One-Decision Asset Allocation ETFs (VCIP/VCNS/VBAL/VGRO/VEQT | XBAL/XGRO)
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- Опубликовано: 15 фев 2019
- Being a DIY ETF investor is not particularly hard, but up until recently, it was not particularly easy, either. Back in 2017, the simplest portfolio around was Robb Engen’s four-minute portfolio, which consists of only two equity ETFs. If you wanted to reduce your equity exposure you would have had to buy a third ETF for bond exposure.
Three ETFs is pretty simple, but it still requires some thinking for rebalancing and some discipline to rebalance into whatever asset class is down at the time. All of that changed when Vanguard launched their asset allocation ETFs last year.
I’m Ben Felix, associate portfolio manager at PWL Capital. In this episode of Common Sense Investing
One-Decision Asset Allocation ETFs VCIP / VCNS / VBAL / VGRO / VEQT | XBAL / XGRO)
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I never comment on videos. I feel compelled to express my gratitude for your content.
Low cost vanguard they are legends..just like jack bogle
Very true.
Hey Ben, I am impressed by how simply you explained at 4:49 the complex situation when capital loss do not offset interest!
Great video. You answered the question I was trying to find an answer to online for about an hour. Thanks for you help.
This video put the nail in the coffin for deciding between a robo advisor and full on DIY. Thanks Ben!
This is such valuable information, thank you for your videos and for the Rational Reminder Podcast. Can't get enough of either. Respect from up in Thunder Bay
What a fantastic video. Answered all our questions. Thanks Ben!
Thanks!
Thanks for all you videos, much appreciated!
Why this educational, instructional, mentoring gem of a video only has 609 likes baffles me... Felix is essentially debunking the argument of I don't have time or skills to manage a Roth IRA that balances stocks and bonds as nearing retirement.. one decision vanguard retirement plans, albeit expensive than the underlying index it's composed of (total us stock mkt+international stock and bonds) is a bargain at 0,14...
God, I love your videos. Simple, to the point, and highly informative.
Ben, Any chance you could do an update? it's been 2 years!
I agree!
As far as I can tell there's really nothing new. The Canadian funds are the same and the US Vanguard versions are called "LifeStrategy".
Me too! So needed
Great video Ben!
Thanks for sharing the information Ben.
Thanks for watching, Sai.
Thanks for this video. Wasn't even aware of all-in-one ETFs.
I decided to use VEQT for my son's RESP since he's under 1 and planning to move through the Vanguard products as he ages.
Very nice!
This is the type of video you have to rewatch or watch in segments to be able to understand. Kind of went over my head and I'm an accounting student
Great video!
What are the repercussions of switching to a different ETF portfolio as you grow closer to retirement and may want a lower risk asset allocation? I'm thinking about every 10-15 years switching to a lower risk ETF portfolio.
Thank you Ben for your video! I am planning to invest in VGRO or VEQT. I have a long time horizon and I will be using a cash account. How beneficial is it for me to hold VEQT instead of VGRO in my cash account when considering taxes due to the 20% bond holding? If the difference is small would it still be beneficial to hold VEQT over VGRO in a cash account or should I not consider this tax difference.
Great video Ben! I will have to watch it a few times to absorb all the information.
I’m planning to switch from Tangerine index funds to ETFs in the near future once my portfolio is bigger. I would like to keep things simple, which is why I like these ETFs.
I have a few questions though:
Ideally, should I have one Asset Allocation ETF for my TFSA, RRSP, and finally regular taxable account (after I max out my contributions in the first two categories)?
Since the asset allocation is fixed, how do I gradually shift my asset allocation of the ETF as I get older and closer to retirement?
Since we are charged per trade, is there a recommended minimum amount I should have before making a trade?
Thanks!
Can you speak to the foreign withholding tax on VGRO held in a tfsa. Is it identical to the rrsp at 20 basis points? Thanks in advance
I understood most of those words.......
Hehe....
I understood some of them.
Well aren’t you a savant. 😂
Can you please make a caveman version of explaining this video because I didn't understand most of the things you said 😔. I really want to learn this, very interesting.
Wow thank you for introducing me to VGRO just cleaned up my portfolio big time , VGRO will be my foundation and I’ll pick some stocks also on the side
That's great!
And how is that going now?
@@joehostile4541 going excellent . Managed to pick a few multibaggers , keeping vgro at 20% of my portfolio allocation . Up around 17% with VGRO
@@pjayne100 the stocks you picked outperforming VGRO?
Hey Ben love your channel! Would you ever make a video showing which tax efficient ETFs are best for TFSA and RRSP? I didn't even know about withholding tax from the US and my TFSA is about 40% maxed out but I just don't know how much I'm missing due to unseen taxes. Thanks in advance keep up the great work.
