Building a retirement portfolio worth $1 million may seem daunting, but it is achievable for many individuals. With consistent effort and a strategic approach, you can create a nest egg that supports a comfortable retirement. Dan Bortolotti, a portfolio manager at PWL Capital and author of "Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs," emphasizes the importance of using exchange-traded funds (ETFs) to maintain a diversified portfolio while minimizing investment costs.

ETFs are funds that hold a variety of assets, including stocks, bonds, and commodities, and trade on stock exchanges like individual stocks. Bortolotti explains, "ETFs provide an opportunity to purchase what is basically an entire diversified portfolio with a single fund." He notes that many ETFs contain thousands of stocks and hundreds of bonds, making them more diversified than most individual investors could achieve on their own.

Unlike mutual funds, which require more active management and often come with higher fees, ETFs are generally more cost-effective. Bortolotti states, "You can find extremely low-cost ETFs, whereas it’s pretty hard to find extremely low-cost mutual funds." This low-maintenance approach can yield significant returns over time.

Assuming a 5.5% annual return, Bortolotti outlines how much one would need to invest monthly to reach a $1 million portfolio by age 65: $595 starting at age 25, $1,122 starting at age 35, or $2,332 starting at age 45.

When selecting ETFs, Bortolotti recommends focusing on asset allocation ETFs, which provide a complete, diversified investment portfolio in one product. He describes these as the "single most valuable and important product that has come out in Canada in the last decade." These ETFs typically have low fees, ranging from 0.18% to 0.25%, significantly lower than traditional balanced mutual funds.

Robb Engen, a financial planner and personal finance blogger, agrees with Bortolotti, stating, "I cannot emphasize enough how much of a game-changer these have been for the do-it-yourself investor." Major ETF providers like Vanguard, iShares, and BMO offer various asset allocation ETFs. For example, balanced asset allocation ETFs, such as Vanguard’s VBAL, hold 60% stocks and 40% bonds, historically delivering around 5.5% returns after fees. Growth ETFs, like VGRO, consist of 80% stocks and 20% bonds, suitable for those with a higher risk tolerance, potentially yielding around 6.2% returns.

Understanding your risk tolerance is crucial when building an investment portfolio. A 60/40 stock-to-bond ratio is a common starting point, while younger investors may opt for an 80/20 ratio. As you approach retirement, adjusting to a 50/50 mix may be advisable.

Bortolotti acknowledges that many younger Canadians face financial challenges, such as lower incomes and mortgages. He advises against feeling guilty for not saving a large percentage of income early on. Instead, he suggests focusing on paying off significant expenses like mortgages first and ramping up savings during peak earning years.

For those looking to invest in ETFs, it is important to note that they cannot be purchased directly at bank branches. Instead, investors can open self-directed accounts through online brokerages like Wealthsimple, Questrade, or Qtrade. Bortolotti recommends choosing a brokerage that does not charge commissions, especially for smaller, regular contributions, as fees can significantly impact returns.

Setting up automatic contributions to your ETFs is a smart strategy. Bortolotti advises, "It’s just a good habit. You probably won’t miss the money after a little while, and it’s the best way to ensure that you meet your savings goals." He cautions against waiting for the perfect time to invest, stating, "A good time to invest is when you have a plan and you have the cash available."

Compounding interest plays a vital role in growing your investment over time. For instance, if your portfolio is $1,000 today with a 5% return, the following year, you earn interest on $1,050. Bortolotti explains, "You’re getting interest on interest every year, and that has a really huge effect over time."

Investors can also consider setting up a dividend reinvestment plan (DRIP), where dividends are used to purchase more shares instead of being paid out in cash. This strategy further enhances the compounding effect.

Ultimately, successful ETF investing hinges on broad diversification, low costs, automated contributions, and a disciplined approach. Engen sums it up succinctly: "Just get started," even if you can only invest a small amount. The principles of compound interest will still work in your favor, making the "Couch Potato" investment strategy a practical choice for many. This strategy focuses on investing in broadly diversified funds without the need for stock picking or market timing, allowing investors to sit back and watch their savings grow.