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A Simple Low Cost Diversified ETF Portfolio





Diversified indexing seems to be all the rage these days. To be honest, I’ve only recently started seeing the real benefits of indexing. As you may know, I am an aggressive investor and a performance chaser. However, even as an aggressive performance chaser, there is always room in the portfolio for some passive investing that goes with the flow that comes with the benefit of reduced risk.

After doing some research, if I were to put together a diversified couch potato’ish passive index ETF portfolio, I would choose ETF’s with broad index coverage along with the lowest MER’s possible.

Here is what I came up with which happens to be very similar to the Canadian Capitalist sleepy portfolio:

The Diversified Low Cost ETF Portfolio

Index ETF MER
Canadian Large Cap Index XIU (CAD) 0.18%
Total U.S Market VTI (USD) 0.05%
70% Europe, 30% Pacific VEA (USD) 0.10%
94.3% Emerging Markets, 5.3% Pacific, 0.20% North America VWO (USD) 0.18%
Canadian Short Term Bond Index XSB (CAD) 0.28%

Update Oct 2013: For your international exposure, consider VXUS which also has some small cap coverage.  I like VXUS because has broad exposure and has a low MER (0.16%), however, the drawback is that it includes some Canadian coverage (duplication).

There are lots of ways to tweak the portfolio. I chose XIU over XIC because of the lower MER which is the same reason why I chose a combination of VEA and VWO instead of using VEU or XIN.

VTI, the total U.S market, is a steal in my opinion as it covers the whole U.S market without having to purchase separate funds for the Russell 2000, S&P 500, DJIA, and Nasdaq. If you’re looking for a higher potential return and willing to take on a bit more risk, you may want to purchase a U.S small cap ETF separately.

XSB, the Canadian short term bond index, was chosen because short term bonds are known to have lower correlation with the equity markets than long term bonds. Having a bond portion in the portfolio will reduce volatility while only slightly reducing potential returns. The bond portion will start out small (maybe non existent) in the early years, but increase in percentage as the portfolio gets closer to funding retirement.

How does the portfolio look to you? What would be your picks for a diversified low cost ETF portfolio?





56 Comments, Comment or Ping

  1. Thanks for the link. As you know, XIC is better in my opinion because it is more diversified and avoids concentration (which might be a real problem with our stock market). Having said that buying a few stocks to represent the Canadian portion is a viable alternative.

  2. 2. Telly

    I’d love to see what allocation you’d choose. We had a bit of a discussion at CC’s blog about this not long ago.

  3. Interesting question Telly, for me, I would keep it simple and would resemble my RESP strategy.

    Basically mostly, if not all, equities initially then gradually adding to my bond portion as I get closer to retirement. In terms of equity allocation, I would probably choose an equal weight for each ETF rebalancing as I add cash to the portfolio.

    What do you do with your index portfolio?

  4. 4. Paul S

    FT

    Great idea.

    What are the historical performance numbers on these funds vs their equivalent indexes? Was this part of your selection process?

  5. I’m not sure about the exact numbers, but there is going to be a small tracking error with all index based funds/etf’s. For my selection process, I assumed that all index etf’s had the same tracking error, and based my selection based on MER and asset allocation.

  6. 6. Ryan

    I use the following allocation:

    Canada – total 20%
    20% – XIC

    US – total 30%
    20% – VTI – total market
    5% – VBB – small cap
    5% – VRB – small cap value

    International – total – 30%
    20% – VEA
    10% – VWO

    Fixed – 20%
    5% – XRB – Real Return Bonds
    5% – XSB – Short Bonds
    10% – XRE – REITs

    The biggest downside is the currency risk as 60% of the portfolio is in US dollars. Also – I would like to find a replacement for XRE as the MER is 0.55%.

  7. There’s not a right or wrong allocation, only one that is suited for each individual.

    As for bonds, I noticed you are looking at short-term bonds. What about long-term bonds? In US you could check out BLV or TLT. What about foreign bonds exposure? Check out BWX.

    Also have you thought about real-estate? Some people say that real estate investment trusts are a separate asset class, just like stocks, bonds, commodities. IYR for US and RWX for international could be a good starting point.

    You might also add some small-caps and mid-caps as well. IWM is the russell 2000 index etf, so it should be ok.

