Due to all recent posts about index investing, this article from the archives may help clarify some questions I’ve been getting from readers.  I have updated the information so that it is relevant today.

Recently, I wrote about the easiest, cheapest, and perhaps even the best way to invest with your bank mutual funds.  That type of investment strategy is best for those who have no interest in opening a discount brokerage account of their own, regardless of the savings.  However, a lot of you are willing to take the next step in taking over your finances.

Using Index ETFs

If you are just starting out and interested in opening a discount brokerage account but not interested in watching the markets day-in and day-out, then index investing using ETFs is an ideal solution.

Index ETFs have almost identical holdings as index mutual funds, but with much lower fees.  Over the long term, a 1% reduction in portfolio MER will result in a 20% larger nest egg.   To further reduce the costs of buying and re-balancing ETFs, here are some of the best brokerages that offer commission-free ETFs.

Once you have an account open, the next step is to figure out which ETFs to buy.  The goal is to keep it as simple as possible but with proper diversification and asset allocation.  With new ETFs introduced every year, using ETFs for global market coverage is getting easier and cheaper.  I have written an article that I update regularly on example index ETF portfolios.

Similar to the index mutual fund portfolio, the goal is for the ETF portfolio to have:

  • Canadian equity index;
  • US equity index (non-hedged);
  • International equity index; and,
  • Canadian bond index.

Considering Foreign Currency Exchange

While there are a number ETFs out there, it is further complicated by the fact that some are traded in CAD and others in USD. Moving money from CAD to USD with discount brokerages can be tedious and expensive (some brokerages charge up to 2% on the amount being exchanged).

Foreign exchange (FX) costs can be reduced by using Norbert’s gambit, but this can be painful if you have a discount brokerage that requires a phone call to journal the shares over.  On the other hand, some brokerages, like Royal Bank and BMO, automatically journal shares on inter-listed stocks.

The Index Portfolios

I know, this stuff can be confusing!  The best way to think about an index ETF portfolio is that it can either be all in CAD or a mix of CAD and USD.

All CAD ETF Portfolio (Portfolio A)

  • Canadian Equity Index (CAD): XIC or VCN (MER: 0.06%)
  • All-World ex-Canada Index (CAD): XAW (MER: 0.22%) or VXC (MER: 0.27%)
  • Canadian Bond Index (CAD): VAB (MER: 0.13%) or VSB (MER: 0.11%)

This is a fairly simple index ETF portfolio to set up.  While it may be a few basis points more expensive than the CAD/USD portfolio below, it can very well be worth it if your discount brokerage does not allow for cheap and easy FX.

A two or three ETF solution is pretty simple, but what if it could get even simpler?  Vanguard has introduced all-in-one ETFs that give Canadian investors global diversification for a relatively low management expense ratio.  Here are the options (all with approximate MER: 0.24%):

  1. VCNS – 40% equity/ 60% fixed income
  2. VBAL – 60% equity/ 40% fixed income
  3. VGRO – 80% equity / 20% fixed income

What’s great about the all-in-one ETFs is that you only need to buy one ETF with rebalancing all taken care of – it doesn’t get any simpler than this!

Mix of CAD/USD ETF Portfolio (Portfolio B)

  • Canadian Equity Index (CAD): XIC or VCN (MER: 0.06%)
  • Total U.S Index (USD): VTI (MER: 0.04%)
  • Total International Index (USD): VXUS (MER: 0.11%)
  • Canadian Bond Index (CAD): VAB (MER: 0.13%) or VSB (MER: 0.11%)

The Easiest Index Portfolios for Your Discount Brokerage Account

Let’s go through some of the more popular discount brokerages out there and choose if Portfolio A or B is best.  By “best”, I mean the easiest first, and cost-efficient second.  The fact of the matter is that most investors do not want to go through the process of journaling shares from CAD to USD and vice-versa to save a few basis points.

Note that the list below is for registered accounts only.

Questrade: Portfolio A but Portfolio B is ok too.

This brokerage is a favourite among MDJ readers due to their low fees and ability to buy ETFs without paying a commission.  For this brokerage, Portfolio A is the better choice.  While they do allow using DLR/DLR.U to save money on FX, it still requires an email to their admin staff to journal the shares from CAD to USD.

