How to Run The 3% Signal in Canada

The 3% Signal plan (3Sig) is best run with an American small-cap stock index fund and general bond market index fund, in a tax-advantaged account. However, it can be run with any stock and bond funds in any type of account. Wherever you run your plan, the goal is to find the cheapest suitable available to you.

In The Kelly Letter, I run the plan with iShares S&P SmallCap 600 (IJR) and Vanguard Total Bond (BND) and recommend that Americans find these or similar funds in their 401(k)s, individual retirement accounts (IRAs), or other accounts.

Canadians can closely copy the plan with funds and accounts available in Canada to build a sizable nest egg with no stress from investing indecision.

The two main retirement account types in Canada are the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). Contributions to an RRSP are tax-deductible; contributions to a TFSA are not. Investment profit created in an RRSP is not taxed until withdrawal, at which time it’s usually taxed as income. Investment profit created in a TFSA is not taxed, even at withdrawal. In American terms, Canada’s RRSP is similar to a Traditional IRA while its TFSA is similar to a Roth IRA.

As with American retirement plans, the RRSP and TFSA are not investments themselves, they are account types that you can open at many different financial institutions. The list of funds and other investments available to you in your RRSP and/or TFSA will depend on where you open and maintain your account.

In some Canadian accounts (including employer pension accounts), US stocks and funds are available for local trading in Canada, no need to worry about currency fluctuation. In others, they’re not. If your account has access to IJR, BND, or other funds like them without foreign exchange charges, then you’re ready to begin straightaway. If not, you’ll need to find the right puzzle pieces in your account.

The Toronto Stock Exchange (TSX) trades two funds that are widely available in Canadian retirement accounts, which many Canadians have told me they’re trying with 3Sig: iShares S&P/TSX Small Cap (XCS.TO) in place of IJR, and iShares Canadian Universe Bond (XBB.TO) in place of BND. The bond fund is fine; the stock fund is not.

The S&P/TSX Small Cap index significantly underperforms US small-cap indexes, and so does another popular Canadian stock index, the S&P/TSX Capped Composite Index. An ETF that tracks it is BMO S&P/TSX Capped Composite ETF (ZCN.TO). Notice how XCS and ZCN have compared with IJR over the past five years:

IJR, XCS, and ZCN 5-Year Price Chart

Try to find a fund that targets the US mid-cap or small-cap market. One worth considering is iShares US Small Cap Russell 2000 CAD-Hedged (XSU.TO), but it has a high MER (management expense ratio) of 0.36% and investors have complained recently about poor hedging results. For example, Canadian investor Stewart wrote to me on March 11, 2015: “This [XSU] is supposedly the Russell 2000 hedged to Canadian Dollars. Trouble is it hasn’t risen in twelve months, while the exchange rate has dropped considerably so one would have thought that the hedged fund would rise because of this even if the Russell 2000 didn’t move much.” More on hedging below.

If you don’t want to worry about paying your broker’s foreign exchange charges by investing in US-listed funds from Canada, and you want a low MER, then you’ll probably need to choose one of the US large-cap funds that trade on the TSX. Two of the cheapest I’ve been able to find are iShares S&P 500 (XUS.TO) with a MER of 0.15%, and BMO S&P 500 (ZSP.TO) with a MER of 0.17%. Here’s how they’ve fared against IJR and the S&P 500 index over the past two years (XUS and ZSP are only two years old):

IJR vs TSX-Traded XUS and ZSP 2-Year Price Chart

XUS and ZSP provide the same performance profile, so you might as well go with the slightly cheaper XUS. Recently, US large-cap stocks have been performing better than medium- and small-cap stocks, but have not done as well over long time periods (which is why 3Sig works best with small-cap funds). However, large-cap funds do well enough and if they are the lowest-cost way for you to own the US stock market in Canada, then proceed confidently in using either XUS or ZSP on the stock side of your 3Sig plan.

