In the brief time they’ve been around, asset allocation ETFs have transformed the way DIY index investors manage their portfolios. These balanced funds have become the default choice, as it’s harder and harder to justify adding more moving parts and more complexity to a portfolio by using individual ETFs for each asset class.
While other fund providers now offer their own versions, the Vanguard and iShares asset allocation ETFs remain the most popular, and for good reason. I’ve included both in my model portfolios because you can’t go too far wrong with either family. Vanguard and iShares both offer five options, with equity allocations ranging from 20% for conservative investors, all the way up to 100% for the most aggressive. Each fund combines several underlying ETFs, which invest in thousands of individual stocks and bonds, providing Canadian investors with extensive global diversification.
| Asset Mix | Vanguard ETF | iShares ETF |
|---|---|---|
| 20% equities / 80% bonds | VCIP | XINC |
| 40% equities / 60% bonds | VCNS | XCNS |
| 60% equities / 40% bonds | VBAL | XBAL |
| 80% equities / 20% bonds | VGRO | XGRO |
| 100% equities | VEQT | XEQT |
But that’s not to say they’re identical. The Vanguard and iShares families have several differences in composition and strategy. None of these is terribly dramatic, but they’re worth understanding if you’re looking to make an informed choice. In our latest blog-and-video joint venture, Justin Bender and I present a head-to-head comparison of the Vanguard and iShares asset allocation ETFs.
Before we dive into the details, let’s address the most obvious difference: fees. The iShares portfolios are slightly less expensive at about 0.20%, compared with 0.25% for the Vanguard funds. A margin of five basis points would be a good tiebreaker if the funds were exactly the same in all other respects. But as we’ll see, they’re not, so this shouldn’t be your only point of comparison. And let’s say it again: costs are always important, but unless your portfolio is very large, small differences don’t add up to a lot of dollars. On a $100,000 balance, five basis points is less than $1 a week.
Canadian equities
We’ll start our comparison by looking at the allocation to Canadian stocks. Our country makes up only about 3% of the global equity market, but Vanguard and iShares both overweight domestic stocks in their asset allocation ETFs. Vanguard assigns 30% of their equity mix to Canadian stocks, and 70% to foreign stocks. iShares goes with 25% Canada and 75% foreign.
Based on recent performance, you may be tempted to favour the iShares ETFs, with their higher allocation to foreign stocks. After all, during the decade ending December 2019, foreign stocks outperformed Canada by around 4.6% per year. But if you’re old enough, you might remember that from 2000 through 2009, Canadian stocks crushed the rest of the world by an average of 8.1% percentage points per year.
Remember, global diversification is based on the idea that all countries have roughly equal expected returns over the very long term, even if they experience wide variance over shorter periods. Indeed, if you had been invested during the 25 years from 1995 to 2019, it would have made virtually no difference whether you had selected 30% or 25% Canadian stocks. Both portfolios would have delivered virtually identical results: an average return of 7.4% per year, with the same level of volatility.
Bottom line: This one’s a coin flip. The small difference in allocation to Canadian equities will likely have no meaningful impact over the long term.
Foreign equities
As we’ve noted, Vanguard allocates 70% of its equity portfolios to foreign stocks, while iShares assigns a weight of 75%. But there are also more important differences between the way these fund providers divvy up this allocation between US, international, and emerging markets equities.
Vanguard assigns a weight to each region based on market capitalization: that is, according to the total dollar value of all publicly listed stocks in each region. For example, today the US comprises about 58.7% of the global stock market, not including Canada. International developed markets make up about 30% of the global market (ignoring Canada), while emerging markets grab the remaining 11.3% or so. The foreign equity allocation in the Vanguard asset allocation ETFs is broken down according to those proportions.
