DIY Investing

Hello everyone. Are you ready for a crash course in understanding exchange-traded funds (ETFs)? Today, we’ll kick things off by popping the hoods on a sporty collection of Canadian equity ETF solutions for your portfolio’s domestic stock allocation.

Most investors accept that small-cap stocks have outperformed large-cap stocks over the long-term. This “size effect” was the first market anomaly to challenge the single-factor, capital asset pricing model. Unfortunately, as I’ll explain in this post, I’m unaware of any funds currently available to a DIY investor that DO properly apply the small-cap effect.

If you’re hoping I’m going to tell you how to successfully pick winning stocks, you might as well shift your attention elsewhere. Instead, I’m going to show you the evidence on just how risky it is to even try.

If there’s an overnight success story to be savored from 2018, it would be Vanguard’s Asset Allocation ETFs. Since their launch earlier this year, their combined assets under management have already exceeded $800 million. What’s not to like about gaining access to a low-cost, self-rebalancing globally diversified portfolio with the click of a mouse?

If you’ve stuck with me through my last three asset location blogs, congratulations. Don’t ever let some sissy Iron Man Triathlon champion tell you they’ve got more endurance than you do. The good news is, we’re nearing the end.

When TFSAs were launched in 2009, investors were thrilled with their new tax-free growth potential. However, the new account type also created another asset-location decision to wrap our heads around. We’ve already explored the impact of asset location between TFSAs vs. RRSPs, as well as between RRSPs vs. taxable accounts.

One of the most common questions I receive from investors is whether it’s more tax-friendly to hold equities in their RRSP or taxable accounts first. In this comparison, I’m about to demonstrate that your post-tax asset allocation and asset location both determine your post-tax portfolio value in approximately equal measure – unlike in our TFSA vs. RRSP scenarios.

There’s never a lack of free advice in this world. If you’re determined to get in shape, for example, you can find any number of infomercials touting THE fitness equipment, diet plan or video series guaranteed to give you Zac Efron’s six-pack abs … or your money back.

You know that old saying about how watched pots never boil? That may be true in the kitchen, but your well-managed ETF portfolio still needs a watchful stir now and then if you want it to keep simmering along according to plan. That’s what rebalancing is for.

Hang out at a gym for long and, someone will probably ask you: “How much can YOU bench press?” Or is that mostly a guy thing? In any case, investors have a similar custom. Of course we want to know our own rate of return.