    A very good starting ETF list for US investors could be found form Yahoo! finance:

    http://finance.yahoo.com/etf/browser/mkt?k=3&c=0&f=0&cs=1&ce=794

    There’s 794 ETF’s in the US. I just got a headache simply by opening the list..

  8. Hey DGI, long term bonds have a higher correlation to equities than short term bonds. If I were to hold bonds, the purpose would be to reduce volatility as I get closer to retirement.

  9. 9. Ryan

    Debating allocation decisions is always fun. I use the following:

    Canada – 20% total
    XIC – 20%

    US – 30% total
    VTI – 20% – total market index
    VBB – 5% – small cap
    VBR – 5% – small cap value

    International – 30% total
    VEA – 20% – Europe and Pacific
    VOW – 10% – Emergying Markets

    Fixed Income – 20% total
    XSB – 5% – short bonds
    XRB – 5% – real return bonds
    XRE – 10% – REITs

    The main disadvantage of my allocation is that so much of it is in US$ and therefore there is alot of currency risk. I would also like to find a replacement for XRE as its MER is much to high.

    I am not a believer in market timing but if you are I would suggest sticking with short bonds at this point. That way you wont be hurt when interest rates start to rise.

  10. 10. sid

    Since these are all ETF’s, brokerages treat these as buying stocks. How would you buy into these each month to minimize your trading fees? With 5 ETF’s at $9.99 per trade that’s $50 a month or $600 a year. If you invested in mutual funds with no loads with 1% MER’s, you’d break even at $60,000. I know I don’t have that much to invest every year and I can find mutual funds with no loads and MER’s less than 1%. So is there any advantage with these?

  11. What’s your opinion on Horizon’s Beta ETF? Their MER is higher, but the potential return might be better.

  12. Ryan: Thanks for sharing. Seems that you have a well diversified ETF portfolio.

    Sid: ETF portfolios only make sense for larger accounts like you mentioned. If your account is smaller, it would make sense to stick with mutual funds like the td e-series.
    http://www.milliondollarjourney.com/reader-question-when-to-switch-to-etfs.htm

    antony: I’ve written about the horizon betapro ETF’s before and they seem like a decent choice for “trading”. It’s hard to say what it will do in the long run, there’s not enough data thus far.
    http://www.milliondollarjourney.com/double-your-market-exposure-with-horizons-betapro-etfs.htm

  13. 13. Cannon_fodder

    I took a look at the Beta Pro’s perfomance vs. the underlying indices and it shows within a year that they don’t come close to 2x the performance. It was enough to convince me to pass on them.

  14. 14. Charles in Vancouver

    (please delete if this posts twice)

    Ryan, your VEA and VWO holdings may be priced in US dollars, but they do not represent US dollar exposure because those funds are not hedged to any currency. Rather, they represent exposure to global currencies, namely whichever ones the underlying companies do business in. So that 30% of your portfolio has some US exposure (foreign companies who do a lot of US business), some Euros, some Pounds, some Yen, and a smattering of others.

    So really, only 30% is exposed absolutely to the US dollar; another 30% is exposed to a total coin-toss of currency fluctuations; and 40% is in your home currency. That’s not too bad at all. When you calculate rebalancing, remember to convert everything to CDN$ at the prevailing rate and you may even profit from currency swings over the years.

  15. 15. Charles in Vancouver

    Sid: A hybrid approach is also possible. One need not make 5 trades per month. One could:
    a) Add to the ETFs monthly, but only one trade at a time. Each month you add your entire contribution to whichever ETF is most underweighted. Over the course of the year you will stay approximately within your target allocation.
    b) Collect your monthly contributions in a high-interest savings account, money market fund or in no-load funds matching the underweighted category (e.g. if VEA is underweight, buy into a no-load EAFE index fund). Then you can make a small number of annual or quarterly trades with that money when it makes sense.
    c) Same as b, but set a threshold amount – e.g. tell yourself that if any ETF is underweight by more than $1500 and you have that much in cash or a no-load fund of the same category, you will make one trade.

    With an annual-hybrid approach you could make as few as 3-5 ETF trades (this is my preferred strategy). Now the break-even point slides lower.