It’s important to stress that these weights are not static: they will change over time as the market caps of various countries evolve.
iShares, by contrast, assigns specific target weights for their US, international, and emerging markets allocations. U.S. equities receive a 60% share of the overall foreign equity allocation in each ETF, with another 33.3% going international developed countries and the remaining 6.7% to emerging markets.
The biggest takeaway here is that the iShares ETFs significantly underweight emerging markets (and overweight developed markets) relative to their Vanguard counterparts. This difference is even greater when you consider that South Korea is considered a developed market by Vanguard’s index provider (FTSE) and an emerging market by iShares’ (MSCI).
Bottom line: If you want your foreign equity allocation to roughly mirror the global stock market, the Vanguard asset allocation ETFs are the way to go. If you prefer to underweight emerging markets, choose the iShares ETFs.
Overall equity asset allocation: Vanguard v. iShares ETFs
| Asset Class | Vanguard | iShares |
|---|---|---|
| Canadian equities | 30% | 25% |
| US equities | 41.1% | 45% |
| International equities | 21% | 25% |
| Emerging markets equities | 7.9% | 5% |
| 100% | 100% |
Fixed income
Now, over to the fixed income side of the asset allocation ETFs. Here, too, there are some significant differences between Vanguard and iShares.
The Vanguard fixed income portfolios include 60% Canadian bonds and 40% foreign bonds. The domestic bonds cover the broad market, with government and corporate bonds of all maturities. As with the foreign equity portfolios, Vanguard includes US, international and emerging market bonds, weighted according to each region’s market cap. Currently this works out to approximately 43% US bonds and 57% international and emerging markets.
iShares opts for more Canadian content, with 80% of the fixed income portfolio in domestic bonds. Moreover, iShares also swaps out a portion of the broad-market Canadian bonds for shorter-term corporate bonds. The other 20% is US bonds, split evenly between government and corporate investment-grade issues.
Overall fixed income asset allocation: Vanguard v. iShares ETFs
| Vanguard | iShares | |
|---|---|---|
| Canadian broad market bonds | 60% | 62.5% |
| Canadian short-term corporate bonds | - | 17.5% |
| US broad market bonds | 17.2% | - |
| US government bonds | - | 10% |
| US corporate bonds | - | 10% |
| International broad market bonds | 22.8% | - |
| 100% | 100% |
Both fund providers hedge all the foreign currency in the bond portfolios (as they should), which reduces the volatility that would otherwise result from changes in exchange rates, making the foreign bonds behave more like Canadian bonds. For this reason, you’re not likely to see big differences in the performance of Canadian and foreign bonds, like you would in equities. So although the Vanguard portfolios have far more non-Canadian bonds that their iShares counterparts, this will likely have only a modest effect on long-term performance.
More significant, perhaps, is that the iShares bond portfolios have a lower average maturity (9.6 years versus 10.4 years for Vanguard’s) and lower duration (7.4 versus 8.1). Lower duration means the bonds are less sensitive to changes in interest rates, so the iShares portfolios might be slightly less volatile. However, the extra helping of corporate bonds also adds a layer of credit risk.
Bottom line: Vanguard’s approach—including all countries in proportions that match their size in the overall market—is much closer to a traditional indexing strategy. iShares makes some active decisions (no overseas bonds, more corporates, shorter duration) that you might not agree with.
Rebalancing strategies
Of course, one of the best features of asset allocation ETFs is that they rebalance for you: that means you never need to worry about selling bonds to buy more stocks during a bear market, or doing the opposite after a big run-up in stocks. Here again, though, Vanguard and iShares have different strategies.
We should acknowledge that this is probably a moot point for the foreseeable future. Investors have poured hundreds of millions into these ETFs in the last couple of years. Those huge cash flows have allowed the fund managers to simply buy more of whatever asset class is furthest below its target weight. That prevents the portfolios from ever getting so far out of alignment that the manager needs to sell securities to rebalance.
