One Fund or Very Simple Portfolio for a New Early 20's Investor

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Hyperborea
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One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Hyperborea »

Hi all, this is my first post on this board. I'm a Canuck who has been living in the US for the last 20 years so my knowledge of the current financial products available in Canada is somewhat limited. When I started investing in Canada in the early-90's it was Altamira funds.

So, I've been asked to help my nephew over XMas. He's in his early 20's and has recently started a skilled trade job where he is making good money. He's a good kid and he's always been a saver but he doesn't know anything about investing. I'll look over his RRSP with him to pick the lowest cost and best choice that fits with whatever ends up in his other investments. I won't have any info about the RRSP until then.

What I do want some advice on is what funds are available for low cost, low maintenance portfolio building outside the RRSP. Ideally, I could get him into an equivalent to a Vanguard Target Date fund like they offer in the US. Unfortunately, they only seem to be offered as ETFs in Canada. That's a non-starter as I think the whole brokerage thing is possibly too intimidating for him. I might try to get him going that way but it might not work.

Are there any low cost, index funds that I could help him build a simple portfolio with? Given his age and that he will be saving into cash/GICs as well (already built up a sizeable amount), a simple world stock portfolio would probably be fine, maybe with a small Canadian slant. Fewer funds is better to keep it simple.

The Tangerine Equity Growth (1/3 Canada + 1/3 US + 1/3 ROW) looks to be one of the best choices I found but the MER is 1.07%. That seems huge to me now with the sub 0.2% I pay for just about all my funds in the US. Is that about the best my nephew can hope for?

Thanks for your help.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by AltaRed »

Welcome to the forum. Canada clearly has not progressed as far as the USA (and some other countries for that matter) when it comes to low cost investment products, at least in the 'mutual fund' business. We are getting there with exchanged traded assets, with $10 or lower commissions, and ETFs (by the hundreds, if not thousands), mostly due to the arrival of Vanguard in Canada. Alas, Vanguard only has ETFs in Canada and I don't see that changing any time soon.

I suggest you take a look at our own financial Wiki Finiki and to zero in on product options, Portfolio Design and Construction.. Short of actually having a discount brokerage account in which to buy low cost ETFs from the likes of BlackRock iShares, BMO, or Vanguard, some of the best options might be a TD e-series index mutual fund account (available only online or through a TD Direct Investing brokerage account), or Tangerine (formerly ING Canada), or a robo-advisor like WealthSimple. Other than the TD e-series mutual funds with MERs under 1%, all the rest are going to have MERs in the range of 1% or higher. Good luck.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by deaddog »

Signing up for a discount brokerage account is no more difficult as signing up to buy a mutual fund. Whatever bank he deals with will help.

Follow Buffets advice. 90% S&P 500 ETF of Fund. 10% Bond ETF or Fund.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by AltaRed »

The OP needs to have that discussion with the nephew. It is easy for us to say 'go solo' with a DIY brokerage account but it is intimidating for newbies. That bridge will have to be crossed at the time.

That said, if a DIY brokerage account is feasible, I do agree with sticking with one of the big bank discount brokerages. But I don't support Warren's advice for Canadians... who need some Canadian exposure in their portfolio. I'd suggest VCN (or siimiar) for a Canadian equity ETF and XAW (all world ex-Canada) for the rest, or if US only for ex-Canada, I'd pick ZSP which holds the actual securities rather than a wrap of other ETFs.

Corrected per Ockham: VCN, not VUN.. Thank you :oops:
Last edited by AltaRed on 28 Oct 2017 15:45, edited 1 time in total.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Shakespeare »

I don't think Buffet advocated 90:10, but 75:25.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ockham »

I think AR above meant "VCN", not VUN, for Canadian equity content. VUN is the Vanguard Canada version of VTI, Vanguard US's total US market ETF.

My daughter is in much the same situation as the OP's nephew. I have set her up with VCN and VXC (Vanguard's version of XAW) with purchases in $2K increments.

Added: Her primary financial institution is a credit union, so I had her open a discount brokerage account at the credit union affiliated Credential Direct. Trades are $8.88 per. Works for now.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by deaddog »

AltaRed wrote: 28 Oct 2017 15:21 But I don't support Warren's advice for Canadians... who need some Canadian exposure in their portfolio.
Why do we need Canadian exposure?
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ig17 »

Shakespeare wrote: 28 Oct 2017 15:24 I don't think Buffet advocated 90:10, but 75:25.
I suspect you are thinking about Benjamin Graham. He recommended an allocation of no less than 25:75 and no more than 75:25.

Buffett did advocate 90:10 in recent years.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Shakespeare »

ig17 wrote: 28 Oct 2017 16:31
Shakespeare wrote: 28 Oct 2017 15:24 I don't think Buffet advocated 90:10, but 75:25.
I suspect you are thinking about Benjamin Graham. He recommended an allocation of no less than 25:75 and no more than 75:25.