@BenFelixCSI We would love that !
Many thanks for your video, will a foreigner residing outside Canada investing in this be subject to taxation?
Thank you for this video and the valuable information therein, Ben. I appreciate it very much.
Question: How relevant is the fact that the Vanguard equity funds in VEQT track the CRSP and FTSE index while the iShares equity funds in XEQT track the S&P and MSCI index?
Is the the tracking index material in deciding between Vanguard and iShares one-decision ETFs? FWIW, as far as I can tell, the equity funds on both sides provide broad exposure (small, medium, and large cap) to the markets they track. So does that make them largely equivalent? Or is there still a difference worth considering?
Thank you!
Ben, isn't bond premium amortized as deductible expense against the coupon payments? IRC section 171.
Hi Ben. What do you think of HGRO and HEQT compared with VEQT?
Just subscribed - thank you for your content and now my head is spinning! Question: How does a Can purchase VGET or is there an equivilent fund.
I am not familiar with VGET. A Canadian can easily purchase Canadian or US listed ETFs.
Hi Ben, I wanted to confirm if the .25 mer is just for the VEQT, which is on top of the .25 mer of VIQ which is part of this one decision ETF? So overall we could be paying the mer of .5 ?? Because this is not purchasing stocks directly but the ETFs? Am i missing something
How come these only appear on the canadian version of Vanguard's website? Is there a U.S. equivalent?
Hi Ben thanks for the explanation. Just to be sure, for the sake of simplicity, it's advisable to hold all in one funds in unregistered as well as RRSP and TFSA right?
For the sake of simplicity, and at the cost of a small amount of tax efficiency, yes you are correct.
Very helpful
Another amazing video Ben! You make A+ content. I'm curious, why do you typically recommend holding the same asset mix across each account type?
Thanks Raid!
Good question. The short answer is that the benefits of asset location are not obvious unless you can accurately predict future returns. The long answer is partially in the link below and the rest of it is coming soon in another paper www.pwlcapital.com/wp-content/uploads/2018/06/2017-12_Ben-Felix_WP_Asset-Location-Uncertainty.pdf
My parents are retired in their late 60’s and have 50k they don’t need to tap into for at least another 5-10 years, after which they’d slowly withdraw from. Does VCNS (40% equity) in a TFSA sound like a reasonable way for them to invest this 50k?
Nice video. Is there any All in one ETF can be purchased by USD?
Love your videos, Ben, they are incredibly helpful.
Instead of going directly with VBAL or VGRO in an RRSP or TFSA, would you recommend investing splitting one's portfolio to include VEQT and either ZAG or VAB? The reasoning behind this is to increase tax efficiency and reduce MER.
I've read that the tax efficiency on the non-Canadian fixed income securities on VBAL or VGRO aren't great. The trade off of course are the benefits of diversifying one's fixed income across geographical markets.
Would love to hear your thoughts.
If you are still around, what option did you choose ?
Great Video. Can you explain for XGRO (the bond allocation to US). Its holdings are - " GOVT iShares U.S. Treasury Bond ETF" and "USIG iShares Broad USD Investment Grade Corporate Bond ETF"...is this hedged behind the scenes?
Whereas VGRO has holdings of - "Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged and Vanguard US Aggregate Bond Index ETF CAD-hedged"
Thanks Ben
Thanks Brad! Yes, it is hedged behind the scenes. The fund facts says this:
_The ETF will employ a currency hedging strategy that seeks to hedge its exposure to U.S. dollars or other foreign currencies within the non-Canadian fixed income asset class._
www.blackrock.com/ca/individual/en/literature/etf-summary/cbn-facts-en-ca.pdf
very good video.
Thanks for the great insights. I’m new to ETFs and was wondering what would be the currency exchange exposure on the dividend payout under Vanguard’s one fund, its tax implications and how to go about managing them, as I believe these ETFs invest in Canadian, US, and emerging equities and bonds. Especially if bought via Questrade. Thanks.
Hi Andrea, these funds do not hedge their foreign currency exposure on equities and they are 2/3 invested in non-Canadian stocks, so 2/3 of your equities would be paying dividends in other currencies. However you do not need to worry about that. All of your distributions will be received in Canadian dollars as these are Canadian listed ETFs.
Ben Felix Perfect. Thanks, Ben!
Ben,
Another great video! I am also subscribed to your podcast which is concise, sharp and a pleasure to listen to.
Quick question about FWT (I hope it’s not a dumb one). Would an investor need to calculate this on their own or would the fund (e.g. VGRO) withhold that tax automatically each year?
Not a dumb question at all. In a taxable account the FWT is reported to you on your T slip and can be used to reduce Canadian taxes. You do not need to calculate them. The taxes are withheld before you receive any dividends.