If those cash flows eventually slow down, however, then the asset allocation ETFs may need to actively rebalance after a big move in the markets. Vanguard’s plan is to prevent any individual holding from drifting off target by more than an absolute two percentage points. For example, VBAL has a Canadian equity target weight of 18%. If this becomes more than 20% or less than 16%, the fund manager would step in to rebalance.
The iShares strategy is a bit different. Their plan is to rebalance anytime an asset class drifts off target by a relative 10%. For example, XBAL’s target for Canadian equities is 15%, so the rebalancing threshold is 1.5 percentage points (because 10% of 15% = 1.5). So the managers rebalance if the allocation to Canadian equities creeps past 16.5% or falls below 13.5%.
Bottom line: The asset allocation ETFs will likely remain very close to their targets at all times, so the differences in rebalancing strategies are likely to be negligible.
Purchase plans at your brokerage
Let’s wrap up by considering some differences between the Vanguard and iShares asset allocation ETFs that are specific to your online brokerage. If you don’t have a strong preference for one of these fund families over the other, these practical considerations might tip the scales.
First, both XBAL and XGRO are eligible for commission-free trades at both Scotia iTRADE and Qtrade. So if you invest through either of these brokerages, opting for these iShares ETFs instead of their Vanguard equivalents (VBAL or VGRO) will significantly reduce your trading costs.
Even if you invest with Questrade, where all ETF purchases are free, the iShares ETFs have one potential advantage: XBAL and XGRO are eligible for pre-authorized cash contributions (PACCs). This program allows you to arrange for a specified dollar amount to be taken from your chequing account and used to purchase ETF shares at regular intervals. While this allows you to put your portfolio management on autopilot, you should be aware that iShares seem to support the program reluctantly (it’s not advertised on the website) and it’s a nuisance to set up. But if you’re interested, contact Questrade’s help desk for instructions.
Bottom line: If you’re making small, regular contributions to your asset allocation ETFs, the iShares versions may offer more opportunities to reduce the commissions you pay. But this consideration should not be the driver of your decision between the two fund providers.
Hi Dan- I currently have a financial advisor with a brokerage firm whom I’m not happy with due to lack of communication. My portfolio is mainly in RRSP and RRIF accounts. 65% of the holdings are in U.S. stocks and some international stocks. The remaining holdings are in Canadian stocks and fixed income. I’m thinking of leaving my advisor and starting an ETF portfolio. I want to buy XBB/ZST and ZCN for the fixed income and Canadian equity portion of my portfolio. Im considering buying XAW or VXC for the US and international portion however XAW and VXC are priced in Canadian dollars. I don’t want to sell my US stocks and convert the funds to cdn$ since these stocks were purchased when the US dollar was over 1.38 cdn. Another option is to purchase the US equivalent of XAW or VXC ( is it possible to recommend a couple of global funds in US dollars ). Do you think I’m on the right track or do you recommend other options. I’m over 65 and retired. Thank you so much.
@Paul H: Thanks for the comment. If you want to to keep your foreign equities in USD, there are a couple of US-listed ETFs that are similar to VXC and XAW. Both include a small allocation to Canada as well, but it’s less than 3% so you can ignore it. Have a look at Vanguard’s VT.
That said, selling US stocks and then purchasing a CAD-denominated ETF that holds US stocks actually does not change your currency exposure. Your exposure comes from the underlying stocks, not the currency of the ETF. This is a very common misunderstanding:
https://canadiancouchpotato.com/2014/01/13/how-a-falling-loonie-affects-us-equity-etfs/
Hi Dan. I am looking at the fee required to pay when purchasing an ETF. Example, for VSP, the management fee and MER is 0.08% and 0.09% respectively. Does that mean the total fee I require to pay is 0.17% ? Thank you so much.
@Michael Mok: No the MER includes the management fee, plus taxes and sometimes a basis point or two in other costs.
