Option 1: Tangerine Investment Funds
Tangerine, an online bank and a division of Scotiabank, was first to offer Canadians simple and low-cost index mutual funds. Full disclosure: I was an investment advisor and trainer with Tangerine from 2013 through 2018.
Tangerine Core Portfolios
For those who want to go with the classic balanced portfolio of 60% equities and 40% bonds, there’s the Tangerine Balanced Portfolio, which was launched in January 2008.
The bond component of the portfolio generally helps to mitigate the riskier equities component. Although that has not been the case in 2022, which has been a brutal year for stocks and bonds, when global when the combined stock markets (Canada, U.S. and International) declined by more than 50% during the financial crisis of 2008-2009, the Balanced Portfolio was down by just 25%. This balanced asset allocation can make it a lot easier for investors to stay the course during market turbulence.
If you want a lower-risk portfolio, opt for more bonds. If you want a higher-risk portfolio (with greater growth potential), choose one with more stocks, as shown below.
Core Balanced Income Portfolio: 70% bonds, 30% stocks
Core Balanced Portfolio: 40% bonds, 60% stocks
Core Balanced Growth Portfolio: 25% bonds, 75% stocks
Core Equity Growth Portfolio: 0% bonds, 100% stocks
Start by completing the investor profile questionnaire on the Tangerine investment site that evaluates your goals, risk tolerance and time horizon. It will then recommend the most suitable portfolio for you based on your answers.
Fees
The Tangerine Core Portfolios are mutual funds, which means there are no fees when you buy or sell. That can make them attractive for those who are starting out with smaller amounts to invest. That said, the historical performance demonstrates that the portfolios have been competitive investments and would be suitable for many investors, even those with larger portfolios.
The management expense ratio (MER) for each of the funds is 1.06%. This is the percentage fee that comes off the top of your investments before you see any returns. That is a 50%-off sale compared to the fees for a typical Canadian mutual fund. In addition to lower MERs the Tangerine funds will have a very low trading expense ratio, known as the TER. For Tangerine Core portfolios, the MER is 0.01% or 0.02%, while actively managed mutual funds can generate significant trading fees that are often 0.20% or more. Tangerine’s passive approach help keeps a lid on those TER fees.
Tangerine Global ETF Portfolios
While performance has been quite strong for the Tangerine Core Portfolios, their 1.06% fee level is high compared to other Couch Potato offerings. The bank also offers Tangerine Global ETF Portfolios, which have lower MER fees of 0.65%. The total fees, including TER, will take the all-in fees to 0.72%.
This is another welcome addition to the Canadian Couch Potato family. The Global ETF Portfolios are available at the following three risk levels:
The Balanced ETF Portfolio is 40% bonds and 60% stocks
The Balanced Growth ETF Portfolio is 25% bonds and 75% stocks
The Equity Growth ETF Portfolio is 0% bonds and 100% stocks
The Core Portfolios are outperforming the lower-fee Global ETF Portfolios year-to-date as of August 31, 2022. That is in part due to the equal weighting of Canadian, U.S. and international equity allocations.
At Tangerine you will have access to investment funds advisors from Monday to Friday, usually from 8 a.m. to 8 p.m EST. Most clients will execute their own buys and sells online.
Option 2: TD e-Series Funds
Like Tangerine, TD Mutual Funds also offers index mutual funds with some very reasonable fees. That said, the assets are offered in four individual baskets, so you need to create your own portfolio and do your own rebalancing.
This approach requires slightly more effort than Tangerine’s ready-made portfolios, but the fees are also lower than Tangerine’s. MERs for the TD e-Series funds range from 0.25% to 0.4%, so a blended portfolio would have an estimated MER of 0.4% or less, compared to Tangerine’s 0.72% to 1.06%, depending on the type of portfolio you choose (Core or Global ETF).
Below are the four TD e-Series index mutual fund offerings, which you can combine in any proportion, from cautious to aggressive. A balanced 60% equity/40% bond portfolio, for example, could have the following allocation:
TD Canadian Index Fund-e: 0.28% MER
TD U.S. Index Currency Neutral Fund-e: 0.33% MER
TD International Index Fund-e: 0.48% MER
TD Canadian Bond Index Fund-e: 0.44% MER
If you currently hold the TD e-Series by way of EasyWeb, the online banking platform that allows you to buy mutual funds you can continue to hold. That said, there was a recent change announced stating that you would no longer be able to add to those holdings. You would have to open up a discount brokerage account and purchase through that platform. There would be no fees for the purchase or sell orders.
You can also access the TD e-series funds through some other discount brokerages.
You can still get set up by way of an in-branch TD advisor if you’re a TD client.
For non-TD clients you might take a pass here and instead go for an ETF portfolio option, which is about half the cost of the TD e-Series funds.
Option 3: One-ticket asset-allocation ETFs
One of the greatest leaps in Couch Potato investing is the introduction of one-ticket ETFs. Investors can buy a single ETF and receive a managed globally diversified ETF portfolio that matches their risk tolerance. The fees are in the range of 0.20%. That’s about 1/10 the cost of a typical actively managed Canadian equity mutual fund! And the asset allocation is automatically rebalanced, which means less work for you.