Thanks for watching and for listening to the podcast!
We have these funds here in the UK, they are called lifestrategy funds, 20,40,60,80 and 100% equity versions. Obviously they are different to the similar Vanguard funds available in the US, or Canada. The asset allocation is aimed at UK investors. The only thing I see is that on portfolio visualiser, which does backtestimg for US investors, simple passive portfolios like the 3 fund bogleheads portfolio appear to do better over many time periods than the lifestrategy. I wonder if this is because of lifestrategy re balancing much more often than once a year. We don't have these funds in etf format. Also in the UK most investors will be in in a non taxable account or pension which isn't taxable until you start drawing income from your pension fund
Love the simplicity of the one solution fund, and you have explained it perfectly. One question for me would be, which would be the best way for a retiree to withdraw monthly or quarterly funds to live on, a one solution fund or a dividend etf such as ZMI or XTR?
That is a great question. I wouldn't go for an income-focused fund. I talked a bit about that in one of my videos. ruclips.net/video/9j6DInAMMaM/видео.html
I think that with the asset allocation ETFs it would make sense to do an annual sale and park the proceeds in a high interest savings account to draw monthly income from. Repeat each year. You could also ladder some GICs alongside the asset allocation ETF and do an annual sale to buy a new GIC, rolling the maturing GIC into the high interest savings account for the year's income. Either way it works out to be similar as long as you account for the GICs as fixed income in your overall asset allocation.
Ben Felix Why not just make a sale every month? Markets go up 3 years out of 4, so most of the time you'd be a bit better off selling later rather than earlier.
Grant Maxted Markets may go up historically more than drop, but if you are a retiree you may be panicked and sell if you see your life savings drop 40 or 50 percent , and would be nervous about withdrawing funds when time may not be on your side. Also I wouldn’t want to pay the fees 12 times a year to sell shares
I think that’s optimal if you can make it work. That’s what we do for clients.
For a DIY ETF investor doing monthly sales I’d worry about behaviour and transaction costs, but I guess the transaction costs could be meaningless relative to assets. I’d still worry about behaviour.
@@BenFelixCSI When in retirement and selling every month for income wouldn’t it be more optimal strategy to split all in one ETF into underlying ETFs and selling from best performing ETFs instead from the whole thing?
What can i do for my tfsa? Are these good or is there somwthing better? Im new to all this and its all making my brain hurt lol. So many letter with .to at the end i cant pick lol
Hi Ben! Thanks for the great Canadian content. You say you generally recommend the same asset allocation among all account types, say me and my wife each have a TFSA and an RRSP account, wouldn't having the same asset allocation in all 4 accounts create a lot of overlap? If one account doesn't do well probably all 4 won't do well. Is there a way to diversify the 4 accounts using these one decision fund ETFs? Should each one have a different equity to fixed income ratio? Would you recommend mixing up fund providers, like say you use VGRO in one RRSP, would you use XGRO in the other? We are newbie investors and like the simplicity of one decision funds, just wondering how to diversify them among 4 accounts. Thanks!
I had this exact same question. Any follow up thoughts on this?
@@joe13579 I'm not Ben, but the asset allocation is what provides the diversification. There isn't a further need to diversify among funds since they are generally tracking established indexes in each market. Normally people consider their entire portfolio (all account types) when applying the asset allocation, but even if you are looking at each account separately these one-decision ETFs actually provide the full allocation within each account.
@@marklyons4366 thanks Mark! Totally makes sense.
I use VTI (Vanguard equity for US) plus VTC (Vanguard Total Bonds) 70/30 on bullisih markets and 30/70 in bearish markets.
im new to this can you purchase the VTI as a canadian? When i go on Vanguard canada they offer VUN U.S. Total Market Index ETF instead but the returns seems to be lower then the VTI
Great video Ben, as usual! Do you think these one-stop ETFs have enough emerging markets exposure? If the next one or two decades are marked with growth of China, India etc as may be plausible, wouldn't such ETFs fail to capture that growth? Thanks
Thanks! I do not think that is an issue. These model portfolios are cap weighted within the International/EM allocation, so if EM grows, the allocation should change over time as that happens.
hey Ben, thanks for another great video. I think iam going to have to watch it a few more times to fully wrap my brain around the bond issue but given i only invest in my TFSA (and also RRSP thanks to your advice) I dont think its an issue. I wouldnt mind if you did a video on how you go about rebalancing a ETF portfolio with emphesis on the Canada couch potato portfolios, Im sure this is probably on your radar already. Keep the great videos coming!
Thanks Justin! I don't know if I'll do a video on how to rebalance. I think Justin Bender has a rebalancing spreadsheet that you can use.
@@BenFelixCSI I actually saw the next day and realized its pretty easily done with that, please pass on my thanks to Justin Bender for giving people such an excellent tool!
