You now know what is inside an ETF, what it costs, and what mix you want. This module turns that into an actual portfolio. The good news is that a complete one needs between one and three funds.
An all-in-one ETF, also called an asset allocation ETF, is a fund that holds several other index ETFs in a fixed mix: for example 80% global stocks and 20% bonds. The fund rebalances itself back to that mix. You buy one ticker and you are done.
Providers offer a ladder of them, from conservative (mostly bonds) through balanced and growth to all-equity (100% stocks). In Canada these are widely used, with yearly fees commonly around 0.2%. In the US, target-date funds do a similar job and also shift toward bonds automatically as a chosen year approaches.
Pick the version whose stock and bond split matches the mix you chose in Module 4. That is the only real decision.
If you prefer to hold the pieces yourself, three broad index funds cover almost everything:
You choose the percentages. The reward is slightly lower fees and full control. The cost is that you must rebalance, which is Module 7.
Example. Your targets are 30% domestic stocks, 50% international stocks and 20% bonds. You contribute $1,000. You buy $300, $500 and $200.
Home bias is holding far more of your own country’s stocks than its share of the world market. Canada is only around 3% of global stock market value, yet many Canadian portfolios hold 30% or more in Canadian stocks.
Some home bias is reasonable. You spend in your home currency, and Canadian dividends receive favourable tax treatment in taxable accounts. But the Canadian market is concentrated in banks, energy and materials, and light on technology and health care. Too much of it means your savings and your job may depend on the same few sectors.
For US investors the picture is different: the US is well over half of the global market, so a US-heavy portfolio is closer to the world weight. International funds still add thousands of companies you would not otherwise own.
More funds does not mean more diversification. Common mistakes:
Before adding any fund, ask: what does this hold that I do not already own? If the answer is “not much”, skip it.
Educational purposes only; not financial advice. Any funds, tickers and figures are illustrative examples, not recommendations. Fees, tax rules and contribution limits change, so confirm current details with the fund provider and your tax authority. Worked examples use constant returns and are not forecasts. Written by Elizabeta Dimoska. Always do your own research and consult a licensed advisor.