Buffett did advocate 90:10 in recent years.
I'll vote Graham on this one. :wink:
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Hyperborea »

Thanks everyone. :beer:

So, it looks like the best choices for my nephew are in order of increasing complexity:
  • Tangerine Equity Growth
  • TD e-series funds
  • ETFs
The ETFs are the best price option and give more flexibility but probably are too intimidating for him right now and more work (dividend reinvestment). It would be better for him to start with even the higher cost Tangerine fund than to not start and keep it all in GICs.

As far as allocation, thanks for the input but given that he has decades for this money to grow the drag of bonds is unwarranted. Any amount he needs for emergency funds and short term savings (new car, someday a house, etc.) should be in GICs/cash. But other than that I don't see the point. In the end it's going to be his choice but I will advise him not too. Please let's not go any further there. I understand the risks and I will advise him about that but over 20-30 years there are more risks with being weighed down by bonds. (Personally, I've been 100% equity since the early 90's through 2.5 recessions and retired at 51 with a 90/0/10 allocation.)
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ig17 »

Hyperborea wrote: 28 Oct 2017 11:43 What I do want some advice on is what funds are available for low cost, low maintenance portfolio building outside the RRSP. Ideally, I could get him into an equivalent to a Vanguard Target Date fund like they offer in the US. Unfortunately, they only seem to be offered as ETFs in Canada. That's a non-starter as I think the whole brokerage thing is possibly too intimidating for him. I might try to get him going that way but it might not work.

Are there any low cost, index funds that I could help him build a simple portfolio with?
TD e-series are the lowest cost index funds in the Canadian market. Since this is outside the RRSP, he will incur capital gain taxes if he ever decides to switch to (much cheaper) ETFs. Just to point out the obvious...
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Hyperborea »

ig17 wrote: 28 Oct 2017 17:21
Hyperborea wrote: 28 Oct 2017 11:43 What I do want some advice on is what funds are available for low cost, low maintenance portfolio building outside the RRSP. Ideally, I could get him into an equivalent to a Vanguard Target Date fund like they offer in the US. Unfortunately, they only seem to be offered as ETFs in Canada. That's a non-starter as I think the whole brokerage thing is possibly too intimidating for him. I might try to get him going that way but it might not work.

Are there any low cost, index funds that I could help him build a simple portfolio with?
TD e-series are the lowest cost index funds in the Canadian market. Since this is outside the RRSP, he will incur capital gain taxes if he ever decides to switch to (much cheaper) ETFs. Just to point out the obvious...
Thanks. That's an excellent point. I can use that to help sell him on the slightly more complex option as not only cheaper now but not needing to be changed later and costing money when he does so.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ig17 »

FYI, he can buy ETFs commission-free at Questrade.

http://www.questrade.com/trading/services/free_etf
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by AltaRed »

I wouldn't recommend Questrade to a newbie investor. A newbie is better off with the discount brokerage associated with the big 5 bank he already banks with. A bank branch person can help him fill out (complete) the application and personal credentials have already been established, complete with online access.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Hyperborea »

ig17 wrote: 28 Oct 2017 19:24 FYI, he can buy ETFs commission-free at Questrade.

http://www.questrade.com/trading/services/free_etf
AltaRed wrote: 28 Oct 2017 19:32 I wouldn't recommend Questrade to a newbie investor. A newbie is better off with the discount brokerage associated with the big 5 bank he already banks with. A bank branch person can help him fill out (complete) the application and personal credentials have already been established, complete with online access.
Thanks for the suggestions. While it looks like ETFs are the best route for low cost investing in Canada, I'm not that sure that my nephew will be go for that. Even if he does at first, I'm not sure that he will be able to keep it going.

He really needs something simple like a savings account and having a mutual fund where he can have money sent automatically every month without him having to do anything would work best for him. Not that he's stupid, far from it, but he's easily distracted and will forget about things like this. A set and forget option would work best. The only way that ETFs could work would be through a robo-advisor that would take an amount every month from his bank account and then look after the plan.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ig17 »

You mentioned RRSP but not TFSA. Investigate how much TFSA room he has available. He should max out TFSA before he opens a taxable account. TD e-series is a great option inside TFSAs; he can switch to ETFs later on without incurring any taxes.

ADDED: you can set up a pre-authorized purchase plan inside TFSA to put e-series investing on auto-pilot.
https://www.tdcanadatrust.com/products- ... avings.jsp
Last edited by ig17 on 28 Oct 2017 20:09, edited 1 time in total.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Shakespeare »

MAWER104?
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by AltaRed »

Shakespeare wrote: 28 Oct 2017 20:06MAWER104?
I also thought of that as a very good example BUT don't know how much money is required to have an account directly with Mawer. If not Mawer, then it needs to be a discount brokerage account.....and not RBC DI which will not sell Mawer funds.

