea than yours (we have to build up cash separately in each). Put your money in a high-interest cash account in the mean time, a money-market fund, or some sort of fixed-income fund. Just be wary of funds that penalize you for selling in less than 90 days. I think with TD only their money market and T-bill mutual funds had no 90 day restriction.

    I’ll probably use E*Trade’s high interest account or just screw it and put it in the low-interest RRSP cash account. I’m really not worried about a few months lost interest.

  13. Joe, since I’m putting about $750 into my RRSP every month I might buy more ETFs every 3 months or so. Yeah, I’ll probably put it in E*Trade’s high interest account.

  14. Hi Guys, I was wondering are there any good websites that you can easily see benchmark indexes for US and Canada or even other market indexes. Ie. Preferable a blended index.
    I am starting to look for a benchmark for my portfolio and want to track its return. Hope to hear some great advice! I know I will from this website!

  15. You can try the FPX indices to benchmark your portfolio: Link

    Joe: I’ve been mulling over your comment about a USD worth 50 cents Canadian. I think it has a very low probability of happening given that productivity growth in Canada is lower than the US (which is supposed to correlate with standard of living). Don’t forget that hardly anyone suggested a 88 cent dollar when the current rally started. Also, despite the recent outperformance of Canadian equities, the long-term record is that US equities outperform their Canadian counterparts. Canadian equities as a whole also offer poor diversification being concentrated in just three sectors.

    Even if we ignore all the above considerations, I would suggest that it is best to invest when everyone else is chasing the latest “it” asset class. These days it would be emerging markets, international equities, REITs etc. US investors themselves are buying foreign stocks in record numbers and mutual funds specializing in US equities are the bottom of the pack. For Canadians, US equities get a double discount: they are already shunned and we get to buy them with a stronger dollar.

  16. CC: I agree, the low US dollar and not-so-stellar performance of the US markets relative to the Canadian markets of late was in the back of my mind but did not affect my decision. Although it certainly didn’t not sway me away from my desired allocation.

    Your point about low diversification in the Canadian market is so true. And by going to the US market we should be able to get a greater return for the same risk as the Canadian market. Additionally, being invested in the Canadian market and the US market, as well as having the USD/CAD difference, might give us a rebalancing bonus perhaps? Perhaps a more significant one as the USD/CAD wobbles around. All this might counteract the worst case 1 USD=0.50 CAD (-2.7% per year) situation Joe described. Perhaps even leading to better performance. And as you said CC, the 1 USD=0.50 CAD is a low probability scenario.

    I don’t mean to tag-team against Joe’s point though, as it is a very good one nonetheless, and everyone should be very wary of the USD issue, especially those who are closer to retirement, and who plan on retiring in Canada.

  17. Dave: I’ll absolutely agree that the exchange rate fluctuation is a key consideration for folks closer to retirement and the small extra fee for hedging this exposure might be worth it.

    For investors like us, who plan to be invested for 20 years, the currency fluctuation will be a wash. Some years the dollar will be higher, some years it will be lower, but overall we’ll probably do okay.

  18. I was wondering if you would jump into this portfolio with a large purchase now or gradually. I have money to invest and prefer etf but I am concerned about all the record highs i am seeing.

  19. Kevin, as you can see above, I had a portfolio of 25-75 bonds/equities prior to switching to the ETF portfolio so no big deal here switching to the 20-80 allocation. If you have 50-50 bonds/equities right now, for example, obviously you should gradually shift over. If you wanted to move to 80% equities and 20% bonds, let your equities grow up to that level and put new cash into your portfolio’s current allocation (ie. if your portfolio is at 70-30, split up new cash into that allotment). Of if equities fall to 40% and bonds go to 60%, overcompensate in the re-balancing (since stocks are now cheap).

  20. It’s very interesting to see how a Canadian indexer builds their portfolio, as I am debating how much to go international as well.

    VEU is “total” international ETF that also looks good – with an US focus (all except US).

  21. Very interesting post as I am in the midst of a complete re-structuring of my portfolio, about which I will be posting when I’m done.

    One comment about about EFA and any other international ETFs such as the Vanguard offerings: Though they trade on US exchanges in in USD they actually reflect the currency movements of the currencies of the under-lying stocks, which in most cases are spread over many countries. So XIN isn’t a USD risk, it’s all the other currencies. The question is whether it is worth the extra cost of hedging within XIN compared to EFA. The cost is more than just the extra MER of 0.15%, it is the 1-1.5% under-performance of XIN relative to EFA, which shows up in the tracking error (see the iShares Canada website). Though I will continue to hedge the specific USD exposure by buying XSP as opposed to VTI (complemented with small cap/value Vanguard ETFs that are unfortunately unhedged), I’m really considering getting out of XIN into things like VGK, VPL and VWO (not EFA because they’re lower MER and have more holdings).

