It was one of the great mysteries in the Canadian fund market: why had no one created an ETF version of the balanced index mutual fund?
These days you can find ETFs focusing on just about every sub-sector of the market, and a pile of others with active strategies that make particle physics look easy by comparison. Yet until last week, no one offered an index ETF that included a simple mix of global equities and bonds. That’s shocking when you consider the balanced mutual fund is a staple in the industry, with over $766 billion in assets as of December. That’s more than five times the assets held by all Canadian ETFs combined.
That yawning gap has now been filled with the launch of three new ETFs from Vanguard. The new family of asset allocation ETFs are built using seven other ETFs. The Vanguard Conservative ETF Portfolio (VCNS) holds 40% stocks and 60% bonds, while the Vanguard Balanced ETF Portfolio (VBAL) uses the opposite proportion. The most aggressive version, the Vanguard Growth ETF Portfolio (VGRO), is 80% equities. All three ETFs carry a very competitive management fee of just 0.22% (expect the MER, which includes taxes, to come in at about 0.24%).
The reaction to the launch of these new funds was swift and overwhelmingly positive. Indeed, they’re probably the most important new ETFs to be launched in Canada in the last couple of years. So let’s spend some time considering whether they’re right for your portfolio.
What’s under the hood
Each of the new funds is built from four equity and three bond ETFs: the only difference is the proportion allocated to each. You can find the specific breakdown in the ETFs’ marketing brochure.
Let’s look at the equity component first. The underlying holdings include the Vanguard FTSE Canada All Cap (VCN) and Vanguard U.S. Total Market (VUN) for North America. For overseas stocks, the funds hold the Vanguard FTSE Developed All Cap ex North America (VIU) for western Europe, Japan and Australia, and the Vanguard FTSE Emerging Markets All Cap (VEE) for China, Taiwan, India, Brazil and other developing economies. All of these underlying ETFs use plain-vanilla, cap weighted indexes of large, mid and small-cap stocks.
While my model portfolios assign one-third each to Canadian, US, and international equities, the Vanguard ETFs allocate things a bit differently. In all three ETFs, Canadian stocks make up 30% of the equity allocation, while the US gets about 38% and overseas stocks get the other 32%. The international allocation is then subdivided with 77% in developed markets and 23% in emerging.
On the fixed income side, the new ETFs use a mix of Canadian and foreign bonds. About 59% of the fixed income in each fund is allocated to the Vanguard Canadian Aggregate Bond Index ETF (VAB), with another 18% to the Vanguard U.S. Aggregate Bond (VBU), and about 23% to the Vanguard Global ex-U.S. Aggregate Bond (VBG). These latter two funds use currency hedging, which is essential for foreign bonds.
What to make of Vanguard’s decision to include US and global bonds? As I’ve written before, I’m agnostic on this question: since interest rates in foreign countries do not move in lockstep with those in Canada, a global bond allocation might reduce volatility, but the benefit is modest, and if you’re managing your own portfolio it’s not worth juggling three funds. However, if there’s no additional work or cost involved, then it’s probably just fine to include US and global fixed income.
Kudos to Vanguard for sticking to the core asset classes in these funds, for using traditional cap-weighted indexes, and for setting a long-term asset mix that won’t change based on economic forecasts. They could have tossed in their new factor-based ETFs, or dividend-focused funds, or given the manager a wide berth to tweak the allocations, but they didn’t. That was a wise choice, because trying to improve on this simple model is, in my opinion, one of the knocks against many robo-advisors, who can’t resist adding unnecessary asset classes that sound sophisticated but do little more than pile on cost and complexity.
The appeal of one-fund portfolios
A couple of years ago, my model ETF portfolio evolved to includes just three funds instead of five, as the launch of new “ex-Canada” equity ETFs allowed investors to get US, international and emerging markets in a single fund. These new Vanguard asset allocation ETFs makes life even simpler by rolling the whole portfolio into a single fund. That should reduce the number of trades you need to make, and remove the need to rebalance. (The fund literature is not specific about how often this will occur.)
