First, a quick refresher on VCNS and its sister funds. Early in 2018, Vanguard launched a family of asset allocation ETFs that allow you to hold a diversified portfolio using a single product. They are the ETF version of a balanced mutual fund. Each holds seven underlying ETFs—three for bonds, four for equities—covering the Canadian, U.S. and international markets. That works out to more than 18,000 individual bonds and 13,000 individual stocks from around the world, which is about as diversified as one can get without being a pension fund.
Ironically, Bernie, building a portfolio from the three ETFs you mention would actually be far less diversified than using VCNS. It would include only large-cap Canadian and U.S. stocks, with no international exposure at all. And it would include only short-term Canadian corporate bonds, whereas VCNS includes bonds of all maturities, both government and corporate, from all developed countries.
Using a single balanced ETF for your RRIF also makes managing your investments a breeze. You never have to rebalance, because that’s done for you. They rebalance “from time to time at the discretion of the sub-advisor,” according to Vanguard. All you need to do is make sure you occasionally sell enough shares to free up the cash for your required RRIF withdrawals.
That said, there are some good reasons for using individual ETFs rather than a balanced fund. For one, you would have more flexibility in setting your asset allocation. VCNS holds 60% bonds, and the other Vanguard asset allocation ETFs hold 0%, 20%, 40%, 50% or 60%. If you want your asset allocation to be, say, 45% bonds and 55% stocks, you could even achieve it by putting half your account into a fund with a 40% bond allocation and the other half into a fund with a 50% bond allocation (this would achieve the midpoint of 45% in bonds).
If you’re an experienced DIY investor, you can also use individual ETFs to build a more tax-efficient portfolio across multiple accounts. For example, you might want to favour equities in your TFSA and bonds in your RRIF, which you can’t do if you use only one balanced fund.
For most investors who want a broadly diversified, easy-to-manage portfolio at an extremely low cost, it’s hard to beat the Vanguard asset allocation ETFs and similar offerings from iShares, BMO and Horizons. Embrace the simplicity.
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