  16. 16. Almost there

    Does anyone know a good low cost dividend paying etf? Ive seen CDZ with a mer .60%.
    Thx

  17. 17. Ryan

    Hi Sid – The way I reduce brokerage fees is to only make one ETF purchase every year. My strategy is to automatically purchase TDeFunds (using dollar cost averaging) every two weeks. Once a year I sell my TDeFunds to purchase ETFs from TD Waterhouse. I do use 9 ETFs but because I only make one transaction a year this costs me less than $100 in brokerage fees.

    Charles – thanks for the info on VWO and VEA.

  18. Almost There,

    There are several dividend ETF’s out there. The ones worthwhile in my opinion are SDY and DVY. I do have some problem with the weightings in SDY according to yield though..

  19. FT,

    Short-term bonds will let you maintain some flexibility if interest rates rise. With longer term bonds however you earn higher current interest. If interest rates do not increase a lot or decrease you will be better off with longer-term bonds; If interest rates increase however, like they did in the 1970′s then sticking to short term maturities will be the way to go..

  20. Thanks for the tips DGI !

  21. 21. Ryan

    William Berstein looking at the trade-off between short-term and long-term bonds in his book the Four Pillars of Investing. He found that short-term bonds offer very similar returns as long-term bonds. If thats true than there is little reason to purchase long duration bonds because long bonds are more risky then short bonds.

    Alos – with interests rates this low I would suggest buying short bonds because there value will be less effected when interest rate rise.

  22. FT, is this all hypothetical or are you planning to start investing in these? And would you borrow to invest, to get the tax write-off?

  23. Hey Robert, as I mentioned in the article, i’m slowly being converted to an indexer. I’m already indexing a portion of my RRSP but plan to increase the amount when the time is right.

    If you check out my Smith Manoeuvre portfolio updates, you’ll see my leveraged portfolio contents. There is a small index portion of that portfolio, but it’s mostly income producing securities.

  24. 24. sid

    FT, Ryan and Charles, thanks for the replies. I’ll stick with mutual funds for another year or two when my portfolio’s a little bigger and then reconsider the ETFs.

    I just noticed that three out five of the funds you listed were in USD. Do you do anything to “hedge” against the change in currencies?

  25. sid, ETF’s that hedge against currency risk have higher MER’s and it’s been shown that currencies risk is reduced significantly if investing for the long term.

  26. 26. Almost there

    Dividend Growth Investor,
    Those 2 look good but they are both american which would have a non-resident withholding tax for Canadians.
    Do you know of any good canadian efts??
    I saw this on TMF.

    Weighing yield
    To distinguish themselves from their competition, dividend ETFs put together their portfolios in different ways. Let’s look at some of them:

    The WisdomTree LargeCap Dividend Index Fund (DLN) uses a simple approach, choosing the 300 largest stocks from its dividend index and weighting them by the total amount of dividends each company pays.

    The iShares Dow Jones Select Dividend Index Fund (DVY) includes dividend-paying stocks that have maintained or increased dividends in each of the past five years, have a payout ratio of 60% or less, and trade an average of at least 200,000 shares daily.

    The PowerShares Dividend Achievers ETF (PFM) screens for companies that have increased dividend payouts for at least 10 straight years and then chooses the highest-yielding stocks among them.

    The SPDR S&P Dividend ETF (SDY) picks 50 high-yielding companies that have raised dividends consistently over at least a 25-year timeframe.

    The First Trust Value Line Dividend Index Fund (FVD) uses Value Line’s safety rankings to screen for stocks it deems safer than average and then takes above-average dividend yields with market caps of more than $1 billion. Unlike most other dividend ETFs, this fund gives each stock equal weight in its portfolio.

    Again all american, but there is some good info as to the differences in the various etfs.

  27. 27. cnidog

    For what it is worth, here is what CIBC Wood Gundy recommended in their July 2008 Monthly World Markets Report:
    Growth Aggressive Growth
    Cash 0% 0%
    Fixed Income ETFS
    XBB 20% 0%
    Equity ETFs
    XIC 22% 27%
    XTR 8% 8%
    IVV 16% 17%
    EFA 19% 25%
    EEM 9% 17%
    VNQ 6% 6%

    Meanwhile, RBC recommends the following asset allocation in its Summer 2008 edition of Direct Investor. Unfortunately, they do not make Index fund recommendations, only asset classes.

