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The Perfect ETF Portfolio

The Exchange Trade Fund (ETF) market is growing very fast every year. More and more companies are beginning to offer ETFs and that means a lot of competition. Competition is great for us investors as it has been really driving down MER (Management Expense Ratio) fees. In this article, I will provide my picks from the heavyweights of the ETF investing world, Blackrock’s iShares and Vanguard, to build the perfect ETF portfolio. These two companies offer very expansive ETF offerings that can provide you with quick, easy and diversified access to markets around the entire world.

USA Market ETFs

The USA financial market is the largest in the world. Regardless of which country you live in, you’ll want some USA investment exposure in your ETF portfolio. Not only is it the largest, but it is also one of the most diverse national markets in the world. Therefore, I recommend that at least 30% of your holdings should have exposure to the American financial market.

Below is a list of recommended ETFs, with my picks in bold.

ETF Ticker




Vanguard S&P 500



Vanguard Total US Stock Market (3613)



iShares Core S&P 500



iShares Core S&P Total U.S. Stock Market ETF


It really is a toss up between VTI and ITOT as they are both heavily diversified. Either option will give you access to diversification in over 3000 US companies, so you can’t go wrong.

Even VOO and IVV are very diversified, but only in large cap companies, which general are relatively similar in performance to the total market funds. However if we must pick, getting access to medium and small cap companies with the total market funds, with a similar MER, is an advantage.

For Canadian investors looking to get access to the total US stock market, I recommend VUN. It is similar to VTI and can be purchase on the TSX. The MER is a little higher at 0.16%, but you won’t have to manage any currency exchanges, which have their own fees.

As an added bonus for non-American investors buying a US total market ETF, you hedge against drops in your home country currency. If your home country economy slows, the currency is likely to fall. Then the apparent value of your USD holdings will seem to rise. Since most people already have a large portion of their assets in their home country, this natural hedging is a great added benefit.


Canadian Market ETFs

The Canadian financial market is less diversified than the US market. However, it is heavily influenced by resources and commodity prices. This is less the case today compared to historically.

The Canadian financial market is either accessed through ETFs traded on the TSX or through general internationally diversified ETFs offered on other markets. As a Canadian, there are advantages to holding Canadian Market ETFs inside the TFSA investment account. There are no foreign withholding taxes on the dividends paid. Holding VUN in your TFSA will lead to a dividend withholding tax of 30% of the 1.5% dividend, which amounts to a 0.45% reduction on your annual gains. While this is not a strong enough reason to avoid investing internationally, it does provide a nice incentive for home country investment for Canadians.

ETF Ticker




iShares Core S&P/TSX Capped Composite Index



iShares S&P/TSX 60 Index



Vanguard Canada All Cap Index


VCN is my pick as it covers all cap for the low MER of 0.06%. XIC would be the runner up and XIU in last due to its higher MER and lower diversification. However, all 3 options are safe bets for exposure to the Canadian market.

For non-Canadian investors, you can gain exposure to the Canadian market through investing in ETFs in the next section below.


International Countries ETFs

International ETFs are another essential component of your perfect ETF portfolio and can be split into two categories, developed countries, and emerging market countries.

Developed countries ETFs provide exposure to all non-USA developed companies around the world. Examples include Japan, UK, Canada, France, Germany, Switzerland, Australia, South Korea and most European countries. Emerging market ETFs provide exposure to countries with quickly developing economies such as China, India, Brazil and Mexico.

Here are strong picks for International ETFs:

ETF Ticker




Vanguard All World ex-US



Vanguard Developed Markets



Vanguard Emerging Markets



iShares Core MSCI (Developed)



iShares Core MSCI Emerging Markets


First off, I must state that IEFA from iShares also does not include Canada. If you have exposure to the 10th largest economy elsewhere, that’s fine, but if you don’t, this ETFt is a step down compared to the Vanguard products that cover all developed markets, including Canada.

I’ve selected VEA and IEMG as my main picks due to their low MERs and excellent coverage. You can also choose VEU that covers both developed and emerging markets, but my personal preference is to control the distribution separately with different ETFs.

For Canadian investors, VIU from Vanguard Canada offers coverage of all developed markets outside of Canada and USA. This is an excellent choice that is traded directly within the TSX. It also holds developed market stocks directly instead of through Vanguard USA, which has a tax savings implication inside registered accounts as the extra layering adds additional withholding taxes. Basically, the home country of the stock holds some taxes on the dividends, then USA holds more taxes, before you see your dividend. VIU avoids one of these layers, halving your taxes.


Bond ETFs

Rounding off our ETF selections we will look at Bond ETFs. In today’s low interest world, I recommend avoiding bonds for any long timeframe investments. Yes, its more risky to invest in mostly equities, but they payoff is that much better. You are already substantially reducing your risk by investing around the world. For short term investments, you definitely want to include some bond in your ETF portfolio.

ETF Ticker




Vanguard Long-Term Bond



Long-Term Corporate Bond



iShares 20+ Year Treasury Bond


For bonds, I find Vanguard’s selection to be the better bargain. Much more choice for a lower MER. My personal pick is VCLT as it has a very low MER and has provided stronger returns over government bonds. While corporate bonds are generally riskier than Government bonds, using a bond fund reduces that higher risk significantly by holding a large basket of corporate bonds, while maintaining the higher returns.


Commodity & Industry Specific ETFs

Vanguard and Blackrock’s iShares also offer ETFs in commodity and industry specific exposure. Such as financials, resources, and so on. Generally, these have higher MERs and are less diversified. You can gain access to these markets with the less expensive broad market ETFs listed above. I’m not going to try and pretend I can predict the future of what industries will be top performers, the markets are already priced for all the common knowledge that is already out there. If you think the technology companies will achieve the largest growth in the next decade, that may be right. But many others have already made the same prediction and most tech company stocks are already trading at much higher P/E (price to earnings ratio) than, for example, a railway company. The stock prices are already adjusted to reflect the expected growth of each company and industry.

Unless you have some insider knowledge that industry experts don’t already have (extremely unlikely), the best thing you can do is stay diversified and keep your MERs low.


Putting it All Together in Your ETF Portfolio

All of the ETFs listed above are solid picks for your investment portfolio. My preferences are in bold, for the reasons stated above, but I am comparing very similar products that are all winners in your portfolio. Now to put it all together, the important thing is not to match my bolded selections, but to take one from each table above. A sample portfolio for an investor could look like this:

ETF Portfolio

How to build the perfect ETF Portfolio

For this example, I put bonds at 20%. If your timeframe exceeds 20 years, I’d recommend further reducing this to 10%. If your timeframe is below 10 years, increase your bond allocation in your portfolio.

There you have it, my ETF picks to build a powerful diverse ETF portfolio with ownership in countries around the world. Now its time to execute and grow your investments into your future wealth.

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