Note that neither fund is currency hedged. In a CAD-hedged fund, your returns will be enhanced when the Canadian dollar rises and diminished when it falls. From Dan Bortolotti, a licensed investment advisor with PWL Capital in Toronto, via his indispensable Canadian Couch Potato site: “If you believe the Canadian dollar has neared its bottom and will begin moving back up, then it makes theoretical sense to use currency hedging, because a rising loonie would harm returns.”

I submit that nobody knows where currencies are heading, so it’s a crapshoot whether one should hedge or not. The cost advantage is on the side of not hedging because the MERs of XUS and ZSP are lower than those of their hedged equivalents. If you do want to use a hedged S&P 500 fund that trades on the TSX, consider iShares S&P 500 CAD-Hedged (XSP.TO) with a MER of 0.25%, and BMO S&P 500 Hedged to CAD (ZUE.TO) with a MER of 0.23%.

Here, we have to toss Vanguard into the mix because its S&P 500 funds that trade on the TSX charge the same 0.18% MER whether hedged or unhedged. If you have access to them, then it’s entirely up to you whether you want to hedge or not because there’s no cost differential to sway your choice. If you can’t decide, go unhedged. Vanguard’s S&P 500 unhedged fund is VFV.TO; its hedged is VSP.TO.

I recommend not hedging. CAD hedging has a lousy record for a couple of reasons. First, the tracking error is large. Second, and more importantly, hedging the loonie is really just a way to let the commodities market exert an unwelcome influence on your stock performance. The value of the loonie is driven largely by oil and other commodities, often in such a way that hedging it adds to profits when stocks are going up and compounds losses when they’re going down. In this sense, hedging the loonie is not a way to offset stock behavior but rather a way to magnify it, exaggerating its volatility.

It’s largely this last point that led the Canadian Pension Plan Investment Board to write a couple of years ago that there’s “no compelling reason to hedge equity-related currency exposure,” and for its president and CEO Mark Wiseman to write this year: “Hedging to manage short-term results has a material financial cost with no expected benefit over the long term.” The following excerpt is from page 26 of the CPP Investment Board 2015 Annual Report: “[T]he Canadian dollar is strongly linked to the price of oil. In principle, it is prudent to diversify away from a currency under such a singular and uncertain influence.”

Here, then, are the widely available funds suitable for use with 3Sig in Canada:

Stock Side:
XUS.TO – iShares S&P 500, 0.15% MER
ZSP.TO – BMO S&P 500, 0.17% MER
VFV.TO – Vanguard S&P 500, 0.18% MER
VSP.TO – Vanguard S&P 500 CAD-Hedged, 0.18% MER
ZUE.TO – BMO S&P 500 CAD-Hedged, 0.23% MER
XSP.TO – iShares S&P 500 CAD-Hedged, 0.25% MER

Bond Side:
VSB.TO – Vanguard Canadian Short-Term Bond, 0.17% MER
VAB.TO – Vanguard Canadian Aggregate Bond, 0.23% MER
XSH.TO – iShares Core Canadian + Maples Short Term, 0.27% MER
XBB.TO – iShares Canadian Universe Bond, 0.33% MER
XQB.TO – iShares Core High Quality Canadian Bond, 0.33% MER
XGB.TO – iShares Canadian Government Bond, MER 0.39%

Run 3Sig in Canada with XUS and VAB

In the following two charts, notice that XUS has followed the same pattern as the other funds since its inception but at a much lower MER, and that VAB has followed the same pattern as the two funds at the top of its chart (XGB and XBB) since its inception. These similar patterns happen because the funds follow identical or similar indexes, so the low-cost winner is your best choice. The reason VAB is preferable to VSB even though it has a slightly higher MER is that short-term bond funds don’t yield enough and the extra price stability they offer is unncecessary in 3Sig.

These are the six stock funds over the past five years, with XUS in bold blue:

TSX-Traded SP500 Funds 5-Year Price Chart

These are the six bond funds over the past five years, with VAB in bold blue:

TSX-Traded Bond Funds 5-Year Price Chart

The following comments were sent to me by Canadian readers.