TD Waterhouse:  Portfolio A

In the early days, TD was commended in offering “wash trades” where you could sell your USD asset and settle in USD without having to convert back to CAD which resulted in high fees.  However, this required a phone call which adds to the pain factor.  Because there is no easy way for FX, I would recommend Portfolio A.

CIBC Investors Edge: Portfolio A

Up until recently, CIBC did not offer a USD registered account.  While they were behind the times, they remedied this by eliminating the FX fee (up to 2% one way with some brokerages) when buying USD assets.  However, since they have introduced USD RRSPs, they have added back the FX fees.

Since there is no easy way to journal shares with CIBC (without a phone call), I would recommend going with Portfolio A.

RBC Direct Investing: Portfolio A or B

This is a very progressive account that can automatically journal inter-listed stocks.  This means that if you buy 100 shares of the inter-listed stock RY in CAD, you can sell 100 shares of RY in USD and the account will magically know to move your CAD holdings to USD with no additional FX fees.

While RBC Direct Investing offers an easy and cost-efficient method of FX, many are not comfortable with this process.  So, Portfolio A for beginners, Portfolio B for those more comfortable with Norbert’s gambit process.

BMO InvestorLine: Portfolio A or B

This account is very similar to RBC where they can automatically journal inter-listed stocks.  Same conclusion as RBC Direct Investing.

Scotia iTrade: Portfolio A

While this brokerage offers “US Friendly” registered account solutions, they charge a $30/quarter fee to eliminate the FX fee.  They also offer a limited list of commission-free ETFs.  For me though, the $120/year fee is a bit steep, so I would stick with keeping everything in CAD.

Interactive Brokers: Portfolio B

IB is a new entrant in the registered accounts game.  While this brokerage is tailored for traders, their low trading fees are certainly compelling. The only issue I have with IB is that buy and hold investors are faced with a monthly minimum charge of $10USD (if you trade less than $10USD worth of commission/month but waived if over $100k USD balance) and a registered account maintenance fee of $50/year.  If you are willing to put up with those fees, their FX conversion cost is negligible and super easy to do in your online trading account.  I’m going with Portfolio B here.

Qtrade: Portfolio A

From my research, it appears that Qtrade clients can journal shares through their online portal (however need to wait 3 business days for a trade to settle) which is ideal using the DLR/DLR.U combo.  I’m uncertain though about moving USD back to CAD and if you can simply buy/sell an inter-listed stock to facilitate the move.  Unless Qtrade users can clarify the ability of journaling inter-listed stocks, I would go with Portfolio A.


  1. Ian on February 9, 2015 at 10:09 am

    I have a TD Waterhouse account and I only ever had to phone on the first one to make sure everything was setup correctly. Probably done about 4 of them over the years. Buy TD on TSX and sell on NYSE. US funds automatically went into my US Money Market Fund. I haven’t had to do one in about 3 years so I don’t know if things have changed. Maybe I was just lucky, but haven’t had an issue yet.

  2. Robb Engen on February 9, 2015 at 10:24 am

    My portfolio is at TD Direct (formerly Waterhouse) and I went with Portfolio A (minus the bonds) when I switched from dividend stocks to a two-ETF solution earlier this year. Certainly can’t argue with the simplicity (or the fact that VXC is already up 9 percent on the year!).

  3. Anon on February 9, 2015 at 11:51 am

    Thanks FT, my portfolio needed some work to get away from higher MER funds and this summed up my needs perfectly. One question though, should XIU be XIC in the article? I believe XIU MER is 0.17% while XIC is 0.05%.

  4. FrugalTrader on February 9, 2015 at 11:55 am

    @Ian, I do not have an account with TD waterhouse, so I cannot comment on current practices. Can anyone add commentary here?

    @Robb, looks like you made a good move!

    @Anon, good eye, I made the change from XIU to XIC.

  5. Simon on February 9, 2015 at 12:14 pm

    FYI, Interactive Brokers has changed their fee structure so accounts over $100K USD equivalent are no longer subject to $10/month fees – they are waived.