Hi Dan, I’m opening an RDSP for my 10 year old son, and I’m having a hard time figuring out where to go – CIBC is my main FI and they shoehorn all RDSP accounts into their MFs which are costly and annoying as they don’t have an overall market VBAL or VGRO substitute which would be my ideal structure at lowest possible cost. Most FIs have “Make an appointment” to learn about options, very limited above-line marketing.
Based on what I’ve said, any advice in terms of where I’m likely to find RDSP options that will meet my needs? Thanks! RIco
@Rick: My understanding is that TD Direct is one of the few online brokerages that offer self-directed RDSPs, which would allow you to use ETFs:
https://www.td.com/ca/products-services/investing/td-direct-investing/accounts/rdsp/
I currently own VGRO in my LIRA account and after seeing this analysis, I’m thinking to sell all $211,000K , then purchasing XGRO I’m in my early 60’s and will be withdrawing funds in the next 2-3 years. Would you suggest purchasing in one lump sum, or in increments?
@michelle: If you are all invested in VGRO, then switching to XGRO is a very subtle change. There is no benefit to doing it gradually. Just switch one for the other. (But, honestly, I don’t see any reason to do so, as the funds are extremely similar.)
More important is whether a portfolio of 80% stocks is appropriate for someone in their 60s and planning to start withdrawals in 2 to 3 years. VGRO/XGRO are very aggressive portfolios that could easily lose over 30% in a sharp downturn. They are more appropriate for investors with a time horizon of over 10 years.
https://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/
Hi there Dan. The idea of PACC with the iShares ETF’s sounds appealing but I’m leaning towards the Vanguard ETF’s. VGRO in particular. I plan on opening a Questrade account and purchasing through them. I will have about $1350 a month to invest, and when I had a look yesterday VGRO was at 29.88 per share. This would mean I could buy 42.18 shares. But, I can’t buy partial shares so, I would buy 42 shares and then what would happen to the extra $5.40 in this case?
@Nick: If you were using a PAC, they would just purchase 42 shares for you and the remaining $5.40 would just become part of your cash balance. The principal is the same as what happens if you use a DRIP: you receive the maximum number of full shares and the “change” is received in cash.
Hi,
Can you tell me your thoughts on VEQT/VFV portfolio? Is it worth keeping this given there is so much overlap? Historically, VFV really performed well and it’s been doing so well with a very low MER fee. My monthly investment is $400 per month for the next 5-10 years. I am worried VEQT might not perform as good as VFV since it does not enough past data to back it up.
@Shajedul: It’s very important to understand what index funds are so you don’t think of them simply as products. VEQT itself has a short history, but it’s simply a fund that tracks the entire global stock market, which has been around for some time. VFV tracks the S&P 500, an index of large-cap US stocks. So rather than comparing VEQT to VFV, the question should be, “Do you think large-cap US stocks should be expected to outperform the global market during your investment lifetime?” It has certainly done so in the recent past, but I would suggest that global diversification makes more sense than concentrating on a single country.
Hi Dan I am considering transferring my mutual funds into ETFs and specifically investing in VBAL. Is there not a huge disadvantage owning All in one ETF’s like VBAL during retirement when the markets are going through a sharp down turn? If I held the same funds but outside of an All in one ETF’s like VBAL during a market downturn I could avoid selling my equities (which usually have higher losses than bonds). It is my understanding with ETF’s like VBAL you cannot draw down on specific funds within the fund is this correct? What do you suggest for these situations?
@Brent: If you’re drawing down any portfolio (whether you’re using one ETF or several) it’s often best to hold at least three years’ worth of cash flow in a savings product and GICs.
For example, if you need $3,000 per month you could hold $36,000 in cash and another $36,000 in each rung of a GIC ladder ($36,000 maturing in one year, another $36,000 in two years, and so on). Each year, when a GIC matures, you use the proceeds to replenish your cash holding. Normally you would also sell $36,000 of your ETFs to replenish the GIC ladder: however, if you’re in the middle of a bear a market and you would prefer not to, you have a buffer of least a year or two.
