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Stocks, Bonds etc. -> Recommended Investment Portfolio for Novice Investors

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Recommended Stocks (ETFs) for Your RRSP, RRIF, RESP, RDSP, TFSA, FHSA or Non-Registered Portfolio - for Novice Investors

If you have read our Risk article, you will notice that cash and bonds are rated less risky than stocks.  This is true in the short term, but if you look at our table of investment returns, you will see how stocks have greatly outperformed bonds over time.  You won't see the volatility that happened along the way.

From our point of view, the asset which provides the best return over a long period of time is the least risky.  Therefore, we consider a well diversified portfolio of exchange-traded funds (ETFs), which are funds which hold stocks, to be less risky than bonds.  When you own stocks, you actually own part of a company.  When you own bonds, you are lending money to a company or a government.  Would you rather own a company, or lend money to it?  We don't hold any bonds now, but we have held Canadian federal and provincial bonds in the past, when they were yielding over 9%.  If their returns go that high in the future we may buy them again, but only inside RRSPs.

You can eliminate some of the volatility from stocks by following 4 simple guidelines.

bullet Buy stocks slowly (dollar cost averaging).  Don't try to time the market.  Buy stocks at fixed intervals 2 to 4 times a year over a long period of time (20 years or more).
bullet Buy stocks in all global markets (diversification).  This reduces currency fluctuations.
bullet Buy stocks across all sectors of the economy (diversification).
bullet Hold stocks for a long time (buy and hold).  You can hold the recommended ETFs from the day you are born till the day you die.

Unfortunately, you can't eliminate all the volatility from your portfolio.  The individual ETFs will rise and fall continually, and the whole portfolio will suffer a large drop (10% to 20%) approximately once a decade.  Over a long period of time the ETFs will rise, because the stocks that make up the ETFs slowly increase in value.  If the value of an individual stock falls continuously, it will gradually represent a lower percentage of the ETF, and eventually it will be replaced with another stock.

Make sure that any foreign investments are held in a US$ brokerage account, so that there are no exchange premiums charged except when funds are deposited or withdrawn.  Regarding the holding of foreign stocks, see our articles on Risk as it Relates to Investing, Currency Risk, and Tax Treatment of Investments in Foreign Shares.

Investments For Your RRSP, RRIF, RESP or RDSP:

We recommend that you buy the following ETFs, in equal amounts.  The US$ ETFs will be purchased in US$, so the market value of the Canadian $ equivalent of each ETF should be about 25% of the total of the 4 ETFs purchased.  The order in which you purchase them doesn't matter.  Just buy at market (market order), because the spread between bid and ask is only pennies.  We believe that this portfolio of investments will provide an average annual return of 9% or more. Regarding the holding of foreign stocks in your RRSP, see our articles on Washing Trades and Currency Risk.

You should rebalance your portfolio as you purchase more ETFs, so that you continue to own approximately the same market value in Canadian dollars in each ETF.

The table below shows how the ETFs are diversified by country:

Issuer Holdings
XIC TSX iShares Cdn Core S&P/TSX Capped Composit Index BlackRock approximately 240 largest Canadian stocks
SPY Amex S&P Depositary Receipts State Street 500 largest US stocks
VEU Amex Vanguard All-World ex-US Vanguard approximately 2,821 stocks - represents the whole world except the US
XLU Amex Select Sector SPDR Utilities State Street 28 US utility stocks

If you don't want to hold any stocks or ETFs in a US$ account, you could just purchase XIC and VXC. VXC is another Vanguard fund, holding companies from around the world except Canada. It is traded on the Toronto Stock Exchange. Its management fee is slightly higher than the others, 0.22% as of December 31, 2023.

As of December 30, 2023, all of the 4 ETFs in the above table had management expense ratios (MERs) of 0.10% or less.  However, these ratios change over time, so this is one of the things you should be checking prior to buying an ETF.  See the links to fund information below the next table.

The table below shows how the ETFs are diversified by economic category, and the average % of your portfolio in each category when equal amounts of each of the ETFs below are held.  Again, these are percentages that can change over time.  If you want to hold bonds, then reduce the XLU by the amount of bonds purchased.

World Economy by Category
Sectors Industrials
Consumer Discretionary
Consumer Staples

Real Estate

Volatility high medium low medium
Interest Rate Sensitivity medium low high high
% of ETF Holdings in Each Category
XIC 38% 15% 10% 37%
SPY 17% 57% 8% 18%
VEU 27% 40% 8% 25%
XLU 0% 0% 100% 0%
average % in each category 21% 28% 32% 20%

Note: We've combined VWO, VGK and VPL and replaced them with VEU, which was not available when we first created this table.  We also replaced XIU with XIC because of the much lower MER.

Information on these funds (distribution history, fund performance, fund holdings, etc.) can be found on the following websites: 

NYSE Euronext Exchange Traded Funds - search by ticker for any of the above funds except XIU

iShares - XIC


Select Sector SPDRs - XLU

Vanguard ETFs  - VEU

When we first started investing, there were no ETFs available.  When we first compiled the above information, there were very few ETFs available. These are among the lowest cost (MER) ETFs available.  This is meant as a guide for novice investors, or for people who have no interest in picking their own stocks.  There are now many choices available in ETFs, but the main point is to choose low cost, broadly based (diversified by country and economic category) ETFs which hold large, well-established corporations (less risk).

