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Model Portfolio: ETFs


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: