Well, 2020 was a wild year for investors! Markets will continue to bounce around but I hope the 2021 ride is not quite so bumpy. Alas, as always, we must expect the unexpected.
Top Picks
In both January 2019 and January 2020, my Top Picks were “all-in-one” ETFs of the type offered by Vanguard , RBC iShares and BMO. Every investment has risk but if you want a low cost, automatically balanced, globally diversified investment portfolio with one holding, these ETFs are hard to beat! For instance, if your desired stock/bond split is 60/40, you could buy VBAL.
Despite the crazy rollercoaster ride, these all-in-one ETFs delivered solid returns in 2020. For example, here are the Vanguard 2020 total returns:
VEQT (100% stocks): 11.29%
VGRO (80% stocks): 10.89%
VBAL (60% stocks): 10.24%
VCNS (40% stocks): 9.41%
VCIP (20% stocks): 8.43%
All-in-one ETFs continue to be great choices, especially for investor with portfolios under $500k who are fleeing ridiculously expensive “balanced” mutual funds. But I don’t want to be too boring so I won’t pick them three years running.
My Top Picks for 2021 represent one way to help address a difficult dilemma facing most investors: extremely low yields on bonds, GICs and “High” Interest Savings Accounts (“HISAs”). By the way, I propose that HISAs be renamed “LISAs” but I don’t think the banks will play ball. (The “L” in LISA stands for…….. Low, Lousy and Lamentable).
Short of buying junk bonds, the only way to have a shot at earning a decent return is to own stocks and all stocks are volatile. But, for those investors with a long-term time frame who can handle some increased volatility, modestly increasing stock allocation through diversified, high quality, dividend paying, “blue-chip” stocks may be worth considering. Why? Because, over the long run, owning profit generating companies with a history of earnings and dividend growth gives you a better shot at earning a return than bonds that yield 1%. And, in theory anyway, these stocks tend to be less volatile that the broader stock market. If this is of interest, consider these ETFs which hold blue-chip, dividend paying stocks:
Canadian Dividend Stock ETFs
USA Dividend Stock ETFs
Non-NA Dividend Stock ETFs
Before making a decision regarding any of these ETFs, take a close look and make sure you are comfortable with the composition, the fit with your overall portfolio and remember all stock ETFs are volatile. Also, note the Canadian stock ETFs are more concentrated given our much smaller market.
For a refresher on asset mix, I suggest a quick re-read of Chapter 9: “Mindset”.
Thank You!
Lastly, a special thanks to all of you who have recommended my book to family and friends. Because of you, thousands more Canadians are learning to Beat the Bank!
Wishing you all a better, brighter 2021!
Larry
Hi
1) I just spoke to a Manu life broker about paying transactional fees ie to buy an etf and pay for it outside of the purchase ie by cheque or credit card. He didn’t know if that is allowed and had to ask his superior. If I buy an etf for $1000 I want the full $1000 working for me. I don’t want it reduced by a trading fee. This is the message I have gotten from your book. Is this what you are advising re fees or are you only referring to percentage fees like mers and acct. fees
2) I have been examing etf returns from 3 ,5 and 10 years ago and am looking to create a buy and hold portfolio based on: ihi vgt ibi spy ita fda qqq qqqj etfs. All but Spy returned close to or more than 20% over the last ten years. I understand about future performance based on prior performance. What do you think of my picks?
Any comments are really appreciaed!
Don Cooper
Those ETFs represent sectors of the market that have been very hot over the past few years. As you said, that is not an indicator of future performance. If you only have small amounts to invest in ETFs, you must watch your costs. But some online brokers offer free purchases of ETFs. Search “best online brokers”.
Good luck.
Larry
I’ve had a hate-on for the financial industry for years, for the very reasons outlined in your book, but your book has given me a better vocabulary to articulate just why.