    Growth Aggressive Growth
    Cash 4.1% 3.3%
    Fixed Income 19.5% 0.0%
    Canadian Equities 23.8% 34.3%
    US Equities 31.8% 33.2%
    Int’l Equities 20.8% 29.2%

    The big difference between the two seems to be the CIBC thinks that oil is going to rise to $200/bbl and therefore has placed heavy emphasis on big energy producing countries like Canada, Russia and Arabia. It also likes the trends in the economies of Brazil, China and India.

    RBC, on the other hand, thinks that US stocks are really undervalued now, and has placed heavy emphasis on US equities.

  28. Great foundations for a solid portfolio, but I’d also recommend adding a diversified commodities element, as well as a handful of currencies. For commodities, I highly recommend a broadly diversified ETF such as GSG. It tracks the performance of the GSCI Excess Return Index, which tracks 24 different commodities. It is weighted with approximately 67% invested in energy, 16% in agriculture, 7% in industrial metals, 7% in livestock and 3% in precious metals. The index is production weighted to reflect the relative significance of those commodities to the world economy.

    It’s possible to get into specific commodities, such as oil (USO), natural gas (UNG), agricultural commodities (DBA), and precious metals (XME), to name a few. Still, unless you have reason to be particularly bullish on any of these I’d recommend the far more diversified GSG.

    As far as currencies are concerned, I recommend adding a selective group to your portfolio using ETF’s: FXE, FXF, FXC, FXA, FXM, FXS, FXY, and FXB. I’ve written a more detailed article on how to choose the right currencies: http://www.thefreedomfactory.us/portfolio-considerations-for-currency-investing/

    Two things to consider are how currencies correlate to other assets in your portfolio, namely stocks and bonds (and hopefully commodities), as well as relative income yields. Currency ETF’s pay dividends that are representative of interest rates in their respective countries. It would be prudent to add currencies that have both high yields as well as negative correlation to major assets currently in your portfolio.

  29. 29. Patch

    so much for simple…

  30. Patch, if you have questions, the readers and I would be happy to address them.

  31. 31. Mark

    Would you guys still reccomend the above portfolio? I’m looking to start mine this year

  32. Mark, the above portfolio is not a recommendation but a place to start your research. Best of luck!

  33. 33. Mark

    Ok thanks FT, It gives me some further insight into other areas I can be looking at.

  34. 34. Sampson

    Mark, I think the most important thing you have to consider is your target asset allocation.

    I typically use a couple of pie charts
    - one based on asset classes (equity vs. fixed income etc.)
    - next based on breakdown within those assets (large vs. small cap, sector allocations etc.)
    - finally. one based on regional allocations (Canada vs. US vs. Emerging Markets vs. EAFE etc.)

    Just draw these out, then slow decide how to fill each of those categories by comparing various ETF’s offered by different companies. Make sure the indexing method is accurate, make sure it isn’t particularly biased (e.g. market cap weighted indices etc.).

    Good luck!

  35. 35. Mark

    Thanks Sampson thats really useful, The first two I’m relatively comfortable with, BUT how do you decide on distribuition of the first two in the third. If any of you guys can reccomend some good books/online resources for this I would appreciate it. I’ve read some basic stuff But I’m still not comfortable I totally understand diversification at this detail

    thanks

  36. 36. Johnc

    With a ETF like CDZ or XDV would it be advantages to DRIP to reduce fees. I guess the same would go for any high dividend paying equities in a RRSP account.

    thanks

  37. 37. cannon_fodder

    FT et al,

    Instead of VEA, what about XIN which trades on the TSX? Pros and cons?

  38. 38. Carl

    Hi all, great discussion.

    I’m researching to replace many high MER funds with an asset allocation for long term investing and rebalancing once a year. I’m already using ETFs in my son’s RESP, but I’m currently wondering if I’m not going to buy individual stocks instead of ETFs given the somewhat large dollar amount that’s going to go in index ETFs.