@@hellcat320 will do!
A wonderful concise video. I am an Australian based investor. Vanguard has introduced some pre- mixed options here too.
The ETF VDHG has 90% equities, 10% bonds with an MER of 0.27%
This will definitely make things very interesting for the average investor
We are waiting for the quality book, following the quality videos!
Thanks!
Hello Ben,
Thanks for your info. I am wondering if people try to use the Norbert Gambit method to buy US to lower the conversion fee and avoid the withholding foreign tax. As you know some ETF with lower MER like 0.06. Now the questions is which one more expensive in comparing with the cost of conversion (using the Norbert Gambit method) vs. the 0.16 (which is the difference between the one fund solution and the low cost of the ETF with 0.06 for example)? I am ok to do my own rebalancing. I am more concerning the fee over time and diversification. Thanks.
I wouldn't worry so much about the fund MERs as those are likely to converge over time. Converting to USD can make a lot of sense to reduce foreign withholding tax particularly in the RRSP account. The Gambit's cost depends a lot on the amount that you are converting, and the trading costs that you pay.
Hey Ben! What are your thoughts on Vanguard’s love for hedged global bonds? It seems like they’re offering a very expensive product (VBG) at a serious discount! Added value or just a cool ticker for their collection?
I think that they have basis to like currency hedged global bonds. They have documented the benefits. We at PWL also use currency hedged global bonds (not from Vanguad) in portfolios largely for the same reasons that Vanguard has documented.
I love the new VEQT option. Was looking for something like it to come out.
Yes it’s a great product.
@@BenFelixCSI What do you think about the VBG component of the balanced fund. It has 2 layers of foreign withholding tax and 2 layers of hedging. The yield on international bonds is essentially 0 or even negative for Japanese, German and French bonds. Should this be in the portfolio ETFs featuring bonds. I would much rather use VSB or VAB instead for the bond component.
@@raguthanabalasingam2166 I think it's a preference.There is good data on currency hedged globally diversified fixed income. Whether or not the benefits outweigh the costs is not as obvious. I don't think I'd split out my asset mix for the sake of avoiding VBG. Or I guess you could just use XGRO/XBAL.
Hi, very interesting video. How can i invest in these kind of etf from europe. I've learnt that PRIIPS regulation doesn't allow european investors on these etfs. Is there a europen etf alternative? Is there a simple way to simulate the vanguard or ishare all in one etf?
check out Vanguard LifeStrategy ETFs
How about in One decision funds in US dollars (I am a Canadian) like AOA...with regards to foreign witholding taxes. I cannot hold all under a TFSA, because I am looking to invest 180K USD.. I am a Canadian but most of my liquid Cash is in USD, and do not want to convert.
The new VEQT ETF looks handy because you can easily combine it with a bond fund to get the exact allocation you want instead of following their prescribed allocations or combine it with a more tax efficient bond ETF in your taxable account. One thing that concerns me though is that the website says distributions will be annual. I take this will mean the dividends will accumulate and remain in cash within the fund over the course of the year and not be fully invested? Probably not a huge drag, but something to consider.
I combine XEQT with XINC to get 60/40 allocation instead buying XBAL. XINC is 80% bonds and way more stable than a bond alone ETF. This set up is advantageous in a market crash, when I can relocate some funds from XINC to XEQT.
Great video Ben. Seeing a bit late, but well worth it.
One question... in my TFSA I was thinking of buying Canadian ETF's (like VCN and VDY) to avoid any foreign withholding taxes.
Or would you recommend to simplify things and just buy VBAL and not worry about the small foreign tax content?
Thanks
A TFSA of only Canadian stocks is very poorly diversified (3% of the world I think?). It's even worse when you cherry pick dividend paying stocks like VDY. Foreign withholding is a necessary evil. We do consider it though, that's why @ 1:47 vanguard has 30% Canada (as opposed to 3%). VBAL is designed to be the only thing you need, I would go for that instead.
Chris thanks for the feedback!
I switched from the CCP 3 fund portfolio to the vanguard one fund solution. I know the fees are marginally higher, but I prefer the simplicity.
Makes sense. The fees will also likely come down over time.
@@BenFelixCSI it was interesting to hear about foreign withholding tax differences as an added "cost". I suppose the CCP portfolio would suffer from this too. Only Justin Benders model portfolio, or one like it, which buys US ETFs would fix the issue. Is that correct?
@@Lasidar Yes, that is correct. And even then we would be looking at around 0.06% unrecoverable FWT in the RRSP. So it's a ~0.15% savings for going US listed for US and International equities, but that's before the cost of currency conversion and time/mental bandwidth required. A lot of added complexity.
I enjoyed this , what are your thoughts on low volatility funds?