There are other advantages to a one-fund solution as well. When your portfolio includes a different fund for each asset class, it’s easy to dwell on the individual parts rather than the whole. (“My portfolio returned 8% last year, but Canadian stocks didn’t do as well as international. Maybe this year I should put less in Canada.”) With a one-fund portfolio, you’re less likely to fall prey to these distractions and stay focused on the long term.
The new Vanguard ETFs are also much cheaper than other one-stop solutions, such as the Tangerine Investment Funds and robo-advisors. The obvious disadvantage of ETFs is that you usually pay a commission to buy and sell them, whereas index mutual funds and most robo-advisors don’t have trading costs. But if you’re now able to use only one ETF per account, you may still come out ahead even if you’re paying $10 per trade.
Consider the Tangerine funds, which are simple, convenient and well diversified, but carry a relatively high fee of 1.07%. A $50,000 holding in one of the Tangerine funds would carry an annual fee of $535. If we tack on a couple of basis points for taxes, the new Vanguard ETFs should have an MER of about 0.24%, giving that $50,000 holding an annual fee of just $120. Even if you spend another $10 per month on commissions your all-in cost would still be less than half as much as the Tangerine option.
The new balanced ETFs offer a similar cost advantage over robo-advisors, most of whom add an additional 0.50% fee to the cost of the underlying ETFs. One of the primary advantages of robo-advisors over do-it-yourself options is the automatic rebalancing, but now that this feature is built in to the Vanguard ETFs, the value offered by a robo-advisor is somewhat less than it used to be.
Not so fast
Since the ETFs were announced on February 1, my inbox has been bursting with emails from readers who want to know whether these funds have revolutionizing index investing in Canada. Many seem to think virtually every other option—Tangerine, the TD e-Series funds, robo-advisors, and even portfolios of individual ETFs—have become obsolete overnight.
Now there’s no doubt the Vanguard asset allocation ETFs will have broad appeal for investors who want to keep things simple without paying more for convenience. But before you liquidate your portfolio and go all-in with a brand new ETF, make sure you consider the big picture.
One of the key benefits of mutual fund options such as Tangerine and TD’s e-Series is that they allow you to set up pre-authorized contributions, and these get invested automatically. (This is also true for robo-advisors, though they use ETFs rather than mutual funds.) Don’t underestimate the importance of disciplined savings and systematic investing. If you use an asset allocation ETF instead, you’ll need to make a trade every time you add money to your accounts. Even with a one-fund portfolio, you can easily fall into the trap of wondering whether this is the “right time” to buy.
The point here is that if you are successfully using one of these other options and you’re not enthusiastic about buying ETFs, don’t feel pressured to switch.
And while a one-ETF solution is a great choice for investors who hold all of their investments in TFSAs and RRSPs, those with larger portfolios may want more flexibility. If you have a large non-registered account as well, you may want to consider using individual ETFs for each asset class for more tax-efficiency.
These new Vanguard asset allocation ETFs are a welcome addition to the marketplace, and if you’re looking for an easy way to get started with ETFs, you just found it. But always remember that investing is about process, not products. Cheap and easy solutions certainly help, but in the end it’s up to you to stay focused on saving, investing with discipline, and tuning out the noise.
@Lauren: Thanks for the comment. It sounds like you are able to save in both the RESP and the TFSA, so I would suggest contributing just enough to the RESP to get the maximum annual grant, and then directing the remainder to your TFSA for your retirement savings. If you have not opened an RESP for your son yet, he will have unused grant room, so you can contribute up to $5,000 per year and get $1,000 in grants for a few years until he is caught up. Then the annual contribution can go down to $2,500 until the lifetime grant is maxed out at $7,200.
You can be fairly aggressive with RESPs until the child gets to high school, at which point I would dial it back significantly. When he is two or three years from university it really should be all in cash and GICs.
