It’s that time once again to check in on the ETF portfolios on Cut The Crap Investing. These simple but more than effective portfolios allow investors to buy the stock markets of the developed world with just a few clicks, while the stock market risk is managed by the Canadian bond market. It’s a very passive approach. Investors can choose the appropriate risk level, that is, the ratio of stocks to bonds. You’ll see the risk-return proposition in play. Those who take on more risk (more stocks) are rewarded with greater returns. That said, we must always remember that it is key to invest within our risk tolerance level – our comfort level with stock market and portfolio value declines. We’re checking in on the core ETF portfolios on the Sunday Reads.
The core portfolios follow a passive index-based approach. As a refresher or a backgrounder have a read of – What is index-based investing?
With an index-based approach we are simply buying the ‘total’ stock market of a region. That’s the opposite of active management, where a mutual fund manager owns a few stocks trying to ‘beat the market’. Unfortunately those fund managers charge a hefty fee and then almost always go on to underperform the passive approach – just buying the market. Pay more for less? No thanks.
Simple beats complexity
The best example of the passive index-based approach is the U.S. market where you would own 500 of the largest publicly-traded companies in the U.S. It’s called the S&P 500. It’s the most famous and best-performing stock market index on the planet over the last several decades.
From 1990 (almost 35 years ago) the U.S. stock market has delivered returns at over an average of 10.5% each year.
$1000 invested in 1990 was turned into $32,000. If we factor in inflation, that $1000 had $13,300 in spending power.
But of course investors don’t put in one lump sum and walk away, they invest on a regular schedule adding new money every month or every two weeks on pay day. If an investor had started in 1990 and put $500 per month into the U.S. stock market, they would have accumulated almost $2 million dollars. If you started 20 years ago, you would have built a nest egg of over $500,000.
It is not that difficult to build significant wealth. We need free cash flow (money to invest) and we need consistency and time. Time is an investor’s best friend and most powerful weapon.
Here’s my personal finance ‘book’ – Oh look, I just found $888,000 in your coffee.
We take a look at our finances (budget) and we find money to invest on a regular schedule. Building significant wealth should be one of the most simple and rewarding things we do in life.
Money + Time + Returns = Financial Happiness
Geographic diversification
While many Americans will invest almost exclusively in U.S. stocks, it’s not necessarily a good idea. Let’s not forget the lost decade for U.S. stocks.
It makes sense to also invest in international stock markets, and for Canadians, the Canadian market as well. And once again, we’ll add in bonds to manage the stock/equity risks. From the ETF portfolio page …
We would own one ETF for each asset and then we can arrange (weight) them to manage risk. You can own a more aggressive portfolio, or you can own a more conservative portfolio. On the ETF page you’ll find 4 portfolio models at 4 different risk levels.
For example, here’s the most aggressive portfolio that is exclusively in stocks. You’ll find the ETF listed that you would own for each market. For example ticker XIU will allow you to buy/own 60 of the largest and most successful companies in Canada. The index is the TSX 60, TSX = Toronto Stock Exchange.
Equity returns a plenty
From January of 2016, when XUU was launched that portfolio model has delivered at a rate of 11.05% annual. That is incredible, considering we did move through a major (but quick) stock market correction during the early months of the COVID pandemic. We also had a modest correction in 2022.
For the performance update for the 4 core ETF portfolios please click on – Core ETF Portfolio Performance.
Check out Justwealth, Canada’s top Robo Advisor
You can certainly choose your own weighting. I have a bias for U.S., then Canada and then International. You might even choose to equal weight the indices/regions as do the core Tangerine Portfolios. I was an advisor/trainer with Tangerine for several years.
Performance from a poor start date
To add some perspective, here’s the returns history for the Tangerine Portfolios.
Keep in mind that the inception start date for the Balanced Income, Balanced and Balanced Growth portfolios is the worst start date over the last 50 years or more – the beginning of the financial crisis in 2008. But it gives us a good persective on risk and returns.
Keep in mind the higher fees for the Tangerine Portfolios impact returns. Compared to the core ETF portfolios on Cut The Crap Investing, the Tangerine fees would reduce annual returns by almost 1%.
You can own XUU for 0.07%, XIU for 0.18% and XEF for 0.22% in total annual fees.
That said, Tangerine is a very solid option for those who want managed portfolios and investment advice. It is far superior to the typical mutual fund experience in Canada.
Where’s your $225,000 TFSA?
The Tax Free Savings Account is a Jim Flaherty gift (that keeps on giving) to Canadian investors. Rob Carrick in the Globe & Mail recently looked at how much you would have in your TFSA account if you were able to max your contributions from 2008, and you generated very solid returns. A subscription is required, but I got your back …
If you opened a TFSA when these accounts were introduced in 2009, and made 6 per cent annually, you’d have $158,383 by the end of 2024. A 7-per-cent return would get you $173,093, while an 8-per-cent and 9-per-cent return would produce $189,339 and $207,283, respectively.
If you had created an all-equity ETF Cut The Crap portfolio you’d likely be in the $225,000 range. Just wow!
For you and your spouse, you would be approaching half a million in tax free wealth. Remember, the TFSA is true to its name. It grows tax free and you can take the money out tax free.
More Sunday Reads
At Findependence Hub, Jonathan Chevreau will help you navigate all of the alternatives to Twitter.
Also on the Hub this week, there’s a third edition of Frederick Vetesse’s wonderful book – Retirement Income for Life. Here’s my review from 2018 …
Retirement Income For Life: Getting More Without Saving More.
More must retirement reads:
Creating retirement income from your portfolio.
Boost your portfolio spend rate in retirement.
Loonies and Sense offers an ode to the wonderful XEQT.
At Dividend Hawk there’s earnings summaries from Abbvie, Cardinal Health, Home Depot, PowerCorp and more.
Banker on Wheels takes a look at the S&P 500 now makes up 51% of global portfolios. Tack on another 8% for other U.S. listed stocks.
And a very good read – 14 lessons about money and life.
At Stocktrades you’ll find summaries for Dan’s favourite Canadian stocks. Here’s a teaser, my personal favourite Canadian bank stock, and largest individual stock holding.
At Million Dollar Journey Kyle looks at Trump, Tariffs and the Canadian economy. It is more than interesting to speculate but the U.S. economy is a much greater force than any President. And whatever happens can be handled by a balanced portfolio with ample diversification.
Second thoughts
Last week I looked at the strong performance for the markets after week one of the Republican sweep. This past week the U.S. markets pulled back. Canadian stocks moved to an all-time high on Thursday. I joked …
And I’m certainly enjoying the bitcoin boost due to the Trump endorsement. It’s up 35% over the last month and 147% over the last year.
And this week the Loonie continued to slide.
It has now moved to $1.41 cents this Sunday. It’s a good thing you’re hedged with your ample U.S. and international holdings.
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ETFs / Stock Portfolios / Retirement Strategies / Wealth Creation
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Earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It’s a great place to build your stock portfolio.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.0%. You’ll find some higher rates on GICs up to 4.00%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
For September we received $51.44 in cash. You can select 3 categories for 2% cash back.
That cash went into my TFSA account to buy some bitcoin, ha.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
As of Friday our combined TFSAs are at $524,000 with just two stocks. ENB and BNS. Almost $31,000 in cash flow which is reinvested in ENB. Very little Trading.