Investment Workshop 06: Choosing your ETFs

Today we’re going to talk about Exchange Traded Funds, or ETF’s. But before we do, just a quick note to all our Workshop participants, by now you should be (hopefully) done setting up your Questrade or Vanguard accounts and funding them, as well as connecting them to our financial dashboard, provided by either Empower or Passiv. If not, that’s OK, you can still keep reading, but make sure you get that done soon or you won’t be able to make your first purchases.

In the last lesson, we went over how to pick our overall top-level asset allocation: equities and fixed income. This will generally determine your long term investment gains as well as your overall portfolio volatility. For this workshop we will be using the same 60% equity/40% fixed income portfolio we used to retire, but based on your own investment timeframe and spikiness-tolerance, you may choose to go more or less aggressive than this.

As we’ve written about before, passive index funds tend to massively outperform actively managed funds over the long term. Active funds pay fund managers to try to outperform the market, but since you don’t really know which funds are going to outperform versus underperform, your odds of picking a fund that actually beats the index are vanishingly small, especially after taking into account the fees that go towards paying that manager. It’s far easier and more reproducible to simply track the index and buy the entire market.


In Canada, the main companies providing good, high-quality ETFs are Vanguard, iShares, and, surprisingly, BMO. Yeah, I know, I was surprised too. The big 6 banks in Canada are known for high-fee rip-off mutual funds that they constantly try to trick unsophisticated customers into signing up for so their salespeople get to collect commissions, but BMO’s ETF offerings are actually really good.

Here are the main asset classes that we’re going to track and the ETFs that track them. In each entry, the fund’s Management Expense Ratio (MER) is also shown in the brackets.

Asset ClassVanguardiSharesBMO
BondsVAB (0.09%)XBB (0.1%)ZAG (0.08%)
Canadian EquityVCN (0.05%)XIC (0.06%)ZCN (0.06%)
US EquityVUN (0.17%)XUU (0.07%)ZSP (0.09%)
International EquityVIU (0.23%)XEF (0.22%)ZEA (0.22%)

All these ETFs track the same indexes, so they’re pretty much equivalent in terms of performance, so it doesn’t really matter which ones you pick. You can stick with one company, or mix-and-match, it doesn’t matter since you can hold any ETF you want in your brokerage account.

You can also see how low the fees are on these funds. Canadian mutual funds are among the highest in the developed world, and the average equity mutual fund charges around 2.5%! So fees in the 0.1-0.2% range is an insanely good deal.

Next, we need to match up our index funds with the allocations we’ve selected.

What we want to do here is have a globally diversified portfolio, meaning we don’t want to put our money into any one country just in case a meteor hits it, or whatever. So we want to spread our bets across as many geographic regions as possible.

Because it’s so difficult to predict if one region will outperform another in any given year, we just split our equity portion equally between Canada, US, and International markets. Then over time, as one region outperforms, you sell some of it off and buy more of the regions that are underperforming. This basically accomplishes the “buy low, sell high” mantra of stock investing, and we will talk about this more in future installments of the workshop.

Here’s what a globally diversified portfolio would look like for a Canadian investor.

BMO Aggregate Bond Index ETFZAG40%0.08%
Vanguard FTSE Canada All Cap Index ETFVCN20%0.05%
iShares Core S&P U.S. Total Market Index ETFXUU20%0.07%
iShares Core MSCI EAFE IMI Index ETFXEF20%0.22%

The overall MER for this portfolio is just 0.1%. Amazing, isn’t it?

In picking the ETFs that I did, I simply chose the ones with the lowest fees. In previous iterations of the workshop, I realize I used slightly different ETFs (Vanguard’s VUN vs. iShares’ XUU, for example), but don’t worry about the differences because all these ETFs are basically the same. The minor difference in MERs really isn’t enough to warrant changing anything, so if you’re using any of these funds, it’s all good.

This portfolio is very similar to the portfolio we built when we started investing towards FIRE, so we know it works. The big difference is that back then, these ETFs didn’t exist so we had to use mutual funds instead, so from that sense, you should actually do better than we did since these funds are even better than the ones we had to work with.

And as always, feel free to tweak and add your own spin to whatever portfolio you end up designing. For example, if you’re bullish on America and believe the US will outperform other countries, you may want to shift equity towards the US index, like so:

BMO Aggregate Bond Index ETFZAG40%0.08%
Vanguard FTSE Canada All Cap Index ETFVCN15%0.05%
iShares Core S&P U.S. Total Market Index ETFXUU30%0.07%
iShares Core MSCI EAFE IMI Index ETFXEF15%0.22%

However, please know that any guess about any particular region’s outperformance over any other is just that. A guess. So if you want to stake out a position on a particular region, don’t shift any asset class too much off a neutral stance or you risk being caught off guard and getting blown up if you turn out to be wrong.

And now let’s move on the Americans…


The American equivalent of this portfolio would be the Three Fund Portfolio pioneered by none other than John Bogle, founder of Vanguard and the pioneer behind Index Investing as an investment strategy. This guy knows what he’s doing, so for our American readers, we will be following his guidelines.

The Three Fund Portfolio basically states that you only need 3 funds tracking 3 asset classes: Bonds, US Equities, and International Equities, with the US and International Equities split equally between them.

There are many ETF providers in the US, but Vanguard is among the best and lowest-cost ones out there, plus by sticking to Vanguard ETFs in your Vanguard account, you won’t have to pay any transaction fees, so let’s keep things simple and go Vanguard-only. For a 60/40 equity allocation, this is what our portfolio would look like:

Vanguard Total Bond Market ETFBND40%0.03%
Vanguard Total Stock ETFVTI30%0.03%
Vanguard FTSE All-World ex-US ETFVEU30%0.08%

Total MER: An even more astoundingly low 0.045%!

Note that these are the Vanguard ETF versions of funds that many FI-ers like JL “The Godfather” Collins uses (VTSAX being the most famous one). The only difference is that VTSAX requires a minimum investment. of $3,000, while the ETF doesn’t, but other than that they’re the same thing.

This allocation is, once again, a region-neutral allocation that doesn’t make any strong statement about US performance vs. International equities. Again, if you are bullish on the US, go ahead and shift some allocation away from VEU towards VTI. Another argument for a higher allocation towards US equities comes from fellow Early Retiree JL Collins, who writes that because so many US companies are multinationals, you are getting more International exposure than you think through VTI. You can read his very good article on it here:

If that argument makes sense to you, you may want to pivot towards US equities like so:

Vanguard Total Bond Market ETFBND40%
Vanguard Total Stock ETFVTI40%
Vanguard FTSE All-World ex-US ETFVEU20%

But again, if you take a position one way or another don’t move too far away from a neutral stance so you don’t get blown up if you’re wrong.


OK so now that we have our ETF picks ready to go, next we will discuss our buying schedule. Namely, we will discuss the impact of lump-sum investing versus Dollar-Cost-Averaging as it relates to the current investing environment.

Onto the next section!

Go back to the previous section


How much does it cost to participate in the Investment Workshop? NOTHING. Because that's how we roll. All we ask is that you sign-up using the following affiliate links to keep it free forever:

For Canadians:

1) Questrade

2) Passiv

For Americans:

1) Vanguard

2) Empower

Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.

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