Investors are loving it—these all-in-one ETF options are one of the fastest-growing segments of the ETF market, having increased to more than $5 billion within the last two years.
The choice between high-fee active mutual funds and the 90%-off sale of a one-ticket option could be called a no-brainer. It makes you wonder why the majority of Canadian investors are still invested in high-fee products.
The one decision you do have to make is which all in-one ETF is most suitable for your goals, time horizon and risk level. And you’ll need to press the buy button yourself. As such, this option is for the self-directed investor.
Types of asset-allocation ETFs
One-ticket asset allocation ETFs are offered by iShares, Vanguard, BMO, TD, Horizons, and other ETF providers. Check out the MoneySense Best all-in-one ETFs ranking and you’ll see that most of them hold seven or eight individual ETFs from different asset classes.
While the Tangerine and TD e-Series approach will consist of Canadian, U.S. and international stocks combined with Canadian bonds, the one-ticket ETF portfolios offer additional diversification, namely U.S. and international bonds including U.S. treasuries and high yield bonds. This provides some useful additional diversification, in my opinion.
On the stock or equity side, a few one-ticket ETFs get more adventurous, straying from traditional passive-market ETFs. They might shade in a few active ETFs that focus on low-volatility, dividend or technology stocks. There is nothing too extravagant or exotic in that type of mix, but they could lead to some underperformance or outperformance compared to plain vanilla indexing.
For a more traditional portfolio approach, choose Vanguard, BMO and iShares asset allocation ETFs. You’ll see more off-script options from TD and Horizons; the latter even offers a tax-efficient one-ticket solution, which is handy for non-registered (taxable) accounts.
How to find the right one-ticket option
Strongly consider your tolerance for risk (be very honest with yourself!) and your time horizon. Then use the following portfolio risk table to help you select the most appropriate one-ticket ETF.
One-ticket asset allocation ETF portfolio risk levels
| Time horizon |
1-2 years |
3-5 years |
5-7 years |
7-10 years |
10+ years |
| Risk level |
No risk |
Low |
Low-medium |
Medium |
Medium-high |
| Potential decline |
None |
5%-15% |
10%-35% |
20%-45% |
25%-55% |
| Stock to bond ratio |
None |
70%-80% bonds,
20%-30% stocks |
40%-60% bonds,
40%-60% stocks |
20%-30% bonds,
70%-80% stocks |
0%-10% bonds,
90%-100% stocks |
| Portfolios |
Cash and GICs |
iShares XINC |
iShares XCNS |
iShares XGRO |
iShares XEQT |
|
|
Vanguard VCIP |
iShares XBAL |
Vanguard VGRO |
Vanguard VEQT |
|
|
TD TOCC |
Vanguard VCNS |
BMO ZGRO |
Horizons HGRO |
|
|
|
Vanguard VBAL |
Horizons HBAL |
TD TOCA |
|
|
|
BMO ZCON |
|
|
|
|
|
Horizons HCON |
|
|
|
|
|
TD TOCM |
|
|
*This table is to be used as a starting point for risk assessment. You might consult an advisor or planner to gain a professional opinion. Risk levels are my own and based on industry averages This table does not constitute investment or financial advice. The portfolio asset allocations presented are not tailored to any particular investor’s circumstances.
Investors might also complete the investor profile questionnaire at Tangerine and the risk assessment tool at Vanguard. You will receive a suggested stock to bond allocation. You can then match your suggested risk assessment to your asset allocation selection.
There is no guarantee of returns for any of the given periods. It is possible that stock and bond portfolios can fail for extended periods.
MoneySense or the author are not responsible for any investment decisions or losses based on portfolio selection.
Please ensure that you understand investment risks and know your risk tolerance level.
Option 4: Build your own ETF portfolio
If you’re comfortable buying, selling and rebalancing funds, you can build your own ETF portfolio. This is the most cost-effective Couch Potato approach, with individual ETF MERs that are as low as 0.04%, and portfolios in the 0.20% range. As with all the Couch Potato options, at a minimum you’ll want your ETF portfolio to include Canadian, U.S. and global equities, as well as Canadian bonds.
As you’ll see in the sample portfolios below, you can include as little as two, three or four ETFs to keep things simple. The allocation of the ETFs should be based on your risk tolerance and time horizon—for example 20% equities/80% bonds for a conservative portfolio; 60% equities/40% bonds for a balanced portfolio; and 80% equities/20% bonds for a growth portfolio.
(If you’re not sure what your optimal allocation is, try using the Portfolio Risk Table in the “One-Ticket Asset Allocation” section to help match the appropriate ETF Couch Potato portfolio to your goals, time horizon and risk tolerance level.)
iShares Two-ETF Balanced Couch Potato Portfolio
iShares MSCI World Index ETF (XWD): 60%
iShares Core Canadian Universe Bond ETF (XBB): 40%
iShares’ “total market” global equity ETF (ticker XWD) includes equities from the U.S., Canada and developed markets all in one ETF. It is cap weighted, meaning that the most valuable (largest capitalization) stocks have the greatest weighting in their respective country index, and the individual countries’ stock markets with the most value also hold greater weight in the fund. It may be no surprise that the U.S. stock markets lead the index weighting at about 70% as of September 2022.)