Dan, what are your thoughts on retirees holding these one-fund solutions? In a bull market, it’s easy to sell a blended fund for spending since you are harvesting gains in the equities. However, in the event of a major correction, at some point, I would have to sell some bonds to avoid selling equities at inopportune times. That’s not possible with these funds.
@GregJP: In a major correction, the fund itself would be selling bonds to rebalance, so there shouldn’t be a fundamental difference.
Thanks, Dan. However, I was thinking of the fact that you couldn’t separately sell the bond component to live on in the event of a prolonged correction.
Great article. I have converted most of my holdings at TD to VGRO. I think it is a great solution for my RRSP, RESP and TFSA holdings.
I just wish TD would enroll VGRO in their DRIP program.
@Lauren – this is just my 2 cents but for my kids I put $2500 a year into their RESPs. In my view, there is really no benefit to investing more than $2500 a year in an RESP to get the 20% government grant. My plan is to convert my VGRO holdings into VBAL when my kid turns 13 and then to VCNS when my kid turns 17.
@Ryan: There may potentially be a further benefit to contributing more than $2500 annually if you have the extra cash to invest. Say you contribute $2,500 yearly as you suggest; at the end of 14 years you will have contributed $35,000 from regular annual contributions and the (20% matching) government grants would total $7,000. On the 15th year you could make a $1,000 contribution, to attract $200 in government grant which would then reach the total allowable grant amount of $7,200. You would have contributed a total of $36,000 into the RESP.
However, if at any point of time from the first year onwards to the 15th year you had $14,000 to invest, you could add that to the RESP contributions and still not violate the maximum allowable contribution limit of $50,000. If you added this $14,000 on the first year it would have the longest possible period of time to grow within the RESP, and the proceeds would be taxed in the child’s hands at the time of withdrawal, rather than yearly in the contributor’s hands. (Considerations of large sum investment contribution risk may apply, but that is peripheral to my tax avoidance reasoning here).
would you advise putting a large non registered (200k) in VGRO or VBAL for someone nearing 60, with some 60k in tangerine balanced growth in the RRSP AND TFSA accounts, and NO pension in future, apart from measly government pittance? future income in retirement would not exceed some 20k per year, and so in very low tax bracket. what is your best advice?
@oldie: good point. I just wish I had an extra $14k kicking around for my kid’s RESP.
@Ryan
When I first heard of these new Vanguard funds, my first thought was that it’s perfect for my son’s RESP. Up until now, I’ve been using 80% VXC and 20% XIC which is an all-equities portfolio (he’s 3 years old, so the risk level is justified for now). It’s not like it’s hard to balance 2 funds, but the idea of a single self-balancing fund is even more appealing. The MER is about the same as well.
I switched his portfolio to VGRO last week. I don’t even need to keep a spreadsheet around for his account anymore! When new money comes in, just buy as much VGRO as you can and you’re done.
I have the same plan of gradually converting equities to fixed income as he gets older. Wouldn’t want to get hit with a market correction right before he needs the money.
@robertC: this is just my 2 cents but I would not suggest buying VGRO in your situation. You probably want to invest in VCNS, at least in your RRSP and TFSA. You could look at something more tax efficient, but still safe, in your non registered account.
Here is my previous post. Added important question below it. Hope CCP can help! )
“would you advise putting a large non registered (200k) in VGRO or VBAL for someone nearing 60, with some 60k in tangerine balanced growth in the RRSP AND TFSA accounts, and NO pension in future, apart from measly government pittance? future income in retirement would not exceed some 20k per year, and so in very low tax bracket. what is your best advice?”
ADDITION: does it make sense, at all, then, to hold BOTH some Tangerine (say 30% of 200k), and the rest in ONE NEW Vanguard fund?
Good point on the tax implications in taxable accounts, Dan, as I didn’t immediately think of that.
Generally, I think these new single-fund Vanguard ETFs, as well as Vanguard’s pending launch of competitively-priced, albeit actively-managed, mutual funds in Canada, really will put the most pressure on Tangerine’s index mutual funds, Simplii Financial’s index mutual funds offered through CIBC (which I note you don’t mention on here often), and TD’s e-Series funds.
