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: 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.
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 – 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) 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 – 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