  6. FrugalTrader on February 9, 2015 at 12:18 pm

    Thanks for that Simon, article is updated!

  7. Jeanne on February 9, 2015 at 12:50 pm

    Great detailed and invaluable analysis, a perfect timing since I just want to focus on indexing ETF this year. Thank you!

  8. Sampson on February 9, 2015 at 3:42 pm

    I presume the CIBC fee waive only applies to registered accounts? Actually, this would save me $20 each trade in a round-trip gambit.

    If it only applied for non-registered accounts also…

  9. FrugalTrader on February 9, 2015 at 4:29 pm

    @Jeanne, glad this article helps!

    @Sampson, yes, the “no fee” fx only applies to registered accounts.

  10. Elbyron on February 10, 2015 at 2:11 pm

    What about Virtual Brokers? I believe that they are the only other one besides Questrade that lets you buy any ETF with no commission, which is important when you want to add funds on a regular basis! The brokerages like Scocia iTrade that offer a limited list of ETFs for free are very limited, and usually don’t have all the index ETFs that you would typically want to include in an index investing strategy. So by going with Questrade or VB, you could be saving $120/year or so in commissions, depending how often and how much you add. I personally chose Questrade because VB charges an annual fee (I think it was $50) for holding USD in a registered account. They aren’t the only ones that charge such a fee, and some banks don’t even allow you to have USD in a registered account, so if you’re thinking of a portfolio “B”, make sure you research this!
    Or just go with Questrade… I know there’s a lot of haters but I’ve never had any trouble with them. Plus they’re the only brokerage where you can open a TFSA or RRSP with 100% electronic submissions (no snail mail). The RESP though still required a mailed form, but that’s the government’s fault.

    • FrugalTrader on February 10, 2015 at 2:20 pm

      Good point Elbyron. Last time I checked, VB did not allow journalling of shares. If I had an account with VB, I would go with Portfolio A (all CAD).

  11. Erik on February 10, 2015 at 3:16 pm

    Thanks for the article, it’s much appreciated as I’ve been looking into indexing the majority of the holdings as opposed solely individual stocks. Cheers!

  12. Bernie on February 13, 2015 at 12:02 pm

    Why bother with indexing when you get better returns year after year with a one mutual fund solution. Mawer Balanced fund is more globally diversified than most common 4 index ETF portfolios (Canada, US, Int’l, Bond), has outstanding management, low fees with no trailer commissions and perpetually beats blended index ETF portfolios in performance.

  13. Lance on February 13, 2015 at 6:52 pm

    Correct me if I’m wrong, but IB doesn’t provide for registered accounts for Canadians.

    • FrugalTrader on February 13, 2015 at 7:36 pm

      @Lance, it’s a recent addition, but IB now offers registered accounts.

  14. Jay ON on February 14, 2015 at 12:52 am

    If held in an RRSP and you use NGambit, is portfolio B the better option?

    • FrugalTrader on February 14, 2015 at 2:12 pm

      @Jay, if you are comfortable with Norbert’s Gambit and your discount brokerage allows it, then yes, Portfolio B will result in a lower overall MER.

  15. Grant on February 14, 2015 at 8:15 pm

    Bernie, because actively managed funds have uncertainty of performance going forward and are less diversified than index funds. In addition, the managers of the Mawer funds achieved their returns by taking more risk – buying small cap and value stocks – which investors in total market funds likely do not want to do. When measured against appropriate risk adjusted indexes the managers of the Mawer funds in fact generate no alpha at all, as explained in this post by Justin Bender.


  16. Bernie on February 15, 2015 at 2:18 pm


    The Mawer Balanced fund actually covers more sectors than most typical blended index portfolios and has beaten them 14 out of the past 15 years by an average of 2.5% and 40% overall. Mawer has a top notch management team with low fund fees and no trailer commissions. Justin’s article was biased towards index funds which he is in the business of selling indirectly. I pointed this out in my comments in his article. I don’t own any Mawer funds as I prefer to manage my own direction with dividend growth stocks. I fully understand it’s all a matter of choice. and there is nothing wrong with index funds. I merely want to point out there are other options out there. Mutual funds should not be painted with the same brush. There are funds like Mawer Balanced Fund out there that go the extra mile for their clients. They should be applauded for their efforts and performance.