While it remains to be seen how many discount brokers will pick up Vanguard’s soon-to-launch low-cost Series F mutual funds, that will permit fee-free, regular pre-authorized contributions. Even without that, these ETF portfolios, which are different than just buying a Vanguard all world equity index ETF and aggregate bond ETF, may still be a the lowest cost solution from a fee perspective.
Robo-advisors and your shop, PWL Capital, still provide value in lower cost financial advice and fiduciary level of care in terms of portfolio management, so they’re likely less affected.
It’s definitely a solution I’m considering, and I had been considering one of the model portfolio solutions your colleague, Justin Bender, put together that compared Scotia iTRADE commission-free ETF equivalents with his model portfolio ETFs when his frugal brother asked him about it. ;)
Cheers,
Doug
@robertc: you should just straight up buy VCNS for your taxable and non-taxable accounts. You don’t have the time to deal with a stock market crash. You also don’t need to worry about taxes given you expect to be bringing in $20k a year.
Not sure why you care about Tangerine.
I’ve been investing in ETFs for a while, but I’m not 100% sure how they actually work. I have a question about ETFs in general – what happens under the hood when I buy an ETF? Orders are always filled almost instantly, is it always from another holder selling there’s? Or does the fund just create new shares for me?
Say I buy a single ETF share – how exactly do they buy the stocks they need to expand the fund with only the $25 I bought the share for? Do they hold cash from multiple purchases until they’re able to buy the necessary stocks automatically?
I am curious about the effective taxation drag of holding VGRO in a taxable account. The automatic rebalancing is an attractive feature, and could still prove to be a more attractive proposition than a robo-advisor if the effective taxation drag still turns out lower than the added costs of the roboadvisor.
Hi Dan, I really appreciate your whole web site.
Regarding this new Vanguard’s One-Fund Solution, how would you recommend to convert an over-sophisticated portfolio to this only fund?
I had follow the Gone Fishin’ Portfolio and I have a dozen of ETFs. My portfolio is splitted between my RRSP and TFSA (and soon to be RESP).
I think of the bid-ask spread and hidden fees like that. Any hint will be more than welcome!
@boutchitos: There are no hidden fees, so your only costs to making the transition would be the bid-ask spreads and trading commissions, but these should not be that high. And certainly the future benefits of a simpler portfolio will be worth it in the long run.
does anyone have any idea how often VGRO rebalances? it would only make sense to switch to VGRO if rebalances occurs more than 2 times a year at least?
Why is the April 4, 2018 distribution for VCNS so low, it appears to be .80%, I thought it would be the same as the underlying funds if held individually which i don’t believe would be .80%. Maybe my calculation is incorrect I bought 1,840 @ 24.70 = 45,448, the dividend just paid was 91 thus if it is a quarterly dividend the yield is (91×4)/45,448=.80%. Am I missing something in regards to the calculation, If not this seems like an extremely low yield.
Dan, it would appear like a big benefit of this would be that the automatic rebalancing does not trigger taxable capital gains for the investor. On the other hand one would hope that tax loss harvesting would mostly achieve the same over time (minus inflation). What are your thoughts on this for people with taxable accounts? Thanks!
@Vincent: I asked Vanguard about this and they replied as follows:
@Dave: I generally don’t recommend these ETFs for taxable accounts, as explained in the post. In theory, any rebalancing done within the ETF could still result in realized capital gains, which would be distributed to the fund’s unitholders. In practice this seems unlikely, as the portfolio can be kept in balance using new cash inflows. The fund manager probably won’t need to sell and realize losses unless there is a very large market move.
@Brent: The new Vanguard ETFs were launched at the end of January, so this first distribution does not cover a full quarter.
I am wondering about holding these funds in a TFSA. Is it a good idea?
Would you not be losing withholding tax credits on the foreign portion of these funds? (i.e. the US and international stuff). Or am i wrong about that?