Don’t forget that funds like VBAL are always maintaining their target asset mix, so during a bear market the fund manager will be selling bonds and buying stocks, just like you would be doing if you held the ETFs individually. So it’s really not a fundamentally different situation.
Hi ,
Would it make any difference having two Vanguard asset allocations vs having one Vanguard and one iShares?
I have always wondered and no one really has an answer. The reason I want to know is because I currently have my ongoing RRSP in a VGRO and I am in my 30’s so I plan to keep investing in that.
I have a TFSA GIC that just came out and the rates are not worth putting it back in a GIC. I was tempted to open a TFSA acct with my current investor Qtrade and invest in something a little more stable like VCNS, but I always wonder is there any possible benefit to diversifying into a XCNS instead?
@Amanda: There is no meaningful “diversification” benefit to mixing Vanguard and iShares asset allocation ETFs. All of the asset allocation ETFs are extremely well diversified on their own. However, the two companies use slightly different asset mixes, so that should be what drives the choice. For example, Vanguard incudes global bonds in its portfolio, while iShares includes only US and Canadian bonds. The iShares funds also hold a little more US equities relative to Vanguard. If you don’t have a strong preference for one or the other strategy, then it can’t hurt to use one of each.
Hi,
I am in my young 30s and having good incomes. After lot of readings I’m considering leaving my financial advisor because of the high fees. Would it be a mistake to invest everything in a all-in-one growth ETF like VGRO? Should I invest in something else beside or there is no need because of the high diversification.
Thanks a lot!
Hi Dan
Very happy to have found your site. There is so much useful information on DIY investing. I have moved my RRSP portfolio into a online broker and will be purchasing the all in one ETFs. For my asset allocation, I am comfortable with a 70% equity 30% bond split.
1) You have mentioned using a two ETF approach with 100% equity ETF and a bond ETF for the 70/30 split. What about half in 80/20 (VGRO or XGRO) and half in 60/40 (VBAL orXBAL)? Any downside or issues?
2) As I am 10 years from retirement, would a better option be to purchase VGRO, then use new money to buy a bond ETF to slowly increase my allocation to bonds?
Thank you for the help that you give everyone. I have learned a lot by just reading the comments and your answers! The amount of time that you spend maintaining this blog is appreciated.
@Marc: An all-in-one asset allocation ETF sounds ideal for your situation, and it is all you would need. These funds are designed to be a complete portfolio, not just one holding among many.
@Janice: Thanks for the comments, and glad you’ve found the site useful.
1) Using a combination of VGRO/VBAL or XGRO/XBAL to get a 70/30 mix is a perfectly good alternative to combing an all-equity ETF with a bond ETF.
2) This is hard to answer without knowing the size of your future contributions relative to the overall size of the portfolio. But in general I wouldn’t recommend this: it will be too easy to waver from your plan. If you are comfortable with 70% equities now, I would be more inclined to just stay there for another five years or so, and then transition to 60% (this could be accomplished by simply selling VGRO/XGRO and moving the proceeds to VBAL/XBAL, perhaps in stages over a year or two). Then think about what you would want the portfolio to look like in retirement: would it stay at 60% equities indefinitely, or would you reduce that to 50?
For now I would not overthink this too much. The important thing is to get started, and your plan can evolve over time.
Hi Dan,
Thank you for all the great articles.
1. Is a VGRO/VBAL combination good in TFSA?
2. I currently have a combination of XAW, VCN and TD Bond TDB909 in my RRSP. Is it worth getting rid of TDB909 and buying ZAG for example?
Thank you.
@Tushar: All of the asset allocation ETFs are good choices in a TFSA. You’d just need to decide what asset allocation is appropriate.
Swapping TDB909 for ZAG could make sense, as the latter has a significantly lower MER. However, if your brokerage charges commissions on ETF trades, those transaction costs could outweigh the benefits.