Question: my husband and I are in our 50s and finally reached a very fortunate position where our mortgage is paid off, our RRSPs are maxed, and our TFSAs are maxed. Now, if we have extra money to invest, it can’t be in any sort of tax protected vehicle. I started by investing in TD eFunds back when it all fit in an RRSP, but now I put more money into Vanguard either all equity or 60 stock/40 equity ETFs. It’s the new tax year, and we’ll be maxing our TFSAs and RRSPs again, and will likely have some money left over. Should I concentrate on Canadian stock ETFs for the savings that are not tax protected? Would there be any tax advantage in doing so?
Hi Barbara. Sorry for the slow reply! The main tax advantage of investing in Canadian stocks or stock ETFs is the favourable dividend tax rate. But a greater component of US stocks tends to be capital gains which incur the lowest tax. So there is no right answer. Generally speaking, go with what fits with your overall portfolio. Hope that helps a bit.
Hi Larry, I just read your book. Great read and I already taught the process to my friends without knowing you book yet! I am 100% behind the fundamental of your book. However, I dont agree with all you say about the mutual funds. You have to go where the return is. Let me give you some of my top picks for 2021 from Fidelity.
FID5973 which has done 89.58% in 2020. The MER is already being removed.
FID265 which has done 12.58% per year since 1994. 43.90% in 2020.
FID1298 which has done 16.66% per year since 2007. 55.78% in 2020.
Here is a small list. However, they are all almost 100% stocks. You mix one with ETF, stocks, bonds, etc. You know how it works!
Take a look at them!
Cheers
I agree William. Some mutual funds have performed extremely well. But past outperformance is not a good indicator of future performance.
My question is the same as Barbara, there are small number of mutual fund which have been keeping high performance in the past 5 – 10 years. If we look at those rate of return, it will be better the ETF, but of course, we have to spend some time to find them as there are not many. Is my understanding correct? E.g. FID1298. Really curious about the answer.
Hi Stacy. See my response to William.
Dear Larry,
I just read your book after discovering it at the Calgary Public Library where I work as a librarian. It was so refreshing to read a book from a Canadian perspective. I felt inspired and entertained as I read. I was moved by this sentence especially: “The structure and practices of the investment industry… compromises not only the financial well-being of individual Canadians, but the health of our retirement system and our society as a whole.” I feel deep appreciation of the values that guide this book. More than anything I feel thankful to be excited instead of anxious about investing. Heartfelt thanks to you, Larry Bates!
Thanks Jennifer!!!!
Larry; Loved the book. It was recomended by my sister-in-law and we both would text ideas back & forth while reading. In the past I had read John Bogle about beating the banks with TIF’s rather than ETF’s. Can you coment on the difference. Looking at covering S&P & TSX with indexing. Thanks for simplfying this.
Hi Rob. Glad you and your sister-in-law like the book! By TIF do you mean traditional index funds? Many leading ETFs (but not all) are also low cost index funds. Whether traditional or ETF low cost index funds, I think Bogle would approve!
hi larry
i enjoyed your book and webpage. I was wondering if you ever considered or know of a t-rex score which also factors in the dividends of given etf’s, stocks etc.
thanks in advance
Hi Chris. Glad you enjoyed the book! When you enter an assumed annual return in the T-Rex Calculator, that return assumption should include dividends. Does that answer your question?
Hi Larry, I just wanted to thankyou for your book.
You’ve increased my knowledge and given me courage and momentum!
BYE BYE Old BAY street! Hello New Bay street!!
Thanks again!
Thanks for the feedback Nathalie! Good luck!
Hi Larry,
I read your book when it first came out and made the change to all ETFs immediately. Thanks for taking the time to write it! I also bought and sent copies to our recently married young adult children and they and their spouses…..They are all on the ETF train now!
My wife and I have balanced our ETF portfolios (all registered) with 50% bond ETFs , and the remaining 50% split evenly between Canadian , US and International Stock ETFs.
Like many others, this pandemic prompted us to reflect on quality of life. We sold our urban home, moved to a rural setting and retired! I’m 59 and employer-pensioned, my wife is 55 and has transferred her employer-sponsored RSP and DPSP mutual funds to her existing ETF portfolio.