  22. For the international portion of your ETF portfolio you have selected XIN instead of the US based EFA. Given the lower management expense ratio and the strong Canadian dollar, does it make more sense to carry some EFA?

  23. Larry,
    I am seriously considering my decision to have XIN rather than EFA. The reason I had gone with XIN was something Martin Gale said in his article “Exchange Traded Funds: Recommendations“, “That’s because the EAFE funds available on the US exchanges such as EFA, IEF, and EZU, or the country-specific funds, all have the same or higher cost than a fund that is available to you right here in Canada, so there is no point to buy them.”

    This is actually false as the MER of XIN is 0.50% and the MER of EFA is 0.15%. So even if iShares Canada used to list XIN has having an MER of 0.35% (ignoring the 0.15% coming from the underlying investment in EFA), it is still higher than EFA.

    So, again, based on this new information I am seriously reconsidering EFA. Since E*Trade is only charging me $10 per transaction right now for some reason, and given the strong dollar, I might make a switch. It is almost time for me to buy a little more International equities so I should do a sell at the same time to minimize cost.

    That would leave me with a lot of foreign currency holdings, EFA, VTI, VWO so there is some risk there to think about. When I add in 5% XRE eventually (XRE) I might append that to my fixed income portfolio which is currently at 25%, making the total fixed income part 30%. Add in the 8% or so XIC and that leaves me with 38% Canadian dollar holdings. Soon, we might start contributing money to a non-RRSP account. For that, I may use Canadian investments due to their better tax treatment. So I think I am probably in good shape.

    Actually Martin Gale’s article I linked to was definitely a long time ago. In this article, “Changes To Barclays Canadian iShares: XSP and XIN“, he modified his approach a bit and advised against XIN, unless you are really worried about the currency thing.

  24. Hi Dave,

    Thanks for a great blog and I am hoping that you can give me some advice on the following dilema about how one would, or even if one should rebalance an all ETF portfolio.

    My wife and I have 4 trading accounts – an rrsp account for each of us, a spousal rrsp account and a joint non-rrsp account. Our portfolio is simple at this stage and consists of 6 different etf’s spread between these accounts. However, each account does not have the same mix of all 6 etf’s. 1.e. you may find one etf located in only one account and not the others.

    This poses a problem for rebalancing as one cannot transfer funds between the rrsp accounts. e.g. if XIC located in my rrsp account goes up and VTI in my wifes rrsp goes down as a percentage of the overall portfolio, I cannot sell some of my XIC shares and shift the cash into my wifes rrsp account to buy more VTI to rebalance the overall portfolio. The only way to do this as far as I can see is to hold all 6 etf’s in all 4 accounts and then rebalance each account each year. This however costs a fortune in transaction fees.

    Would the best way to do this therefore be to simply buy more of the etf’s that have gone down as a percentage of our portfolio and not buy those that have gone up in value and therefore now comprise a greater percentage of the portfolio?. i.e. in the previously mentioned scenario, I would simply buy more VTI this year and not buy anymore XIC to bring the portfolio back to its original allocation.

    Thanks for your help and I look forward to your comments.


  25. Paul,
    Can you rearrange your three RRSP accounts into two spousal RRSPs — one with you as the annuitant and your wife as a spousal contributor, the other having your wife as the annuitant and you as the spousal contributor? Your overall rebalancing problem won’t go away, but you may save some coin with one less annual RRSP account fee to pay.


  26. Hey Dave,

    Thanks for the well thought out post on ETF Funds and your analysis of the portfolio that you created. I have not yet invested in ETF Funds personally but have done quite a bit of research on them and have focused primarily on single-country ETF Funds. Have you invested in any single-country ETF Funds?

    You can find some of my articles on single-country ETF Funds at – my general ETF Funds overview is at

    I’d love to hear from you going forward as your portfolio builds if you decide to invest in any single-country or sector-focused ETF Funds.

    Please email me at


  27. re : ETFs in general

    i’d be curious to see some math on buying ETFs v. just buying an index mutual fund from TD (for example)

    the MER on that is 0.53%. if i want to invest bi-weekly (ever paycheque for instance) it must be comparable to do it right through the bank, v. buying through a broker and waiting until you have $2k (as someone mentioned above) to buy ETFs.

    am i completely out to left field?

  28. Craig, just take some time period like 50 weeks (almost one year) and calculate your total cost. Let’s say $100 weekly towards mutual funds at 0.50% MER vs. $1000 every 10 weeks five times per year with a commission of $20 each time when you buy an ETF but a lower MER of let’s say 0.25%.

    In the mutual fund case you are paying about $13 in MER for the year and in the ETF case it is about half that + $20*5, or about $106. So clearly that is a bad way to buy ETFs.

    You need to figure out what is the best for yourself. Just make sure that if you keep money saved up in the bank before you buy an ETF make sure it is earning some interest.

  29. Well, it’s been 4 years since your blog and now that I am planning my own passive portfolio I wonder how you have fared and if you have any new advice from your experience.

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