The Vanguard asset allocation portfolios.

Dale Roberts

7 years ago

In February 2018 Vanguard Canada launched all-in-one complete Balanced Portfolios that you can purchase by entering one ticker symbol. For example, in your discount brokerage account you would enter the symbol VBAL to get a complete, globally diversified Balanced Portfolio. The Portfolio is 60% Canadian, US and International stocks with 40% of those shock absorbers known as bonds. The Vanguard asset allocation portfolios are re-balanced on a regular schedule to keep the risk level in check.

The MER for the Vanguard asset allocation portfolios is .25%. Yes these portfolios are a game changer. The one ticket solutions are the most cost-effective managed portfolios available in Canada. This should be the final dagger in the heart of the high fee mutual fund industry. iShares also offers one ticket solutions. You’ll also find them at BMO and Horizons.

Here’s the Findependence Hub review Game changer? Vanguard Launches 3 New Asset Allocation ETFs.

Here’s the stock to bond mix for the 3 portfolios that were launched in February of 2018. Happy Birthday! The one tickets are turning 1. And speaking of the 1’s the portfolios have already reached $1 Billion in assets. They are a hit with Canadians.

They are now bringing in $100 million per month.

And recently Vanguard Unveiled 2 more Asset Allocation ETFs.

In good Canadian fashion the Vanguard One Ticket team now has 5 players, enough for a full hockey lineup (not including the goalie of course). And just like hockey, there are players that are more aggressive and players that are more defensive in nature. The aggressive portfolios have more stocks. The defensive portfolios have more bonds.

How Do You Know What Portfolio To Select?

We are now down to the most important ‘part of it all’. The Portfolios do not come with an owner’s manual for when and how to use them. Matching the appropriate portfolio to your goals and risk tolerance level and time horizon is paramount. As Ford used to say “It’s Job 1”.

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We have to invest within our risk tolerance level. That means, we have to be comfortable with the amount that the portfolio could decline in value. Are you comfortable with a portfolio that could decline by 5% in a major correction, 10%, 20%, 30%, 40% or 50%?

Remember those bonds work like shock absorbers to soften the blow and smooth out the ride during periods when the stock markets tank. And tank they can; Canadian and US and International markets have declined by some 50% or more twice in the last 20 years.

There were major corrections in 2000-2002 and in 2008-2009. There have been some very ‘minor’ corrections over the last 10 years.

The market corrections.

Here’s an example of those shock absorbers at work. Courtesy of the portfolio modelling tools at portfoliovisualizer.com (where I spend way too much time) here’s a look at an all-stock portfolio vs a 50/50 stock to bond portfolio. Dividends are reinvested. The portfolios are rebalanced on an annual schedule.

Portfolio 1 is all stocks – Canada, US and International.
Portfolio 2 is 50% stocks and 50% Canadian bonds.

The stock portfolio fell by some 50% (drawdown). The conservative portfolio was ‘only’ down by some 24%. We see that by the end of 2011 the more conservative portfolio is already in positive territory while the all-stock portfolio is still fighting its way back to the break even point.

The portfolio recovery period is important, your time horizon is important. That’s why we don’t invest shorter term monies in all-stock or stock-heavy portfolios.

To get you in the right portfolio, we’re largely trying to match the portfolio mix to your time horizon and comfort level for portfolio decline.

You’ll find a table that will help you in this MoneySense post. If categorizes the asset allocation ETFs by way of time horizon and risk tolerance.

The Core Couch Potato Portfolios

You Need a 4-5 Year Time Horizon to Even Consider Investing.

Yup. If you have monies that you need in 3 years or less, off to the bank you go for a high interest savings account or GICs.

You might invest in the more conservative Vanguard asset allocation portfolios if you a time horizon of 4-5 years or more.

In the land of the Vanguard Portfolios that would mean that the Vanguard Conservative Income Portfolio, the Vanguard Conservative Portfolio and the Vanguard Balanced Portfolio might be suitable if you check that box for your risk tolerance level.

Time Horizon of 4-5 years or more.

Stock-heavy portfolios typically take much longer to recover after a major market correction. In fact, it could take several years for a Balanced Growth or All-Equity Portfolio to get back to even Steven after a major correction. That’s why it’s suggested that you have at least 6-9 years or more to invest in a portfolio that would be 70%, 80%, 90% or 100% in stocks.

Taking on greater risk for greater return.

And there’s no guarantee that you’ll make money in any of these asset allocations over a 6-9 year period. Investing involves risks, we don’t know the future. That said market history suggests that if you invest in a sensible well-balanced portfolio and keep your fees low, there’s a high probability of positive returns.

Time Horizon of 6-9 Years or More.

Personally, I would only invest in an All-Equity Portfolio if I had a time horizon of 10 years or more.

Once again you would need to have a High Risk Tolerance Level to invest in these Growth Portfolios. You would have to be able to withstand a 40-50% portfolio decline. If we go back to that 2008-2009 correction adding 20% bonds to a portfolio would have turned that 50% drawdown into a 40% drawdown.

Keep in mind that we don’t know the future, of course. Major corrections could be less than that 50% threshold or more than that 50% haircut range.

Potential Declines of More Conservative Portfolios.

VCIP – potential decline of 5-10%
VCNS – potential decline of 10-20%
VBAL – potential decline of 15%, 20%, 30%

Keep in mind these are general frameworks or guidelines based on market history. As my friends in compliance like to write, past performance does not guarantee future returns – or future performance characteristics.

You Might Use The Vanguard Portfolio Selector Tool

You can use the Asset Allocation (Portfolio Selector) tool at Vanguard.
Once again, the keys will be to match the Portfolio to your time horizon, your objective and risk tolerance level. You can also complete the online portfolio selector at Tangerine.

You will be offered a portfolio recommendation displaying the stock to bond allocation. You could use that as a guideline for selecting the appropriate Vanguard One Ticket Portfolio. Keep in mind that the Tangerine Portfolios are also simple index-based Portfolios and might be a great solution for you if you do not want to self-direct at a discount brokerage. They can be beneficial when you have a more modest portfolio value as there are no costs to buy and sell. The MER is 1.07%.

If you need more help and advice you might contact one of the Canadian Robo Advisors where you will get access to lower cost portfolios and various levels of advice – yes human advice. If you have taxable monies and a more complicated scenario you might even consider getting more robust advice by way of a fee-for-service financial advisor.

Please ensure that you know what you’re doing before you self-direct. If you don’t know what you’re doing, don’t do it.

If you have any questions on how to select the right Vanguard asset allocation portfolio please use that contact form.

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