Justin Bender.Donna Santos Photography
Justin Bender, 31
Occupation
Associate portfolio manager
The portfolio
Four exchange-traded funds: Vanguard Canadian Short-Term Bond (VSB-TSX), Vanguard FTSE Canada All Cap (VCN-TSX), Vanguard Total Stock Market (VTI-NYSE) and Vanguard Total International Stock (VXUS-Nasdaq).
The investor
Mr. Bender works for a financial firm that helps clients set up passive portfolios and become do-it-yourself investors. He blogs here.
How he invests
Mr. Bender practises what he preaches. As he puts it, "I follow a disciplined, low-cost, tax-efficient, broadly diversified, passive investment philosophy."
Passive investors believe that the market can't be beaten on a consistent basis. So they buy broadly based ETFs (or index funds) and hold them long term.
Keeping costs low enhances returns. That's why Mr. Bender has ETFs from the Vanguard Group: His overall annual management expense ratio is a hard-to-beat 0.14 per cent.
Low levels of transactions reduce commissions, as well as taxes in non-registered accounts through the reporting of fewer capital gains. ETFs are also more tax efficient than mutual funds since they distribute fewer capital gains to unitholders.
Mr. Bender's target allocation for his Vanguard Canadian Short-Term Bond ETF is 25 per cent. Short-term bonds provide greater protection against rising interest rates and have a lower correlation to stocks than long-term bonds (which provides a greater diversification benefit).
He targets a 25-per-cent weight for each of his three equity ETFs, (tracking Canadian, U.S. and overseas stocks). For U.S.-listed ETFs, currency-conversion costs are slashed with the Norbert Gambit. It involves buying an interlisted stock in Canada and selling it on a U.S. exchange.
Recent move
"I recently replaced the iShares S&P/TSX Capped Composite ETF with the Vanguard FTSE Canada All Cap ETF because it is lower-cost and slightly more diversified."
Best move
"Switching from Canadian-domiciled ETFs [tracking foreign stocks] to VTI and VXUS in my RRSP to avoid U.S. withholding taxes of 15 per cent on dividends …"
(The exemption from U.S. withholding taxes applies only when the U.S. ETF is held directly by a Canadian investor, not when they hold it indirectly through a Canadian-listed ETF.)
Worst move
"I used to hedge a portion of my U.S. and international currency exposure. But … I found that the cost of hedging was dragging my returns down."
Advice
"Worry about the things you can control, such as asset allocation, fees, taxes and diversification. Ignore anything that you have no control over."
Want to share your strategies? E-mail mccolumn@yahoo.com