I’m wondering about our portfolio balance now. Should we bump up our allocation to bond ETFs to a larger percentage now that we are retired or stay the course. Your thoughts?
Thanks again, great book!
Thanks for the feedback Steve!!! And thanks for spreading the word. Your question is a good one. As I say in the book, choosing the right asset mix is your most important investment decision. Of course there is no “right” answer. It depends on a number of personal factors. But it doesn’t help that bond yields are so low!!! If you would like a recommendation for a fee-for-service planner who can provide some good advice just email me at larry@larrybates.ca.
I personally would buy H2O innovation undervalued you dont need ETF when you purchase h2o innovation
https://www.cantechletter.com/2021/05/h2o-innovation-is-undervalued-says-haywood/
Hello Larry. GREAT Book and Love your T-Rex calculator. I’m using your Book and T-Rex calculator to help educate the younger people in my life. I also believe in Financial Literacy for our younger generations and am doing as much as I can to help the cause.
My question is regarding the low yields for bonds and the potential future of low yields for bonds. You have highlighted some potential considerations of combatting this with dividend paying, “blue-chip” stocks, which coincidently I have been doing for my own portfolio (of course this is dependent on individual circumstances). Recently I have been bombarded by “Alternative” investments as a different solution to low yielding bonds. What is your view replacing low yielding bonds with “Alternative” investments?
Thanks Larry
Glad you liked the book and thanks for spreading the word and educating others!!! “Alternative investments” is a generic term that covers a host of different types of investments from hedge funds to infrastructure to mortgage funds, etc. The list goes on and on. Some are solid products but many are medium or higher risk investments dressed up to look like low risk, high return bonds. These usually come with loads of fees so watch out. That said, there is nothing wrong with moving some assets out of bonds if it fits with your overall comfort level but it is simply not possible to get higher yield without additional risk. Hope that helps a bit.
Hi Larry,
I am 21 and just started getting into investing fairly recently. I have saved up quite a substantial amount, and I want to put my earnings to work. I am looking at taking an AIY approach as you describe in your book ‘Beat the Bank’, which was very useful.
I see in your examples you always have the Canada allocation equal to the US. For example, 40% Canada, 40% US, 20% international. I was wondering, why not tilt the portfolio a little heavier towards the US ex. 50% US, 30% Canada, 20% international since the US market is more dominant in the world.
Also, I plan to use three ETFs: one for the US, one for Canada, and one for international markets. I will be maxing out my TFSA and adding $500/mo so as not to exceed my contribution limit. I will rebalance my portfolio annually. My goal is to achieve at least a 10% return to have over $1M in the account in 27 years. At some point I will probably add a bond ETF to the mix.
For the US S&P 500 ETF, I can’t decide between VFV and ZSP. I know they are essentially the same, however VFV is more expensive at around $107/share, and ZSP is cheaper at around $66/share. Therefore, say I went with 50% US stocks, 50% of $500 is $250. So, I would have a cash remainder of $52 with ZSP and $36 with VFV after the first month. Wouldn’t this mean that VFV is better in this case because I would have more invested and less on the sidelines? I know this would change over time as share prices increase, compounding my confusion. Won’t I also need to keep track of the remaining cash for each ETF and use it for subsequent months’ purchases to keep allocation correct?
Furthermore, if prices with VFV continue to rise at the current pace, this could put me in a situation where a share could cost more than $250 and therefore I could no longer purchase VFV shares without increasing my US allocation.
I have no background in business or finance, and realize I am probably overthinking this, but would love to hear what you have to say.
Hi Lucas. By starting to invest at such a young age, you are bound to do very well over time! Tilting your portfolio more toward the US market is perfectly fine. Having some surplus cash each month will always be the case. Just invest it the following month. Good luck Lucas!!!
HI Larry, I love you book. I have just turned 40 and new to Canada. Are you in process of publishing Larry’s Top Picks for 2022? Do you provide recommendation service for a fee? Is it possible that we can connect for 10-15 mins?
Hi Manish. Glad you like the book. I do not provide recommendations for a fee. If you have a few short questions email me at larry@larrybates.ca.