Several people mentioned that the TD e-Series Funds ( were designed to provide low-cost access to various market segments, including Canadian bonds, European stocks, the Dow Jones Industrial Average, the S&P 500, and US stocks in a currency-neutral fund. While the MERs aren’t cheap by US standards or as low as those in the funds discussed above, they’re not terrible. The TD US Index Fund has a MER of 0.35% compared with 0.15% at iShares S&P 500 (XUS.TO) and 0.09% at SPDR S&P 500 (SPY).

Lee suggests that the “Canadian couch potato portfolio” featuring low MERs consists of Vanguard FTSE Canada (VCN.TO), Vanguard FTSE All-World ex Canada (VXC.TO), and Vanguard Canadian Aggregate Bond (VAB.TO). Not a bad lineup, but 3Sig run with XUS and VAB will almost certainly perform better.

Luc points out that Scotia iTrade offers commission-free ETFs. Unfortunately, neither XUS nor VAB is among them.

Robin adds that Questrade offers commission-free ETF trading. From its website: “you can buy any North American listed-ETF, including Questrade Smart ETFs, absolutely commission-free.” I was unable to find the North American listed ETFs available to Questrade account holders, but it’s presumably an extensive list if the company is promoting the feature this enthusiastically. The Questrade Smart ETFs were launched just this month, and include Russell US Midcap Value CAD-Hedged (QMV) and Russell US Midcap Growth CAD-Hedged (QMG). Unfortunately, their MERs are 0.70%, taking them out of the running in 3Sig’s preference for low-cost vehicles.

John, an American living in Canada, passes along this tip: “As many Canadians have a US denominated account within their RRSPs, I think one can argue that currency risk shouldn’t be an issue. The logic can be that the money can be used for future trips to the US only.”

That about does it. I hope this article helps.

If you can offer an update to this information, please email me. I’ll incorporate helpful comments into this document.

Good luck with your 3Sig plans, Canadians!

The 3% Signal is sold at and as well as at local booksellers.


  1. Rahim Khataw
    Posted January 21, 2020 at 6:18 am | Permalink

    Two Canadian products I found are XMC and XMH (CAD Hedged). Their Benchmark is S&P MidCap 400 Index -> IJH.
    IJH mirrors IJR closer than SPY(SP500).

    Thanks, RK

    • Saman W
      Posted January 4, 2021 at 10:17 am | Permalink

      Re: Running 3sig in Canada
      Canadians can choose XSMC which is ishares US Small Cap Index, but the problem is the fund is relatively newly
      launched in 2015 with assets of only 5.3M. Even a bigger issue is its 0.42% MER! So if you are buying $ 8000 worth of shares to initiate 3sig, my concern is that whether the fund could absorb such an order at once, or whether it would be executed in chunks by the broker making 3sig a bit messy. If Jason can also comment on this, I would prefer to substitute XUS with XSMC for good volatility. The bond account is fine with VAB. No worries there.

      • Saman W
        Posted January 4, 2021 at 10:31 am | Permalink

        On second thoughts, I have read how corroding a high MER is to an investment account. Hence, I will use XUS although it tracks the S&P 500 Large Caps. More importantly MER is just 0.19 & it has 3.3B in assets. I think I will stick with XUS/VAB to run 3sig. What do you think Jason? Thank you for your comments.

  2. Eduardo Sales
    Posted June 5, 2019 at 1:23 am | Permalink

    Great article, love it!!!
    I’ve checked today and Questrade allows XUS and VAB to be purchased there, they may have added recently.

  3. Gilad
    Posted March 30, 2019 at 12:15 am | Permalink

    What if the loonie goes back to 1:1 with the USD

    The losses will be huge !