Geographic weighing for iShares XWD, as of September 2021:
U.S. Stock Market: 69.5%
Developed International Stocks: 27%
Canadian Capped Composite Stock Index: 3.5%
Numbers are rounded, include a small cash component and may not add up to 100%
Then you only need to add a Canadian bond ETF to complete your diversified Couch Potato portfolio. iShares Core Canadian Universe Bond Index ETF (ticker XBB) seeks to replicated the FTSE Canada Universe Bond Index, which includes government and corporate bonds, with a mix of short-, mid- and long-term bonds. The idea of the fund is to own the “total” investable bond market.
The MER fee is 0.49% for XWD and 0.10% for XBB, so the total MER for this portfolio is somewhere between depending on the allocation between the two ETFs.
If you choose to not go the global cap weighting option you could choose a global ETF that offers more Canadian and International to the mix. You could look to XEQT from iShares and VEQT from Vanguard to create that 2-ETF Couch Potato Portfolio.
Vanguard Three-ETF Balanced Couch Potato Portfolio
Vanguard FTSE Global All Cap ex Canada Index ETF (VXC): 56.5%
FTSE Canada All Cap Index ETF (VCN): 3.5%
Canadian Aggregate Bond Index ETF (VAB): 40%
Vanguard offers an all-equity ETF called VXC (global stocks excluding Canada). That means a Canadian investor could set up a low-cost, globally diversified portfolio of index funds with just three ETFs: VCN for Canadian equities, VXC for U.S./global equities, and VAB for Canadian bonds.
VAB seeks to track the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index. The idea is quite similar to the FTSE index in that it is an attempt to replicate the total Canadian bond market.
The MER fee is 0.21% for VXC, 0.05% for VCN, and 0.09% for VAB, so the total MER for this portfolio is approximately 0.13%.
BMO Four-ETF Balanced Couch Potato Portfolio
BMO S&P 500 Index ETF (ZSP): 40%
BMO S&P/TSX Capped Composite Index ETF (ZCN): 3.5%
BMO MSCI EAFE Index ETF (ZEA): 16.5%
BMO Aggregate Bond Index ETF (ZAG): 40%
With BMO ETFs, you can cover the U.S. equities market with ZSP, which tracks the S&P 500 Index; Canadian equities with ZCN, which tracks the S&P/TSX Capped Composite Index; and international equities with ZEA, which tracks the MSCI EAFE Index. For the Canadian bond component, ZAG tracks the FTSE Canada Universe Bond Index.
The MER fee is 0.09% for ZSP, 0.6% for ZCN, 0.22% for ZEA, and 0.09% for ZAG, so the total MER for this portfolio is approximately 0.11%. You may choose to build a more equally weighted U.S., Canadian and international equity portfolios with the above equity ETFs.
In this article I compared the returns of the core and advanced couch potato models.
Dale Roberts is a former investment advisor and proponent of low-fee investing. He created the Cut The Crap Investing blog in 2018. Find him on Twitter for market updates and commentary, every day.
The chart named “One-ticket asset allocation ETF portfolio risk” I think has a flaw. Stock to bond ratio 3 – 5 years says, 20-30 % bonds and 70-80 % stocks, while right beside in the 5 – 7 year column the risk is lower with 40-60% bonds and 40-60% stocks. Shouldn’t that be the other way around? If the plan is to access the money within five years, the risk should be lower than accessing it within seven years. Yes?
Also, there is no Vanguard VNCS. Do you mean VCNS?
This is golden information, though the placement of advertisements in the online article was done in such as way as to make actually reading the article incredibly difficult.
and… Mary L-S is correct regarding the error in the table.
Eric
With inflation on the rise and with interest rate increase to contain it – Bonds will take a beating. Wait and see. Time to get into bonds is when the prime reaches about 3%. It could go higher but it is good to average it starting from this point and add as you go. Just my two cents worth.
Equities? October typically sees a downward trend. By about black friday in November buy stocks and stop at around Dec. end. Tax loss selling will offer some opportunities. That’s when one buys on a contrarian basis.
When you were talking about types of asset-allocation ETFs, you have a link to “Best all-in-one ETFs for 2020” dated May 17, 2020.
There is a newer one, “Best all-in-one ETFs for 2021” dated April 1, 2021.
https://www.moneysense.ca/save/investing/best-all-in-one-etfs/
Thanks for flagging those typos. They have now been corrected.
Thanks Mary, that is fixed up. I often type backwards and sometimes put numbers back to front, a guy thing. It makes proof reading a challenge.
On that, thanks for the additional proof 🙂
Any ideas for a TD Mutual Fund approach to generating a minimum monthly cash flow?
This is all super helpful research and recommendations thank you very much. As we are now in 2022, will this be updated in January or sometime later. Assuming the basics havent changed much in the overall allocations and ETF names. Thanks
“the MER is 0.01% or 0.02%” Did you mean TER?