These ETFs give investors access to globally diversified portfolios of various ratios of equities and bonds at a low expense ratio of 0.24% or less.
With the launch of Asset Allocation ETFs in Canada, investing and portfolio management is made easy by simply buying more on a regular basis and reinvesting your distributions. That said, Canadian investors willing to sacrifice simplicity can gain further cost savings and diversification by building customized portfolios of ETFs. Here’s a handy step-by-step guide.
determine investment policy
Investment professionals typically recommend the services of a paid Certified Financial Planner (CFP) throughout the investment policy statement (IPS) development and portfolio construction process. His fee-only CFP avoids the common mistakes DIY investors make (high fees, poor tax efficiency, lack of diversification, etc.), optimizes for individual goals and risks, and delivers healthy levels of We have the expertise to provide ethical assurance. Compared to financial advisors who charge based on a percentage of assets under management (AUM), fee-only financial planners have less incentive to prioritize sales or promote inappropriate investment products.
However, a Canadian investor operating independently can still build an effective IPS. Think of it as a living document that defines the overall objectives and constraints of your investment portfolio. There is no universal template for what an IPS should have, but it generally includes:
What kind of account do you have? You can open a Tax-Exempt Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP) or Locked-in Retirement Account (LIRA). All registered accounts. You can also have an unregistered account. An asset overview lists all investment accounts, their respective amounts, and annual contribution plans. Also list liquid assets, such as emergency funds in a high-interest savings account. Also, if you have defined contribution or defined benefit plans at work, don’t forget to add them.
Understanding these three considerations will help you determine your asset allocation and effective investment types.
- Your goal: Are you saving for retirement, a down payment on your first home, or your kids’ school fees? Include your goals here.
- Your timeline: At times like this, you need money. This is basically the target date of the goal.
- Your Risk Tolerance: You should consider how much volatility and unrealized losses (losses in the market value of assets that have not yet been sold) can be tolerated.
This is a breakdown of what asset classes you want in your portfolio (this is not a wish list, so be realistic). You can combine stocks, bonds, cash, or alternatives. It also records in which account the bond is held. For example, you may want to keep your bonds in the RRSP because they are tax inefficient. And finally for asset allocation, include the ratios you prefer relative to each other (e.g. a 60/40 portfolio composition of stocks and bonds).
your rules: This is a list of “do’s” and “don’ts” on how to manage your portfolio. Be careful when you want to rebalance your portfolio and when you want to reinvest donations or dividends. We also recommend including the types of funds you want to avoid, such as assets with fees above a certain level or risky assets like cryptocurrencies. Then write down behaviors to avoid, such as panic selling or timing the market, to keep yourself in check. Add your paid advisor’s contact information here as well, and gently remind them to check in when they’re about to embark on these actions.