  4. Rahim Khataw
    Posted February 11, 2019 at 10:37 am | Permalink

    Hello Jason,

    I finished reading your book, The 3% Signal, and it was amazing! Now I am trying to figure out how to use this information with my current portfolio (Canadian Couch Potato 60/40). Looking at the results from 2001 to Q2 in 2013 in you book and assuming no additional cash from the bottom buying account, the annualized rate of return is around 9.84%. During that same timespan, IJR returned on average about 11.5%.

    The problem I see for Canadians is that during 2001 to 2013, the unhedged version of SP500 in Canadian dollars, only beat IJR during 2 years. Over the last 5 years, the unhedged version in Canadian dollars has outperformed as your charts show.

    If you look at the CAD/USD chart over the past 20 years, you will see that when the loonie is appreciating against USD, this system does not work great for us Canadians. It seems like the currency exchange plays a larger roll then the actual market returns.

    So in my mind it’s not a great idea for Canadian’s to expose 80% of your investments to currency fluctuations.

    Thank you, RK

    • Posted February 15, 2019 at 12:01 pm | Permalink

      Thank you for the kind words, Rahim!

      It’s true that currency fluctuations can change the whole equation.

      To get around this, many non-Americans run their plans with local stock-market indexes instead. The plan works well with broad or small-cap stock indexes anywhere.

      Best of luck with your plan!


      • Rahim Khataw
        Posted March 19, 2019 at 12:09 am | Permalink

        Hello John,

        Yes, the currency fluctuation make a significant change! Currently I do Canadian Couch Potato 60/40 (25% in each of Canada, US and International and 40% in Bonds). I like your idea of checking every 3 months and “re-balancing” so even thought i’m using 3 index funds for the stock side, hopefully that concept will still apply and produce slightly better returns.

        Just FYI – I was looking into selling covered calls on IJR in my US account and sadly, there is no real liquidity. To bad, it would have boosted your 3% signal returns even more if you could add covered calls on top of the plan!

        Thanks, RK

  5. Michael Hale
    Posted February 2, 2018 at 2:33 pm | Permalink

    I just wanted to clarify what you mean by foreign exchange fees? Are we talking fees over and above the exchange rate?

    • Posted February 6, 2018 at 10:52 am | Permalink

      Hi Michael,

      Yes, that’s right. Some Canadian brokers charge foreign exchange fees for non-Canadian investments, and these happen entirely separate from any exchange-rate impact on the investment’s value. The latter is out of the broker’s control.


  6. Hugh
    Posted May 29, 2017 at 11:08 pm | Permalink

    Jason, first off thanks very much for putting this page together for Canadians. I love your books, and was delighted to come across this information!

    There is one detail I just can’t seem to wrap my head around however. Your final recommendation on the stock side is to use XUS (or later in these site comments XMC is mentioned as potentially being a better choice, that wasn’t available when you put this page together). As far as I understand it, the problem with using XUS (or XMC for that matter) however is that they are both subject to a 15% withholding tax, EVEN if they’re used in a registered account, like an RRSP. This is because XUS (or XMC) really just holds its US equivalent ETF. XUS holds IVV (iShares Core S&P 500 ETF) and XMC holds IJH (iShares Core S&P Mid-Cap ETF). This is explained in more detail here – while it doesn’t touch on your recommendation of XUS directly, it does mention that one of the other ETF’s you mentioned, XSP (iShares S&P 500 CAD-Hedged), is subject to this 15% withholding tax.

    Given the extra 15% hit, I’m wondering if it’s really worth it to use something like XUS, XMC, etc., versus using IJR directly (and taking the currency exchange fee hit when moving between CA/US). I’m curious to hear your (or anyone else’s) thoughts on this.

    Thanks again!

  7. Thomas
    Posted April 28, 2017 at 4:16 am | Permalink

    Is it suggested to use VAB and XMC for the Canadian portfolio?

  8. Investor
    Posted March 6, 2017 at 12:02 pm | Permalink

    Another good bond ETF for Canada is ZAG.TO. I also like ZDY.TO for stock investment in TFSA account. Good performance with a decent monthly dividend (tax-free in TFSA) you can invest right back in the ETF.

