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:
- An ETF that covers most ex-Canada stock markets, which includes the U.S., Europe, Pacific, Middle East, Africa, Asia, etc.
- An ETF that covers the total Canadian stock market, which includes small and mid-caps in addition to large-cap, blue-chip stocks.
- 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:
- iShares Core MSCI All Country World ex Canada Index ETF: 0.22% expense ratio.
- Vanguard FTSE Canada All Cap Index ETF: 0.05% expense ratio.
- 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!