I believe in taking priced risks in investing. Exposure to the market and exposure to small cap and value stocks are examples of this. Low vol is not a priced risk; it is an anomaly. Anomalies tend to go away which is what we have seen since low volatility strategies have become increasingly popular. This is a good writeup on the topic www.etf.com/sections/index-investor-corner/swedroe-explaining-low-vol-anomaly-0?nopaging=1
how do you calculate expense ratio if the ETF is only held for short term like weeks?
Are there good alternatives for this etf on the Amsterdam or Belgian stock exchange?
Have you found something? I am still on vwrl
It would be interesting to see a video on, or get your opinion on why we should pay an investment adviser 1% / year for investment advice, especially given the all in one funds with automatic re-balancing. In general I love the videos, and I'm starting to think the smart thing is to ditch my adviser (Personal Capital) and do it myself.
Aaand shortly after I ask this, I found the episode on robo advisors. Thanks!
Excellent! You watched the video so I won't repeat everything, but if you're getting some value for the fee you're paying it might be worth it.
8:42 Clear as mud :-)
Hello Ben,
I would like to know about your opinion about dollar cost averaging for one decision asset allocation ETFs with Vanguard or ishares?.
I do my deposits to my taxable account once or twice a year in lump sumps with your model portfolios to avoid calculating the adjusted cost base all the time.
I do not like the idea of holding cash for 6 or 12 months to make a deposit in a taxable account. However, I do not want to complicate my life with the taxes filling process
Interesting question. This is one of the areas that makes services like Wealthsimple or Nest Wealth interesting - they invest your contributions and track your ACB for you, making regular contributions simple. I guess it's a matter of thinking through the opportunity cost of holding cash for 6-12 months vs. the cost of your time required to make and track regular contributions vs. the cost of a robo advisor. adjustedcostbase.ca can also be a time saver for tracking your ACB.
Depending on your assets, Nest Wealth can be really interesting because they have a fixed fee and lower MERs than VGRO etc. plus you get the automation and tracking. At high asset levels Nest Wealth fees + MERs can be lower than the asset allocation ETFs.
How do you change your asset allocation as you near retirement when you have an all in one ETF like VGRO? Would you have to sell and buy a different allocation all in one ETF? I'm a newbie (currently using TD e-series) but I like the simplicity and lower fees of an all in one ETF. Please advise. Thank you !
You could start with VGRO and then add more bonds later to avoid triggering a capital gain by selling. If all of your savings are in RRSP and TFSA accounts you could sell VGRO and buy VBAL or whatever makes sense.
I was going to ask the same. I really hesitate between one asset allocation and buying 4 ETF (possibly ZAG, VDY, VSP & XRE).
Being just retired I hold 50% in XEQT for growth and 50% in XINC for income. I think this is a better approach than holding 100% in just XBAL alone, because in a deep market downturn I can reallocate some funds from XINC to XEQT and get a better return overall.
I'm trying to get knowlege to diy investing. Please correct me if I'm wrong. This video is showing us the one type of etf that will have a balance portofolio, so to invest in a passive way we just buy one of this etf's?
That is correct.
What does XEQT and VEQT have so much US stocks vs PWL Capital's or Rational Reminder's model portfolios, that have ~33% US Stocks (be it US small/value for the RR model)?
VEQT is the same, XEQT has a bit less. Where are you looking?
@@BenFelixCSI Hey, I am looking at their official sites. VEQT has 40% US market, 30% Canada, XEQT has a whopping 45% US market, 5% emerging markets. Why is there so much difference between all these portfolios, including PWL capital has only 34% US market and weighs higher in all other categories (Intl, Emeging, Canada).
I rewatched your video on home country bias, and it makes sense why there's a big portion in Canadian stocks based on the vanguard study you mentioned and tax efficiency. Would be wonderful to learn how emerging markets and Int'l market percentages are derived. Also, any chance you'll make a video on Sri models? Hard to find a reputable portfolio model for Sri, especially if the requirement is Fossil free companies.
Hey Ben, what are your thoughts on the idea supported by individuals like Jack Bogle that international diversification outside US isn't necessary? I've been researching and considering owning VEQT long-term. However, because of things like home country bias and long-term historical underperformance of non-US international equities, I'm leaning towards just owning VUN/VTI. Bogle argues that ~40% of US company profits come from overseas anyways and US has had one of the best and most stable environments for businesses to thrive, making owning non-US equities unnecessary (and historically a performance drag).
I suppose the biggest risk with this approach could be a black swan such as what happened with Japan but the vast majority of innovation has come out of the US in the past and it seems if something extreme happened to hinder the US economy over a prolonged period, we'd have far greater problems anyways considering Canada's reliance and close ties to the US. Would love to know your thoughts on owning something like VEQT vs simply VUN.
