ETF Model Portfolios on Cut The Crap Investing.

I have been a self-directed investor since the beginning of my investment ‘career’. I purchased the TSX 60 iShares XIU (ticker) in the late 1990’s. I was an early evangelist for low fee ‘passive’ index investing. As I like to joke, I was talking to anyone and everyone who wasn’t willing to or wanting to listen. Eventually, after a 27-year career in advertising, I had to go find some folks willing to listen to my index Boglehead ramblings, so I talked my way into a position with Tangerine. At Tangerine I was able to spread the word to thousands of Canadians. As you may know they offer the simple and wonderful index-based Tangerine Portfolios. That’s a very good option, along with the other Canadian Robo Advisors for those who want a managed portfolio.

For those who understand the investment basics (and beyond) and are capable of being a self-directed investor, they can create an Exchange Traded Fund / ETF Portfolio. This is likely the lowest fee option for creating a sensible well-balanced portfolio. Here are the core building blocks for a Canadian ETF Portfolio. And here’s more on what is an Exchange Traded Fund.


A Canadian investor can create a complete Balanced Portfolio with annual management fees in the range of .10% – .25%.


Most self-directed investors will create a simple core portfolio that has those simple building blocks. That allows us to spread the risk among many countries and among all of the major business sectors. With that diversification an investor might be able to take advantage of a robust US Stock Market or the International Markets while the Canadian markets are underperforming. That has certainly been achieved after the recession of 2008-2009 as the US Stock Markets have greatly outperformed the Canadian and International Markets. A Canadian investor with those four core building blocks would have taken advantage of the US markets and the strong US dollar.

And of course those bonds are present to work as shock absorbers for the portfolio. The more bonds, typically, the lesser the volatility or risk – the less that the portfolio might fall in a major stock market correction. As I wrote in the attached bond blog link, stocks are the unruly kids, the bonds are the ADULT in the room.


For the core balanced portfolios on the ETF Model Portfolio page, the approach is plain vanilla indexing. And the selection for international stocks is iShares Core MSCI EAFE index ETF – ticker XEF. That fund tracks developed international stock markets.

With the core portfolios you are owning the developed stock markets of the world and managing the risk with a core Canadian bond fund.

I will also call that meat n’ potatoes investing; nothing too fancy or exotic. While it’s couch potato investing this might be more of the comfort food portfolio, more ingredients that we know and understand. But feel free to spice up those core portfolios with developing markets and foreign bonds and perhaps other more exotic blends. But be careful out there, and perhaps use those ingredients sparingly, they can bring additional risks.

You also might choose to Keep it Simple Silly. KISS.

For the Canadian stock allocation, you’ll notice that I offer the TSX 60 by way of iShares XIU. Many Model Portfolio offerings on the web suggest a more comprehensive TSX Composite fund. But for my money, 60 companies was enough. The TSX 60 outperforms the composite funds even though it has higher fees. But that’s not why it is ‘suggested’. I like the 60 as it has even more concentration to the big Canadian banks and financials. Typical wisdom would go against greater concentration in one sector, but here’s the thing, the Canadian markets (in isolation) are a terrible investment. There really is no solid and well-balanced sector diversification. The Canadian markets are mostly financials, energy and materials. It is not a well diversified stock market or economy. But the best of the best is the financial sector and particularly those big Canadian banks. The Big Canadian banks are the only large cap (large company) sub sector to beat Warren Buffett over the decades. Like the Canadians telco’s they operate in an oligopoly situation, they are protected from competition. Warren Buffett (the world’s greatest investor) calls that a wide moat. So I’ll stick with that slightly wider moat of the big banks and the TSX 60.

The US offering is iShares XUU. That is a core US fund that will mostly invest in larger cap companies, but the fund (it’s a fund of funds) does include some slight allocation to mid cap and small cap companies. Compared to the widely used cap weighted S&P 500, that fund might eke out an additional annual .10% or more. You may also notice that I will overweight US markets to a fair degree compared to international markets. The US dollar typically provides a nice hedge to the Canadian resource slant. Also, US large cap companies (internationals) typically generate considerable sales and profits in foreign markets. Intrinsically we have already have significant international exposure by way of the US Index. And more importantly, one could argue that the US economy, companies and employees is the most dynamic and creative in the world. Most healthcare and technological advancement have their origins in the good ol’ USA. That’s likely why it is the best performing stock market in the developed world over the last several decades.

The bond component iShares XBB is again, plain vanilla, but a broad-based and well-balanced bond fund. It’s the Canadian Bond Universe. Once again, if you know what you’re doing and why you’re doing it, you have the option of spicing up the portfolio with higher yielding bonds, foreign bonds, floating rate bonds, laddered bonds, shorter bonds, longer bonds, actively managed bond fund ETFs. Or again you might KISS.

The Cut The Crap Investing Model Portfolio Page also differs from other sites and offerings in that it offers some Smart Beta portfolio options. Here’s where we move away from the plain vanilla portfolio designs. Smart beta funds (typically) are an attempt to either offer better risk adjusted returns or to simply ‘Beat The Market’. And here’s smart beta in a nut shell. Do you want to beat ‘the market’. For that US market all you have to do is buy the 500 companies in equal proportions instead of heavily weighting the portfolio to the biggest, largest cap companies. Historically just changing the weighting scheme allowed an investor to beat the market by 1.5-2.0% annual, over longer periods, depending on the timeframe. That equal weighted S&P 500 option is available in ETF form from Guggenheim, it’s (ironically) ticker RSP. Given that it’s a US-listed fund, it might be better off in your RSP.

You’ll also find some Dividend Portfolio options. I am a big fan of a meaningful dividend growth history and I’m also a fan those Big Juicy Dividends. Those two factors can find certain kinds of companies with some special and at times advantageous investment characteristics. You can read about that potential benefit in Canadian Robo Advisors: The Tangerine Big Juicy Dividend Edition. That Tangerine Portfolio is a mutual fund that tracks the MSCI High Dividend Indices. Those indices have historically beat the broad markets in Canada, the US, and International. You can also buy the ETF option for those indices.

Before you set off to create your ETF portfolio (or if that investment is already a work in progress) please ensure that you at least understand the basics. If you don’t know what you’re doing, turn that Nike slogan upside down and Don’t Do It. When we are self directing and buying investments on discount brokerage platforms, where there is no advice available, we can do some ‘weird stuff’ unknowingly. On currency considerations and Canadian vs US listed ETFs, here’s a wonderful infographic from youngandthrifty  entitled The Ultimate 5-step Guide to Maximizing Your ETF Returns. Thank you Kyle @ YAT.

I will be back with an overview for each of the ETF Model Portfolio offerings.

Thanks for reading.

Author’s note: While I do not accept monies for feature blogs, please click here for more about Dale and ‘how I might get paid’ disclosures.

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