Every year, I take on the challenge of building a good, sound portfolio of ETFs that costs less than the previous year's.
The exchange-traded fund sector delivers the low fees needed to make this happen, and what started in 2015 as the Freedom 0.15 Portfolio has morphed into Freedom 0.11 for 2018. That's 11 cents in fees for every $100 you have invested.
The Freedom 0.11 Portfolio is built as follows:
- 40 per cent in the iShares Core Canadian Short Term Bond Index ETF (XSB): The management expense ratio (MER) is an estimated 0.11 per cent for this defensive bond ETF containing both government and corporate bonds. Short-term bonds would decline less in a rising rate environment than longer-term bonds. You can get a bit more yield with more downside risk by using the iShares Core Canadian Universe Bond Index ETF (XBB), which has the same estimated MER.
- 20 per cent in the BMO S&P/TSX Capped Composite Index ETF (ZCN): An awesomely low MER of 0.06 per cent for this proxy for this Canadian equity fund.
- 20 per cent in the Vanguard S&P 500 Index ETF (VFV): The MER for this U.S. equity fund is just 0.08 per cent.
- 20 per cent in the TD International Equity Index ETF (TPE): An MER of 0.2 per cent for this international equity fund, which means it tracks developed markets outside North America.
Using this fairly conservative asset mix, you get a weighted average MER of 0.11 per cent.
There are stock-trading commissions when you buy these ETFs unless you use an online broker that offers no-cost ETF purchases. Questrade and Virtual Brokers waive purchase commissions, but charge you to sell ETFs. National Bank Direct Brokerage doesn't charge for buy and sell transactions as long as you trade 100 or more shares.
The Freedom 0.15 Portfolio was designed back in 2015 as much for simplicity as for low costs. If you're okay paying a fraction more in fees for the ease of a three-ETF portfolio, swap out VFV and TPE and replace them with the iShares Core MSCI All Country World ex Canada Index ETF (XAW), with an MER of 0.22 per cent.