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Recommended Stocks (ETFs)

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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 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 (we buy them for our grandchildren).

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.

Investments For your RRSP, RRIF, RESP or RDSP:

We recommend that you buy the following ETFs, in equal amounts (in Canadian $).  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
XIU TSX IShares Cdn Large Cap 60 Barclays 60 largest Canadian stocks
SPY Amex S&P Depositary Receipts PDR Services 500 largest US stocks
VGK Amex Vanguard European Vanguard approximately 500 stocks from 16 European countries
VPL Amex Vanguard Pacific Vanguard approximately 500 stocks from Japan, Australia, Hong Kong, Singapore, and New Zealand
VWO Amex Vanguard Emerging Markets Vanguard approximately 800 stocks from 22 countries including South Korea, Taiwan, Brazil, Russia, China, South Africa, India and Mexico
XLU Amex Select Sector SPDR Utilities State Street over 30 US utility stocks

As of July 27, 2015, all of the ETFs in the above table had management expense ratios (MERs) of 0.18% 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 are held.  Again, these are percentages that can change over time.


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
XIU 48% 13% 4% 35%
SPY 24% 50% 6% 20%
VGK 26% 32% 12% 30%
VPL 27% 37% 9% 29%
VWO 38% 29% 14% 19%
XLU 0% 0% 100% 0%
average % in each category 27% 27% 24% 22%

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 - XIU

    - SPDRs - SPY

    - Select Sector SPDRs - XLU

    - Vanguard ETFs  - VGKVPLVWO

When we first started investing, there were no ETFs available.  When we first compiled the above information, there were very few ETFs available, and at the time these were the lowest cost (MER) ETFs, and they are still among the lowest.  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 other 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)

Of the above ETFs, the best one to put into a TFSA would be one in which the return is mainly capital gains, not dividends.  There is 15% withholding tax deducted from dividends paid into a TFSA from any of the above ETFs (because they are foreign) except for XIU.  See our TFSA article on this for an explanation.  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

Make sure that the foreign ETFs from the above table 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 Currency Risk, and Tax Treatment of Investments in Foreign Shares.

Use the same investments as for an RRSP, but replace the Select Sector SPDR Utilities (XLU) with Canadian dividend-paying stocks, to take advantage of the enhanced dividend tax credit.  These stocks should be pipeline, utility, and telecommunications companies.  There is no ETF for this category.  The following are the largest of the Canadian companies that fit this category, with their ticker symbols on the Toronto Stock Exchange.  If you are a novice investor, you should buy these large companies, and diversify among the three sub-categories.


bullet TransCanada Corp. (TRP)
bullet Enbridge Inc. (ENB)
bullet Canadian Utilities (CU)
bullet Emera Inc. (EMA)
bullet Fortis Inc. (FTS)
bullet TransAlta Corp. (TA)


bullet BCE Inc. (BCE)
bullet Cogeco Cable Inc. (CCA)
bullet Rogers Communications Inc. (RCI-A and RCI-B)
bullet Shaw Communications Inc. (SJR-B)
bullet Telus Corp. (T)

Lower Risk Portfolio for More Conservative Investors

If you're getting close to retirement or are worried about volatility, you may want to adjust your portfolio to the one below.  The returns will probably not be quite as good as the one above.  We've added more consumer staples, technology, telecom, healthcare, pipelines, utilities and Canadian financials.  These sectors are less volatile than the others.  The table below shows the % of the portfolio that should be invested in each ETF or stock.


Name % of

% of ETF Holdings in Each Category

Consumer Discretionary
Consumer Staples

Real Estate

XIU IShares Cdn Large Cap 60 12.5% 48% 13% 4% 35%
SPY S&P Depositary Receipts 12.5% 24% 50% 6% 20%
VGK Vanguard European 12.5% 26% 32% 12% 30%
VPL Vanguard Pacific 12.5% 27% 37% 9% 29%
VWO Vanguard Emerging Markets 12.5% 38% 29% 14% 19%
XLU Select Sector SPDR Utilities 12.5% 0% 0% 100% 0%
IXJ IShares S&P Global Healthcare 2.78% 0% 100% 0% 0%
IXN IShares S&P Global Technology 2.78% 0% 100% 0% 0%
XST IShares S&P Capped Consumer Staples 2.78% 0% 100% 0% 0%
TRP TransCanada Corporation 2.78% 0% 0% 100% 0%
IXP IShares S&P Global Telecommunications 2.78% 0% 0% 100% 0%
CU Canadian Utilities 2.78% 0% 0% 100% 0%
POW Power Corporation 2.78% 0% 0% 0% 100%
BNS Bank of Nova Scotia 2.78% 0% 0% 0% 100%
TD Toronto-Dominion Bank 2.78% 0% 0% 0% 100%
average % in each category 20% 28.5% 26.5% 25%

The advantages of following any of the above plans are:

bullet low 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
bullet XIU - holding Canadian $ reduces currency fluctuations
bullet XIU - large commodity % reduces interest rate sensitivity
bullet VWO - high growth but volatile
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

See also

bulletInvesting - includes tips on choosing a brokerage
bullet Beyond ETFs
bullet Which investments should be held in an RRSP/RRIF, TFSA, or non-registered account?
bulletWhich 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: March 01, 2019



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