A sample ETF portfolio for your RRSP: treat this sample portfolio as a starting point to be adjusted based on your investment objectives - Exchange Traded Funds

With RSP season hype in full swing, many investors are contemplating their RSP portfolio decisions. Building efficient portfolios with ETFs is as easy as snapping Lego pieces together. More important than being dead simple, ETFs allow for asset allocation precision at a low ongoing cost. Inside an RSP, where portfolio turnover is typically lower given the longer time horizon, this is a huge advantage.

A portfolio construction method popular with institutional and high net worth investors is called "Core and Satellite." Also known as "Core and Explore," the core of the portfolio is passively managed with very little turnover, but the exploratory parts, which are traded more frequently can be either passively or actively managed. As a rule of thumb, practitioners suggest starting with a 50/50 split between core and explore. More conservative investors would opt for a higher percentage in core while the risk-taking crowd would up the explore portion. This approach is very effective at controlling both investment costs and risks.

The following portfolio, taken from my just released and completely updated book -- The New Investment Frontier II: A Guide to Exchange Traded Funds for Canadians (Howard J. Atkinson with Donna Green, Insomniac Press, 2003) could be utilized as either the core or the entirety of a well-structured RSP. The explore portion could be held inside or outside the RSP. Given the number of ETFs available, portfolio possibilities are endless, limited only by one's imagination. There is a suitability section after the portfolio to help you consider the fit with your overall investment plan. Treat this sample portfolio as a starting point to be adjusted based upon personal circumstances and investment objectives.

In fact, don't hesitate to make substitutions. Almost all of the ETFs have a near twin or two, making them quite interchangeable. In addition, switches may be made with virtually any active investment vehicle.

For example, you may already own a fixed income 'ladder' of strip coupons inside your RSP for some or all of the fixed income component. You will probably want to hold onto any actively managed mutual funds that are performing well or that still have a punitive DSC penalty attached to a redemption. Sector ETFs or individual stocks may help round out your unique "Core and Explore" portfolio and offer you the possibility of increased performance.

Sample RSP Portfolio

                                                           % of
ETF                        Symbol  Sector/Market      Portfolio    MER

Fixed Income

iG5 Bond                      XGV  Cdn Fixed Income         15%  0.25%
iG10 Bond                     XGX  Cdn Fixed Income         15%  0.25%
iShares 7-10 yr. Treasury     IEF  U.S. Fixed Income        10%  0.15%

Equity

TD TSX Capped Composite       TCF  Cdn Equity               20%  0.25%
Total Market Vipers           VTI  U.S. Equity              20%  0.15%
iUnits MSCI International     XIN  Int'l Equity             20%  0.35%

                                   TOTAL                   100%  0.24%

Aset Allocation


Fixed Income  40%
Equity        60%

Note: Table made from pie chart

Geographic Breakdown

International  20%
U.S.           30%
Canada         50%

Suitability

Account Type: RRSP

Asset Mix: Balanced

Investment Strategy: Buy and hold, periodic rebalancing

Risk Tolerance: Low to moderate

Portfolio Content: Core or complete portfolio

Note: Table made from pie chart

Howard Atkinson, CFA, CIMA, is author (with D. Green) of The New Investment Frontier: A Guide to Exchange Traded Funds for Canadians. He is also the National iUnits Marketing Manager at Barclays Global Investors Canada, Ltd. Phone 416-594-4404.

COPYRIGHT 2003 Money Digest
COPYRIGHT 2003 Gale Group