Valid points, but remember innovative companies aren't necessarily the most profitable. Currently the US produces about 30% if global economic output while composing about 48% of the total world stock market. This means US stocks are probably over-valued, but there's no way to determine when or if international stocks will rebound and US stocks will lag.
Considering this It's still probably astute to have some international diversification, but not too much. VASGX, the US equivalent of VGRO, has about 50% US stocks, 30% international stocks, 15% US Bonds and 5% international bonds. I'm sure this ratio is designed to provide diversification and limit volatility without diminishing expected returns. If US stocks continue to outperform, it will continue to capture most of these returns. If international stocks rebound it will capture these returns while still being fairly tax efficient.
In short, this degree of diversification should improve risk-adjusted returns over a US-only portfolio, but a US-only portfolio probably isn't risking much.
I see you endorse one decision funds for their simplicity, however you also support the idea of weighing more heavily towards small cap and value stock ETFs. Do these ideas not conflict with one another? Would it make sense to purchase a one decision fund like VEQT and additionally invest in IJS and IUSV for both benefits?
That's certainly an option. There's a trade-off between simplicity and an optimal portfolio, so each investor must figure out if they think it's worth it.
I started off with Dan's 3 etf portfolio but then found I couldn't decide which asset mix was right for me... Now i'm somewhere off the aggressive end when I started out in the "balanced" part in the middle... I think its hard to even KNOW how aggressive to be. When should someone re-consider how aggressive of a portfolio is right for them?
In general you would revisit your asset allocation when you have a material change in your life circumstances. It is always a subjective decision though, so there is no right answer.
Michael Bury predicts ETFs will eventually collapse the market in an article 4/9/19 in Bloomberg, especially if they grow to hoover up a critical overall market % of an asset class. I don't pretend to fully understand what he was saying but the bones of it seems to be that the ETFs overprice the underlying asset in a bull market and underprice the asset in a collapse ? What do you think? They do seem too good to be true for the average punter like me!
Are the Fidelity Zero Index funds (FZROX etc) equivalent to these one decision asset allocations?
Ion Sme the fidelity fund that you’re talking about is similar to VTSAX. It is a total stock market index fund, different than the one decision ETFs Ben is discussing. Also, just so you know - the fidelity fund FZROX has a 0.00% expense ratio while VTSAX is 0.04%, but don’t be surprised if FZROX lags the index slightly given their newness and inability to scale quite to the behemoths like vanguard. This lag could easily be more than the difference in expense ratios between the two. Maybe not, but that is just something to keep in mind. Good luck investing!
@@connormatlock7839 I think you're probably correct. To avoid paying an index licensing fee, Fidelity creates their own index rather than using an established index like Vanguard. Consequently, Vanguard indexes have more holdings so are more diversified with a negligible ER. The practical difference between an ER of 0% and 0.04% is inconsequential.
What about 90% Target date that is 5-10 years earlier than your actual target date + 10% small value? Like VFORX + VIOV?
I think that's fine. You will end up overweight US equity though. I just wrote about this www.pwlcapital.com/resources/factor-investing-with-etfs/
Hi Ben, what are your thoughts on XEQT v/s VEQT?
Personal preference is XEQT for the lower fee and I generally like iShares' products over Vanguard's.
Does anyone know a Dutch alternative for these kinds of funds? in want to invest in VGRO but Dutch regulations dont allow brokers to offer them.
Just get a bag of tulip bulbs.
Things have really changed in the last year. These 1 stop solutions definitely make investing more accessible for people new to managing their own investments which can be stressful just to think about. Before I had a hard time recommending ETFs because of the re-balancing which a lot of people shy away from, but these solutions take that away and gives you the benefits of passive investing without the stress of actually managing anything.
I agree. These things are a bit of a game-changer.
Take a look at HGRO! Maybe make a video on it? :)
Hi Ben, I am getting into investing (i have 15K to invest) and was thinking of doing 60% VOO (ETF), 25-30% Canadian high-dividend stocks (as going VCN has some companies I don't care too much about and I feel I can just buy some of the stocks in these portfolios I actually see growth/stability in and get higher dividends from) then 10% in Canadian bonds (VAB). Is it bad to not be going anything outside North America? I don't really want to dilute my money and go 20-30% in Global Market as I would be losing out on VOO/Canadian high-dividend stocks. I had considered VGRO/VEQT but, again, it has bonds in U.S/International etc and i don't know what the best way of using my money is... any advice is helpful!
Buy VEQT and just contribute often.
What about HBAL from horizons?
