How to Quickly Set Up A Diversified Low-Fee ETF Investment Portfolio
How Canadians Can Instantly Achieve a Low-Cost Diversified Investment Portfolio Using Exchange Traded Funds
This short article provides a specific portfolio of low-cost Exchange-Traded Funds (ETFs) that can be used to almost instantly create a diversified portfolio. This can solve the problem of how to get started investing or how to achieve a diversified portfolio.
The information will also be useful in reviewing and making adjustments to an existing investment portfolio.
The easiest and most instant way to establish a fully diversified portfolio that includes Canadian, U.S. as well safer fixed income investments to buy a single ETF that provides all of that in just one security. The following table provides the ETF symbols. These are diversified Exchange-Traded Funds that trade on the Toronto Stock Exchange. Similar products are available for U.S. investors of course.
The ETFs here, especially the more balanced ones could put some financial advisors out of business since they provides instant diversification and constant rebalancing at a FAR lower fee. Nevertheless, advisors usually provide additional services and they play an important role in encouraging people to invest and making it easy to do so.
Vanguard and iShares are two ETF providers that that provide Canadian ETFs that consist of a fully diversified and balanced portfolio in a single ETF. In both cases you can vary the Fixed Income component from 0% (which would not be considered balanced) to as high as 60% (Vanguard) or 80% (iShares). Both offer a 40% Fixed Income option which is the traditional “fully balanced” level. The geographic diversification is relatively similar between the two providers. There is no sort of traditional agreed upon ideal geographic diversification and so the level of geographic diversification here may or may not be considered ideal. The biggest difference between the two providers is that iShares does not hedge any currency risk while Vanguard hedges the currency risk on the fixed income portion. Financial theory would suggest that NOT hedging provides better diversification. But that’s a debatable point. Currency fluctuations are a risk but also could benefit the portfolio.
The ETF prices below have been updated as of January 18, 2023.
| Name | Symbol | Fee MER | Price & Chart | Canadian Balanced ETF Description |
| Vanguard Conservative ETF portfolio | VCNS | 0.25% | $27.70 | 40% equities (16% U.S., 12% Canada, 9% rest of developed world, 3% emerging markets). 60% fixed income (35% Canadian, 14% global ex-U.S., 11% U.S. For the fixed income portion only, the currency risk is hedged. |
| Vanguard Balanced ETF Portfolio | VBAL | 0.25% | $29.49 | 60% equities (24% U.S., 18% Canada, 14% rest of developed world, 4% emerging markets), 40% fixed income (24% Canada, 9% Global ex-U.S., 7% U.S.). For the fixed income portion only, the currency risk is hedged. |
| Vanguard Growth ETF Portfolio | VGRO | 0.25% | $29.65 | 80% equities (32% U.S., 24% Canada, 18% rest of developed world, 6% emerging markets) 20% fixed income (12% Canadian, 5% global ex U.S. 4% U.S.) For the fixed income portion only, the currency risk is hedged. |
| Note: The equity portion of all of the above three funds is 40% U.S., 30% Canada, 23% rest of developed world, and 7% emerging markets. The fixed income portion is 58% Canadian, 24% global ex-U.S. CAD hedged, and 18% U.S. CAD hedged). The difference between the three funds is simply in the exposure to equity versus fixed income. The Fixed Income component consists of bonds with an average maturity of about 11 years. | ||||
| Vanguard All-Equity ETF Portfolio | VEQT | 0.25% | $35.52 | Similar to above but with no allocation to fixed income. Therefore 40% U.S., 30% Canada, 23% rest of developed world, and 7% emerging markets. None of the currency risk is hedged since there is no fixed income portion. |
| iShares ETFs | ||||
| iShares Core Conservative Balanced ETF Portfolio | XCNS | 0.20% | $21.73 | 80% Fixed Income (64% Canadian, 16% U.S), 20% Equities (9% U.S., 5% Canada, 5% Europe / Asia, 1% Emerging market.). None of the currency risk is hedged. |
| iShares Core Balanced ETF Portfolio | XBAL | 0.20% | $25.26 | 59% equities (26% U.S., 15% Canada, 15% Europe/Asia, 3% emerging markets) 41% fixed income (27% broad Canada, 7% short term Canada, 4% U.S. government and 4% U.S. corporate). None of the currency risk is hedged. |
| iShares Core Growth ETF Portfolio | XGRO | 0.20% | $25.14 | 80% Equities (36% U.S., 20% Canada, 20% Europe/Asia, 4% emerging market) 20% Fixed Income (16% Canada, 4% U.S). None of the currency risk is hedged. |
| Note: For the above three ETFs the average bond maturity in the fixed income component is approximately ten years. | ||||
| iShares Core Equity Growth ETF Portfolio | XEQT | 0.20% | $25.20 | 100% Equities (45% U.S., 25% Europe/Asia, 25% Canada, 5% emerging market). None of the currency risk is hedged. |
It’s true that VBAL and XBAL declined both declined about 13% in 2022. That was because the TSX market was down 9% and the S&P 500 was down 19% and the sharp rise in interest rates pushed fixed income investments down as well. Now that that we done with most of the interest rate increases and now that stock markets are lower, VBAL and XBAL are set to have a better year. But the point is that these two give you what the a prudent balanced portfolio earns. It won’t be a gain every year but will be most years. Investing and holding these long term is not about timing the market but about participating in the markets in a prudent lower stress way over the years.
