Trevor Abes: Writer

After 32 posts covering investing basics for the young Canadian investor, I figured I should show how I apply the principles I’ve written about thus far. Here’s what my personal investment portfolio looks like.

I currently have two TFSAs, one RRSP, and one taxable brokerage account.

One TFSA holds indexed mutual funds and ETFs and individual stocks. Its allocation breaks down into:

• Canada: 30% (including 10 per cent to individual small cap and micro cap stocks)
• USA: 25% (including 10 per cent to small cap stocks)
• Developed International: 20%
• Emerging Markets: 20%
• Canadian bonds: 5%

The rationale here is to hold even slices of every public stock market in the world, which index funds offer, with tilts toward small cheap companies, which have historically offered higher average returns compared to their large counterparts.

The index mutual funds are no load, meaning I can stuff small amount of money in them without paying a commission, compared to ETFs, which, at this bank, cost me a commission of $10 every time I buy or sell them. The mutual funds have higher annual fees than indexed ETFs, but not that much for the size of my investments, making me comfortable about using them as accumulation vehicles I’ll eventually transfer over to ETFs when I’ve saved enough for the annual fees to matter.

I do pick individual stocks in this account, and I’m fully aware that the odds are against me. That said, I’m happy to take the extra risk, tempered by thorough research, for the promise of higher returns compared to just owning index funds.

The other TFSA is at an institution that allows me to buy ETFs commission free. Indexed ETFs charge much cheaper annual fees than mutual funds, and I was interested in not having all of my accounts at the same institution, so it made sense for me to open the second account. It holds only index ETFs as follows:

• Canada: 20% (including 5% to real estate)
• USA: 20% (including 10% to small companies)
• Global value stocks: 10%
• Developed International: 20%
• Emerging Markets: 20%
• Global bonds: 5%
• Canadian bonds: 5%

Besides institutional diversification, the rationale here is to lower my overall investment costs by investing in ETFs, which are the cheapest way for everyday investors like you and me to benefit from stocks. Again, everything is more or less evenly split across the world with value and small company tilts.

I own bonds in both accounts so I have cash around in case markets drop, offering me a discount. I also own them as a second layer to my emergency fund, just in case I find myself in a royal jam. Additionally, the bonds and the real estate pay me monthly income, and I like a slug of my portfolio doing that, again for diversification’s sake.

The RRSP, and this will start to sound like a broken record, is invested in indexed ETFs, even slices, you get the deal. It looks like this:

• Canada: 25%
• USA: 25%
• Developed International: 25%
• Emerging Markets: 25%

Not bothering with the small caps here, just broad index funds that represent what their names say. I may change my mind about that later, but for now, the extra simplicity is welcomed, and the four funds are likely to do their fair share to get me to my financial goals anyway. I get granular in the TFSAs because there’s academic evidence supporting it, but also because investing is a passion. Mindlessly socking away money in a diversified portfolio of index funds will serve you well over the long term.

There isn’t much money in the RRSP or taxable brokerage account because a TFSA offers me tax-free investment growth and I can take the money out no penalty as I please. You can’t get your money from RRSPs without paying a 5-15% withholding tax per withdrawal, plus adding it to your income for the year. Alternatively, you could ask your bank to turn the account into a Registered Retirement Income Fund and start paying you out the money, which nixes the withholding tax, but you’re not retired, so that makes no sense.

I opened the taxable brokerage account just to do it, because eventually, when I run out of RRSP and TFSA room, that’ll be the only place left to sensibly invest for the long term. Unlike a TFSA, which offers tax-free investment growth, and RRSPs, which offer tax-deferred investment growth, investments in taxable brokerage accounts will ding you for every gain.

Here’s what it looks like:

• Canada: 50%
• Berkshire Hathaway: 50%

The Canadian allocation is to an ETF that doesn’t pay any dividends as part of its mandate. That means I can just hold the ETF and let it rise over time without having to worry about taxes until I sell, which I plan on doing in a few decades. The investment company offers international ETFs with the same no dividend mandate, but I find their fees too expensive, so I’m eschewing proper diversification for now.

The Berkshire allocation is strategic in that no dividends is also part of its mandate, and it owns a broad selection of companies in different industries, but I’m also just fanboying out on owning Warren Buffet’s company, exercising my belief in what he and Charlie Munger have built and the structures they’ve left in place to steer the ship when they’re gone. I don’t even care that the institution where I have the account robs its investors by charging 1.5% per C/USD conversion. It’s such a small percentage of my overall portfolio, and I believe in management enough to feel good about them earning me a return I’m satisfied with over time.

I’d like to eventually make some investments in private companies when that gets easier here in Canada, but that’s just me nerding out again. As you can see, the core of my holdings is made up of index funds, which is basically equivalent to owning the entire global stock market, a strategy that has beaten active managers or stock pickers 90% of the time or so over periods longer than 10 years. Not really a popular stance in Canada, where pretty much everyone relies on active management, but the evidence is on my side.

Oh yeah, I own a little Bitcoin and Ethereum as well. They’re 1% each of my overall holdings, small as venture investments ought to be. I feel I’ve gone down the rabbit hole and learned enough to be happy to be there in that capacity.

Another oh yeah, the ETFs I own come from Ishares and Vanguard.

If you read this far, I bet you have questions. Feel free to drop them below.

I also have a book on index investing you can learn more about here.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal financial situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.