As you may know, if you’re a longtime reader or podcast listener, I’m a big fan of index investing. And after years of using a robo-advisor, I finally moved all of my investments to a discount brokerage and set up my own DIY portfolio which I manage and rebalance myself.
I know, this doesn’t sound very radical. Thousands of Canadians set up their own DIY portfolios every day…but to me, this is a pretty big deal.
You see, going back to when I started the More Money Podcast in 2015, investing scared the daylights out of me. I was even resistant to having guests on my show who were investing experts because I was afraid I wouldn’t be able to keep up with them and would end up looking like a fool.
But what kind of personal finance podcast doesn’t talk about investing? So I pushed past that fear and made it my mission to learn everything I didn’t know about investing. This ultimately led me to interview hundreds of investing experts over the years, get my Canadian Securities Course certificate, and train to become a Certified Financial Planner.
Now, I may have gone to an extreme length to become more confident and educated about investing, so don’t think you need to follow my path! I also wanted to become a better teacher so I could make starting to invest more accessible for everyone (hence why this year I launched my Wealth Building Blueprint for Canadians course).
With that said, I still remember that feeling of having no idea where to start like it was yesterday. So for this post (and the above video), I’m going to share with you the steps you need to take to set up your own DIY portfolio with BMO ETFs. Not only that, I’m going to show you how to set up a core portfolio of index ETFs plus a satellite portfolio in case you’re interested in investing in anything a bit more risky or active like individual stocks or growth ETFs.
1. Determine Your Portfolio’s Asset Allocation
Assuming our core portfolio is for your goal of future retirement, the first step in setting up your DIY portfolio is to determine your portfolio’s asset allocation. In order to do this, you need to also figure out your goal’s time horizon (how long will you be investing for) and your personal risk tolerance (how comfortable are you with risk).
To do this, I’d suggest trying out a few different investor questionnaires which will recommend the most appropriate asset allocation for your portfolio. You can try out this free Investor Questionnaire from BMO to see what I mean.
2. Decide How “Hands-On” You Want to Be
Not too long ago, if you wanted to be a DIY investor, you only have one option. And that was to select individual ETFs for your portfolio and manage/rebalance your portfolio yourself. Now, there are asset allocation ETFs which make investing so much easier!
Asset Allocation ETF Portfolios
Essentially, an asset allocation ETF is pre-built portfolio of ETFs that rebalances itself to its ideal target asset allocation. All you have to do is buy more shares of the fund when you want to make a new contribution to your portfolio or if you want to reinvest any paid interest or dividends the fund distributes (though you may be able to set up DRIP).
ZGRO has an asset allocation of 80% equities and 20% fixed income. Inside it, it holds 10 different ETFs that give you exposure to the U.S. stock market, Canadian stock market, international stock markets, and emerging stock markets. It also gives you exposure to U.S. and Canadian bonds. This is all to say that it’s a very well-diversified portfolio of index ETFs, with a very low MER of just 0.20%, and the best part is you don’t need to worry about rebalancing! This would be an ideal portfolio for someone who is looking for long-term growth, such as someone in their 20s or 30s investing for retirement.
ZBAL has an asset allocation of 60% equities and 40% fixed income. It also holds 10 different ETFs that provide you with exposure to the U.S., Canadian, international, and emerging stock markets, but has a bigger focus on U.S. and Canadian bonds. It also has a very low MER of 0.20%, rebalances itself, and would be an ideal portfolio for someone looking for a mix of growth and income, such as someone in their 50s or early 60s approaching retirement.
Individual ETF Portfolios
As much as I love asset allocation ETFs and think they’re a great solution for many investors, if you’re someone like me who wants a bit more freedom and flexibility with their portfolio, you may be better suited to build your own ETF portfolio from scratch.
One way to get your feet wet is to use BMO ETFs’ Portfolio Generator tool. It has present model portfolios to help you create your own diversified index portfolio using BMO ETFs, then gives you the option to tweak each ETF’s weighting to suit your personal preference.
For example, I chose the BMO Growth ETF model portfolio, which generated this.
From there, I can swap in and out individual ETFs, or get rid of some completely to end up with my preferred line-up of ETFs.
Then, the generator prepopulates weightings for each ETF inside your portfolio, but you can easily change them too.
Once you set up your ideal weightings, you can use the tool to see what that portfolio’s historical returns would have been to give you some perspective on performance and volatility.
3. Set It Up & Implement
Once you’ve decided what your portfolio will look like, it’s time to set it up! This means opening up a discount brokerage account, deciding what account you want to invest in (TFSA, RRSP, taxable account?), and calculating how much your initial contribution will be.
Inside my investing course, I have a number of tools to help you get organized, but here’s a little peek at one of my tools that will help you calculate the dollar amount you should allocate for each ETF to achieve your ideal weightings.
4. Repeat with Your Satellite Portfolio
If you also want to set up a satellite portfolio, which is a separate portfolio to your core portfolio usually meant for investing in more risky or growth-oriented securities, you would follow the same steps. Outline your goal, time horizon, and risk tolerance. Determine what kind of stocks or ETFs you want to invest in, then invest!
Here’s an example of a satellite portfolio that invests in three different ETFs: ZINT, ZCLN, and ZWB. This is for someone who wants to invest in next-generation internet and clean energy but also has a desire to earn income from the Canadian banks.
Two other important things you should remember when setting up your satellite portfolio is to have a set budget and target allocation to stick to. Having a set budget will help you avoid the natural desire to invest more money than you can afford to (it can be very tempting!), and having set target weightings can help you stick to your investment plan and not become too overweight in one sector.
5. Monitor, Rebalance & Adjust
That’s pretty much it! The last thing you’ll want to do after setting up everything and put it to work is to monitor your portfolios regularly (i.e. once a month or once a quarter), rebalance them to their target allocations, and make adjustments when necessary. Adjustments could look like ditching a stock or ETF in your satellite portfolio because it no longer aligns with your goal or values. It could mean adjusting your core portfolio’s asset allocation because your time horizon has changed. It can be a multitude of things, but the important thing is to put it in your calendar to check in with your portfolios regularly.
I hope this blog post was helpful, but there of course is so much more to know and share. To check out some of BMO ETFs free tools and resources, visit bmoetfs.com. And to learn about my investing course, click here.