Hey Ben, awesome stuff, been binging this channel in the limited time I have. I have a question regarding the home bias in terms of Canadian assests in VEQT specifically. Does this give you concern vs. something like XGRO which is not by much but has a lower proportion of Canadian assets? Would the impact on returns be negligible and more the difference between 80/20 and 100/0? Thanks
XGRO is only slightly lower on the home bias compared to VEQT in terms of the % in Canada of the equity component. I would first make the equity/fixed decision, and then make the product decision. For example, if you want to be 100% equity, I would not use XGRO just to reduce home bias. However if you want to be 80% equity, then XGRO could be a good option over VGRO if home bias is a concern.
Hey Ben,
What do you think of splitting up XGRO/VGRO into HBB, HXT and XAW in a taxable account? Do you see the loss in diversification in HXT (compared to something like VCN) to be worth it for the deferred taxes? Is this something you would ever recommend?
In the future if swap etf's are outlawed, what do think of a taxable portfolio of ZDB and the V/XEQT? Would the model portfolios go to a 2 fund as opposed to the 3 that it is now?
Thanks for all the info
I am not crazy about the TRI ETFs (HXT etc.). If I had to pick one it would not be HXT because Canadian dividends are relatively tax efficient. HXDM with the higher yielding fully taxable dividends would be the best bet, but I still wouldn't but it due to the regulatory risk and lack of diversification. My next video (or the one after, haven't decided) is a deep dive into this.
VEQT + ZDB would be fine.
You're adding 10 bps or so to fees with VEQT, so I don't think that the CCP 3 ETF portfolios will change.
@@BenFelixCSI Thanks Ben. Try contacting this guy if you want a FIRE guest for your podcast. retireby40.org/ one of the guys who did it before FIRE took off.
Hi Ben,
Great video. Very helpful.
Now that vanguard launched the all Equity Fund VEQT, do you thing it would be more tax efficient to hold the following in taxable account:
VEQT(60%) and ZDB (40%) as opposed to VBAL (60/40).
Thanks
Hi Hani, it would be a bit more tax efficient, but you are also giving up a meaningful amount of diversification. Keep in mind that premium bonds won't be an issue forever.
How does one get started with these? I'm not able to find out any good info on how to acquire them as a US resident
as a US resident you got way more choice than us in Canada trust me ! You can get those directly in US from vanguard website or the best is to open a broker account which in US you have way more choice check it out online and you write the ticker down in the search bar of your broker account and there we go you are set
My father said that ETFs should be included in the "no more than 5% of your portfolio in any one asset" rule. I was planning on putting my whole TFSA into just one of these ETFs. Apart from liquidity (maybe not being able to sell all at once) is there any reason to follow such a rule for ETFs? Your largest underlying asset is way less than 5%.
There is no good reason to do that. Like you mentioned, an ETF is *very* different from a stock, because the ETF is already diversified.
@@BenFelixCSI thanks for the sanity check
Wouldn't you incur capital gain in a taxable account if u want to switch from one decision etf of 80/20 split to say 60/40 split in your older years?
If you did a lump sum switch in your taxable account, but as you near retirement you could start adding toward a more conservative mix so that your overall mix ends up where you want it to be at retirement.
@@BenFelixCSI so basically buy up bond etf to get to 40% mark?
@@shork14 Or buy 80/20 for 20 years and then switch to buying 40/60 for the last ten years or whatever the timing ends up being. You would just plan it in a way that brings you close to your target near retirement.
I went to compare VGRO vs XGRO over last year and they appear to move fairly closely except for the end of December - XGRO took a significantly bigger dip than VGRO and has not caught up - any insight as to why, and would this affect the choice of either fund?
How are you comparing the returns?
Ben Felix just on a chart on yahoo finance (sounds like I’m missing something)
I sent you a screenshot through Twitter
I haven’t dug into it, but whatever the cause was it should not be a concern. The overall portfolio structures should produce a comparable long term result.
One more question if you don’t mind - If a person plans to save $500 every 2 weeks (payday) for dollar cost averaging and purchase VGRO or XGRO, do you think it is better to do every 4 weeks instead so only paying $10 commission on 1000 instead of 10 on 500? Or does the extra percent to purchase not have a meaningful effect long term?
I own VDY XIC and VFV in my TFSA.... Should I just combine them into either vgro or xgro to simplify things ? I'm pretty confused
This is for long term DCA investment
Ok cool ... Shortly after I made this comment I sold all these and DCA into XEQT only !
I tend to Ishares because they are accumulating ETFs and are basically the same as Vanguard
Wait, I have to worry about withholding tax on my tfsa held etf's? Err.. I wish you would make another beginners video with all the recent trends going on.
Why does VEQT have such a higher ER than VT?