  9. Matt
    Posted January 29, 2017 at 10:55 am | Permalink

    Hi Jason,

    We Canadians have seen MER reductions in the past while. To update the discussion with current MERs:

    XUS – ishares S&P 500 – 0.10%
    VFV – vanguard S&p 500 – 0.08%
    ZSP – BMO S&P 500 – 0.08%
    XMC – ishares S&P 400 mid cap – 0.15%

    My question is whether or not you feel it is worth the higher MER to use 3sig with the mid cap XMC versus the large caps.

    Love your books Jason and thanks for maintaining the page for Canadian 3siggers.

    • Posted February 3, 2017 at 2:56 pm | Permalink

      Thank you, Matt, and you’re welcome for this Canadian page.

      Yes, I think paying the slighty higher MER for mid cap volatility would be worth it. Anything under 0.20% is fine. If this trend continues, maybe mids and even smalls will become available to Canadians at less than 0.10%.

  10. Jack Sam
    Posted January 16, 2017 at 7:14 am | Permalink

    Hi Jason,

    Is it more beneficial to stick with XUS for US Large-Cap stocks in CAD than something like IJR and pay to convert back and forth into USD?


    • Posted January 19, 2017 at 3:12 pm | Permalink

      Hi Jack,

      Yes, I think it’s better to run the plan with XUS.

      Happy Sigging,

  11. Phil
    Posted May 24, 2016 at 10:46 am | Permalink

    Hi Jason,

    There is a relatively new product that looks much better than the expensive XSU. XMH, iShares S&P U.S. Mid-Cap Index ETF (CAD-Hedged), has an MER of 0.15%. The unhedged version is XMC (much less popular).

    XMH seems to do a good job of tracking the index, although I would welcome your thoughts…

    Happy Victoria day from Canada,


  12. bill
    Posted February 14, 2016 at 11:30 pm | Permalink


    I wonder if a Nadaq 100 index etf would be a good substitute for Canadian investors since it would likely provide more volatility than an S&P500 index. The only drawback is that I can’t seem to find a non-currency hedged etf available in Canada.


  13. Brandon
    Posted January 18, 2016 at 11:17 am | Permalink

    Has anyone found a broker that is actually commission free for buying and selling the ETFs VAB, XUS in Canada?

  14. Brandon
    Posted January 6, 2016 at 11:38 am | Permalink

    Just finished your book and found this page. Is Running 3Sig in Canada with XUS and VAB still the best option in 2016?
    Also I saw on this site you said to wait for a buy signal to start 3sig, but I remember in the book you recommend investing right away as it was better historically but suggested breaking up a large sum with four equal sizes across the next 4 buy orders.

    My question is where is this initial buy signal? Or can I just invest my large sum right away and wait for the next 3 buy signals from my 3sig and invest the rest?

  15. Jerry Draheim
    Posted December 19, 2015 at 11:33 am | Permalink

    Hi Jason,

    I emailed you earlier this evening about being a Canadian and since found your site that answered my questions. Thanks! You make it look simpler than I expected!

  16. Robert Ammon
    Posted July 31, 2015 at 3:48 am | Permalink

    Hello Jason,

    My name is Robert and I would first like to thanks for all you do to educate and empower those of us out there that seek such education and enlightenment.

    I was given your book, The Neatest Little Guide to to Stock Market Investing and it was absolutely outstanding, particularly the ease at which the information was presented. I then started on my journey and I came across “3Sig”.

    I would like to get started and have a question related to which account to use: RRSP or TFSA. I have both and understand the differences of each but I am unclear if you would suggest one over the other. I have read your article to Canadians on applying 3Sig but still am not clear.

    Any help you can provide would be helpful and welcomed.

    In any case, thank you for your time and your commitment to those of us who desire to take control of our financial future.

    Note that I plan to subscribe to your newsletter but I need to get 3Sig started first, I think?


