# If you had to choose two or three ETFs for passive investing...



## SamR (Oct 9, 2021)

I have TD e-series. They are performing pretty I suppose; the Can, US, Intl, and Can bond fund. Roughly 25/30/25/20. I am considering some ETFs through my TD DI. Vanguard and I-Shares keep appearing in various internet searches as sound products. What would other recommend specifically for an all-around passive approach? I'm 49, will receive a DB pension. I plan to work for at least another 12 years. 

Thanks


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## P_I (Dec 2, 2011)

Have you read through Model Portfolios | Canadian Couch Potato? Another similar resource is Simple index portfolios - finiki, the Canadian financial wiki.

Vanguard Canada, and others, have also introduced asset allocation, aka all-in-one, ETFs that might be even more appropriate. Check out About our asset allocation ETFs | Vanguard Canada and particularly Balanced ETF Portfolio (VBAL) - en | Vanguard Canada. Well diversified and low cost.


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## james4beach (Nov 15, 2012)

SamR said:


> I have TD e-series. They are performing pretty I suppose; the Can, US, Intl, and Can bond fund. Roughly 25/30/25/20. I am considering some ETFs through my TD DI. Vanguard and I-Shares keep appearing in various internet searches as sound products. What would other recommend specifically for an all-around passive approach?


The e-series are good, especially if you're adding small amounts of money over time.

There are lower fee ETFs, but because of the trade commission, these are best if you're buying a chunk and then not adding any more money (since it's not worth buying only say $1000 of ETFs). Some good all-in-one ETFs are

VBAL and XBAL
VGRO ... a more aggressive allocation

They are just portfolios of index ETFs


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## MrMatt (Dec 21, 2011)

I'll second the Canadian Couch potato references.
But really the TD efunds are a great product.


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## SamR (Oct 9, 2021)

thank you!


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## SamR (Oct 9, 2021)

Are the e-Series even worthwhile when the funds get larger (say approaching 6 digit)?


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## AltaRed (Jun 8, 2009)

No. One has to compare the differences in MER and do the math to see what the leakage is to stay with TD efunds vs the commissions paid to buy/sell units of ETFs. And with the trend to $0 commissions to trade ETFs at some institutions, holding TD efunds no longer makes sense.

TD US Index efund MER is 0.34%, ZSP MER is 0.09%. Difference of 0.25%. For a holding of $10k, you are paying $25/yr extra MER to hold the TD US Index efund. At $100k, it is $250/yr. Why would you do that?


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## SamR (Oct 9, 2021)

I came across NB DB new zero commission on ETFs and equities. I like banking with TD and wished they'd match this new offer. May have to consider switching to NB for my investing.


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## Thal81 (Sep 5, 2017)

AltaRed said:


> No. One has to compare the differences in MER and do the math to see what the leakage is to stay with TD efunds vs the commissions paid to buy/sell units of ETFs. And with the trend to $0 commissions to trade ETFs at some institutions, holding TD efunds no longer makes sense.
> 
> TD US Index efund MER is 0.34%, ZSP MER is 0.09%. Difference of 0.25%. For a holding of $10k, you are paying $25/yr extra MER to hold the TD US Index efund. At $100k, it is $250/yr. Why would you do that?


I have to disagree. There is a lot of convenience in holding eSeries funds, that some may feel is worth it even with 6 figures portfolios. You can buy/sell in dollar amounts instead of placing market orders for X shares then having un-invested bits of cash left. Easier to rebalance between funds with single switch order. Fully re-invested distributions. Easier to track ACB in non-reg account. No phantom distributions. No bid/ask spread, so you pay for the real value of the assets.

Yeah you pay extra for that convenience, but it's quite small compared to typical returns.