Investments For Your Tax-Free Savings Account (TFSA) or First Home Savings Account (FHSA)

Of the above ETFs, the best ones to put into a TFSA would be ones in which the return is mainly capital gains, not dividends.

There is 15% withholding tax deducted from dividends paid into a TFSA or FHSA from any of the above ETFs (because they are foreign) except for XIC.  This is because TFSAs and FHSAs are not considered "retirement savings accounts" as per the tax treaty with the US.

If you are using your TFSA as an emergency fund, you may want to hold a certain amount of it in cash, T-bills, or GICs.  However, ETFs are also okay for an emergency fund, because trades are settled 2 business days after the sale, so funds can still be obtained fairly quickly.  The difference is that ETFs will vary in price, so it is best to plan to hold them for a long time.

Investments For Your Non-Registered Account

If you have investments in a non-registered account as well as investments in RRSPs and TFSAs, it is best to hold the foreign investments in the registered accounts, and Canadian stocks that pay eligible dividends in the non-registered account.  This allows you to take advantage of the enhanced dividend tax credit.  But if you are a student or have tuition and education tax credits carried forward, the dividend tax credit may not be helpful. In this case, see:

bulletTuition/Dividend Tax Credit Problem, and
bulletTuition Transfers and Dividend Income - could also be a problem

If you want to hold only 1 investment you should buy iShares Cdn Core S&P/TSX Capped Composite Index (XIC), but the dividend yield is only 3.24% as at Oct 19, 2020 (2.88% as at May 4, 2019), and it would be more volatile that the 20 stocks below.

The following list of 20 Canadian stocks could each make up 5% of your total non-registered portfolio.  These stocks were chosen because most of them pay a good dividend (average 4.9% as at Oct 19, 2020, 3.9% as at May 4, 2019), are diversified internationally and are good quality (blue chip) low risk stocks which can be held forever.  These stocks would be more interest-rate sensitive than XIC.   We own most of these stocks, in non-registered accounts.


bulletBank of Montreal (BMO)
bulletBank of Nova Scotia (BNS)
bulletManulife Financial Corporation (MFC)
bulletPower Corporation of Canada (POW)
bulletRoyal Bank (RY)
bulletSun Life Financial Inc. (SLF)
bulletToronto-Dominion Bank (TD)


bulletPembina Pipeline Corporation (PPL)
bullet TransCanada Corp. (TRP)


bulletAtco Ltd. (ACO-X)
bullet Emera Incorporated (EMA)
bullet Fortis Inc. (FTS)


bullet Rogers Communications Inc. (RCI-B)
bullet Telus Corp. (T)


bulletCanadian National Railway Company (CNR)
bulletGeorge Weston Limited (WN)
bulletMagna International Inc. (MG)
bulletNutrien Ltd. (NTR)

The advantages of following any of the above plans are:

bullet low or no management expense ratio (MER)
bullet holds largest public companies worldwide (world diversification)
bullet industry diversification (holds all sectors of the economy)
bullet reduced volatility because of diversification
bullet buying slowly reduces volatility
bullet "buy and hold" reduces the number of decisions you have to make
bullet "buy and hold" defers taxes on capital gains outside of RRSPs
bullet stocks outperform other investments over the long term
bullet stocks protect against inflation
bullet easy to buy or sell (widely traded)
bullet easy to liquidate part of your investment, not like real estate or a business 
bullet no front-end or back-end loads
bulletXIC/XIU - holding Canadian $ reduces currency fluctuations
bulletXIC/XIU - large commodity % reduces interest rate sensitivity
bullet VWO - high growth but volatile
bulletVEU - includes all world except US
bullet XLU - utilities reduce volatility
bullet The risk of the overall portfolio is less than the risk of the individual ETFs
bullet The risk of an ETF is less than the risk of the individual stocks it holds

How Do We Invest?

We mostly buy good quality (blue-chip) stocks and ETFs with the intent of holding them forever.

We've contributed the maximum to our RRSPs (which are now RRIFs) and TFSAs.

In our non-registered accounts we hold almost all Canadian stocks (not ETFs), including most of the above. We do a lot of research on companies, reviewing their fundamentals.  The non-registered investments make up just over 50% of our total investments.

We also borrow to invest in Canadian stocks - see our Borrow to Invest article.

Holding Canadian stocks in non-registered accounts takes advantage of the dividend tax credit for eligible Canadian dividends.  The marginal tax rate is much lower than the rate for interest or foreign dividends.  You can use our Investment Income Tax Calculator to see how much it can reduce your tax, even if you are a senior and the dividends increase your OAS clawback.

Our registered accounts hold mostly foreign stocks, mainly the ETFs noted above.  Our foreign investments used to include more blue-chip stocks and fewer ETFs, but we are now consolidating more into ETFs to keep things simpler and require less research.  The registered investments make up just under 50% of our total investments. Of course this is being reduced each year as we withdraw from RRIFs.

We provide information on our average annual return each year, in our Free in 30! article. Resources

Investing - includes tips on choosing a brokerage

Beyond ETFs

Which investments should be held in an RRSP/RRIF, TFSA, or non-registered account?

Which investments should be held inside vs outside the RRSP?

Even Warren Buffet recommends buying index funds!

Tax Tip:  Make your money work for you instead of you working for it.

Revised: December 30, 2023



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