@Darren: These funds can be an excellent choice in a TFSA. Foreign withholding taxes are lost in TFSAs no matter what fund type you use, so in that respect the new Vanguard ETFs are no better or worse than other options.
I have some money in a RESP account. I am more than happy to be more conservative in investing in this account due to the 20% match by the government. Would you recommend the VCNS for this purpose? My child turns 1 in May so we have a long time to withdraw the funds. Love the podcast and all of your information you offer.
Hi! Newborn potato here.
I see that the one fund solution has fees of 0.22% – but that it is composed of 7 other ETFs. Do each of those underlying ETFs have additional fees, eating into the total? If the underlying ETFs each had a fee of 0.50, then the total fee would be 0.72% – not bad, but substantially higher, and higher than roboadvisors like WS.
I tried looking over the Vanguard page but was not able to figure this out. I really appreciate any answer!
Thanks,
C
@Carl: There is no double-dipping on fees in these ETFs. The fees on the underlying ETFs are rebated and the total cost to the investor is 0.22%.
@Philip: These ETFs are generally a good choice for an RESP as they allow you hold a diversified portfolio even with a small amount of money. However, if your child is only one, I assume the account is very small. Just be careful not to make a lot of small purchases at $10 each.
I am looking for the simplest solution possible. I find the idea of a1 fund solution very attractive.
Current situation.
I set up ETF based TFSA and RRSP accounts at Qtrade a few years ago with guidance from this site. I have a balanced asset allocation. But I have to say I am bad at rebalancing yearly so I end up with cash sitting in the account.
I tend to do annual deposits instead of monthly contributions due to fluctuating income.
I have about $100000 in the RRSP and $50000 in the TFSA across 4 different funds ( VDU, VSB, VCE, VTI).
Is it worthwhile to sell off everything and rebuy the single fund? Or just start buying the new fund with future contributions?
I can’t tell you how much this site has helped me! Thank you so much.
@Duchess: Because you specifically say that “I am bad at rebalancing yearly so I end up with cash sitting in the account,” it does sound like you would be a good candidate for a one-ETF solution.
Dan, I hope you are well.
Will the MER for Vanguard Canada’s new Asset Allocation ETF portfolios come in higher than many expect?
From the Vanguard Balanced ETF portfolio VBAL, the fine print (at the very bottom) reads:
This Vanguard ETF invests in underlying Vanguard fund(s) and there shall be no duplication of management fees chargeable in connection with the Vanguard ETF and its investment in the Vanguard fund(s).
I read that as the VBAL MER will not duplicate but will include a weighted average of the underlying ETF funds MER.
See here: https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9578/assetCode=balanced/?overview
For comparison, the MER disclosure for the iShares Balanced Income CorePortfolio CBD offering under Key Facts says this about fees:
*In addition to the annual management fee, BlackRock Asset Management Canada Limited or an affiliate is entitled to receive a fee for acting as trustee or manager of each underlying ETF in which this fund invests. The weighted average of such underlying product fee does not exceed 0.55%
See: https://www.blackrock.com/ca/individual/en/products/239449/
Further, the CBD ETF fact sheet (bottom, under Literature), says:
Management Fee* 0.25 % Management Fee*: The annual fee payable by the fund to BlackRock Canada for acting as trustee and manager of the fund. MER: As reported in the fund’s most recent Annual Management Report of Fund Performance. MER includes all management fees and GST/HST paid by the fund for the period, and includes any fees paid in respect of the fund’s holdings of other ETFs. *In addition to the annual management fee, BlackRock Asset Management Canada Limited or an affiliate is entitled to receive a fee for acting as trustee or manager of each underlying ETF in which this fund invests. The weighted average of such underlying product fee does not exceed 0.55%
See here: https://www.blackrock.com/ca/individual/en/literature/fact-sheet/cbd-ishares-balanced-income-coreportfolio-index-etf-fund-fact-sheet-en-ca.pdf
So the MER for CBD could be as much as 0.25% + 0.55%?
(And the MER for VBAL could be 0.22% + ?)