  17. Grant on February 15, 2015 at 2:50 pm

    Bernie, actively managed funds are always less diversified than index funds because they are placing bets on different stocks and sectors. As I pointed out, the Mawer funds beat the total market index funds funds because they took more risk by overweighting small cap and value stocks, something and investor could do, if they chose, by investing in small cap and value index funds/ETFs at lower cost. I wouldn’t agree that Justin’s article was biased – he was just presenting the facts based on the science of investing.

    I agree that the Mawer funds are better than most actively managed funds, but they are still actively managed funds so therefore carry the risks of actively managed funds.

  18. Bernie on February 15, 2015 at 4:30 pm

    Grant, of course index investors can go the extra step and add small cap and value index funds/ETFs to their portfolios. The trouble is most don’t want to get involved in those decisions and they know lower fees don’t necessarily mean better performance. The want easy peasy. For these folks the odds for long term outperformance would be more tilted in their favour if they invested in a proven, actively managed, low risk fund like Mawer Balanced Fund.

  19. Grant on February 15, 2015 at 5:14 pm

    Bernie, I think that index investors may not want the uncertainty of actively managed funds, (past performance is no guarantee of future performance), nor the added risk of small cap and value tilts. They also know that the best predictor of future performance is low cost.

  20. Bernie on February 15, 2015 at 5:46 pm

    Past performance does not guarantee future performance but the odds are immensely tilted in your favour if you were right 14 out of 15 times and it would take decades to reverse the overall long term performance. I prefer to go with the odds even if it means a marginal extra risk, but that’s me.

  21. Ed Rempel on February 17, 2015 at 12:33 am


    What added risk? The Mawer Balanced has a 15-year beta of .59 (volatility barely over half the index) and a 15-year Alpha of 4.76 (almost 5%/year return after fees after adjusting for risk).

    Mawer has figured out how to invest in small caps at lower risk. Studies show that illiquid companies and small caps outperform. Mawer buys small caps that are solid businesses with good management and growing dividends. Their small cap holdings are probably less volatile than their large cap holdings.

    With indexes, I don’t know any way to buy small caps with lower risk than large caps. This is much of how Mawer outperforms.

    Your comment about actively managed funds always being less diversified than index funds is certainly not true in Canada. The TSX 60 is 75% in 3 sectors. Mawer Balanced owns 253 stocks, not just 60.

    The only time Mawer has significantly lagged the index was the first half of 2000 when the TSX 60 was 48% Nortel. Of course, the balanced index was hammered over 20% the following year, while Mawer was up.

    We don’t use this fund. I think there are better Canadian equity fund managers and I don’t think they are particularly good with bonds. However, they have clearly been more diversified, have much higher return and much lower risk than a comparable index.


    • Grant on February 2, 2016 at 7:59 am

      Ed, of course a balance fund (which contains bonds) will have lower beta than an equity index. You need to compare apples. If you compare the Mawer funds to the appropriate risk adjusted index (as in the article I referenced above by Justin Bender), there is no alpha).

      Small caps have higher risk (and higher return). You cannot invest in them with lower risk. Their risk is what it is.

      Actively managed funds are less diversified than a broad market index (eg. VCN). The TSX 60 is not a broad market index.

      The Mawer Funds are one of the better actively managed funds that have performed well in past. However they do not provide alpha on a risk adjusted basis, and there is no guarantee of continuing solid performance. I would rather take the certainty of market returns rather than very small possibility of outperformance.

  22. Bernie on February 17, 2015 at 12:26 pm


    There’s no doubt there are better managed funds available than Mawer’s fine offerings but few have the consistent track record of Mawer Balanced Fund which covers all the bases, plus more, of a globally diversified portfolio of index funds. As most investors want “easy” and low risk without the hassle of DIY I can’t think of a better one stop solution than this low cost fund with it’s long history of outperformance.

  23. SST on February 18, 2015 at 11:46 am

    re: “Studies show that illiquid companies and small caps outperform.”

