Purtzki, Johansen + Associates


A Portfolio With a Crazy Low Management Fee of 1/10 of 1 Per Cent

Management fees can take a big bite out of your investments.

$100,000 invested for 20 years at 8% will yield $470,000. With a 2% management fee, the investment shrinks to $325,000, a drop of $145,000 or 30% of the portfolio. You are basically paying 150% of your original $100,000 investment for managing your money.

Can you build a solid portfolio of exchange traded funds that has a management expense ratio (MER) of about 0.10?

Rob Carrick, the financial columnist of the Globe and Mail, took the challenge of constructing such as portfolio.

Here is his Freedom 0.10 Portfolio:

  • 40% in the Vanguard Canadian Aggregate Bond Index ETF (VAB). The MER for this broad market bond ETF containing both government and corporate bonds is 0.09 per cent.
  • 20% in the BMO S&P/TSX Capped Composite Index ETF (ZCN). For a bargain fee of 0.06 per cent, you can put the benchmark Canadian stock index in your portfolio.
  • 20% in the Vanguard S&P 500 Index ETF (VFV). The MER for this US equity fund is just 0.08 per cent.
  • 20% in the TD International Equity Index ETF (TPE). A MER of 0.2 per cent for this international equity fund, which tracks developed markets outside North America.

The weighted average MER for this portfolio is 0.104 per cent, rounded to 0.10 per cent.

Rob Garrick suggests that if you are willing to pay a bit extra for more convenience as an ETF investor, you should consider Balanced ETFs also known as asset allocation funds, which package a diversified mix of underlying ETFs into a single fund. One such example is the iShares Core Growth ETF Portfolio (XGRO). It has a fee of 0.2 per cent.

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