    Ps. I currently have approx. $18000 in my RRSP account and $8000 in my TFSA account; both are in ETF’s which are yielding relatively modest returns. I was considering converting both to cash to get started with 3Sig, any suggestion in this regard? Also, should I wait until the next quarter or just jump in right now? I am not adversed to either.

    Pss. Am I still using the SPY value as my guide for the :30 down, stick around” scenario even though I’m in Canada and will be using XUS.TO as my stock fund and VAB.TO as my bond fund?

  17. Ryan
    Posted June 20, 2015 at 4:30 am | Permalink

    Thanks! I started the 3sig a while ago when the Canadian dollar was better and have some money in IJR/BND. I am looking at making future contributions to XUS/VAB for the next little while. Since XUS is following the S&P 500 and not a small cap fund, should I lower the signal to 2-2.5%/quarter (pg 81 comparative table of IJR to SPY 10 year averages) to better reflect long term performance and have fewer shortfalls, or just carry on using 3% with expected higher cash contributions to make up the expected shortfalls?

  18. john lubber
    Posted May 20, 2015 at 7:34 pm | Permalink

    Thank you for the reply. A friend read this post and asked me the question ( which I could not answer), what factors do you use to determine when a buy signal is there? Are there market cycles within the business world that are continuously seen like the changing of the seasons that are the precursors to buy and possibly sell actions?

    • Posted May 29, 2015 at 7:13 am | Permalink

      Just mathematics, John. The plan is unequivocally indifferent toward seasonal trends, pundit opinion, economic data, and so on. It looks at stock prices alone. If they grow more than 3% in a quarter, the stock fund is sold; if they grow less than 3% per quarter, the stock fund is bought. The bond fund is used for sale proceeds and buying power for buy signals. The beauty of the plan is that it doesn’t need anything but prices to run circles around almost all other approaches. Most plans presented in mainstream financial media are built on luck and intuition — and suffer the 50% mistake rate demonstrated in the book.

  19. john lubber
    Posted April 21, 2015 at 10:27 am | Permalink

    Your last Kelly Letter mentioned for newcomers to enter the plan in July. Why July, and would this also apply to Canucks looking to enter the 3Sig plan? Thank you.

    • Posted April 21, 2015 at 7:05 pm | Permalink

      Actually, the letter’s advice for newcomers is to wait for the next buy signal, which will not necessarily happen in July. The letter’s next action will happen during the week of July 5, but we don’t yet know whether it will be a buy or sell signal.

      The reason for the advice for newcomers is that I think the emotions work better when people begin their plan on a buy signal, thereby getting in during a period that the signal thinks is a bargain time. While waiting, it’s no problem to keep accumulating capital in the plan’s bond fund. When the next quarterly buy signal happens, that’s the all-clear to start the plan.

      This applies to Canadians as well as Americans — and anybody, for that matter.

  20. lee
    Posted April 11, 2015 at 3:57 am | Permalink

    Any Canucks on here know what the tax implications for trading leverage ETFS in TFSA frequently?

    This article sparked this topic but maybe it deserves its own thread

  21. John Lubber
    Posted April 2, 2015 at 9:57 pm | Permalink

    Jason you have started something ‘Beautiful ‘ for Canucks! Thank you. As Canucks are a gregarious sort lets get this forum up and running with as many market ( and probably hockey) fans as possible. May I suggest the 2015 gift of the year for that hard to buy person, the 3Sig in all its glory. Would it be possible Jason in your well researched Kelly letter to have a Canadian sidebar section (like your Tier 1 through 3) next to the American section. I know Tier 2 and 3 are not in place, yet, however, having it in print on the first couple of pages feeds our minds instantly. I know you’ll keep up the great work.

    • Posted April 11, 2015 at 9:09 am | Permalink

      Thanks for the kind words, John. I’m afraid I don’t have the bandwidth to run a parallel portfolio for Canadians, and I think it would be an unecessary case of information overload. The mathematics for Tiers 1 and 2 (the former running 3Sig and the latter running a leveraged permutation of 3Sig) are the same no matter what funds are used. Soon, I’ll have a calculator up at that makes it easy for anybody anywhere to calculate their own quarterly actions, no matter what funds they’re using. I hope that helps.


