— Bernie C.

One of the vital essential 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—resembling Vanguard’s household of asset allocation ETFs—isn’t actually one basket. So, Bernie, it could be completely effective 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 permit 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—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 all over the world, 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 embody solely large-cap Canadian and U.S. shares, with no worldwide publicity in any respect. And it will embody solely short-term Canadian company bonds, whereas VCNS contains bonds of all maturities, each authorities and company, from all developed international locations.

Utilizing a single balanced ETF in your RRIF additionally makes managing your investments a breeze. You by no means need to rebalance, as a result of that’s performed for you. They rebalance “on occasion on the discretion of the sub-advisor,” in line with Vanguard. All it is advisable do is ensure you often promote sufficient shares to release the money in your required RRIF withdrawals.

That mentioned, there are some good causes for utilizing particular person ETFs slightly 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%. In order for you your asset allocation to be, say, 45% bonds and 55% shares, you may 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).

When you’re an skilled DIY investor, you may also 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 buyers who need a broadly diversified, easy-to-manage portfolio at an especially low value, it’s laborious to beat the Vanguard asset allocation ETFs and related choices from iShares, BMO and Horizons. Embrace the simplicity.

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