Recently, I read a post detailing a Canadian income portfolio created with only five ETFs. I wondered how I would approach this problem. Here is my answer.
- First, one must have a good whack of U.S. stocks. I would put 20% of my funds in ZSP (ZSP - BMO S&P 500 Index ETF) The yield is low (1.21%) but so be it. I can live with that to benefit from a fair amount of exposure to the U.S. market.
- To round out my non-Canadian holdings, I would put 7.5% of my money into VIDY (Vanguard FTSE Developed ex North America High Dividend Yield Index ETF.) The dividend is about 3.66% today.
- Now, for a decent exposure to Canadian stock I would put 57.5% into XEI. (iShares S&P/TSX Composite High Dividend Index ETF.) This ETF is yielding in the 5.2% range at this moment.
- Next, I'd invest 10% in CDZ (iShares S&P/TSX Canadian Dividend Aristocrats Index ETF.) This yield about 3.9%.
- And I would finish by putting 5% in FCCL. (Fidelity Canadian Low Volatility ETF.) Low volatility and a small dividend at about 2.55%.
I created a portfolio similar to the above but with about 5% of the portfolio kept as cash in TDB8150 where it earns 4.55% daily interest. When the Bank of Canada lowers its rate, this money market account rate will be cut as well. I figure we are good until at least June.
This five ETF portfolio plus its cash component would yield about 4.12% today. This is not bad but it's far short of what my true retirement portfolio is yielding. The question is will it deliver better growth?
Now, how would you handle this problem. Enter your answer in Portfolio Manager in TD WebBroker and then track your portfolio for a year or two. See how your ideas play out in real time.
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Note: This post has been updated a few times as I learned more about suitable ETFs. It is too early to say too much about the success of this portfolio in the long run but so far it has outperformed my own portfolio which holds more than 20 investments. Stay tuned.