    I’ve read that a good diversification is attained for an allocation class with “only” 20 stocks. So lets say you have 100,000$ to put in one sector (for example large caps canadian stocks), that would mean 5000$ per stock with a 10$ commission (0.2%) and no other fees (except when selling of course). For a long term buy and hold investment, saving fees charged by ETFs would be a bonus at the expense of additional research on my part (even though I must admit these fees are tiny compared to what we were paying before).

    I’m also not considering buying bond ETFs, but investing directly into bonds to build a bond ladder.

    I’ll probably consider ETFs for overseas investments though. It will just be easier that way.

    Essentially, how big do you think a portfollio should be before buying individual stocks makes sense? Or do you think picking stocks individually is not worth the trouble giving the low MER of ETFs?

    One advantage I see for individual stocks is that you don’t have all your eggs in the same basket, namely the fund company.

    So what do you think?

  39. 39. CiscoKid

    Hi guys,

    Great discussion. Honestly I frequently read about finance, but have been a little slow jumping into the pool. I’ve taken my first steps in opening a discount brokerage account with Questrade thanks to MDJs article.

    So the plan is to buy ETFs now (and once a year thereafter) and continue to buy group RRSPs at work which I plan to open an account with TD to buy e-funds by-weekly following FTs RESP strategy & follow Ryan’s suggestion to sell them off each year to buy more ETFs.

    I know I’m not starting out with much (just a little over 15K) but I think it will be the least amount I will be contributing each year & I believe we may be selling our house soon (which means I may pay back the money from the HBP of 40K between my wife & I)

    By mixing & matching info I’ve gathered on many MDJ threads I will probably shoot to allocate my money as follows (though I’m an avid follower of MDJ I will make an excellent couch potato candidate since I don’t really follow the markets all that much):

    Canada – total 30% $4,500
    20% – XIC $3,000
    10% – XIU $1,500

    US – total 30% $4,500
    20% – VTI $3,000
    5% – VBB $750
    5% – VRB $750

    Internat. – total 30% $4,500
    20% – VEA $3,000
    10% – VWO $1,500

    Fixed – 10% $1,500
    5% – XSB $750
    5% – XRE $750

    Any feedback would greatly be appreciated. Maybe buying so many different stocks/ETFs is ill advised with such small funds? or I’m really missing some fundamentals? I just don’t know… I read the article about when’s best to switch from e-series to ETFs, but then with many other comments (like Ryan mentioning that buying everything all at once can really cut down on the costs) & ETFs low MER over the long haul, I thought it might be best just to jump in!

    I’ve also been thinking about investing inside of a TFSA & have also been thinking since I plan to join the OPP in the near future (with an amazing pension plan) I should consider cutting back a bit on investments inside my RRSPs. Any thoughts?

  40. Cisco, couple of questions, why do you hold XIC and XIU? There is some cross over between the two. XIU tracks the largest 60 companies, while XIC tracks over 250.

    As well, what is VBB and VRB?

    One more note, XRE covers REITs which aren’t considered fixed income. It acts more like an equity than fixed income.

  41. 41. Mark in Nepean

    What ETFs, if any, would you guys recommend for a TFSA???

    Seems like it would be a good choice to “plunk” a few thousand into ETFs into your TFSA in 2010…

  42. 42. CiscoKid

    Thanks FT for your response,

    All of my choices are based on what I’ve read from your website, but perhaps my conclusions are funny to some but as a novice investor (no previous experience) I chose what I thought to be logical, but please feel free to share your opinions.

    1st off, I don’t hold anything today, so why did I think it best to hold XIC & XIU?;

    1 – I see that you like XIU because of the low MER & I also noticed in your RESP post you like to put 30% in Canadian Equity (which I’ve come to the conclusion these are?)
    2 – Other posters explained why they prefer XIC (and they allocate 20%) So I thought 10% XIU & 20% XIC was a good compromise, but maybe not…

    VBB (US small cap) & VRB (US small cap value) where what Ryan listed higher in this post which I assume are (US Equity) which you also like to allocate 30% to.

    As per XRE, guess I missed the boat on that one, but it was also taken from Ryan’s portfolio.

    Though I try to be informed about finances I guess the old saying (knowing the path & walking the path are 2 different things) stays true to me. I thought it might be a good time to get my feet wet & join the game.

