Skip to main content

The Globe and Mail

After four years, my index portfolio gets a simple facelift

With Strategy Lab’s four-year anniversary now under the bridge, I’ve rebalanced and simplified my index portfolio further.

weerapatkiatdumrong/Getty Images/iStockphoto

Andrew Hallam is the index investor for Strategy Lab. Globe Unlimited subscribers can view his model portfolio here and read more in the series online here.

My sister teaches French immersion at a public school. When she retires, she'll earn income for life. If she pays off her house and stays out of the casino, her BC Teachers' Federation pension should easily pay the bills. Such benefits used to be common. But so did typewriters. Times have changed.

Saving and investing are now much more important.

Story continues below advertisement

On Sept. 13, 2012, The Globe and Mail began its Strategy Lab series. Three master investors built portfolios of stocks based on their preferred investment styles. John Heinzl selected a portfolio of high yielding dividend paying stocks. Norman Rothery built a portfolio of value stocks. Chris Umiastowski built a smashing growth stock portfolio.

I chose something far more conservative – something that anyone could do. I built a portfolio of index funds. It contains thousands of different stocks. It's diversified across Canadian, U.S., developed international and emerging market equities. Its costs are low, so over an investment lifetime its results should dust most actively managed balanced portfolios.

Since the Strategy Lab contest began, my index portfolio would have turned a $50,000 investment into $69,166.32 by August 31, 2016. That's a compound annual return of 8.5 per cent. Dividend payouts would have totalled $5,520.53.

My Strategy Lab colleagues are ahead. But without exposure to European stocks, Asia-Pacific stocks and emerging market stocks their eggs are in far fewer baskets.

Diversification reduces risk. So, too, does my portfolio's multiasset class component. Almost a third of my portfolio is invested in Vanguard's Canadian short-term bond index (VSB). It hasn't performed as well as a broad Canadian bond index. But I added it for stability – not performance. When bond prices drop, yields rise. When an index is composed of short-term bonds, the holdings quickly mature and get replaced by new bonds. No matter what happens to bond prices, such an index should beat inflation.

But, with Strategy Lab's four-year anniversary now under the bridge, it's time to rebalance and simplify further. In mid 2014, Vanguard introduced its Global All Cap ex Canada ETF (VXC). It holds 8,177 stocks. Just over half are American. The remaining stocks in the ETF are from developed international and emerging markets. By using it, I can replace my U.S. stock index and my two international stock market indexes with just one fund.

I can also gain broader exposure to Canadian stocks by using Vanguard's FTSE Canada All Cap ETF (VCN). It tracks 216 Canadian stocks. They include large cap, mid cap and small cap stocks. The fund didn't exist when we first began our Strategy Lab series. That's why I initially used Vanguard's less diversified FTSE Canada Index ETF (VCE).

Story continues below advertisement

A close to even split between three funds keeps my allocation similar to my original five-fund portfolio. Juggle three balls. Then try to juggle five. A three-fund portfolio is easier to rebalance. All three funds also trade on the TSX. This eliminates those pesky currency conversion spreads. The portfolio's average management expense ratio is just 0.15 per cent per year.

Here's how it looks:

  • 30 per cent Vanguard Canadian short-term bond index ETF (VSB)
  • 35 per cent Vanguard FTSE Canada All Cap ETF (VCN)
  • 35 per cent Vanguard Global All Cap ex Canada ETF (VXC)

Saving for retirement is like crossing an ocean. My Strategy Lab colleagues race ahead in speedboats. My portfolio is a lot more stable because it's more diversified. That gives it a very good chance of reaching the other side.

Report an error
About the Author

Andrew Hallam is the author of the best-selling book Millionaire teacher: The nine rules of wealth you should have learned in school. Raised in British Columbia, he now teaches personal finance at Singapore American School -- and built a million-dollar investment portfolio on a teacher’s salary. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.