Click the links in the table above for additional information.
For those who feel that they are ready to construct their own basic investment portfolio using low-cost Exchange-Traded Funds (or make changes to their existing portfolio), rather than just simply use the single symbol approach above, I have put together the following table.
This table is intended for Canadians who have already set up (or will set up) a self-directed investment account. For those who will stick with mutual funds the table may be useful to start a discussion with your advisor who should be able to do something similar with mutual funds.
A new investment portfolio could be very quickly set up using the following table as guidance. The appropriate allocations to each major asset category, the sub-categories and the regions of the world will differ greatly based on individual circumstances. I have provided some rough allocation percentage ranges that might be applicable to a “typical” investor but which may or may not be applicable to your particular circumstances.
The yield figures below have been updated as of January 18, 2023.
| Major Asset Class | Sub-class | Country | Toronto Symbol | Fee /MER | January 2023 Yield | Risk | Typical Allocation | Comment |
| CASH | Actual cash in the investment account | Canadian | none | none | near 0%? | no risk | normally 5 to 15% | There is no real substitute for cash in terms of lack of volatility and instant access when needed |
| Deposit accounts within the investment account | Canadian | Example TDB8150
RBF2010 |
none | 3.8% (Not so bad!) | no risk | |||
| FIXED INCOME | Guaranteed Investment Certificates | Canadian | none | none | Currently about 5% for a 1 year term and (Actually lower) about 4.3% for a 5 year term. Smaller banks and credit unions may be higher. | very low to no risk | Normally 15 to 50% divided equally between short, medium and long term. | Short-term bonds could be used in place of GICs. But GICs can be a good choice also. |
| Short term Bonds 1-5 years | Canadian | VSC | 0.11% | 5.2% yield to maturity | very low | |||
| Medium Term Bonds | Canadian | VCB | 0.19% | 5.2% | low | |||
| Long Term Bonds (Average maturity about 23 years) | Canadian | XLB | 0.20% | 4.0% | medium | Higher risk of loss in value if interest rates rise | ||
| EQUITIES | Canadian Common | Canadian | XIC | 0.06% (super low fee) | 2.9% | high | 10 to 40% | Broad Toronto stock index |
| U.S.A. Common | United States | IVV (New York) or XSP hedged to Canadian dollars | 0.04% or 0.11% | 1.7% | high | 5 to 20% | S&P 500, the largest American publicly traded companies | |
| Rest of Developed World Common | Rest of World | VIU or VI hedged to Canadian dollars | 0.23% | 2.8% | high | 0 to 15% | Equities excluding U.S.A and Canada | |
| Preferred shares | Canadian | CPD | 0.50% (high fee) | 5.2% | medium | 0 to 15% | Consider using in taxable accounts in place of some fixed income | |
| High dividend | Canadian | VDY | 0.25% | 4.4% | medium | 0 to 15% | ||
| REIT | Canadian | VRE | 0.39% | 4.8% | medium | 0 to 15% | Consider placing in non taxable accounts |
There are hundreds of Exchange-Traded-Funds to choose from. The above table provides a possible basic diversified low-cost Balanced Exchanged Traded Fund portfolio for Canadians. This approach implicitly trusts that markets are efficient and does not reflect any judgement regarding the relative attractiveness of any particular country or asset class or any judgement regarding the timing of when to invest. (And if you invest monthly during your working career, timing is really not an issue.)
In a separate article we have a broader list of Canadian ETFs and Global ETFs where we comment on attractiveness of each ETF at the time those articles were updated. (Currently they are out of date as far as those comments, we may update soon.)
More Information on Getting Started
Before putting together an investment portfolio, you should first know something about where and how to get started investing including having a basic understanding of the main types of investments (“asset classes”) and the different types of advisers and do-it-yourself services. And if you are going to include individual stocks and bonds and Exchange-Traded Funds (instead of or in addition to deposit accounts, Guaranteed Investment Certificates and mutual funds) then you need to have some knowledge of those investments.
We have two articles that cover the basics:
1. Where and How to Invest – Defines the major asset classes, discusses considerations in dividing investments across the major asset classes and across the world, discusses the types of advice available, and discusses active versus passive index investing.
2. How to Get Started Investing in Individual Stocks and ETFs – Discusses how to open a self-directed investment account, explains how investing in stocks differs from investing in mutual funds, explains how much money is needed to get started, and discusses the advice that is available.
This article was originally created on September 27, 2017. Most recently updated and edited January 18, 2023.
If you made it this far and are interested and have questions, email me at shawn@investorsfriend.com