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## SamR (Oct 9, 2021)

The question I am pondering is whether to go with an all-in-one ETF like VGRO or investing in a mix of something like the following: 

VAB (bond/fixed income): 20%
VCN (Canadian equities): 30%
VFV (U.S. Equities): 30%
VIU (International equities): 20%
I realize I'd have to manage it somewhat (yearly rebalancing?) but the MERS work out to 0.107%. However the following statement could make me pause: _*"Compared to an all-in-one ETF portfolio, the one shown in the sample above will require rebalancing and your fees will add up over time, eroding or eclipsing the fee savings when compared to one-stop ETFs." *_

Is the above quote accurate?

My investment goals at this stage of my life are to pursue a more aggressive investment strategy (albeit passive investing). So more heavily weighted on equities for now.. In 5 years or so, I will revisit this and begin shifting toward a more conservative approach. 

Thoughts?


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## AltaRed (Jun 8, 2009)

Re-balancing individual ETFs is currently a $20 trip at most brokerages, i.e. sell units in one to re-balance into the other. Done too often and those commissions add up. However, for someone who is accumulating, it is easiest to re-balance by simply adding new money to the ETF that is underweight and NOT selling off units of the one that has gotten out of balance. Secondly, there is no particular need to re-balance more than perhaps once a year or every few years, depending on the range tolerance one is prepared to accept, e.g. does it matter whether the VAB allocation ranges between 15-25% and not actually at 20%? Probably not because you don't actually know that the "right" allocations are in the first place. You are simply drawing your own lines in the sand.

Which brings up the point of the asset allocation ETFs. They will re-balance internally far more efficiently than an investor ever will with 4 separate ETFs. Humans are prone to indecision, hesitation and impulse. They always second guess. By giving that decision to an AA ETF provider, the investor can go on to more important things in their daily lives. Despite being a DIY investor for 20+ years, I would go 'all in' on the AA ETFs if I was starting over today. Indeed, I am moving (have moved) to AA ETFs in my registered accounts (one each in my RRIF and TFSA) because there were no cap gains consequences to overhaul those accounts.


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## AltaRed (Jun 8, 2009)

Thal81 said:


> I have to disagree. There is a lot of convenience in holding eSeries funds, that some may feel is worth it even with 6 figures portfolios. You can buy/sell in dollar amounts instead of placing market orders for X shares then having un-invested bits of cash left. Easier to rebalance between funds with single switch order. Fully re-invested distributions. Easier to track ACB in non-reg account. No phantom distributions. No bid/ask spread, so you pay for the real value of the assets.
> 
> Yeah you pay extra for that convenience, but it's quite small compared to typical returns.


All valid points but why stop there? I sure wouldn't put up with managing even that when I would simply buy an asset allocation ETF for total MER of 22-25bp. One holding to track ACB on using https://www.adjustedcostbase.ca/ if one really wants to make it dumb easy.


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## SamR (Oct 9, 2021)

What is a AA ETF? Are you referring to something like VGRO?


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## AltaRed (Jun 8, 2009)

Yes, sorry. Asset Allocation ETF


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## Thal81 (Sep 5, 2017)

I like the AA ETFs, but I don't use them because I hold different things in different accounts types to optimize taxes.


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## SamR (Oct 9, 2021)

So in an Asset allocation ETF (like VGRO?), you can simply buy one ETF and that "covers all the bases" so to speak? In other words, you can simplify your investments by putting everything into one fund? Am I understanding this correctly?

My apologies... I am trying to learn as I go along so if I sound like an ignoramus, I am!


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## MrBlackhill (Jun 10, 2020)

SamR said:


> you can simplify your investments by putting everything into one fund?


Yes.


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## james4beach (Nov 15, 2012)

Thal81 said:


> I have to disagree. There is a lot of convenience in holding eSeries funds, that some may feel is worth it even with 6 figures portfolios. You can buy/sell in dollar amounts instead of placing market orders for X shares then having un-invested bits of cash left. Easier to rebalance between funds with single switch order. Fully re-invested distributions. Easier to track ACB in non-reg account. No phantom distributions. No bid/ask spread, so you pay for the real value of the assets.
> 
> Yeah you pay extra for that convenience, but it's quite small compared to typical returns.


