ETF Autopilot

Earlier this year, Vanguard, the second largest Exchange Traded Fund (ETF) manager in the world, dropped three new products which are legit game changers for investors who would love to ditch their high-fee mutual funds and find a lower cost alternative.

Three new asset-allocation ETF’s were added to Vanguard's already impressive product lineup and provide investors with a simple all-in-one solution for their desired risk profile along with global diversification and importantly, low fees.  

How Vanguard has done this is sounds a little confusing, but basically, they’ve created a single ETF, which in turn owns other Vanguard ETF's.

A Do-it-yourself (DIY) investor otherwise trying to create a diversified portfolio would have to go through the task of properly identifying which ETFs to purchase, what dollar amounts of each to buy, purchase the 6-8 ETF's it generally takes to create a diversified portfolio and then periodically figure out how to rebalance their investments, all of which feels pretty overwhelming (it is) and probably not where your time is best spent.

Vanguard has taken all the hassle out by wrapping together each of those individual ETFs you would need to build your portfolio into a single product which automatically rebalances itself.  

All you need to do is pick one of the three asset allocations:

vanguard asset allocation etf

Conservative ETF Portfolio (VCNS): Provides a combination of income and moderate capital growth by investing in securities with a strategic asset allocation of 40% equity, 60% fixed income.

Balanced ETF Portfolio (VBAL): Provides long-term capital growth by investing in securities with an asset allocation of 60% equity, 40% fixed income

And finally, the Growth ETF Portfolio (VGRO): which pushes for more aggressive long-term growth by investing in 80% equity, 20% fixed income

That’s it.  

Vanguard has given investors an automatic transmission for those who aren’t game for the stick shifting that comes along with DIY investing.

For younger investors who constantly hear about ETFs but are nervous about buying them and managing their holdings, the VGRO ETF certainly would provide them with an appropriate investment portfolio, for those who are a bit older or perhaps a bit more cautious, VBAL replicates the 60/40 asset-allocation of your average balanced mutual fund out there and for those nearing retirement, VCNS raises the fixed income component to 60% in order to soften out exposure to the stock market. 

This is a huge win for the DIY investing crowd as well.  While purchasing individual ETF’s to build out your portfolio is a super interesting and rewarding experience, selecting from the thousands of ETFs already in existence and the new ones that get marketed on a daily basis is head-spinning.  Then trying to figure out when and how to rebalance is another headache to deal with.  Instead, Vanguard's ETFs continuously assesses the portfolio’s asset-allocation and over time, rebalances it back to its intended risk level. (So yes, someone IS watching your money)

Vanguard does all that for a fee of 0.22% which is 90% cheaper than most mutual funds sold in Canada and likely a lot more diversified than them as well.  

While going the ETF route won't be a great fit for everyone, the new products from Vanguard certainly change the game.  These are the Autopilot of the ETF world and provide a far more user-friendly, low-fee experience for investing and growing your money