E Point Perfect

How to start investing with ETFs in your 20s


Vanguard Balanced ETF Portfolio (VBAL)

An example of a single ETF that does have a balanced portfolio is Vanguard Balanced ETF Portfolio. It is the largest balanced asset allocation or all-in-one ETF trading on the TSX. It has 60% in stocks and 40% in bonds—a good example of a so-called “balanced” portfolio. The stock allocation is made up of Canadian stocks, U.S. stocks, developed market stocks and emerging market stocks. The bond allocation is made up of Canadian bonds, US bonds and global bonds. This single ETF gives exposure to nearly 14,000 stocks and 18,000 bonds. An investor could buy this as their sole investment. 

The best way to invest when you’re young

You likely already know this, but the advantage of investing when young is that you have time to let those investments grow. But fees should still be top of mind. There are several discount brokerages charging no fees to buy ETFs, but even those that are charging fees typically cost less than $10 per trade. 

If someone wants to build their own portfolio of ETFs, they can buy the individual components. In other words, they can buy a Canadian stock ETF, a US stock ETF, international stock ETFs and various bonds ETFs. There are ETFs that track certain stock sectors, commodities, real estate, cryptocurrencies and even ETFs that go up when stocks go down. This can make things more complicated than is necessary, especially for a new investor. 

The well-known Canadian couch potato portfolio and variations of it provide good examples of how to build a relatively simple DIY portfolio. 

Online advisors, often called robo-advisors, have made it easier for investors to own ETFs without having to build their own portfolio. Using a risk tolerance questionnaire that is generally supplemented by a discussion with a portfolio manager, they can develop an ETF portfolio that is automatically rebalanced when there are deposits, withdrawals and when the holdings fluctuate in value. 

What to consider for a small portfolio

In your daughter’s case, Marv, there are considerations beyond which ETFs to use and whether to go DIY or use a robo-advisor. I think you need to help her determine the purpose of these funds. Is this money she may need to use for schooling or in the short-term, or is this money she may not need for a longer time period? If she could be done school in a couple years and she may need the money for an apartment or a car or some other purpose. So, there may not be a lot of time to invest the money into stocks that could be down when she needs to withdraw from it. Arguably, contributing to a savings account, like a high-interest savings account or a tax-free savings account (TFSA), or only allocating a small amount of funds to ETFs that contain stocks may be more appropriate for her at this time in her life. 

She is 20, so will have at least $18,000 of TFSA room accumulated. TFSA room accumulates from the age of 18, and if she turned 20 this year, Marv, she will have 2020, 2021, and 2022 TFSA limits of $6,000 each. If she is 20 and turning 21 this year, she may have an additional year—2019—which also had a $6,000 TFSA limit. So, she may have up to $24,000 she could put into a TFSA, if she has never contributed before. 

A registered retirement savings plan (RRSP) is probably not appropriate if she is a university student with little to no income. RRSP contributions are more beneficial when your income is higher for the tax deduction savings. She could withdraw from her TFSA to contribute to an RRSP in the future if it made sense at that time.


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