Are you wondering what to do with this year’s TFSA or RRSP contribution? Perhaps you are looking to switch out of some crappy bank mutual funds? I have three great picks you should consider and some thoughts on timing.
(Spoiler Alert: If you have read the Beat the Bank, you won’t be surprised that my “Top Picks for 2019” were among my favourites last year and may be again next year!)
Everyone’s circumstances are different and I don’t know yours so these picks may NOT be right for you. But if you are investing for the long term through an online brokerage account and want to keep it super simple, I suggest you consider one of Vanguard’s “Asset Allocation” ETFs (VCNS, VBAL and VGRO).
These brilliantly simple “balanced” ETFs are highlighted on pages 176-177 of Beat the Bank. If one of these ETFs matches your desired stock/bond split (discussed in Chapter 9), you could buy it now and keep adding to it over time. For instance, if your desired stock/bond split is 60/40, you could buy VBAL.
No investment is perfect and 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! There are lots of other simple “Assemble-It-Yourself” choices mentioned in Chapter 11 of Beat the Bank.
But how should you react to the wild, almost daily market swings we are experiencing? Should you invest now, later or get the hell out??
If you are a long-term investor and you are comfortable with your stock/bond mix, ignore the current market noise and carry on. The daily swings become meaningless in the long run. In terms of investing new money, the stats prove that the best time to jump in is usually as soon as you have the funds available. But if you are really nervous or will be investing a relatively large amount in the context of your overall portfolio, consider investing a chunk now and more later as described on page 141 of the book.
Your comments are always welcome!!
Larry
Hi Larry, So your “top picks” are?
VCNS, VBAL and VGRO
No banks?
Thanks for your comment Jackie. These balanced ETFs are such great, simple products. But yes, in terms of individual stocks, I like the big Canadian banks!
Greetings Mr. Bates and thank you for the work you do now trying to help individual investors to wake up at long last from the nightmares of <>.
I was wondering… I’m in the process of re-investing (from a mutual fund) my $200k rrsp through an online brokerage firm (this one being Investors edge). I thought at first to go with a balanced etf index funds portfolio as shown on the canadian potato coach site. About 60% equity and 40% bonds, so it would <> safer but now Im wondering if investing into so much bonds is indeed a good idea?
The investment might still go for 10 or maybe even 30 years, and that’s my problem cause I’m not sure when I am going to start to use it (other sources of retirement are expected). Should I just use it all up before 65 so I am not cutting other government money that comes after 65 years of age?
Also, I want to max my tsfa and I was wondering if a 70% stocks and 30% bonds was a good idea or if I should just have even less (like 10%) of bonds.
Thanks for your time Mr. Bates.
Thanks for your question Marc. Switching to lower cost investments will mean you keep more of your returns! I can’t really help you with the questions you ask re stock/bond split. It all depends on your preference, risk tolerance, time frame, etc., etc. Have a quick read of Chapter 9 again and if you need more guidance, perhaps consider one of the fee for service advisors mentioned on my website. Hope that helps a bit. Larry
Hi Larry. Read your book, it was great. Handing it off to friends and family now.
I’ve been quite interested in the Vangaurd Asset Allocation ETF’s and am considering moving over to them completely. Just looking into the risks at the moment.
I’m wondering if you are at all worried about the Canadian banks exposure at the moment? There is an increasing trend to short these big banks which could prove justified if we have a housing market crash.
Thanks
Thanks for your question Eric. There is always risk in holding stocks including the big banks. They dropped by 40% or so during the crisis. And there are always critics. But I think they make sense as part of a diversified portfolio. Hope that helps. Larry
Hi Larry, I just started reading your book and so far, i found it very interesting and a pretty easy read. Quick question if I may: do any of the Vanguard VCNS, VBAL or VGRO make sense for a taxable account? I have maxed out TFSA, RRSP and have a fair bit in a taxable account. I am looking for an easy, cost efficient yet well diversified solution.
Thank you, Joe
Thanks for your question Joe. Yes, those ETFs are completely fine for taxable accounts. But, like any other investment, interest, dividends and gains on sale of securities within the fund will be taxable. Hope that helps. Larry
THANK YOU . MUCH APPRECIATED!
Thank you so much for the book “Beat The Bank”. I am close to finishing it and I plan to read it at least 3 times. As a young person in my early 20s, I find this book to be a guide that would be of great value to me and I will keep recommending it to all my colleagues. Thank you so much Mr. Bates.
Your Biggest Fan,
Priscilla S.
Thank you for answering my question Mr Bates,
One last thing I would ask of you is what do you think of the new 1 etf funds available from vangard, be it VGRO, VBAL or VCSN?
Would it be still better from the perspective of an AYS like myself to just choose one of them? Or go the more traditional way of creating my 3 or 4 low fee index portfolio etfs (as in the model of coach potatoe)? In my case, rebalancing once a year is not complicated, but if these new funds have the same costs over the long run (or approximately) I wonder.
ty
Check my most recent blog post……..you will see I am a big fan of Vanguard’s new balanced ETFs!
Mr Bates, I will order your book today and confident for the content.
Can you send me your web site or E-Mail to further communication?
I am an Ex Mutual Fund Dealer and very aware about the fees. I think a funds of Funds with Series F would be a compromise.
I am in beleave that a well diversiy portofolio is a good solution for a retired person like me.
Thank you or your response!
Richard Bergeron
Hi Richard. I hope you like the book. You can email me at larry@larrybates.ca.
Thanks for the suggestion Larry! But my question is , these Asset Allocation ETFs are relatively new, issued one year ago, does that matter? or we should choose ETFs that were established more than ten years with good reputation?
But Vanguard the largest and most experienced index fund manager in the world. I do not believe the fact these Asset Allocation ETFs are relatively new matters. Hope that helps.
Larry
I am just starting chapter 10. However, if I only have 5 years to retirement what is my best plan of action? Thanks,
Hi Judy. First I suggest finishing the book. It is not possible for me to give you specific advice but if I can clarify anything in the book please let me know. Thanks.
I just finished your book. A fantastic read. Thanks for taking the time and energy to put your ideas to print.
I have one question.
I’m retired and in my 81st year. Do you think i can benefit from your suggested Equity ETF’s by Vanguard or should I stick to a more Bond weighting?
Thanks for your consideration.
Very glad to hear you liked the book Gary! I can’t give you personal advice but I have a couple of comments. Probably the most important decision for investors is the mix of stocks and bonds. With age and need to draw down funds for living expenses, bonds and other fixed income investments usually become a bigger part of portfolios. But some older folks who aren’t counting on investment income to cover expenses can afford to be more aggressive. Your desired mix of stock and bonds can be achieved through low cost ETFs. GICs might also be a good choice for some or all of the “bond” portion of your portfolio. Hope that helps a bit.
Larry
Hi Larry,
Just reading your book now…love the T-REX score! I understand that fees are critical to long term investing success, but having the actual numbers to play with is awesome! Would be fabulous to take this analysis a step further, with the ability to enter your annual contribution.
I know that the new Vanguard products are extremely diversified, and that Vanguard is a very reputable company, however, once you decide on your risk level, does it make sense to put your entire portfolio into one ETF? It shouldn’t seem scary, but somehow it is a bit unnerving to have all your assets in just one ETF.
Thanks!
Claudia
Thanks for your comments Claudia! Great question. Keep in mind that each Vanguard balanced ETF owns several underlying ETFs which in turn own thousands of individual stocks and bonds. So, I think that owning one ETF that matches your risk tolerance can be a great move. If you want to use more than one provider, BMO and iShares now offer similar balanced ETFs. Hope that helps.
Larry
hey Larry i just finished your book and would like to purchase VFV – Vanguard S&P 500 index ETF or VSP – Vanguard S&P 500 index ETF (CAD-Hedged) not sure what the CAD Hedged means.
I also plan to purchase this in my RRSP and plan on keeping it for the next 20-25 years?
What is your thoughts or suggestions?
Thanks Scott
Hi Scott. I think either can be a good choice depending on your circumstances. VFV is not hedged which means when C$ goes down your fund value goes up and vice versa. VSP is designed to produce the return of the S&P500 without being influenced by changes in the value of C$/US$.
Hope that helps.
Larry
Hello Mr Bates,
I almost finish your book and it is very instructive.
The ETF that you mention are not hedged, so we get the currency fluctuation risk.
Would it be better to just get ETF that are currency Hedged?
Does Hedging ETF really work for canadian?
Thank you very much for your opinion.
Thanks for your question David. Some ETFs which hold US or international stocks (like VSP) are hedged back to Canadian dollars which largely eliminates gains or losses arising from currency fluctuations. This would be advantageous if the Canadian dollar increases in value. Hope that helps.
Larry
All my taxable investments (about $750,00) are with CIBC Wood Gundy (mutual funds) which I feel are doing very poorly (1.85% average net/annum since inception 4 years ago, plus annual advisor fees).
1. Would a fee for service advisor analyse my current CIBC investments and compare them to some kind of benchmarks to objectively evaluate their performance?
2. I am thinking of moving the $ to Vanguard Balanced Fund ETF. Is this appropriate for such a large amount of money?
Thanks, Penny
Hi Penny. Thanks for your questions. Some fee for service advisors can certainly do that analysis for you. I can’t offer personal advice but a size-able investment in a high quality, low cost, balanced ETF can be just fine if it matches your needs. You may incur some capital gains tax if you sell the mutual funds but this will not have a major impact on your ultimate results over time. Hope that helps.
Larry
Hi Larry,
Just finished the book and decided to switch to AIY and/or robo. A question if I may ask: since the yield of bonds are really low, and it’s easy to find some high interest saving accounts with interest >2.4%, will it be better to use high interest saving accounts instead of bonds to balance the risks in short term or long term?
Thank you so much.
Amy
Hi Amy. High interest savings accounts are an excellent alternative to bonds. You just have to be aware of the government deposit insurance rules to make sure you are covered. See “Safe and Sound” on page 129 – it applies to all deposits including GICs.
Hi Larry,
May I ask how do you see the differences between those all-in-one ETFs from Vanguard, ishares and BMO? Do the slight differences in ETFs picking and MER make any of them stand out?
Thank you very much.
Amy
As long as you find one that matches your desired stock/bond split, they are all pretty good choices.
Hi Larry
Enjoyed your Book very much.
My wife has hers in RBF1660 through the Bank and has a return of 5.6%. The MER is 1.92%. Does the Bank advisor get a commission?? There is a similar fund RBF 1660 with MER of 0.9% and I am trying to figure out why the Bank advisor didn’t recommend that.
She is uncomfortable with doing her own investing so I am trying to talk her into switching to XBAL and XGRO All IN ONE ETF’s with low MER’s. They have thousands of holdings . Does this dilution dampen growth and alternately do they dampen losses during a recession??
Hi Rob. The banks only offer expensive versions of funds through branch advisors. The diversification of stocks in all-in-one ETFs doesn’t dampen growth. It is the percentage allocation to bonds that dampens both stock market gains and losses. XGRO will tend to be more volatile than XBAL. Hope that helps a bit.
Hi Larry, From what I’ve been reading about Couch Potato investing, those with small starting portfolios should consider TD e-series Mutual Funds – I’m sworn off of Mutual Funds after reading your book and just wondered if you could comment on this. I’m starting from scratch after using my RRSPs to buy back my maternity leaves!
Hi Sarah. Thanks for your question. I think TD e-series funds can be a good choice for those starting out with small portfolios. I would suggest also considering a robo advisor like WealthSimple or Questrade.
Larry
Hi Larry,
Just got done reading your book (great stuff) and was looking at the ETF’s on the BMO site and saw they have covered calls ETF’s. I have previously traded options- so understand the options part but see that the combined management expenses would mean a highly T-Rex score than say the ZCN ETF . However, the yield distribution more than covers the delta.
My question is, would a basket of covered call ETFs meet the intent of “Beat the Bank” philosophy?
Thanks, Jeff
Hi Jeff. Great question. I can only speak generally, not to your individual circumstances. I would say covered call ETFs do not fit the BTB philosophy. Given you have traded options you know covered call writing is a relatively low risk options strategy. Unlike some other options strategies, there is no risk of a big loss from the options themselves but you will likely miss out on sharp gains when they occur on the underlying stocks. I believe it is simpler and better to buy and hold great companies directly or through low cost index ETFs if your time frame is long.
Hope that helps a bit.
Larry