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How to Create The Perfect Investment Portfolio

 Young Guys Finance

May 19, 2016

(This is Part 4 of our 4-part series with Voleo and Young Guys Finance. Click here to read Part 3)

Last week we recommend that passive investing was a great way to get your feet wet with investing and for good reason too. You buy once a year, rebalance, then revisit your portfolio next year and repeat the process. It’s that simple.

What we’ve learned and recommend is a portfolio that holds a mix of index funds and bond index funds.

Our go-to strategy, the Canadian couch potato strategy, is to purchase and hold mutual funds (index funds) or ETFs that mimic index funds such as the S&P500, the TSX, the NASDAQ, and other indexes, as well as bond indexes.

Why funds that mimic indexes? They are diversified with stocks from the top companies of each index, the risk of these companies going bankrupt or collapsing is low, and the Management Expense Ratios (fees) are incredibly low (typically less than 0.5%) as they aren’t actively managed by fund managers.

For simplicity, the index funds we suggest focusing on are the Canadian and US index funds. You can also consider International index funds but we feel that this is optional.

Evaluate your risk and balance this in your portfolio between bonds and index funds. In other words, the higher the percentage of bond indexes we hold, the more risk averse we are.

Tip: The recommended percentage of bond index in your portfolio should equal your age.

The reason behind this is that when we’re young we can afford to take more risks and ride out the ups and downs of the market, while when we get older, we will have more responsibilities and commitments to fulfill and can’t afford the potential losses.

For example, as a 25 year old passive investor, your portfolio should consist of:

  • 25% in Canadian bond index funds

  • 37.5% in Canadian index funds

  • 37.5% in US index funds

The funds the three of us started with and that we recommend, especially if you have a TD WebBroker account, are:

  • TDB909 (Canadian bond index)

  • TDB900 (Canadian index fund)

  • TDB902 (US index fund)

  • TDB911 (International index fund) – Optional

For all else, look into ETFs that also mimic the indexes. For more suggested funds, visit http://canadiancouchpotato.com/recommended-funds/.

After you’ve gotten comfortable with passive investing, you should also be comfortable to transition more into active investing. This is where we pass the baton to Voleo as the experts on active trading.

Many well known investors such as Warren Buffet and Tony Robbins all speak well about passive investing and investing in index funds. We hope that you create and maintain a passive investment portfolio working in the background while you actively trade with Voleo.

If you’re still a bit lost on how to create the perfect investment portfolio, check out our videos below on index funds and the couch potato portfolio:

Young Guys Finance is a website dedicated to teaching the essentials of personal finance for young Canadians. If you’re hungry for more, check out our videos at http://www.youngguysfinance.com

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Justin Lee is the host of Young Guys Finance. With an accounting degree from SFU and in pursuit of his CPA designation, Justin also has a weird mix of interests that include sneakers, coffee, and Kanye West.

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Irvin Ho is the business and content developer for Young Guys Finance. He graduated from SFU with a BBA in Finance. In his spare time, Irvin plays competitive dodgeball in the Vancouver Dodgeball League, and ultimate in the Vancouver Ultimate League.

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Shun Lee handles the experience design and multimedia production of Young Guys Finance. He graduated from SFU with a BA in Interactive Arts and Technology. Shun is a meticulous guy, obsessed with designing spreadsheets for all aspects of his life.