  22. Mark Cross
    Posted April 1, 2015 at 8:33 pm | Permalink

    Thanks, Jason, for all the work you have put into this for Canadians
    I’m starting from scratch, and it’s the end of the first quarter. If I decide to go with XUS and VAB, I notice that XUS ended 2014 at $29.88 and it is now $32.81. In other words, it is up significantly more than 3% for this past quarter. Therefore I should not buy any XUS, but instead put all my money in VAB and wait until the end of June. Only if it is lower than $33.79 ($32.81 X 1.03) at that point, would I buy 25% of my XUS fund, which will eventually be 20% of my overall amount including VAB, correct?

    • Posted April 11, 2015 at 9:21 am | Permalink

      You’re welcome, Mark.

      You’re correct except for the allocation target. Eventually XUS should be 80% of your account, not 20%. You want an 80/20 stock/bond allocation target for most of your working life. In Table 33 on page 153, the allocation doesn’t change to 20/80 until you’re 15 years into retirement.


      • Mark Cross
        Posted April 12, 2015 at 11:26 am | Permalink

        Sorry, Jason, for not being clear about the percentages. What I meant was that the initial purchase of XUS would be 1/4 or 25% of the total of the XUS that I will eventually buy. Since XUS is only meant to be 80% of the overall total (with VAB making up the other 20%), this initial purchase of XUS will eventually be 20% of the overall total including VAB.
        I think the hardest part of 3sig will be trying to be patient if the market continues in an uptrend because I won’t be able to “implement the system” which I’m eager to do after reading the book. In other words, all my money will be sitting in the bond fund earning a very low rate of return rather than 80% of it in an equity fund. XUS went up more than 3% for the first quarter of 2015 so no money was invested in it. It seems a little strange that I didn’t invest anything in XUS this quarter because it went up more than 3%, but if it goes up another 2% next quarter, I’ll put money into it even though it’s at a higher price. Do you ever advise “biting the bullet” and investing the full 80% into the equity fund right off the bat or do you always advise the more cautious approach even if it could potentially take years before all the money is in the equity fund?
        Thanks again for your willingness to help us out.

        • Posted April 13, 2015 at 2:22 pm | Permalink

          No problem, Mark.

          Biting the bullet is fine if you steel your nerves to not panic if the market tanks right after you start the plan. Only you can know your emotions well enough to determine this. I advise for people to ease in gradually because most never ease in at all, due to their irrational fear of a crash lurking around the corner. If you’re not afraid of that and don’t mind putting 80% of your capital into small-cap stocks right now, knowing full well that we could get a correction in the near future, then go for it.

          How about a compromise? Move half of your stock allocation into the small cap fund now (40% of the whole portfolio) and wait to move in the other half on the next buy signal. Easy enough.


  23. lee
    Posted April 1, 2015 at 12:10 pm | Permalink
  24. lee
    Posted April 1, 2015 at 12:01 pm | Permalink

    Horizons S&P/TSX 60 (HXT.TO)’s MER is 0.07%.

    • Posted April 1, 2015 at 5:40 pm | Permalink

      Cheap, but the S&P/TSX 60 doesn’t keep up with the S&P 500.

  25. Posted April 1, 2015 at 11:41 am | Permalink

    According to Scotiabanks be page we can trade a handful of etfs for free with itrade. I laughed when i read the disclaimer though.

    here is the link,,4200,00.html

  26. Paul
    Posted April 1, 2015 at 8:54 am | Permalink

    Jason, Great read and thank you for that Canadian follow up. I did have a question with the ETF Bond side of running 3Sig. Unfortunately no one knows were markets are going to go, neither can anyone predict interest rates and when US or Canadian Governments will decide to raise what are historical low rates for such a long time. Bond ETFs are highly connected to Interest Rates. As Interest Rate rise, Bond valuations will drop. This drop will be based on the average length of bonds held within the ETF. Example. VAB has an average of 7.9 years of duration, hence will drop 7.9% for every 1% increase in Interest Rates. VSB although having lower yields has an average of 2.7 years of duration and would drop less in value if rates rise. Correct?