Hi Dan!
You never write about the Tangerine products any more. It seems to me they are not so bad. Could you comment on that please. Thank you!
Nicole
@Nicole: Stay tuned: I have a new blog about the Tangerine Global ETF Portfolios in the works.
Hi Dan!
Great article! I am so close to taking the plunge and investing in the iShares ETF portfolio. I have a question about rebalancing. When I eventually want to move to a more conservative portfolio (instead of 80% stocks, 20% bonds) is that easy to adjust? Seeing as how the portfolio automatically rebalances. Sorry if this is a silly question, I’m quite new to investing. Rebalancing on my own seems very daunting at this point, but I just want to make sure I can adjust my risk allocation when needed as I get closer to retirement.
Thank you!!
@Taylor: Thanks for comment. This is actually a common question. It’s definitely am easy matter to simply sell the more aggressive ETF and repurchase a more conservative one, e.g. sell VGRO and VBAL. In an RRSP or TFSA there would be no tax consequences to the switch. But you might not want to switch from 80% stocks to 60% all at once. And in a taxable account there would likely be capital gains taxes to pay, so making the switch all at once would likely not make sense either.
So, if you need to make a gradual switch there are a few ways you could do that. You might add an all-bond ETF to the portfolio and make new contributions there, which would decrease the overall equity allocation over time. Or you could hold some cash and GICs to reduce risk and meet shorter-term needs. I think the main point here is that you would need to do these things at some point in your investing life anyway, so I cannot think of any situation where you are complicating your life by using an asset allocation ETF. I would not spend much time worrying about how you might adapt your portfolio many years in the future: there will always be plenty of options. Good luck!
Hey, Dan! I have been reading your stuff for a while now along with many investment books. My girlfriend and I just bought our first house and are just now starting to invest. Would you recommend a certain brokerage between Questrade and wealthsimple for ishares or vanguard etfs? Could you explain why you would choose one over the other?
@Bobby: Thanks for the comment. I don’t have any strong feelings about brokerage choices, but Questrade does offer some advantages over Wealthsimple Trade. I would describe the latter as more of a trading app: for long-term investing Questrade offers more features and greater access to other types of investments.
Hey Dan,
Great article! Above you wrote: “Even if you invest with Questrade, where all ETF purchases are free, the iShares ETFs have one potential advantage: XBAL and XGRO are eligible for pre-authorized cash contributions (PACCs).” Just wondering – why are only iShares ETF’s eligible for PACC’s and not any other type of ETF? Also are PACC’s with iShares just available at Questrade or can i set this up at other brokerages as well, such as WealthSimple (which also doesn’t charge any trading fees)?
I’ve also noticed that you don’t mention WealthSimple above or much in your other articles either. Is there are a reason why you wouldn’t recommend WealthSimple?
Thanks,
Daniel
@Daniel: The iShares PACC program was created many years ago by Claymore ETFs, a company that was later bought by BlackRock (the current owner of iShares). BlackRock has grandfathered the program, in theory, but they go out of their way not to advertise it. It would be up to each brokerage to support it, and I don’t believe many brokerages do (Questrade is one of them, but I don’t think Wealthsimple is). It’s not surprising, since it’s an administrative burden, and there really is nothing in it for the brokerage other than lost commissions. No other ETF provider offers anything like it.
Great thanks for the help!
Sorry just a quick follow up question – is there any risk of it being discontinued? I really like the PACC program and wish it was more widely available outside of mutual funds and robo-advisers but it would be annoying if i enrolled in it only for them to cut it off. Or is that pretty unlikely?
@Daniel: iShares has grandfathered the PACC program for about 10 years now, so it would be surprising if they suddenly decided to scrap it.
Hello Dan,
Thanks to some advice from a friend and plenty of information from you and this site, I dumped my former mutual funds and moved everything into the Vanguard Asset Allocation ETFs. It’s so nice to see that money can actually grow in an investment account… who knew!