(Not to be confused with their Advisor class MER of 0.75%. See here: https://www.blackrock.com/ca/individual/en/literature/etf-summary/cbd-facts-en-ca.pdf)
Cheers
– Doug
@Duchess: Dan didn’t fully answer your second last paragraph, so as an intellectual exercise I tried to work out the answer for myself. Assuming all future purchases would be of the new one-ETF solution, your annual costs would be 0.24% of $100,000 for the RRSP, say, that is, $240 annually at your current account size. It would cost you $40 to sell the 4 different ETFs to get you started with a lot of available cash, (and $10 more to buy your one-ETF solution and $10 yearly purchase cost thereafter). It might be a good idea to wait for the next anticipated quarterly dividend distribution date to do all this to minimize the annoying small amount of cash sitting dormant in your account till your next purchase next year.
However, another possible convenient idea crossed my mind. If you didn’t sell the existing 4 different ETFS, and if their current proportions were close enough to your planned allocation you could just leave them alone and save $40 selling cost, merely buying as much of the one-ETF solution as you can buy with your new contribution money plus whatever cash you now have sitting in your RRSP account. That would look messy, but pragmatically really might end up close enough to your planned mix to work well enough, with the bonus that the slightly lower annual cost of your existing 4 ETFs would be an ongoing annual saving than to wipe them all off now and replace them. You could just ignore them in the years to come, and their fluctuating ratios, whatever they would be worth, would eventually get to be dwarfed by the growing bulk of your one-fund portion.
Does my logic seem about right to everyone else out there?
@Doug: Great to hear from you again. There won’t an additional fee added to the Vanguard asset allocation ETFs, so the total MER should be 0.22% plus a couple of basis points for taxes. iShares, as you point out, has specifically added a 0.25% fee for wrapping and rebalancing the underlying ETFs. According to the Management Report of Fund Performance for 2017, the MER on the common units of CBD last year was 0.75%, right about what you would have predicted. (This is one of the reasons I have never liked these iShares ETFs.)
@Oldie: Sorry for not being explicit. Unless there are large capital gains to consider, I would almost always recommend that if one were to switch to a one-ETF portfolio, then they should first sell their existing holdings. Otherwise it largely defeats the purpose, as keeping the existing funds as well as the new ETF would result in an even more cluttered portfolio and would not eliminate the need to rebalance.
Let’s remember that the whole point of using a one-fund solution is to make things clean, simple and easy to maintain. Hybrid solutions, by definition, are none of these things.
RE: “Assuming all future purchases would be of the new one-ETF solution, your annual costs would be 0.24% of $100,000 for the RRSP.” But if only future purchases would go to the new ETF, then the $100,000 already in the RRSP would not be affected. The cost would be whatever it is now.
Hi Dan,
I’ve be and fan and a follower of yours for 10 years. Thanks for the perspective. I’m a Canadian living abroad in Europe and have a non-registered trading account with TD. I’m subject to a 25% withholding tax on dividends as a non-resident.
I currently own 5 funds and distribution is evenly spread among them and I make contributions twice a year. I own VCE, VEE, VDU, VUN, and HBB. As a non-resident, do you think it would make sense to sell all positions and convert to VGRO?
Thanks,
Canadian Expat
@Canadian Expat: Thanks for the comment. Unfortunately, as I hope you’ll understand, I cannot offer tax advice, especially not to non-residents, as I have no expertise in this area.
Hi Dan,
I have finished switching everything over to the one fund. And I can already tell this is going to be the best solution for me going forward.
I am quite good at saving, and spending intentionally. But the investing has always been where I am weaker with follow through. And eliminating that extra step of rebalancing is basically planning for success. I can’t believe how easy and simple this is! Why didn’t they do this years ago? This should have been Vanguard’s first Canadain product. (:
Thanks for your input.
