Simple, low-cost, all-in-one Vanguard ETFs
Recently, I tackled a question that’s been on my mind for some time now; many reader questions have asked the same to me: How many ETFs are enough?
I can’t speak for your portfolio but I know for us, we use a couple low-cost U.S. dividend ETFs to supplement the Canadian content in our portfolio – that basket of dividend paying stocks that is churning out some growing income for semi-retirement.
How I built my dividend portfolio and maintain it, may or may not work for you depending on your financial goals and objectives. Personal finance will always be personal.
That said, it’s probably fair to say since you’re reading this site you’re very interested in growing your money effectively, keeping your investing costs low, being tax efficient with your portfolio and keeping things simple. There is beauty in investing simplicity!
I don’t necessarily believe in one-size-fits-all investing solutions for everyone blindly but there are a few choices I would strongly consider if you’re overwhelmed with the number product choices out there – and now Vanguard Canada has taken things to the ultimate level with some outstanding new products.
One fund Vanguard solutions
With a handful of low-cost, diverse ETFs covering the Canadian market, the U.S. market and international markets; most investors would do phenomenally well over decades of investing buying and holding such funds for growth.
Vanguard Canada has changed that game for passive investors whereby you can now buy a single ETF – a fund of funds – constituted as “Conservative”, “Balanced”, or “Growth” to make things super simple for investors. Vanguard Canada will automatically re-balance the constituents of these funds to a specified allocation on a regular basis – so there is no re-balancing effort.
Basically, other than making regular investments into these products, these one-fund solutions do all the work for you. You need not worry (anymore?) about whether you are getting fleeced by your financial advisor. The management fees for these products, at the time of this post, start at 0.22%. Meaning, the base money management fees to own these funds will cost you a measly $220 per year for every $100,000 invested. Beyond that rock-bottom MER, these ETFs will also have some withholding taxes applied (given the underlying assets they hold from the U.S. and international markets). Even then, say another couple hundred dollars for those fees and with a few hundred bucks for every $100,000 invested you’re gaining exposure to more than 20,000 stocks and a healthy dose to bonds to strategically combat whatever the markets can throw at you.
Even with foreign withholding taxes applied, these funds are some of the cheapest, diversified, low-maintenance investment options for investors – anywhere.
As per Vanguard Canada’s fact page this ETF “seeks to provide a combination of income and moderate long-term capital growth by investing in equity and fixed income securities.”
What the heck does that mean?
If you’re risk adverse and you’re primarily looking to preserve your assets (with some growth) this fund might be for you. This fund will target an allocation of 40% stocks and 60% fixed income. If you want to protect your portfolio from bad stock market cycles and/or you might want this money in the coming 5 years or so to draw from in retirement, some of your assets could be placed here.
Just as the name suggests, this ETF follows a traditional, balanced, 60/40 stock to fixed income asset mix. I believe this set-up is ideal for investors with a moderate risk tolerance and/or a longer investing timeline, say 10+ years.
Favouring long-term growth over asset preservation? Don’t want to be 100% equities? This fund could be for you. This fund allocates 80% stocks and 20% fixed income. The composition of this fund makes it an excellent candidate for young investors with decades of investing years ahead and/or investors that don’t mind riding volatile equity markets from time to time.
Based on my understanding, these all-in-one funds are eligible to use in a variety of investment accounts: RRSPs, RRIFs, RESPs, TFSAs and more.
Is there any competition at all?
Despite my rave review of these funds for hands-off, long-term investing, a partner and big fan of this site BMO also has some competition to these funds – although the management fee is a bit higher.
Consider the BMO product ZMI – the BMO Monthly Income ETF. This ETF is a fund of BMO funds with the rebalancing work done by BMO. With a yield over 4%, you can rely on steady income with this all-in-one product. This one-fund solution can be a good home in your RRSP, RRIF and/or your TFSA – a reminder there are many great things you can do with your TFSA!
Over time, I expect to see more all-in-one fund products offered by various financial institutions AND lower fees for these products, as the investment industry grapples with higher expectations from investors. That’s a good thing.
At the end of the day, with all else being equal, lower-cost ETFs allow investors to keep more of their hard-earned money but avoiding paying other people first. While low-costs are very important, investors should also carefully consider their financial goals, risk tolerance and other considerations when making financial decisions. These products highlighted in this post today are intended to meet the needs of many investors but that doesn’t mean these products are a slam dunk for you.
What do you make of these low-cost fund of funds? What do you make of low-cost income oriented funds like ZMI? How do you invest?
Editor Note: To review the tax drag (foreign withholding taxes) associated with these all-in-one funds check out this great pdf. by Canadian Portfolio Manager: Vanguard-Asset-Allocation-ETFs