On a somewhat related note, I’m wondering what your thoughts are on the Smith Manoeuvre with respect to paying down a mortgage? A different friend and his wife (who is a mortgage broker) are doing this with their mortgage, and upon researching, I’m blown away at the perceived lack of downside to this strategy unless one is irresponsible with their investments.
I understand (at least conceptually) the the risk in using debt to leverage investment return, but wouldn’t putting this money into something like the Vanguard Asset Allocation ETFs be a pretty safe bet and provide a fast(er) track to paying off the mortgage?
Are there any blind spots I’m not aware of here?
@Michael: Thanks for the comment. Can you share a little more abut what you are considering?
First, to clarify, the Smith Maneuver originally described a strategy for people who had both a mortgage and a non-registered investments. The idea was to pay off your mortgage using the non-registered funds and then reborrow a similar amount with a line of credit to repurchase the investments. This would allow you to deduct the interest on the loan (because it is now an investment loan, not a mortgage) without increasing the amount of debt you have. It is not a leveraging strategy. And it definitely does not allow you to pay off your debt more quickly: on the contrary, you are perpetually using a line of credit with the Smith Maneuver.
The Vanguard Asset Allocation ETFs are excellent products, but they are not “a pretty safe bet.” In a severe bear market they will fall as hard as the market: an all-equity fund like VEQT could lose 50% of its value (this happened to similar portfolios in 2008-09).
It’s very easy to make a spreadsheet showing why it’s a great idea to borrow at 2% to buy an investment that might be expected to return 7% or 8% over the long term. And it can definitely work out for some people. But it cuts both ways: during a prolonged bear market you could suffer large losses with borrowed money, which is a very stressful place to be.
Hey Dan! Love the site :) I’ve put together a very simple portfolio that ends up looking like this:
RRSP – VGRO (90%) / Cash (10%) – 37% of entire portfolio
TFSA – VGRO (90%) / Cash (10%) – 16% of entire portfolio
CASH – XEQT (100%) – 46% of entire portfolio
————————————–
Weighted Regional Allocations:
US: 43% / Ex-US: 27% / Canada: 24%
Weighted Equities / Bond / Cash Ratio:
84% Equities / 10% Bonds / 5% Cash
I had a few questions I was hoping you might be able to answer:
– I’m 35 years old, is this too much bond exposure for me? If not, when do I start adding more bonds?
– Is there anything wrong with mixing Vanguard and iShares funds across my various accounts?
– Does it make sense to keep 10% cash in each of the non-taxable accounts
@Adam: Thanks for the comment.
I can’t suggest an appropriate asset allocation for you specifically, but 10% bonds is not “too much” for anyone. The right amount for you depends on your risk tolerance as well your age. A portfolio of 90% equities would have lost about 40% to 45% of its value in six months in the 2008–09 downturn. Are you prepared to suffer a loss like that?
There’s no harm in holding both Vanguard and iShares asset allocation ETFs. If you’re having a hard time deciding on one or the other, then holding both will at least minimize regret!
I don’t think it’s necessary to hold cash as part of a long-term investment portfolio. I would instead make sure you have enough cash set aside for short-term needs and emergencies and then exclude this from the calculation.
Hi Dan,
Love the blog, and I’ve tuned into your podcast more and more now. I recently moved my RRSP portfolio from another broker and liquidated the individual stocks that I had. I made a nice gain off of them, but now I am ready to go into a “set it and forget it” route. I have about 25 years before I would touch my RRSP’s. My inclination is to go all-in with VGRO because it’s simple and hands-off. Some have recommended I go 50-50 VGRO/VEQT split. This would give me about 90% in equities, and running this model for 15 years could give me a nice return. However, I feel like 0.25% fees on both ETF’s would eat up too much. What are your thoughts on doing a split between the two? Would there be too much overlap? I am comfortable taking on higher risk right now and moving to a more fixed setup in 18-20yrs.