Hi Dan,
I recently transferred my RRSP to RBC Direct Investing. I also have a TFSA account in DI with roughly the same amount. I have my RRSPs in the VGRO fund, but because my TFSA was opened prior to the new balanced funds I have them in an assortment of ETFs roughly following the couch potato portfolio. I’m considering moving my TFSA to a balanced fund as I’m attracted to the automatic rebalancing (I currently only rebalance through purchases which I do 2-3 times per year). Would you recommend diversifying away from the Vanguard balanced funds? Or would it make sense to hold both your TFSA and RRSP in VGRO?
Thanks!
@Alex: There is certainly no reason to “diversify away” from the Vanguard asset allocation ETFs. You could even argue they are slightly more diversified than my three-ETF model portfolio, as they include foreign as well as Canadian bonds. So the question really comes down to whether you would value the added convenience of using the single Vanguard ETF so you can avoid rebalancing altogether.
Hi Dan,
I have the 3-ETF portfolio in my CIBC Investor’s edge account (ZAG, XAW, VCN). Would it be better if I sold my shares for the 3 equities and purchase with VBAL as to rid myself of the fees when rebalancing moving forward?
It costs $7 per transaction and rebalancing would eat up at most $42 if done every year.
@Neil: This is really your judgement call. If you value the convenience of never having to rebalance, then the one-fund solution is likely to be worth it.
Hi Dan,
How often should I be contributing if Idecide to go the VBAL/VGRO route since there’s no automatic contributions? Monthly? Bi-weekly? I am current with Direct Investing but am thinking about switching to Questrade in order to avoid the $10 buying commission ($120 in fees if I contribute monthly). How often do you recommend contributing and is it worth switching to Questrade? I am just getting started but figure that the fees will add up over time. I do my other banking with RBC but don’t mind switching these accounts over if it makes sense.Thanks!
@Ben: It depends on the specifics, as always, but if you are paying $10 per trade then even a $1,000 trade would cost you 1% in commissions, which is a lot. If you are making small, regular contributions, then ETFs are usually not appropriate unless you are at a brokerage like Questrade that does not charge commissions. In that case, you can contribute as often as you have the money available.
I want to encourage my 32 year old to take an interest in the investment world and thought to buy $2000 of VBAL just to get her started. Then over time when she has added more to the account she can start to look at the ETF options. Does that seem like a reasonable approach?
@Trish: I would not recommend ETFs for such a small investment, nor for someone with no experience. Something much simpler (e.g. Tangerine or a robo-advisor) would likely be more appropriate.
Hi Dan,
First of all, thank you for all the useful information you put out.
I am new to ETF and just opened a brokerage account with TD DI.
I am considering switching my TD Mutual funds with 2.5% MER to the VGRO ETF solution with 80 equity/20 bond split, as the automatic rebalancing appeals to me and I have a long investment horizon.
I read in the book Millionaire Teacher that bonds should increase with your age in order to decrease volatility as you approach retirement and your investment horizon is shorter.
Ex. if I used your 3 ETF model portfolio I would have opted for the aggressive 90/10 solution and rebalanced with 1% more bonds every year and in 30 years have a 60/40 split.
My question is: How would I do this if I am just doing a “one fund solution” with a fixed allocation?
@Harry: Increasing your bond allocation as you age is often a good idea, but the advice should not be interpreted so literally, i.e. increasing your target by 1% a year. Many investors will not change their allocation significantly for a decade or more. If you feel you are comfortable with a mix of 80% equities and 20% bonds now, you can likely keep that consistent for years.
Always remember that a one-fund solution, by definition, is designed to be simple and is never going to be customizable.
This podcast includes a discussion of this idea in the “Ask the Spud” segment. It also features Andrew Hallam:
https://canadiancouchpotato.com/2017/02/08/podcast-5-master-class-with-the-millionaire-teacher/
Hi Dan,
Trying to help my parents out in investing in something safe as they are nearing retirement in about 8 years or so. Since I’m no expert, would you recommend VBAL or VCNS for them in the TFSA account? Lets say we throw in the full $55K in TFSA all at once since buying multiple times will incur more fees.
I was about to have them on the CCP Balanced/Cautious portfolio but this 1 fund solution caught my eye.
Thanks,
Brian