Core Couch Potato Portfolios for Passive Investors

Option 1: Tangerine Investment Funds

Tangerine, the online banking arm of Scotiabank, was one of the first Canadian providers to offer straightforward, low-cost index mutual funds. (Full disclosure: I worked as an investment advisor and trainer with Tangerine from 2013 through 2018.) Tangerine’s offerings remain a strong choice for investors seeking simple, balanced portfolios that require very little hands-on management.

Tangerine Core Portfolios

The classic balanced allocation — 60% equities and 40% bonds — is available through the Tangerine Balanced Portfolio, introduced in January 2008. The bond allocation is intended to cushion the equity portion of the portfolio and reduce overall volatility. Historically this approach helped limit losses during severe market drawdowns; for example, during the 2008–2009 financial crisis the combined global equity markets fell sharply while a balanced allocation declined by a smaller amount, illustrating how bonds can smooth the ride.

Tangerine also offers portfolios with different risk profiles. Choose more bonds if you prefer lower risk, or more stocks for greater growth potential. Common Core Portfolios include:

• Core Balanced Income Portfolio: 70% bonds, 30% stocks
• Core Balanced Portfolio: 40% bonds, 60% stocks
• Core Balanced Growth Portfolio: 25% bonds, 75% stocks
• Core Equity Growth Portfolio: 0% bonds, 100% stocks

To determine which portfolio suits you, Tangerine provides an investor profile questionnaire on its website that evaluates goals, risk tolerance and time horizon and then recommends an appropriate allocation.

Fees

Tangerine’s Core Portfolios are mutual funds, so there are no transaction fees to buy or sell units. This can be appealing for new investors or those contributing smaller amounts. Each fund has a management expense ratio (MER) of 1.06%, a significant discount compared with many traditional Canadian mutual funds. Tangerine’s passive approach also keeps trading expense ratios (TERs) extremely low — typically 0.01% or 0.02% for the Core Portfolios versus the 0.20% or higher that active mutual funds sometimes incur.

Tangerine Global ETF Portfolios

For investors seeking lower all-in fees, Tangerine introduced the Global ETF Portfolios. These have MERs around 0.65% and, after accounting for TERs, total all-in fees near 0.72%. The Global ETF Portfolios come in three standard risk levels:

• Balanced ETF Portfolio: 40% bonds, 60% stocks
• Balanced Growth ETF Portfolio: 25% bonds, 75% stocks
• Equity Growth ETF Portfolio: 0% bonds, 100% stocks

Year-to-date performance through August 31, 2022 showed the Core Portfolios outperforming the lower-fee Global ETF Portfolios, in part because of the Core Portfolios’ equal weighting of Canadian, U.S. and international equities. Tangerine provides access to investment fund advisors during regular business hours, and most clients transact online themselves.

Option 2: TD e-Series Funds

TD’s e-Series index mutual funds are another low-cost option. Unlike Tangerine’s ready-made portfolios, TD offers funds in four distinct buckets that you combine and rebalance yourself. This requires a bit more effort but can reduce fees: MERs for TD e-Series funds range roughly from 0.25% to 0.48%, so a blended portfolio typically comes in around 0.40% or less — cheaper than many pre-built options.

The main TD e-Series funds include:

• TD Canadian Index Fund-e: 0.28% MER
• TD U.S. Index Currency Neutral Fund-e: 0.33% MER
• TD International Index Fund-e: 0.48% MER
• TD Canadian Bond Index Fund-e: 0.44% MER

If you already hold TD e-Series funds through EasyWeb, recent changes mean you may not be able to add to those holdings directly via that platform; you might need to use a discount brokerage account to make new purchases with no trading commissions. TD e-Series funds are also available through some other broker platforms and can still be purchased through a TD advisor for branch clients.

For investors not tied to TD, ETF options may be about half the cost of the TD e-Series funds and deserve consideration.

Option 3: One-Ticket Asset-Allocation ETFs

All-in-one, one-ticket ETFs are a major advance for Couch Potato investors. Buying a single ETF gives you a globally diversified, managed portfolio aligned to a specific risk level, with fees commonly around 0.20%. These funds rebalance automatically, reducing the time and effort required from the investor. One-ticket ETFs are one of the fastest-growing ETF segments in Canada.

You must choose which all-in-one ETF matches your goals and risk tolerance, and then execute the purchase yourself — so these are best suited to self-directed investors. Providers include iShares, Vanguard, BMO, TD and Horizons, among others. Many of these products hold a mix of underlying ETFs covering Canadian, U.S. and international equities, and they may include U.S. and international bonds for added diversification. Some issuers also mix in low-volatility or dividend-focused ETFs, which can slightly change performance characteristics compared with plain index funds.

How to find the right one-ticket option

Decide honestly on your risk tolerance and time horizon, then use a risk table or an online risk questionnaire to match your needs to the appropriate fund. Tools from providers such as Tangerine or Vanguard can suggest a stock-to-bond split you can use to select a one-ticket ETF.

One-ticket asset allocation ETF portfolio risk levels

This table is a starting point for assessing risk only. It does not constitute investment advice. Consult a qualified advisor if you need a professional recommendation tailored to your personal circumstances.

Option 4: Build Your Own ETF Portfolio

If you are comfortable placing trades and rebalancing periodically, building your own ETF portfolio is the most cost-efficient Couch Potato method. Individual ETF MERs can be as low as 0.04%, and a simple, diversified portfolio often ends up with total fees around 0.20%.

At minimum, a DIY ETF portfolio should cover Canadian, U.S. and global equities plus Canadian bonds. You can keep the structure very simple with two to four ETFs and set allocations according to your risk tolerance — for example, 20% equities/80% bonds for a conservative approach, 60% equities/40% bonds for balanced, or 80% equities/20% bonds for growth.

iShares Two-ETF Balanced Couch Potato Portfolio (example):

• iShares MSCI World Index ETF (XWD): 60% — a global equity ETF covering the U.S., Canada and developed markets (cap-weighted)
• iShares Core Canadian Universe Bond ETF (XBB): 40% — a broad Canadian bond index ETF covering government and corporate bonds

As of the referenced period, XWD’s geographic weighting is heavily influenced by the U.S. market, while XBB aims to represent the total Canadian bond market. MERs for these ETFs are in the low tenths of a percent, producing a very low blended fee for the combined portfolio.

Vanguard Three-ETF Balanced Couch Potato Portfolio (example):

• Vanguard FTSE Global All Cap ex Canada Index ETF (VXC): 56.5%
• FTSE Canada All Cap Index ETF (VCN): 3.5%
• Canadian Aggregate Bond Index ETF (VAB): 40%

Vanguard’s three-ETF approach covers Canadian equities, global equities excluding Canada, and Canadian bonds with very low combined fees.

BMO Four-ETF Balanced Couch Potato Portfolio (example):

• BMO S&P 500 Index ETF (ZSP): 40%
• BMO S&P/TSX Capped Composite Index ETF (ZCN): 3.5%
• BMO MSCI EAFE Index ETF (ZEA): 16.5%
• BMO Aggregate Bond Index ETF (ZAG): 40%

Each of these BMO ETFs tracks a major index for U.S., Canadian and international equities and a broad Canadian bond index. Combined MERs for such a portfolio remain very low, making this another effective Couch Potato setup.

Throughout this guide I compared core and advanced Couch Potato models and provided sample portfolios to help you decide which route fits your needs. Remember: there is never a guaranteed return, and any portfolio can experience extended periods of underperformance. Ensure you understand the risks and determine your risk tolerance before investing.