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Dan Bortolotti, author of the Canadian Couch Potato blog, suggests a balanced, well-diversified portfolio made with just three exchange-traded funds.SARAH DEA/The Globe and Mail

In investing, simplicity has its advantages. That's what makes exchange-traded funds so attractive for the do-it-yourself investor; they provide instant diversification at low cost to a retirement savings portfolio.

The idea is not to beat the market, but rather to be the market. Because most professionally managed, active strategies do not beat their benchmark indices over the long term (after fees), it's likely best for DIYers to keep costs to a minimum and take what the market gives them.

That being the case, we asked industry experts to suggest three basic, model portfolios – built from ETFs – that may be a good fit for working folks with, say, 25 years to save for retirement.

A balanced portfolio with three ETFs

  • Vanguard FTSE Canada All Cap Index ETF, 20 per cent
  • iShares Core MSCI All Country World ex Canada Index ETF, 40 per cent
  • BMO Aggregate Bond Index ETF, 40 per cent

Investors seeking a straightforward and basic strategy can thank the Canadian Couch Potato blog for this portfolio built from three ETFs. Author Dan Bortolotti, who is also an associate portfolio manager at PWL Capital in Toronto, says the portfolio is flexible and can be adjusted to suit the investor's risk tolerance.

This is a balanced portfolio – a 60-40 split between stocks and bonds – using the Vanguard fund for domestic exposure. It gives investors diversification with 215 publicly traded Canadian companies in one fell swoop.

For international exposure, Mr. Bortolotti recommends the iShares fund. "It's really useful because it includes about half U.S. companies and half international, in both developed and emerging economies," he says, adding it obviously excludes Canada to avoid overlap with the first fund.

The third allocation is a traditional Canadian bond fund, he says, offering a mix of corporate and government issues.

Diversified growth: six ETFs

  • iShares Core S&P/TSX Capped Composite Index ETF, 22.5 per cent
  • Vanguard Total Stock Market ETF, 32.5 per cent
  • iShares Core MSCI EAFE ETF, 15 per cent
  • iShares Core MSCI Emerging Markets ETF, 10 per cent
  • BMO Short Corporate Bond Index, 12.5 per cent
  • BMO Mid Federal Bond Index ETF, 7.5 per cent

Michael Allen, lead portfolio manager at the robo-advisory firm Wealthsimple, suggests a growth portfolio of 80 per cent equities and 20 per cent bonds; this would best serve investors with 25 years until retirement, he says. "It includes some of the lowest cost, most liquid and well diversified ETFs available."

For Canadian content, he says the first iShares fund is a good option because it holds about 250 firms. For U.S. exposure, the second fund, Vanguard Total Stock Market ETF, gives investors access to 3,500 U.S. companies for a rock-bottom management expense ratio, or MER, of 0.04 per cent.

To gain access to diversified international stocks, excluding emerging markets, Mr. Allen suggests the iShares Core MSCI EAFE ETF. "It gives you good representation of Europe, Australia, Asia and the Far East," he says.

For exposure to developing economies, the fourth fund, iShares Core MSCI Emerging Markets, is an excellent choice. This segment of the global marketplace may be volatile, he says, "but this ETF adds diversification, and it has a good tracking error," which has been a knock against ETFs in the past that follow emerging economies.

The remainder of the portfolio would be invested in two bond funds. Both options provide exposure to bonds with an "average maturity within three to four years," Mr. Allen says, limiting the negative impact of rising interest rates while reducing volatility to the overall portfolio.

Low volatility with four ETFs

  • BMO Low Volatility Canadian Equity ETF, 25 per cent
  • Vanguard Global Minimum Volatility ETF, 40 per cent
  • iShares Edge MSCI Minimum Volatility Emerging Markets Index ETF, 15 per cent
  • iShares 1-5 Year Laddered Corporate Bond Index ETF, 20 per cent

Investors just getting started with retirement saving at around age 40 likely require an aggressive strategy if they plan to retire in 25 years and want their money to outlast them, says Ioulia Tretiakova, head of quantitative strategies at Toronto-based PUR Investing.

The problem is this "strategy comes with added risks like the possibility of being forced to withdraw funds when the market is down." But she adds this situation can be partly addressed by minimizing portfolio volatility.

To start, she recommends BMO's Low Volatility fund, which is the largest low-volatility ETF by assets in Canada with the longest track record.

She also recommends, for diversified international exposure, the Vanguard Global fund, which is the lowest-cost, low-volatility ETF on the Canadian market.

The iShares Edge MSCI Minimum Volatility Emerging Markets fund makes the list as well. Although the management fees are higher than similar holdings in the other portfolios, at 0.42 per cent, the additional cost accounts for the low-volatility strategies they employ, as this asset class can be notoriously volatile. Similarly, the other equity-based ETFs in this portfolio have higher MERs than their sector peers that do not screen for volatility.

Essentially designed to avoid the riskiest stocks in their benchmark indices as measured by standard deviation, these ETFs are  a good match for buy-and-hold investors because they reduce volatility and improve the portfolio's ability to compound returns over time.

Lastly, the iShares 1-5 Year Laddered Corporate Bond fund "provides some added volatility dampening" while addressing rising interest-rate risk associated with fixed income by reinvesting in new bonds annually as older holdings mature.

One final note to investors: While these portfolios offer easy-to-manage, low-cost strategies to save for retirement, they must be rebalanced semi-annually or annually to ensure the original asset mix remains intact and aligns with your risk tolerance.