How I’d Invest $50,000 for Retirement if I Had to Start From Scratch

A lazy portfolio of just three ETFs might be all an investor really needs.

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When I first started investing, I spent hours poring over company filings, listening to earnings reports, and keeping up to date with the news. The result? I underperformed a simple index fund. While some stock pickers might find great success, I am not one of them, and it’s OK to admit that.

That being said, stock picking can be a fun hobby and a way to potentially outperform the market. There’s nothing wrong with allocating a small percentage of your portfolio to a few Canadian stock picks (and the Fool has some great recommendations for those).

Still, if I were tasked with investing $50,000 again from scratch, I would stick it in a “lazy portfolio.” I call it lazy, because I don’t need to spend a lot of time on research or trading. It pretty much involves buying three low-cost exchange-traded funds (ETFs), reinvesting dividends, and re-balancing periodically.

The lazy portfolio

My lazy portfolio consists of three passively managed index ETFs that are screened for low costs and broad diversification:

  1. An ETF that covers most ex-Canada stock markets, which includes the U.S., Europe, Pacific, Middle East, Africa, Asia, etc.
  2. An ETF that covers the total Canadian stock market, which includes small and mid-caps in addition to large-cap, blue-chip stocks.
  3. An ETF that covers Canadian government and investment-grade bonds.

The exact proportions of each to hold will be dependent on my risk tolerance. As I am in my mid-20s, I might opt for a 90% stock, 10% bond allocation. Older investors might prefer a 80/20 or even 60/40 allocation, but that’s all up to personal preference.

I’ll also keep my Canadian ETF allocation at anywhere from 20% to 30%. Historically, this has provided tax efficiency, lowered volatility, and reduced risks from currency fluctuations.

After selecting these assets, all I need to do is reinvest dividends on a quarterly basis and re-balance the portfolio back to its original allocations once a year.

Which ETFs to use?

There’s a lot of leeway in funds you can use to construct the lazy portfolio, and some investors might like to “slice and dice.” Personally, I prefer to keep it simple. Here are my picks:

  1. iShares Core MSCI All Country World ex Canada Index ETF: 0.22% expense ratio.
  1. Vanguard FTSE Canada All Cap Index ETF: 0.05% expense ratio.
  1. BMO Aggregate Bond Index ETF: 0.09% expense ratio.

A portfolio consisting of these three ETFs won’t beat the market but is unlikely to underperform it either. With a lazy portfolio, an investor can achieve the average return of the world’s stock market with little effort. Investing should be boring. If you want excitement, go to the casino instead!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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