    I’m also thinking of waiting till mid October before I do any buying, after reading your last net worth update I decided to search the internet about a possible market correction in Sept. & Oct. & it sounds like there might be a drop of a good 10% (any thoughts?) I’d hate to jump in and instantly loose 10% on my investment…

    I recently visited http://finance.yahoo.com/etf to try and track down the ETFs in what could possibly become my 1st portfolio, but I wasn’t able to find all the ETF symbols (including VRB nor VBB) & there are others like VEA which don’t even look like they’ve made any money since they began & I wonder why someone would like this one… is it because it pays dividends?

    What would be nice is if there were an article for someone who is just starting out who knows they will never be a REAL stack trader & believes in ETFs. With a few pics of what one should choose & if they wanted to get into the market, should they start now? or wait till mid October in the event of a market adjustment? & if he/she wanted to invest all year, should he/she open an account with TD to buy e-funds by-weekly following your RESP strategy & sell them off each year to buy more ETFs.

    Thanks in advance ;-)

  43. 43. Uncle pirate

    Great information about an ETF portfolio.

    Can you help me out. Is it possible to hold VBR or VTI within my Canadian RRSP account?

  44. Uncle pirate, yes it is possible to hold US securities (like VTI) within your RRSP. Most RRSP’s require Canadian currency, so when you purchase, you’ll purchase it in Canadian dollars (after exchange rate).

  45. 45. pat

    is there an open platform to trade ETF’s ? kinda like the platforms to trade forex ?

  46. 46. Lisa

    I am looking to start a low cost diversified ETF portfolio for retirement income from a locked-in account. I have two questions:
    (1) Where do you buy your ETFs at those MERs? I’ve looked at the on-line discount brokerages for RBC, TD Waterhouse & Scotia i-Trade, and none of these carry all the funds you list, or at the MERs you list. For example, Scotia i-Trade lists VTI, but at .15% (not .07%), and does not list either VEA or VWO. (The Canadian ETFs are not a problem, only the international ones.)
    (2) For a retirement portfolio, would you change the ETFs? I understand that the portfolio would be weighted differently, with more cash & fixed income, but what about the actual equity ETFs?

  47. 47. Barry

    For those who are new be aware that the Vanguard ETF’s all trade on the NYSE so you will be charged currency exchange fees which can be up to 2.05% depending on your brokerage. This would take away from the savings you’re getting from the lower MER.

    Of course there is a way around this by doing Norbert’s Gambit

    http://www.finiki.org/index.php?title=Norbert%27s_Gambit

    http://www.financialwebring.org/forum/viewtopic.php?t=198

    With certain brokerages it is actually quite easy to do in your SDRSP account.

  48. @Barry, an alternative is to open an account with a discount broker that allows for USD RRSP.

  49. 49. Amit

    My etf portfolio (not so low-cost) is as follows:-

    In RRSP:
    Developed: Large Cap: DND, EWP
    Developed: Large Cap Value: EFV, EWG
    Developed: Mid Cap: EWO
    Developed: Mid/Small Cap Value: DLS, DGS
    Developed: Real Estate: DRW
    Developed: Fixed Income/Bonds: FXA (using currency ETF for my fixed income portion)
    Emerging: Large Cap: VWO, DWX
    Emerging: Large Cap Value: DEM
    Emerging: Mid Cap: GULF
    Emerging: Small Cap: BRF
    Emerging: Fixed Income: PCY, FXM

    US: Large Cap Value: VPU
    US: Mid Cap Value: CVY
    US: Small Cap Value: IWC
    US: Real Estate: VNQ
    US: Fixed Income: BIV, TLT, BND, TIP, IEF, JNK, HYG

    Non-RRSP
    Canadian: Large Cap: XMA, XIU
    Canadian: Large Cap Value: XCV, XDV
    Canadian: Mid Cap: XMD
    Canadian: Mid Cap Value: CDZ
    Canadian: Real Estate: XRE
    Canadian: Fixed Income: XRB, XSB

  50. 50. Peter

    I’m 29 years old, and my RRSP portfolio is in the $40-$50k at this point. I plan to be invested for at least another 25 years, and have a relatively high risk-tolerance. I like the couch potato philosophy, and plan to rebalance once or twice a year as nescessary.

