Dec 302018
 



For the lazy reader:

Only buy VGRO and you’re fully diversified. Investing complete.

And now for those of you who want more context:

Vanguard, the index/mutual fund company, recently released a catch-all index fund. You can literally just buy this one fund and be perfectly diversified. No more re-balancing. No more market timing. It’s all in on this one fund. Let’s break it down real quick:

VGRO (Growth ETF Portfolio) Overview

The ETF aims to provide a perfectly diversified fund for the average investor. Normally you’d need to buy 3 or 4 ETFs to get the proper asset ratio. This ETF combines seven other ETFs to provide the proper asset ratio. The three largest holdings totaling 86% of the value are:

31.9% VUN – Vanguard U.S. Total Market Index ETF

23.7% VCN – FTSE Canada All Cap Index ETF

18.5% VIU – FTSE Developed All Cap ex North America Index ETF

12.0%  VAB – Canadian Aggregate Bond Index ETF

These are near perfect diversification ratios for the average Canadian investor all wrapped up in a SINGLE fund. (30% US equity, 20% Canadian equity, 20% International equity, 20% Bonds). No more rebalancing, no more research on proper purchase ratios, no more debate about what ETF to buy when you contribute each month. You could say this ETF is……

perfectly-balanced-as-all-things-should-be

 

Is there a catch?

The catch is the MER (Management Expense Ratio). VGRO has a MER of 0.22%. If you instead just bought the 3-4 ETFs you could slightly reduce the fees you pay (0.05% to 0.2%). But for the simplicity of a single fund? Totally worth it. The extra savings of 0.02% is a mere $15 extra on $10,000 over 30 years, or about $120 compared to the 0.05% MER. And 0.22% is still considerably less than your typical mutual fund (2-3% MER).

If you want to squeeze every last penny out of your investments it may be worthwhile to buy the individual ETFs. But for us normal people with a job and family and investing apathy, VGRO is the best solution. One fund. No thinking. Just buy and forget till you retire. Or should you?

Should You Only Buy VGRO?

Short answer: If you’re under 50, YES.

Long answer: If you’re nearing retirement age you’ll want to start transitioning into safer investments. Luckily Vanguard has you covered with two more funds:

VBAL – Balanced ETF Portfolio

VCNS – Conservative ETF Portfolio

These two have the same philosophy as VGRO (provide a single, balanced fund), but they hold more bonds, thus making them less risky:

vgro-BAL-cns

Remember that you should be more conservative as you approach retirement. With less time, you can’t wait for the market to recover after a major crash. You might give up long term gains, but you need that money soon. You don’t want to draw from your retirement fund with your investments down 30%.

A good rule of thumb is subtracting your age from 120. Thus if you’re 30, you should have 90% stocks, if you’re 60, 60% stocks, and 80, 40% stocks. Following that rule you should start accumulating VBAL when you turn 50, and VCNS when you turn 70. Possibly selling VGRO to get the proper ratios. In summary:

Age 0-50 BUY VGRO

Age 50-70 BUY VBAL, SELL VGRO (if not in recession) 

Age 70+ BUY VCNS, SELL VGRO, THEN VBAL (if not in recession)

What about other index funds?

Ishares recently launched two competing catch-all funds XBAL and XGRO. These two have the same philosophy at VGRO and VBAL. So should you buy XGRO or VGRO? Doesn’t matter. The differences are so marginal you should just blindly choose one. Or buy both! Although that’s kind of like buying half a loaf of bread each at two different grocery stores.

Conclusion

I think the average person wants to reduce investment fees but are intimidated when they realize they have to buy their own funds. And completely scared away when they learn they need to buy multiple funds at proper asset ratios. VGRO takes all that away. If you can open a bank account you can open an investment account. Just deposit 15% of every paycheque into your new Questrade account, and buy as much VGRO as you can.



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  4 Responses to “ONLY BUY ONE ETF – THE ULTIMATE LAZY INVESTMENT”

  1. Very interesting. I assume you can buy the VGRO inside or outside an RSP? Would that be the same for TSFA’s?

     
    • No restrictions on where you can buy VGRO. You just need a brokerage account where you can buy and sell stocks. It could be taxable, TFSA, or RRSP (all of which can be opened at Questrade). Obviously in the taxable you’ll be paying tax on the quarterly dividend and capital gains when you sell. You’ll avoid taxes entirely in the TFSA.

       
  2. Nice article. Just one comment on the fees. Sure, the MER may be slightly higher on the one fund solution but depending on the cost of buying/selling when rebalancing, those additional basis points are basically a wash if not in your favor as VGRO is rebalanced quarterly I believe.

     
    • I agree 100%. For 99% of investors it’s going to be worth it to just pay a slightly higher MER and forget about rebalancing entirely.

       

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