    Thanks for endorsing private equity, Ed! ;)

  24. Karen on February 18, 2015 at 3:31 pm

    How about an assessment of QTrade? They are a very popular brokerage, and they have some, but not many, commission-free ETFs. Can anyone comment on using Norbit’s with them, and the cost of portfolio A vs B?

  25. Mike on February 19, 2015 at 10:51 pm

    Please, as Karen requested, your thoughts on QTrade?

  26. SST on February 22, 2015 at 9:29 pm

    In a similar post in January, a US financial advisor published his ‘easiest fund’ portfolio based on the actual composition of global financial assets:

    BND — Total Bond (US)
    BNDX – Total Bond (Int’l)
    VTI — Total Stock (US)
    VXUS – Total Stock (Int’l)

  27. FrugalTrader on February 22, 2015 at 10:26 pm

    @Mike and Karen, I updated the article. Do you have a Qtrade account? Do you know if inter-listed stocks are automatically journaled from one exchange to the other? Or even if it’s manual, can you say buy RY on the US exchange, then immediately sell RY on the TSX?

  28. Karen on February 23, 2015 at 10:55 am

    Thanks for the update. I don’t know about the journaling so was also hoping for some insight from others. I was curious about Qtrade because they are a popular discount brokerage with some other great features. I do know that QTrade doesn’t allow Cdn and US $ to be held in the same registered account (whereas Questrade does). QTrade’s US$ registered account has a $15 US per quarter fee, so I would think this is another factor in favour using of A over B?

  29. Too much lifestyle on February 28, 2015 at 10:55 am

    Perhaps this has been addressed in another post but I’ll try here:

    I’m new to implementing the SM starting shortly. I have an RRSP account already. I think I understand that the SM should be in un-registered accounts.

    SO- with the CDN dollar so beat up compared to the USD should I be concerned over owning 20/30% USD funds/stocks etc? I can’t seem to find that info anywhere but it seems crazy to pay that premium right now on USD

    My RRSP is 9 CDN dividend paying blue chips and 2 REITS

    All advice welcome. I will also start posting net worth updates very soon as I like the idea of having 3rp parties review and comment.

  30. CN on March 19, 2015 at 12:06 am

    I’m with RBC DI, I can go with Portfolio A. It will cost me $360 / per year in commission if I invest monthly. Say $1000 per month, commission itself is already 3.6%, low MER does not seem to help?

    • FrugalTrader on March 19, 2015 at 8:56 am

      @CN, if you have a smaller portfolio and want to stick with ETFs, perhaps one strategy is to deposit $1k into your account per month, but rebalance once or twice a year. Another option is to switch to a brokerage that offers free ETF trading (Questrade etc).

  31. CN on March 20, 2015 at 12:19 am


    Thanks. I was thinking to purchase ETF quarterly to minimize the cost, then commission will go down to $120. I am hesitant to go with Questrade due to the bad review and experience I read on the web?

    In this case, TD eSeries funds still be cheaper, or even low cost balance funds.

    • FrugalTrader on March 20, 2015 at 9:02 am

      @CN, as previously mentioned, as your account gets bigger, your MER associated with commissions will decrease.

  32. Ed on March 25, 2015 at 11:00 pm

    I have used questrade for 4 years and have nothing but good things to say. I wold definitely reccomend them.

  33. Armaan on April 16, 2015 at 2:07 pm

    What portfolio you would suggest, if someone has brokerage account with national bank??

  34. Bill on January 3, 2016 at 10:03 am

    Is there a reason why HXT, HXS were not considered? They have lower MER rates and while they are total return swaps, they will get you the same result as the canadian and usa index respectively with a lower MER.

  35. VirginInvestor60 on February 2, 2016 at 1:32 am

    With $1.40CDN = $1US is this a time to be buying VTI?

  36. SmartwithMoney on September 14, 2018 at 7:50 pm

    Thanks for the 2018 update! You are a terrific resource. I wanted to let you know that I have had success at TD with DLR/DLR.U. I was able to set up US trading accounts within all my registered AND non-registered accounts, and completed the Norbert’s Gambit to get all my USD holdings into the USD account, and I don’t have to worry about exchange fees anymore. It took one easy call to set up the new USD accounts, and then waiting the 3 days to settle, then I completed the final trades, online myself.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.