Yes I agree that these are some nice benefits. There's no question that the e-series (mutual funds) are easier to deal with.

I guess it's a question of how much you are willing to pay for those conveniences, based on the MER x amount invested.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Which brings up the point of the asset allocation ETFs. They will re-balance internally far more efficiently than an investor ever will with 4 separate ETFs. Humans are prone to indecision, hesitation and impulse. They always second guess. By giving that decision to an AA ETF provider


This is a really good point. Rebalancing sounds like an easy thing, but I think people have trouble actually doing it in practice. Take a look at VBAL for example (60% stocks 40% bonds). Today they have 40.2% in bonds. But stocks have gone up tremendously this year while bonds are down quite a bit. So this shows that Vanguard has been selling stocks and buying bonds!

[ or possibly using new fund inflows to exclusively buy bonds, as opposed to stocks ]

Now look at discussion threads on this board, and ask how many people have been buying bonds. Bonds haven't been popular... there's so much talk about high inflation and how bonds should be avoided. The Globe & Mail publishes articles about how bonds are a terrible investment, etc.

But Vanguard is sticking with the plan and *buying bonds*, which is the right thing to do. This automatic (and professional) management will save many individual investors from behavioural mistakes such as getting swayed by themes that are popular at the time.


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## AltaRed (Jun 8, 2009)

I expect the AA ETFs to suffer near term with the bond portion but these things have a way of working out over the longer term. To be discussed again when we look back at 5 and 10 year returns in 2025 and 2030 respectively. As an aside, it will be interesting to look at MAW104 in comparison to VBAL in the next 5 years. MAW104 is now (June 30) at 70/30 with no ex-Canada bond component.


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## james4beach (Nov 15, 2012)

AltaRed said:


> As an aside, it will be interesting to look at MAW104 in comparison to VBAL in the next 5 years. MAW104 is now (June 30) at 70/30 with no ex-Canada bond component.


Does MAW104 vary their allocation over time? Somewhere between 60/40 and 70/30 ?

Or are they usually around 70/30 ?


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## SamR (Oct 9, 2021)

Sounds like several of you are strongly in favour of AA ETFs... despite the higher MERs... I suppose it's a matter of really simplifying things and buying something like VGRO at this stage of my life (still working for 12 to 14 years), then switching to something like VBAL (or its equivalent product) somewhere toward the middle or end of the 12 to 14 year period. 

KISS?!

Am I getting this straight?!


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## SamR (Oct 9, 2021)

AltaRed said:


> I expect the AA ETFs to suffer near term with the bond portion but these things have a way of working out over the longer term. To be discussed again when we look back at 5 and 10 year returns in 2025 and 2030 respectively. As an aside, it will be interesting to look at MAW104 in comparison to VBAL in the next 5 years. MAW104 is now (June 30) at 70/30 with no ex-Canada bond component.


Just looked at Mawer - MER is only .91% while VBAL is .24% - that's quite a big difference, is it not?


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## AltaRed (Jun 8, 2009)

It is a large difference. This is a rare(?) case where the higher costs of active management is beating passive indexing over periods of time. Is this a flash in the pan? Maybe, but they have been doing it rather consistently for long periods of time. From Morningstar it is a rare year where they underperform. 2016 was one of those years they underperformed both the "global neutral balanced" index and that category of mutual funds (3rd quartile). They have, however, achieved an 8.46% CAGR since Feb 12, 1988. Can they continue to do it? No one knows.

Re: post 21, I have never really looked over time at the AA of MAW104 to know if the current 70/30 is unusual or not. It's the first time I have noticed it.


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## Covariance (Oct 20, 2020)

AltaRed said:


> Re: post 21, I have never really looked over time at the AA of MAW104 to know if the current 70/30 is unusual or not. It's the first time I have noticed it.


Their fund fact sheet expresses no limit or numerical target for asset mix. As an active fund this is not unusual.


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