    • Posted April 1, 2015 at 5:45 pm | Permalink


      You’re welcome!

      Yes, you’re correct about the longer-term bond funds being more interest-rate sensitive. However, I prefer staying with a medium-term fund as the best balance of yield with duration. Also, more than 90% of the total return of bond funds has historically come from yield, not price appreciation. So, while some price drop in the coming era of rate increases is to be expected, it shouldn’t be dramatic, is impossible to time, and the fluctuation can also be used by 3sig as it moves capital back and forth between its two funds. Also, bear in mind that “volatility” in a bond fund is so much less than in a stock fund that it’s a bit of a shame to use the same word for both fund types. A medium-term or total bond market fund is an evergreen safe vehicle for the purposes of 3Sig.

      This said, feel free to swap in a shorter-term bond fund or even money market fund for now if you want. I don’t think it’s necessary or will make much difference, but doing so won’t derail your 3Sig plan, either, so go for it if it helps you sleep better. A benefit of 3Sig is that it can work well with a variety of puzzle pieces.


  27. Raj
    Posted April 1, 2015 at 3:29 am | Permalink

    Canadians – want to meet, eh! 🙂

    Would love to join or start a group in Toronto / Mississauga or GTA to discuss the strategies from a Canadian perspective.

    Any interest?



  28. Brian stokes
    Posted April 1, 2015 at 12:22 am | Permalink

    You can buy most of those etf’s in questrade accounts commission free. The only caveat is that like most brokers in Canada they hit you with a hefty 1.5% foreign exchange fee for usd transactions. Interactive brokers here in Canada is by far the best for fees and access to any trading markets. No exchange fees either and dirt cheap commissions. You can use IJR and BOND or your choice of the etf’s jason mentioned. They recently allowed rrsp and TFSA accounts. They are geared towards more experienced investors and there are minimum balances to open accounts.
    Brian in Calgary.

    • lee
      Posted April 1, 2015 at 11:38 am | Permalink

      Has anyone considered the tax implications on dividends for Canadians holding American equities. Canadians are taxed on the dividends roughly 30% regardless of account type TFSA or RSP or RRSP or Cash investment account. However, Canadians might be able to recover some of that back using a tax planning aficionado if the investment was held outside the TFSA.

      That being said, it is my opinion that it would be worth swallowing the loss on the dividend vs a loss of 40% on the capital appreciation just to own IJR or other American equities within the TFSA. I don’t know enough about the internal mechanics within IJR to determine how badly could effect ones taxes by holding the ETF within a TFSA. I would be interested in someone shedding light on this subject. A phone call to my bank may be in order.

      I currently own ZAG.TO as my bond fund, supposedly it comparable to HBB, and has an MER of 0.2% and its only $16/share.

      • Brian
        Posted April 2, 2015 at 4:53 am | Permalink

        Just to clarify for Canadians. On US equities or ETF’s traded on the US exchanges we are subject to a 15% withholding tax in non registered accounts and TFSA accounts. That is waived in RRSP accounts, there is no tax withheld on $US dividends in RRSP accounts only. In a non registred account you are able to claim the foreign taxes paid, so you don’t have to pay them twice. The only place you lose the 15% is in a TFSA as its not covered by the tax treaty.
        So if you traded IJR in an RRSP there is no loss at all, in a TFSA you’ll lose 15% withholding tax on the dividends with no way to recover it, on a non registered account/margin account you’ll have the 15% withholding tax taken off, but can claim that on your taxes to reduce taxes owing.

        • lee
          Posted April 3, 2015 at 12:21 pm | Permalink

          also on a non registered account/margin account you are taxed a second time one gains when you finally withdraw if I’m not mistaken.

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