Introducing the Cheapskate’s Portfolio

By Dan Bortolotti and Canadian Couch Potato on October 15, 2010
Estimated reading time: 3 minutes

We all know that Canadians pay much higher investing costs than our neighbours to the south, and the gap is widening. Just last week, TD Ameritrade became the fourth online brokerage in the US to offer its clients ETF trades for free. Meanwhile, the big-bank brokerages here at home continue to charge $29 per trade, lowering that to $9.95 only for accounts over $100,000. But even if we can’t trade ETFs for free, Canadians can certainly build a well diversified portfolio at extremely low cost. In my most recent article for Canadian MoneySaver, published earlier this month, I set out to learn just how much of skinflint I could be. My starting point was The World’s Cheapest ETF Model Portfolio, created by Matt Hougan of Index Universe. Hougan tracked down the US-listed ETFs with the lowest management fees in six asset classes and assembled a portfolio with a total cost of 0.125%. That’s $12.50 for every $10,000 invested. Canadians can’t invest that cheaply if we want to include domestic stocks and bonds in our portfolios, but we can get surprisingly close. Here’s what I came up with — I’ve dubbed it the Cheapskate’s Portfolio:

Asset class	%	Exchange-traded fund	MER
Canadian equity	20%	iShares S&P/TSX 60 (XIU)	0.18%
US equity	15%	Vanguard Total Stock Market (VTI)	0.07%
International equity	15%	Vanguard Europe Pacific (VEA)	0.15%
Emerging markets	5%	Vanguard Emerging Markets (VWO)	0.27%
Gold	5%	iShares Gold Trust (IAU)	0.25%
Corporate bonds	20%	Claymore 1-5 Yr Laddered Corp Bond (CBO)	0.27%
Government bonds	20%	Claymore 1-5 Yr Laddered Gov’t Bond (CLF)	0.17%
	100%		0.183%

I explain my methodology fully in the Canadian MoneySaver article, but here are a couple of other points worth mentioning:

Matt Hougan’s super-cheap portfolio includes an allocation to real estate through the Vanguard REIT ETF (VNQ), which carries a fee of just 0.13%. Nothing in Canada comes anywhere close to that: the REIT funds from iShares (XRE) and BMO (ZRE) both have MERs of 0.60%, and Claymore’s (CGR) is even pricier at 0.70%. To keep the Cheapskate’s Portfolio true to its name, I had no choice but to exclude real estate.

Because its trading volume is so much lower, I did not use the BMO Dow Jones Canada Titans 60 (ZCN) for the Canadian equity portion, even though it is a couple of basis points cheaper than XIU. Within days of filing the piece, Horizons announced its the S&P/TSX 60 Index ETF (HXT), which sports an MER of just 0.08%. Using HXT would bring the cost of the Cheapskate’s Portfolio down to 0.163%.

My own ETF portfolio isn’t quite this cheap. I use the slightly more expensive (but more diversified) XIC rather than XIU, I hold XRE for real estate exposure, and I don’t have any gold. Yet the weighted MER of my retirement portfolio is still just 0.26%, or about one-tenth what many mutual fund investors pay. If you’ve got a Cheapskate’s Portfolio of your own, post a comment below with the details and the bottom-line cost. How low can you go?

Asset class	Allocation	Exchange-traded fund	MER
Canadian equity	20%	iShares S&P/TSX 60 (XIU)	0.18%
US equity	15%	Vanguard Total Stock Market (VTI)	0.07%
International equity	15%	Vanguard Europe Pacific (VEA)	0.14%
Emerging markets	5%	Vanguard Emerging Markets (VWO)	0.27%
Gold	5%	iShares Gold Trust (IAU)	0.25%
Corporate bonds	20%	Claymore 1-5 Yr Laddered Corp Bond (CBO)	0.27%
Government bonds	20%	Claymore 1-5 Yr Laddered Gov’t Bond (CLF)	0.17%
	100%		0.182%