When you’re investing a relatively small amount of money — in an RESP or a Tax-Free Savings Account, for example — it pays to keep things simple. That’s especially true if you’re buying ETFs from one of the big banks’ discount brokerages. Those $30 trading fees are significant, and if your portfolio holds eight to ten ETFs, each with only a few thousand bucks, adding new money and rebalancing quickly gets expensive.

I recently looked for a way to simplify the international allocation in my own portfolio. I use Vanguard ETFs for all my foreign equity holdings: 42.5% in Vanguard Total Stock Market (VTI) for the United States, 42.5% in Vanguard Europe Pacific (VEA), and 15% in Vanguard Emerging Markets (VWO). I wondered if it made more sense to simply use Vanguard’s Total World Stock Market (VT) instead. This single ETF would eliminate the need to rebalance, and I could make just one contribution a year rather than three.

The first step in my comparison was to see whether the country weightings in VT are similar to the mix I had with the three individual ETFs. Turns out they are: the only significant difference is that VT includes Canada:

Allocation US Europe Pacific Canada Emerging
VTI 42.5% 100%
VEA 42.5% 65% 35%
VWO 15% 100%
Total 100% 42.5% 27.6% 14.9% 15%
VT 42% 26.6% 13.8% 3.6% 14%

So far, so good. The next step was to compare the costs of the two strategies. VT has an MER of 0.30% — that’s extremely low by any standard other than Vanguard’s, but it’s actually double the weighted average of the three individual funds. The trade-off is that I would save two trading commissions annually. A spreadsheet helped me figure out the break-even point:

Allocation Amount MER MER in $ Trades Total $
VTI 42.5% $16,575 0.09% $14.92 $29.95 $44.87
VEA 42.5% $16,575 0.16% $26.52 $29.95 $56.47
VWO 15% $5,850 0.27% $15.80 $29.95 $45.75
Total 100% $39,000 0.15% $57.23 $89.85 $147.08
VT $39,000 0.30% $117.00 $29.95 $146.95

It turns out that the break-even point is $39,000: if you’re investing this amount, the cost of the two strategies is virtually identical. If your portfolio is larger, you’ll save by splitting your foreign holdings into the cheaper individual funds. (You’ll also get a bit more diversification, since VT doesn’t hold everything in other three funds.) But if you’re investing less than $39,000 in foreign equity, consider just using VT. For a small RRSP, an education savings account, or a TFSA, it’s an inexpensive and convenient way to buy the whole world.