For the OP, this is a popular balanced mutual fund with some of the lowest MERs. It might be possible for nephew's bank to automatically send contributions to Mawer for investment in this fund. You'd have to ask Mawer... see contact info in second link below.

http://quote.morningstar.ca/QuickTakes/ ... ture=en-CA

http://www.mawer.com/our-funds/fund-pro ... nced-fund/
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ig17 »

I wouldn't recommend Mawer in a taxable account to someone in his early 20's. Who knows what happens to Mawer down the road. Company culture can be completely destroyed in a few short years. You can bail out in a tax-sheltered account but taxable account has you trapped.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by 2 yen »

http://www.financialwisdomforum.org/for ... 9&t=120526

The 1.07% fee on the Tangerine fund is actually not so bad for a new investor who wants to make monthly contributions which are automatically invested in new units. This fund is not so good for a more mature investor who is ready to choose his or her own funds at a lower cost and who understands the costs associated with adding new units. Also, the Tangerine fund rebalances automatically. Other DIY choices may require the holder to rebalance themselves. So, for a newbie, I'd suggest a Tangerine fund - the costs are not so bad when everything is factored in. I'd say after a few years of accumulation and education, the Tangerine fund should used to purchase lower cost ETFs in a DIY format.

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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

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ig17 wrote: 28 Oct 2017 20:04 You mentioned RRSP but not TFSA. Investigate how much TFSA room he has available. He should max out TFSA before he opens a taxable account. TD e-series is a great option inside TFSAs; he can switch to ETFs later on without incurring any taxes.

ADDED: you can set up a pre-authorized purchase plan inside TFSA to put e-series investing on auto-pilot.
https://www.tdcanadatrust.com/products- ... avings.jsp
I know that he has been putting his GICs into the TFSA. I'm not sure how much of his contribution room he has used up. From a tax perspective what is the recommended contents of a TFSA? GICs or equity funds?
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Hyperborea »

AltaRed wrote: 28 Oct 2017 20:34
Shakespeare wrote: 28 Oct 2017 20:06MAWER104?
I also thought of that as a very good example BUT don't know how much money is required to have an account directly with Mawer. If not Mawer, then it needs to be a discount brokerage account.....and not RBC DI which will not sell Mawer funds.

For the OP, this is a popular balanced mutual fund with some of the lowest MERs. It might be possible for nephew's bank to automatically send contributions to Mawer for investment in this fund. You'd have to ask Mawer... see contact info in second link below.

http://quote.morningstar.ca/QuickTakes/ ... ture=en-CA

http://www.mawer.com/our-funds/fund-pro ... nced-fund/
It looks actively managed while the MER isn't bad (for Canada) I'm not sure that's a good choice. I don't believe that active management brings any long term gains to a mutual fund. I've been there and done that, Altamira and Frank Mersch in the 90's.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by Taggart »

I've looked at a few of these balanced index funds over the last few years, and thought something around 1% MER in Canada is not too bad....that is until John Bogle in his latest book alerted me to the fact that a balanced index fund from Vanguard in the U.S. has a MER of only 0.14 percent and I went :shock:
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

Post by ig17 »

Hyperborea wrote: 29 Oct 2017 12:57 I know that he has been putting his GICs into the TFSA. I'm not sure how much of his contribution room he has used up. From a tax perspective what is the recommended contents of a TFSA? GICs or equity funds?
For a young guy like your nephew, I would recommend 100% equities in the TFSA. I think it's better to shelter long-term equity gains than the paltry GIC interest income.

One possible exception: if he is saving aggressively for a house downpayment. Putting GICs in the TFSA does make some sense in that case.
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Re: One Fund or Very Simple Portfolio for a New Early 20's Investor

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ig17 wrote: 29 Oct 2017 13:15
Hyperborea wrote: 29 Oct 2017 12:57 I know that he has been putting his GICs into the TFSA. I'm not sure how much of his contribution room he has used up. From a tax perspective what is the recommended contents of a TFSA? GICs or equity funds?
For a young guy like your nephew, I would recommend 100% equities in the TFSA. I think it's better to shelter long-term equity gains than the paltry GIC interest income.

One possible exception: if he is saving aggressively for a house downpayment. Putting GICs in the TFSA does make some sense in that case.
Ok, I was thinking it would be the other way around. The GIC interest is fully taxable and so in a TFSA he won't pay tax on it. The dividends from the equity fund will get special treatment for the part that is for a Canadian company (so maybe 20-30% of his funds). The dividends on the other funds will have tax deducted in the country of origin and will give a tax credit/deduction against the dividends. He won't get either of those from within the TFSA. Finally, the capital gains from selling the equity funds will get special tax treatment (only 50% taxable) that he won't get from within the TFSA. That seems to suggest to me to go the other way - GICs in the TFSA.

It's been over 20 years since I filed a Canadian tax return and there were no TFSAs back then. Am I wrong? Thanks.
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