This is your guide to easy index fund investing, a way of maximizing return and minimizing risk when investing in the stock market.
FYI: In order to create an ETF index fund portfolio, as discussed in this post, you need a brokerage account. I use Questrade, because it’s FREE to buy ETFs. Keeping trading fees low has been an integral part of helping me build wealth investing. If you’re ready to get into the market and start investing, I strongly recommend opening a TFSA, RRSP, or unregistered account with Questrade to get started!
Easy Index Fund Investing
The Canadian Couch Potato index investing strategy now only consists of three funds:Â VXC.TO, VCN.TO, and VAB.TO
Your allocation in these three funds is determined by your risk tolerance. You can take a peek at the different breakdowns of the suggested allocations here.
The old allocations held more ETFs — XRB.TO, ZRE.TO, VXUS.TO, WTI.TO, plus the ones that listed above that make up the new Couch Potato Strategy — depending on your risk tolerance and portfolio size. Reducing the couch potato to just three funds seems like a big change, but it’s actually just minimized the portfolio’s risk while keeping more or less the same exposure to the market.
Some people will wonder, “can I have an adequately balanced investment portfolio with only 3 funds?”
The answer is YES.
The funds suggested by the CCP break down as follows:
- VXC.TO – International Equity (everything except Canada)
- VCN.TO – Canadian Equity
- VAB.TO – Canadian Bonds
From that you can see you will hold both stocks and bonds in your portfolio, and have both local and international exposure. You can modify how much you hold in each based on what kind of investor you are. For example, if you are a more conservative, risk-averse investor, you will choose to invest more in VAB, the Canadian bond fund. If you are an aggressive, risk-tolerant investor, you will invest more in VCN and particularly VXC.
In order to minimize taxes, you will want to keep VXC out of your TFSA, and only hold VAB and VCN. You can hold any of the funds in your RRSP.Â
In addition to axing a bunch of the suggested ETFs, the couch potato strategy has changed in how much it suggests you have in the bank for each investment.
If your portfolio size is….
$0 to $50,000 – The Tangerine Investment Funds (which I also mentioned in my previous post about index funds) are your best bet. These are well balanced index portfolios with very low fees. I have been investing in Tangerine funds for as long as I’ve been banking with Tangerine (over 5 years) and they’ve been fantastic for balance and return.
over $25,000 –Â The TD e-Series funds. The CCP actually suggests four different e-series funds for a balanced portfolio. You can view them here. I have personally never used the TD e-Series funds myself, but I know other bloggers do (like Save Spend Splurge and Krystal of Give Me Back My Five Bucks)Â and they have nothing but good things to say about them. It sounds like they’re a little tricky to set up, but once you get going they are very easy to manage.
over $50,000 –Â The ETFs listed in this post. Initially ETFs were suggested only for people with big portfolios, then over the past few years they became trendy for everybody, and now it looks like we’re swinging back to big money again. I started investing without $50K and nothing blew up in my face, but I think the real caution here is because ETFs can be expensive to trade. However, I use Questrade which lets you purchase ETFs for nearly free (usually costs me $0.01 to $0.03 to make a trade). For this reason, it’s relatively affordable to recreate the CCP strategy with less than $50K.
For most investors, the CCP is the perfect portfolio — even though it seems dead simple with only 3 funds, it is really perfect. Others like myself might want a little more “fun” in the market, and use the CCP as a foundation then opt to buy more specific ETFs or common stocks. As an MBA in Finance I can’t help but want to play the market a little, so I allocate some of my portfolio to my own investment strategies, but the heart of it is still the CCP approach
15 Comments. Leave new
The new portfolios came out right when I had decided to drop my high MER funds. Then I saw that my funds had outperformed the portfolio and now I’m trying to talk myself into i!
Lazy portfolio FTW!!! I too have a desire to play the market but I just remember that I cannot win. And my brain is better put to work create wealth rather than trying to exploit the $$ I already have. 🙂
AMEN. I cannot beat the market… though it is fun to play. Love lazy portfolios to protect my bottom line while still letting me capture market gains.
Hi Bridget,
I am about to invest about $80,000 in ETF’s and will most likely stick with the CCP model portfolio with the 3 funds outlined above. The one thing I am not sure about is what kind of tracking/record keeping I need to do for each of the funds. If I keep all my ETF’s in either my TFSA or my RRSP do I have to worry about the adjusted cost base? I would love it if you outlined what kind of record keeping system you use. Thanks!
K
Questrade actually does a great job itself. It will plot your investment term over time, and you can always view your account history if you want to see your transactions.
I keep minimal records — just my year to date contributions to my TFSA and RRSP to make sure I don’t go over (and make sure I only keep Canadian holdings in my TFSA). As long as I know where I’m at with contributions, and Questrade is tracking transactions, there’s nothing else you need to keep records of because it will all be done in the website.
I also manage all my finances in a mac app called Money by Jumsoft. I record my trades in there and it keeps track of my portfolio as well. I still have t know my RRSP/TFSA contributions limits but other than that there’s nothing else to manage.
Why only Canadian holdings in a tfsa?
I just switched to ETF’s from e-Series and it was nice that it’s even simpler now with just 3 funds.
Yeah it is so easy. I think it’s awesome — so many people are intimidated by the stock market and this is a great straightforward approach.
My money is still kicking it in Tangerine’s investment funds (still below $50K) and think I’ll stay there for a while. Saw a good return last year and it was just too easy to save my money with them! I do like that Dan’s index fund portfolio suggestions got simpler, though. Maybe one day you’ll see me buy an ETF… 😉
The Tangerine funds are NOT bad honestly — though one of my finance professors vehemently disagrees with me. They are accessible, affordable, and deliver decent returns.
I LOVE the flexibility + low fees of ETFs. They are better than mutual funds but that doesn’t mean you’ll do badly with mutual funds.
You will be a CCP convert yet, I’m sure of it!
Couch potato portfolio definitely works in the long term! I love VXC and VCN a lot although I have VCE and VTI as my main portfolio.
Super interesting. I still haven’t made the plunge into ETFs….I still like investing in individual stocks too much. I am definitely going to consider that international equity one though, it’s hard to get exposure to global markets without an ETF.
Hmm.. I don’t think I’m convinced. I want at least 4 funds, the 4th one to represent the U.S. Canada, U.S. and International. In fact, 5 would be ideal.. then I could split between International (ex North America) and Emerging Markets.
Hi Bridget,
Can you expand on the tax-saving measures behind keeping VXC out of a TFSA versus an RRSP?
Thank you,
Patty
Can you explain why there would be taxes for the vca in a tfsa? Ie “in order to minimize taxes” you’d want to keep vca out of the tfsa?