Is there something like VGRO or XGRO for American investors? (80 % stocks and 20 % bonds) I use TDAmeritrade as a platform
Thanks
iShares Core Aggressive Allocation ETF (AOA): 80% stocks, 20% bonds;
iShares Core Growth Allocation ETF (AOR): 60% stocks, 40% bonds;
iShares Core Moderate Allocation ETF (AOM): 40% stocks, 60% bonds; and
iShares Core Conservative Allocation ETF (AOK): 30% stocks, 70% bonds.
This is why i chose a robo advisor. Automated tax efficiency, rebalancing, and tax loss harvesting. Also behavioural advaantage.
I wonder if it is a different situation for me as an american.
I think an all-in-one portfolio (listed in the US) is still a good option for an American. I don't know enough to say whether or not Betterment is able to add back their fees through tax efficiency, but that would be the only way they are an obvious choice over a lower-cost all-in-one ETF.
So....as someone who is buying vanguard ETFs in my TFSA...do i still have to pay a dividend tax (witholding tax) on these ETFs? I figured if they are canadian ETFs i will not have to pay a tax, but if you are saying some have american equity components, i will have to pay a tax?
You are likely losing one level of withholding on US stocks, one on international, and two levels on emerging markets based on the structure of the ETF.
@@BenFelixCSI What if the ETF is a tsx based ETF?
Most of the asset allocation ETFs trade in Canada but that does not solve the problem. Any time that you hold foreign securities, whether directly or through an ETF, you will lose some withholding tax on dividends.
What's the point if you can't sell a specific asset and they are all tied together? I want to be able to sell my bonds independently from my stocks.
Simplicity. I don't time the market, so am content to buy and sell from the fund as needed.
Must be for the Canada market only. I'm not seeing the one-decision asset allocation ETFs for USA investors.
VWRD
For my kid resp VCIP and VGRO or VEQT and a index total market fund would be a viable strategy
I'd pick one of the asset allocation ETFs. No need to combine multiple funds together.
What percent of CFA body of knowledge would you have studied on your own if there was no such things as a CFA?
Probably less than what would end up being helpful which is why the curriculum was good to go through.
I have two issues.
Vanguard one ETF funds have a fee of .2% and mer of 0.22 not 0.25.
Second when considering one fund, vs underlying funds, the costs incurred from rebalancing should be considered, the differences in mer can easily be lost by commission fees when rebalancing many funds even annually.
From that perspective I think they're better than than buying the underlying funds. Less personal time invested, and no rebalancing costs for 0.07% increase in mer vs underlying funds or couch potato
Nope. Management fee is 0.22%. www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm?lang=en
Depending on your brokerage and account size, rebalancing costs may or may not be material. I agree with you though. These all in one ETFs are extremely efficient. The biggest argument for components is the increase in tax efficiency from US listed, but even that only applies in the RRSP.
Why not compare managed direct share portfolios with managed funds (mutual funds)?
What are direct share portfolios?
Ben Felix using a managed discretionary account, you buy a portfolio of shares that mirror an index (not clone, that would be too many shares). Except for brokerage fees, there is virtually nil MER, as fees are included in the advisor’s annual fees. Rebalance to adhere to risk profile or life cycle stage. Many wholesale (HNW) clients opt for this as they feel they have more control and they get dividend imputation credits (in Oz). They can also carry losses on. Like DFA, you can rebalance over a period that allows getting the best price. I’m neither for or against, but they are becoming popular here. I wonder what the pros and cons are in comparison to a manger fund portfolio. Besides the obvious ones, of course.
@@georgemanka Interesting. This is not common in Canada. I have read about direct indexing, which I now understand is what you are referring to. I don't think it would be possible to get anywhere near the diversification of a total market index in a direct index situation. Plus the fees on index funds are close to 0 now. Interesting to think about though.
Is it better for young investors to buy etfs with higher equity than bond ratios?
Absolutely, esp if you don't plan to make significant withdrawals until you're older. If you want to keep it simple I'd look at either the Vanguard Total World Stock index (VT) or Vanguard Life-Strategy Growth (VASGX). [These are the US version since I live there. They have other versions for other countries.]
VT is 100% equities: about 55% US, 45% international. VASGX is 50% US equity, 30% international equity, 15% US bonds, 5% international bonds. Both funds have automatic re-balancing; a really nice feature. VT will almost certainly have higher long-term returns, but will be more volatile. VASGX is likely to have lower (but still good) returns, but will be much less volatile. To simplify things I recently sold most of my individual ETFs and moved the money into VASGX.
Excellent video as usual Ben !
I'm following the ccp portfolio of vab vcn vun and xef etf's in my rrsp and recently i opened a tfsa account would it make sense to keep vab @ 40% in rrsp and veqt @60% in total for rrsp and tfsa ?
Thanks
Thanks Gus! I am not sure I fully understand the question. Is about keeping most of the fixed income in the RRSP? I think I am unsure ho to answer because I don't know what your target asset mix is.