    I’m planning to build with 90% equities, and 10% bonds. I also like the idea of earning dividends and utilizing DRIPs where available. The following is what I’m currently thinking:

    20% CDZ
    20% XDV
    20% VTI
    20% XIN
    10% XGD
    10% XBB

    This should leave my MER <0.5%, give me exposure to most of the major indicies, decent diversification, as well as some growth from dividend income.

    Comments?

  51. 51. Ruth

    Wow, what useful information!
    I am just jumping into ETF’s and reading all of this really confirmed my choices.
    I have 1 question. Do environment or alternative energy based ETF’s exist, Would anyone have some info and names.

  52. 52. Amit

    @Ruth: In Canada, there’s XEN – http://ca.ishares.com/product_info/fund/overview/XEN.htm – by iShares.

    In USA there’s EVX, PBD, PBW, GEX, PZD, PHO to name a few.

    But, I have noticed that they trail the performance of the market as a whole. You do get the peace of mind that you are investing in green etfs, but you may not be able to get a good performance. However, things may change in the future as more and more people decide to go green or the natural resources such as water and clean air become a rarity with the ever-increasing population on our planet.

  53. 53. Ruth

    Amit: Thanks for the great information. I have one last question (for now!).

    Since pharmaceutical patents are expiring left and right, do you have any info on ETF’s that include those who are about to benefit the most, so: pharmacies, generics, medical/pharmaceutical wholesalers…

  54. 54. Amit

    @Ruth: IHE, PJP, and XPH might be the best way to hedge against the patent expiration. Check out this article:- http://money.msn.com/business-news/article.aspx?feed=IVPL&date=20110224&id=13048616

  55. 55. Clay

    If you don’t like the MER of XRE just buy the index. It’s only 13 stocks!

  56. 56. Sean

    I’m relatively new to the million dollar journey site but I have thoroughly enjoyed reading through the discussion and recommendations of other investors. One thing I noticed is that the purpose of this article is for a low cost, diversified ETF portfolio and not to fault other investors out there but I see many of you who have portfolios that extend above 10 and even 15 ETF’s and comments have been made that this can be very costly to maintain on an annual basis due to all the brokerage fees and I completely agree.

    To give a little bit of background, I will start off by saying that I am by no means a professional when it comes to personal investment however I do try to take a simple, methodical approach. At the end of the day you have to factor in ALL costs and fees associated with trading to determine net portfolio gains and it’s easy to lose sight of that. KISS… remember that from grade 8 science? Keep it simple s*****. I’m 31 years old and just purchased my first home with my wife in the GTA. We managed to put 20% down to avoid high risk mortgage fees and as we currently stand today, we have over $150K equity in our home and just over $100K in our RSP.

    The breakdown and strategy is about as simple as it gets. Hold 4 ETF stocks and 3 TD eFunds at an annually expense of only $40. Is there a better way? Perhaps, but I also don’t have time to follow the daily movement, nor the need to deal with the added stress that market volatility can bring. Therefore my portfolio breakdown is as follows:

    40% – VCE – Vanguard Canadian Index (Canada)
    30% – VTI – Vanguard Total US Market Index (US)
    15% – VEU – Stable World Markets (in theory) (World)
    15% – VWO – Emerging Markets (World)

    Throughout the duration of the year I contribute my money to TD eFunds that carry no fees on a weekly basis. The purchase can be automated for each week to reap the benefit of dollar cost averaging.

    40% – TDB900 – Canada
    30% – TDB902 – US
    30% – TDB911 – World

    Every quarter or 6 months I make sure my ratios are still matched (40% Can, 30% US and 30% World) and then at the end of the year I make one set of trades to convert all the eFunds into their equivalent Vanguard funds. Tracking the ratios is as simple as downloading your portfolio from TD into CSV format and creating a quick pie chart for easy visibility. The simple reason that I chose Vanguard over iShares is that their funds all have lower MER’s than iShare equivalents.

    I’ve also noticed that many of you like to have bonds for fixed income. Since i’m not planning on using this money for another 20 years, we don’t mind all our money being in stocks. It’s slightly higher risk than bonds but when you’re dealing with ETF index funds, that’s about as low risk as it gets when trading stocks.

    As I mentioned, there are definitely other approaches but I find this is simple and works for me.

    -Sean

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