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— Bernie C.
One of the vital objectives 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 nice to place your whole 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 assist you to 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 around the globe, which is about as diversified as one can get with out being a pension fund.
Mockingly, Bernie, constructing a portfolio from the three ETFs you point out would really be far much less diversified than utilizing VCNS. It could embrace solely large-cap Canadian and U.S. shares, with no worldwide publicity in any respect. And it might 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 “every so often on the discretion of the sub-advisor,” in accordance with Vanguard. All it’s essential to do is be sure you sometimes promote sufficient shares to release the money on your required RRIF withdrawals.
That stated, there are some good causes for utilizing particular person ETFs reasonably 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’d like your asset allocation to be, say, 45% bonds and 55% shares, you would 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 could obtain the midpoint of 45% in bonds).
If you happen to’re an skilled DIY investor, it’s also possible to 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 should you use just one balanced fund.
For many traders who desire a broadly diversified, easy-to-manage portfolio at an especially low price, it’s exhausting to beat the Vanguard asset allocation ETFs and related choices from iShares, BMO and Horizons. Embrace the simplicity.
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