The Canadian investing book about ETFs that will have you saying eh-T-Fs 

by Ann deBruyn

A woman is stretched out on her bed, reading a book. She has her leg kicked up in the air because she's reading about Canadian ETFs.

Photo by Polina Tankilevitch from Pexels.

The MoneySense ranking of the “Best ETFs in Canada for 2022” has just been published, and for the first time in about a decade, I was not the lead writer. While I remain involved at MoneySense, I decided it was time to pass the writing reins to long-time contributor and journalist Bryan Borzykowski. Our panel of eight ETF experts remained intact. 

Canadian writers on ETFs

One reason I chose Bryan is that he’s also nearing the final stages of writing a book on ETFs, to be titled ETFs for Canadians for Dummies. I look forward to its release later this year. I believe the combination of the MoneySense ETF ranking, Bryan’s forthcoming book and the already-published ETF book Reboot Your Portfolio will give our readers a comprehensive three-pronged overview of the Canadian exchange-traded fund (ETF) landscape. 

Reboot Your Portfolio was excerpted in three parts on MoneySense when it was first published in late 2021. The author is Dan Bortolotti, who wrote the first edition of the MoneySense ranking with the name “ETF All-Stars.” I worked with Dan when he was a journalist at MoneySense, before he became a financial advisor with PWL Capital.  

Dan’s book is an excellent primer for any aspiring do-it-yourself (DIY) investor who wants to buy ETFs at a discount brokerage, and anyone who wants to create an ETF portfolio with or without the help of an advisor. Early on, Dan acted as one of the ETF panellists for our list of best ETFs, along with colleague Justin Bender, before handing the reins to his PWL colleagues Ben Felix and Cameron Passmore.

Worthwhile insights from Dan Bortolotti

It’s interesting to read Reboot Your Portfolio and see Dan’s own transition from cost-conscious DIY ETF investor to a financial advisor whose shop traffics chiefly in ETFs. As Judy Collins once sang, he’s seen this game from “Both Sides Now.”

On his Canadian Couch Potato blog, Dan has long championed simple four-ETF portfolios that can be bought and held for the long haul—hence the term “couch potato.” No need to get off the couch and get bogged down in stock picking and market timing. You could build something as simple as a 60/40 portfolio with equal 20% weighting in each of Canadian stocks, U.S. stocks and international stocks, and the other 40% in fixed income.

Of course, since the dawn of asset-allocation ETFs early in 2018 (starting with Vanguard, and soon matched by iShares, BMO, Horizons and now Fidelity), it’s been possible to have a portfolio consisting of a single ETF. Those who like the traditional pension fund allocation of 60% stocks to 40% bonds could choose Vanguard’s VBAL, XBAL or ZBAL, or Horizons’ slightly more equity-intensive HBAL (which has a slightly more aggressive 70/30 stocks/bonds mix).

Dan is quite enthused with these asset-allocation ETFs (also called “all-in-one ETFs”), as are most of the expert panellists for MoneySense’s ETF rankings. 

One thing he particularly likes about such funds is the automatic rebalancing between asset classes, or at least between the stocks and bonds most of them hold in varying proportions. As he says in his book: “There’s a lot of research suggesting that people do better when the rebalancing decision is taken out of their hands.” 

Reboot Your Portfolio takes a holistic approach to financial planning and ETF portfolio creation. It’s refreshing that Dan makes a point of not addressing ETFs until chapter 5, after first covering how to set financial goals, determine the right asset allocation and fine-tune a portfolio.

Like most indexing enthusiasts, Dan takes a dim view of such investing sins as market timing and stock picking. Somewhat like the stance Larry Bates takes in his book, Beat the Bank (see also Larry’s recent MoneySense columns on low-cost investing ), Dan is taken aback by the extent to which Canadian investors still embrace high-fee mutual funds. He points out that by the end of 2020, Canadians had almost $1.8 trillion invested in mutual funds—seven times more than is held in ETFs. He pounds the table, asking investors to do what he did: “I fired my advisor, sold my high-fee mutual funds, opened an online brokerage account and rebuilt my portfolio with ETFs.”

But, he warns, the answer is not to abandon mutual funds for picking individual stocks, which he says is even riskier because of the lack of diversification. 

In his chapters about asset allocation, Dan does not restrict his readers to strictly ETFs—there may be a place for guaranteed investment certificates (GICs) and high-interest savings accounts (HISAs). He says many investors could put half their fixed income allocation in GICs and the other half in bond ETFs. That’s roughly what I do myself.

But Dan does believe that even very conservative and very aggressive investors should have at least some exposure to stocks and bonds. Conservative retirees should still have at least 20% in stocks, and aggressive stock investors should have at least 20% in bonds. For those who fit somewhere in between, he is comfortable with their holding the traditional 60/40 portfolio, which has returned between 6% and 7% a year since 1990. 

Beyond stocks and bonds, however, Dan is less enthused. He doesn’t recommend commodities, like gold and other precious metals, nor collectibles like rare coins, fine wines and artwork. Nor is he especially keen on real estate investment trusts (REITs) or REIT ETFs, or preferred shares or preferred share ETFs. Because of their long maturities, he’s not a fan of real-return bonds, either. 

On that point, he and I differ. See my recent MoneySense column on all-weather portfolios, which include various asset classes beyond stocks and bonds, even cryptocurrencies. 

As an aside, it’s interesting that Fidelity has added modest 2% or 3% crypto positions to its asset-allocation ETFs, as mentioned in this MoneySense column. 

When it comes to ETF portfolios, Dan is primarily focused on broadly diversified low-cost ETFs that use traditional market-cap weighting, although he also sees the case for equal-weighted ETFs. But he does not recommend what he calls “narrowly focused” sector or “theme” ETFs. 

He covers the pros and cons of “smart beta” ETFs, which usually cost more than plain-vanilla ETFs but will at least be cheaper than actively managed mutual funds. He discusses various smart beta “factors,” such as small cap, value, low volatility, momentum and the like. 

For active investors, Dan concedes that “smart beta ETFs are certainly a better choice than undisciplined stock picking, and most are a cheaper alternative to high-fee mutual funds.” Even so, he warns that “getting seduced by smart beta is likely to do more harm than good … Enlightenment comes when you understand that traditional indexing gives you the highest likelihood of reaching your investment goals, and that it’s not settling at all.” 

Lastly, Dan isn’t big on currency hedging. He suggests that investors use only Canadian-listed ETFs. 

All in all, most MoneySense readers will probably find the combination of Reboot Your Portfolio and the MoneySense ETF rankings a nice one-two punch for their portfolios, while we await Bryan Borzykowski’s forthcoming ETF book. 

MoneySense Investing Editor at Large Jonathan Chevreau is also founder of the Financial Independence Hub , author of Findependence Day and co-author of Victory Lap Retirement. He can be reached at [email protected]

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