The dirt-cheap ETF portfolio that keeps getting cheaper every year

Introducing the Freedom 0.10 Portfolio, a simple, sound way to put low-cost ETF investing to work.

You might know this investing strategy by its previous name, Freedom 0.11. Before that, it was Freedom 0.15. Every year, I take on the challenge of building a solid portfolio of exchange-traded funds that costs less than the previous year’s. As you may have guessed, 0.10, 0.11 and 0.15 represent the weighted average management expense ratio (MER) for these portfolios over the years.

MERs in ETF-land are in a downward trend, which means it costs less every year to build an ETF portfolio. Note that brokerage commissions apply when you buy ETFs – expect to pay $5 to $10 a trade, with some brokers offering no-charge ETF investing in at least a limited way.

Here’s how the Freedom 0.10 Portfolio comes together:

• 40 per cent in the Vanguard Canadian Aggregate Bond Index ETF (VAB): The MER for this broad market bond ETF containing both government and corporate bonds is 0.09 per cent. VAB replaces the iShares Core Canadian Short Term Bond Index ETF (XSB), which last year had an MER of 0.11 per cent and this year comes in at 0.10 per cent.
• 20 per cent in the BMO S&P/TSX Capped Composite Index ETF (ZCN): Put the benchmark Canadian stock index in your portfolio for a fee of 0.06 per cent. A true investing bargain.
• 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.

The weighted average MER for this portfolio in late 2019 came in at 0.104 per cent, which we’ll round down to 0.10 per cent. Stay tuned to see whether ETF fee competition produces a cheaper Freedom portfolio next year.

Willing to pay a bit extra for more convenience as an ETF investor? Balanced ETFs, also known as asset allocation funds, package a diversified mix of underlying ETFs into a single fund. Example: The MER for the iShares Core Growth ETF Portfolio (XGRO) is double the cost of the Freedom 0.10 Portfolio with a fee of 0.2 per cent, but still a flat out bargain.

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