Model Portfolio: ETFs
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For investors who don’t have the inclination or time to study the stock market, there is a terrific alternative that is easy, cheap and tax-efficient: buy a basket of low cost Exchange Trade Funds (ETF). An ETF is a security that tracks an index, such as the TSX 60 and S&P 500. You can trade them just like regular stocks through your brokers. Many studies cite the vast majority of actively managed mutual funds have under-performed their passive counterparts. Personally, I’m not a believer in the Efficient Market Hypothesis, but ETFs have other merits. For one, you can easily diversify across the entire globe with a few simple mouse clicks. Secondly, ETFs are many times cheaper than actively managed mutual funds. Thirdly, ETFs’ low turnover rates allow your portfolio to compound tax-efficiently.
Just for fun, I assembled this passive model portfolio consisting of 100% ETFs. The weighted average Management Expense Ratio (MER) is a rock bottom 0.1535%, instead of 2%-2.5% for most other actively managed mutual funds! I’ll be using Morningstar.ca to track and report the portfolio return once a month or so.
| ETF | MER | Purchase Price (C$) |
Shares |
Current Price |
Market Value |
Weighting |
| iShares S&P/TSX 60 (XIU) | 0.17% | $77.800 | 642 | $77.800 | $49,947.60 | 50% |
| Vanguard Total Market (VTI) | 0.07% | $164.083 | 151 | $164.083 | $24,776.47 | 25% |
| Vanguard Paicific (VPL) | 0.18% | $78.364 | 127 | $78.364 | $9,952.29 | 10% |
| Vanguard European (VGK) | 0.18% | $83.574 | 119 | $83.574 | $9,945.28 | 10% |
| Vanguard Emerging Markets (VWO) | 0.30% | $93.004 | 54 | $93.004 | $5,022.24 | 5% |
| Portfolio | 0.1535% | n/a | n/a | n/a | $99,643.88 | 100% |
Some awesome links on ETFs: