Canadian versions of lazy portfolios

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Canada flag.png This page contains details specific to investors in Canada. However, it does not apply to residents of Canada who are also United States (US) citizens or US permanent residents.

Lazy portfolios are designed to perform well in most market conditions. Most contain a small number of low-cost funds that are easy to rebalance. They are "lazy" in that the investor can maintain the same asset allocation for an extended period of time, as they generally contain 30-40% bonds, suitable for most pre-retirement investors.

Canadian versions of lazy portfolios

Below are a few examples of lazy portfolios (also called simple portfolios) that can be utilized by Canadian domiciled investors.

Three ETFs

The three-ETF portfolio is recommended for its simplicity and diversification.

Three-ETF portfolios consist of Canadian bonds, Canadian stocks and global stocks. Here we show an example[1] using TSX-traded ETFs from Vanguard Canada:

Asset Class ETF Amount
Domestic stocks Vanguard FTSE Canada All Cap Index ETF (VCN) 25%
Global stocks Vanguard FTSE All World ex Canada Index ETF (VXC) 25%
Domestic bonds Vanguard Canadian Aggregate Bond Index ETF (VAB) 50%
Vanguard Canadian 3-Fund Portfolio.png

Suitable alternatives from other vendors for two of the three ETFs in the table above are mentioned in the following pages: Canadian bonds and Canadian equities. For global stocks, VXC currently has few competitors on the TSX. There are US-listed options for the global equity ETF, such as VT, but they include a small percentage (3-4%) of Canadian equities.

This 3-fund portfolio may appear overly simplistic. Certainly the brokerage statements will look very boring. Yet this portfolio has the following characteristics:

  • Exposure to over 500 Canadian bonds (terms of 1 to over 25 years; credit ratings covering the full investment grade spectrum, include government and corporate bonds)
  • Exposure to nearly 250 Canadian stocks covering large-, mid- and small-capitalizations
  • Exposure to thousands of large- and mid-capitalization stocks from other developed and emerging markets
  • Will be very easy to rebalance
  • Weighted average management fee of 0.14% (December 2014), full MER will be a few basis points higher
  • No currency exchange fees for ETF transactions using Canadian dollars
  • No currency hedging of global equities

Model portfolios maintained by Canadian Couch Potato use the same three ETFs as in the example above, with a range of fixed income from 10 to 70% of the portfolio. For equities, his Canadian:Global mix is 1:2 instead of 1:1.

Four index funds

The four index fund portfolio is recommended for investors not wishing to open a brokerage account.

Simple index portfolios with four index funds include Canadian equities, US equities, EAFE Equities, and Canadian bonds. The following table is an example of a simple index portfolio built with "FPX Balanced" allocations, using four TD e-funds as a example of low-cost index mutual funds:


FPX Balanced Four-index funds Portfolio
Asset Class ETF Amount
Domestic stocks TDB900 (TD Canadian Index Fund - e) 25%
International stocks TDB911 (TD International Index Fund - e) 15%
US stocks TDB902 (TD U.S. Index Fund - e) 10%
Domestic bonds TDB909 (TD Canadian Bond Index Fund - e) 50%
FPX Balanced Four-index funds.png


Further discussion of this example is found in Building a portfolio, including links to index mutual funds from other vendors.

Model portfolios maintained by Canadian Couch Potato use the same four index funds as in the example above, with a range of fixed income from 10 to 70% of the portfolio. For equities, his Canadian:US:International mix is 1:1:1. The model with 40% bonds is traditionally known as the Global Couch Potato portfolio from MoneySense[2][3]

Four ETFs

Simple index portfolios with four ETFs include Canadian equities; US equities; EAFE Equities; and Canadian bonds. Sticking with our 50:50 mix of equities and fixed income, using the FPX Balanced index to allocate equities, and using BMO etfs for illustration purposes, we get:

FPX Balanced Four-ETF Portfolio
Asset Class ETF Amount
Domestic stocks ZCN (BMO S&P/TSX Capped Composite Index ETF) 25%
International stocks ZEA (BMO MSCI EAFE Index ETF) 15%
US stocks ZSP (BMO S&P 500 Index ETF) 10%
Domestic bonds ZAG (BMO Aggregate Bond Index ETF) 50%
FPX Balanced Four-ETF Portfolio.png

Equivalent ETFs from other vendors could also be used, and are listed in the following pages: Canadian bonds, Canadian equities, US equities and International equities.

Canadian asset class returns

Canadian Equity Returns [note 1]
Year Nominal return Inflation-CPI Real return
2018 -8.40% 1.99% -10.68%
2017 9.10% 1.87% 7.10%
2016 21.10% 1.50% 19.31%
2015 -8.30% 1.61% -9.75%
2014 10.60% 1.47% 9.00%
2013 13.00% 1.24% 11.62%
2012 7.20% 0.83% 5.53%
2011 -8.70% 2.30% -10.75%
2010 17.60% 2.35% 14.90%
2009 35.10% 1.32% 33.34%
2008 -33.00% 1.16% -33.77%
2007 9.70% 2.38% 7.15%
2006 17.30% 1.67% 15.37%
2005 24.10% 2.09% 21.56%
2004 14.50% 2.13% 12.11%
2003 26.70% 2.08% 24.12%
2002 -12.40% 3.80% -15.61%
2001 -12.60% 0.72% -13.22%
2000 7.40% 3.20% 4.07%
1999 31.70% 2.63% 28.33%
1998 -1.60% 1.00% -2.57%
1997 15.00% 0.78% 14.11%
1996 28.30% 2.16% 25.59%
1995 14.50% 1.74% 12.54%
1994 -0.20% 0.23% -0.43%
1993 32.50% 1.65% 30.35%
1992 -1.40% 2.17% -3.49%
1991 12.00% 3.75% 7.95%
1990 -14.80% 4.99% -18.85%
1989 21.40% 5.26% 15.33%
1988 11.10% 3.88% 6.95%
1987 5.90% 4.19% 1.64%
1986 9.00% 4.21% 4.60%
1985 25.10% 4.40% 19.83%
1984 -2.40% 3.72% -5.90%
1983 35.50% 4.59% 29.55%
1982 -5.50% 9.27% -13.52%
1981 -10.20% 12.12% -19.91%
1980 30.10% 11.06% 17.14%
1979 44.80% 9.76% 31.92%
1978 29.70% 8.60% 19.43%
1977 10.70% 9.40% 1.19%
1976 11.00% 5.63% 5.08%
1975 18.50% 9.42% 8.30%
1974 -25.90% 12.65% -34.22%
1973 0.30% 9.38% -8.30%
1972 27.40% 5.16% 21.15%
1971 -8.00% 4.93% -12.22%
1970 -3.60% 1.00% -4.55%


Canadian All Bond Returns
Year Nominal return Inflation-CPI Real return
2018 1.40% 1.99% -0.58%
2017 2.50% 1.87% 0.62%
2016 1.70% 1.50% 0.20%
2015 3.50% 1.61% 1.86%
2014 8.80% 1.47% 7.22%
2013 -1.20% 1.24% -2.41%
2012 3.60% 0.83% 1.99%
2011 9.70% 2.30% 7.23%
2010 6.70% 2.35% 4.25%
2009 5.40% 1.32% 4.03%
2008 6.40% 1.16% 5.18%
2007 3.70% 2.38% 1.29%
2006 4.10% 1.67% 2.39%
2005 6.50% 2.09% 4.32%
2004 7.10% 2.13% 4.87%
2003 6.70% 2.08% 4.53%
2002 8.70% 3.80% 4.72%
2001 8.10% 0.72% 7.33%
2000 10.20% 3.20% 6.78%
1999 -1.10% 2.63% -3.63%
1998 9.20% 1.00% 8.12%
1997 9.60% 0.78% 8.75%
1996 12.30% 2.16% 9.93%
1995 20.70% 1.74% 18.64%
1994 -4.30% 0.23% -4.52%
1993 18.10% 1.65% 16.18%
1992 9.80% 2.17% 7.47%
1991 22.10% 3.75% 17.69%
1990 7.50% 4.99% 2.39%
1989 12.80% 5.26% 7.16%
1988 9.80% 3.88% 5.70%
1987 4.00% 4.19% -0.18%
1986 14.70% 4.21% 10.07%
1985 21.20% 4.40% 16.09%
1984 14.70% 3.72% 10.59%
1983 11.50% 4.59% 6.61%
1982 35.40% 9.27% 23.91%
1981 4.20% 12.12% -7.06%
1980 6.60% 11.06% -4.02%
1979 2.50% 9.76% -6.61%
1978 1.00% 8.60% -7.00%
1977 5.90% 9.40% -3.20%
1976 15.30% 5.63% 9.15%
1975 -0.20% 9.42% -8.79%
1974 7.90% 12.65% -4.22%
1973 2.40% 9.38% -6.38%
1972 2.00% 5.16% -3.00%
1971 9.60% 4.93% 4.45%
1970 22.70% 1.00% 21.49%
Canadian Real Return Bonds[note 2]
Year Nominal return Inflation-CPI Real return
2018 0.00% 1.99% -1.95%
2017 0.70% 1.87% -1.15%
2016 2.90% 1.50% 1.30%
2015 2.80% 1.61% 1.17%
2014 13.20% 1.47% 11.56%
2013 -13.10% 1.24% -14.16%
2012 2.90% 0.83% 1.30%
2011 18.30% 2.30% 15.64%
2010 11.10% 2.35% 8.55%
2009 14.50% 1.32% 13.10%
2008 0.40% 1.16% -0.75%
2007 1.60% 2.38% -0.76%
2006 -2.90% 1.67% -4.49%
2005 15.20% 2.09% 12.84%
2004 17.50% 2.13% 15.05%
2003 13.20% 2.08% 10.79%
2002 15.30% 3.80% 11.08%
2001 0.60% 0.72% -0.12%
2000 16.60% 3.20% 12.98%
1999 8.00% 2.63% 5.23%
1998 6.00% 1.00% 4.95%
1997 4.70% 0.78% 3.89%
1996 11.70% 2.16% 9.34%
1995 16.70% 1.74% 14.70%
1994 -13.70% 0.23% -13.90%
1993 18.80% 1.65% 16.87%
1992 3.90% 2.17% 1.69%

Notes

  1. Canadian equities are represented by the TSE Composite Index. Asset returns source for all tables:Periodic Table of Annual Returns for Canadians, Stingy Investor; Canadian CPI data source:Historic inflation Canada – Historic CPI inflation Canada, inflation.eu, Retrieved 21 December 2012. See: Canadian asset class returns (finiki)
  2. Real return bonds are bonds issued by the Government of Canada and/or certain provincial governments that are indexed to inflation. See: Real Return Bonds (finiki). Conventional (also called nominal) bonds are not indexed to inflation. See: Conventional Bonds (finiki)

See also (finiki)

See also

References

  1. Re: Simple Portfolios 2014, Financial Wisdom Forum discussion.
  2. Duncan Hood and Ian McGugan, MoneySense, Couch Potato Portfolio: Introduction, April 5th, 2006, viewed December 31, 2014
  3. Duncan Hood and Ian McGugan, MoneySense, Couch Potato Portfolio: Meet the potato family, April 5th, 2006, viewed December 31, 2014

External links