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HomeMoney SavingProfessionals and cons of a one-ETF portfolio vs. a four-ETF portfolio

Professionals and cons of a one-ETF portfolio vs. a four-ETF portfolio


— Bernie C.

One of the crucial vital targets of any investor is broad diversification. “Don’t put all of your eggs in a single basket,” because the cliché goes. However a correctly designed balanced fund—equivalent to Vanguard’s household of asset allocation ETFs—isn’t actually one basket. So, Bernie, it might be completely tremendous to place all your nest egg right into a single fund such because the Vanguard Conservative ETF Portfolio (VCNS).

First, a fast refresher on VCNS and its sister funds. Early in 2018, Vanguard launched a household of asset allocation ETFs that mean you can maintain a diversified portfolio utilizing a single product. They’re the ETF model of a balanced mutual fund. Every holds seven underlying ETFs—three for bonds, 4 for equities—masking the Canadian, U.S. and worldwide markets. That works out to greater than 18,000 particular person bonds and 13,000 particular person shares from world wide, which is about as diversified as one can get with out being a pension fund.

Paradoxically, Bernie, constructing a portfolio from the three ETFs you point out would truly be far much less diversified than utilizing VCNS. It will embrace solely large-cap Canadian and U.S. shares, with no worldwide publicity in any respect. And it could embrace solely short-term Canadian company bonds, whereas VCNS consists of bonds of all maturities, each authorities and company, from all developed international locations.

Utilizing a single balanced ETF on your RRIF additionally makes managing your investments a breeze. You by no means must rebalance, as a result of that’s achieved for you. They rebalance “infrequently on the discretion of the sub-advisor,” in line with Vanguard. All you might want to do is be sure to sometimes promote sufficient shares to release the money on your required RRIF withdrawals.

That mentioned, there are some good causes for utilizing particular person ETFs relatively than a balanced fund. For one, you’ll have extra flexibility in setting your asset allocation. VCNS holds 60% bonds, and the opposite Vanguard asset allocation ETFs maintain 0%, 20%, 40%, 50% or 60%. If you would like your asset allocation to be, say, 45% bonds and 55% shares, you might even obtain it by placing half your account right into a fund with a 40% bond allocation and the opposite half right into a fund with a 50% bond allocation (this is able to obtain the midpoint of 45% in bonds).

In the event you’re an skilled DIY investor, you can too use particular person ETFs to construct a extra tax-efficient portfolio throughout a number of accounts. For instance, you would possibly wish to favour equities in your TFSA and bonds in your RRIF, which you’ll be able to’t do if you happen to use just one balanced fund.

For many buyers who desire a broadly diversified, easy-to-manage portfolio at a particularly low value, it’s arduous to beat the Vanguard asset allocation ETFs and comparable choices from iShares, BMO and Horizons. Embrace the simplicity.

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