First, a fast refresher on VCNS and its sister funds. Early in 2018, Vanguard launched a household of asset allocation ETFs that can help you 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—protecting 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.
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 will 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 should rebalance, as a result of that’s performed for you. They rebalance “now and again on the discretion of the sub-advisor,” in keeping with Vanguard. All you want to do is be sure to often promote sufficient shares to liberate the money on your required RRIF withdrawals.
That stated, there are some good causes for utilizing particular person ETFs fairly than a balanced fund. For one, you’d 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 could possibly 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 may 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 need to favour equities in your TFSA and bonds in your RRIF, which you’ll’t do when you use just one balanced fund.
For many buyers who desire a broadly diversified, easy-to-manage portfolio at a particularly 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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