Ask Dave: What’s the Best ETF Allocation 15 Years Away from Retirement?

Our question today comes from Charles who asked me what he should do with his dad’s pension assets, which are currently invested in two mutual funds:

Hey Dave!

My name is Charles, and I am a Finance student at the John Molson School of Business in Montreal. Lately, I decided to take over my dad’s pension fund. His company provides my dad with $15,000/year to be invested with Desjardins Financial Security (I don’t think you have this Quebec bank in BC but it is popular here and in Ontario). His plan is a defined contribution plan and not a benefit plan. When I look at my dad’s assets, he had 2 funds: 1) Jarislowsky Fraser Balanced Fund 2) Jarislowsky Fraser Canadian Equity Fund — These funds are not beating the market (benchmark) often and if they do…well these funds MER are expensive so they perform worse than the market.

Therefore, I wanted to take over his asset allocations but I have no choice but to deal with Desjardins since his company deals with them but of course I or my dad can choose its asset allocations.

I am a strong believer of index funds and ETFs. Desjardins offers great Barclay’s (iShares) ETFs: 1) Active Canadian Equity fund, 2) EAFE Equity Index, 3) Universe Bond Index Fund, and 4) S&P/TSX Composite Index Fund.

My dad is currently 48yrs old and wants to take its retirement when he his 63 – 65 years old. Therefore, a good 15 years of investment.

Here’s my question…what should be my weights in each asset class?

I was thinking 70% equity; 25% bonds and 5% T-Bills. Is having all of the 25% bonds in the Universe Bond Index Fund good? As for the equities, is 60% in S&P/TSX Composite Index Fund and active Canadian Equity fund and 40% for EAFE Equity Index any good? If I have the S&P/TSX index..is Active Canadian Equity relevant?

You can find all the info for each fund on Desjardins‘ website:

Again, thanks for your help and thanks for your great website!

First of all, it’s too bad that Desjardins does not publish the MER of those funds, although it is pretty much a given that they are going to be higher than any Barclays (iShares) ETF.

Although Charles says that “these funds MER are expensive so they perform worse than the market” it seems that over the last 10 years the Jarislowsky Fraser Canadian Equity Fund has outperformed the S&P Composite Index (16.3% to 9.5%). Although that probably says more about your dad’s reasons for choosing this fund over the others and this fund’s longevity, than it does about the fund’s prospects of “beating the index.”

Currently Charles’ dad is invested in 77.5% equities (50% from JF Canadian Equity Fund and 27.5% from JF Canadian Balanced Fund) assuming that he is invested equally in both of these two funds. My first recommendation would be not to deviate too much from what his dad was invested in before. This isn’t Charles’ portfolio, and if things turn ugly (or uglier?) for either stocks or bonds he doesn’t want to be the one to blame for shifting him more or less into either category. So I don’t see anything wrong with going with 70% equities in his new ETF based portfolio. I really don’t have a precise answer on what allocation of bonds/equities is right for your dad. I would try to stick with a balanced approach, and by that I mean that he should be invested 25-75% in equities and 25-75% in bonds (neither all bonds or all stocks). Risk assessments on banks’ websites (like TD Canada Trust’s Retirement Strategy Tool) are somewhat useful, not to come up with a precise answer, but to give you something that is in the ballpark. If anything, psychologically they can give Charles and his dad some comfort.

The Bond Universe fund is a good way to capture the bond market.

I don’t see anything wrong with his allocations within the equity class. I would not bother with the Active Canadian Equity as he will just get poorer performance (on average) than the index itself (after MERs). The only other thing that I noticed is that there is no exposure to the US market here as it looks like Desjardins does not offer Barclays’ (iShares) S&P 500 Index. I assume his dad has other investments besides this pension? If so, then I hope Charles will look at his entire portfolio (pension + RRSP + spouse?) as one, rather than each individually and hold a US index outside of his pension.

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2 Responses to “Ask Dave: What’s the Best ETF Allocation 15 Years Away from Retirement?”


  • Charles Maritneau

    Hey dave!

    Thanks for your help! As for the MER my dad pays something close to 2 – 2.3% plus TAX which is normally higher for active funds than passive…thats why I thought it was better for my dad to move to indexing (I mean…according to malkiel and many more…indexing is better no?)

  • Greater than 2% MER is not uncommon in Canada. Yes, according to Malkiel and MANY others indexing is better. I don’t even think it’s subjective anymore. I think we can objectively say that the index must perform better than the average of all funds with non-zero costs.

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