@Danny: Thanks for the comment. To clarify, the MER on VGRO and VEQT are the same (0.25%), so whether you go all VEQT or a mix of the two your costs are exactly the same.
So your only decision is whether you want 80% and zero maintenance or 90% equities with regular rebalancing. My general advice is to go with the simpler one-fund portfolio.
Hey Dan,
Big Fan of your page. I am in my mid 30s, self employed. just started investing. I ended up putting a lump sum in VGRO in an RRSP account. My plan is to buy VGRO in TFSA as well.
My question to you-
Should I contribute 50/50 in VGRO in RRSP and TFSA?
Should I look into getting a VBAL as well and start with 90/10 ratio of VGRO and VBAL in both RRSP and TFSA and as I get to 50s, more towards VBAL and less towards VGRO to gain stability or just do VGRO and let it grow with periodic contributions?
Thank you for your time. Much appreciated.
@Shardul: Thanks for the comment. I can’t make a recommendation for you specifically. But in general, your first decision should be whether a TFSA or RRSP is more appropriate for your situation: both could be appropriate, but probably not. There’s lots of information available on how to decide which is right.
Once you have decided on the right account type, I would suggest picking one asset allocation ETF that is appropriate. Don’t overcomplicate your life by combining two of them. You can always switch to a more conservative ETF later in life if necessary.
Hi Dan,
First, thanks for all the knowledge you have shared. I’ve learned a lot from your blog.
Following one of your model portfolios i own with TD direct investing in my non registered, tfsa and rrsp
TDB909, TDB900, TDB902, TDB911 for a few years now.
I was wondering if it would make sense to sell everything and start buying in these ETF to take advantage of the lower MER and for their simplicity in managing them. I’m 38 years old and thinking in investing in VBAL or a mix of VEQT and VAB. Just looking for an opinion really.
I’m guessing it would not make sense if instead of selling the td e series I would add the vanguard ones to my portfolio since im already enough diversified so just thinking of basically switching them.
Thanks for your time
@Franceso: As long as you’re comfortable making simple ETF trades from time to time, the asset allocation ETFs would indeed be both cheaper and easier to manager (no rebalancing). And yes, I would agree that if you decide to go this route, it does not make sense to combine both the e-Series funds and ETF. There is really no benefit to that hybrid approach.
You might want to start by using an asset allocation ETF in just one of your registered accounts: the TFSA or the RRSP, whichever is smallest. See how comfortable you are with the ETF order process, and so on. Once you’re comfortable, then you can decide to make the switch. Good luck!
Hi Dan,
I am looking to move all of my TFSA RBC mutual funds to VGRO through RBC Direct Investing. I noticed that VGRO has both Management Fee (.22%) and MER (.24%). Does that mean the total fee that I have to pay is .46%? Currently I am paying almost 2% and I am hoping to change that very soon! Thank you! https://www.vanguard.ca/content/dam/intl/americas/canada/en/documents/investing-made-simple_en.pdf
@Ana: The MER includes the management fee, plus a few extra basis points for taxes and other costs. So your total cost for VGRO is 0.24%
Hi Dan,
I’m currently invested in ZAG, XAW, & VCN. This was (I believe) the previous recommended CCP ETF Model Portfolio. I see this was updated in 2021 to a Vanguard portfolio (VAB & VEQT) or an iShares portfolio (XBB & XEQT). Would you recommend I sell everything in my current portfolio and buy into one of these new ETF CCP portfolios. This is the time of the year I rebalance as I contribute more to my TFSA.
Thanks in advance!
@Nick: I would certainly not recommend anyone liquidate and rebuild their portfolio just because I changed my models. But if you are attracted to the idea of simplifying your holdings with asset allocation ETFs, and you’re rebalancing and/or adding new money anyway, now would be the time.