These videos have been helpful in growing my understanding of the various options and mixes out there. Coming into investing is really overwhelming because there are just SO MANY options for different stock and bond indexes. Thank you for doing these.
I switched to the individual ones some time ago, mostly because I didn't like the allocation % of shares in it, individually you have more control over each ETF amount in your portfolio. Thanks for the video!
I switched too a little while ago but, in contrast, because I did not care about the precise allocations and it gave more opportunities for tax-loss harvesting (which came handy in 2022). My understanding is that even a several percentage points difference between the categories doesn't change the expected returns much (you can't know which category will out ou under perform in advance), so I only update my target % a few times a year and when I invest new money I just top up the proper category. I know it will introduce a more important tracking error, good or bad, but I can live with this.
I think it’s better to break up all in one ETF to individual ones. That way you have a better control over the percentage of allocations, XEQT for example is overweighted in Canada, also when you’re in retirement and have to sell every month for income you just sell out of an ETF which gained the most or lost the least minimizing losses that way.
Great video! I think another consideration is that breaking up the all-in-one could create opportunities for lower foreign withholding taxes, if you swap some of the holdings. For example, if holding VEQT in an RSSP, VUN can be changed to VTI, and VEE can be changed to VWO (since VEE doesn't hold the emerging market stocks directly).
Great content and research as always Justin. We're so fortunate that you're providing this essential investment advice for Canadians. I've been following you and your blog for a long time. Thank you!
Great video as always. Even as an 'investing geek' I still wouldn't give up VEQT as the equity portion of my holdings. It's just too easy, and I'm fine paying the tiny difference in fees for that. I think the other thing people may need to consider is whether the cost savings would be wiped away if some of the underlyings had a bigger bid/ask spread at the time of the monthly new purchases. I don't know if they are wider, but the more ETFs you are playing with, the more likely one of them might be a little out of whack.
Thanks for the videos! I've been a Wealth simple managed portfolio subscriber for the past decade or so but as my account is growing I've realize the 0.4% MER "double dipping" fees they charge is starting to add up. XEQT/VEQT are such similar comparisons to equity growth portfolios with wealth simple that I'm almost just paying thousands of dollars of fees a year for no reason at this point. Will be moving my portfolio over time to all in one ETF's now that i'm a more experienced and confident investor.
Great insight. Evan at 1M portfolio, the difference is $900. This works out to be $75/month (900/12) and it is most likely to take over 3 hours each month to analyze then execute, making the effort worth $25/hour and still not tracking perfectly. Let the pro do that work for a min fee.
Excellent video. For most I'd recommend "XEQT and chill". However personally I like having the individual control over each component as I don't index all of my portfolio. This extra control allows me to place ETFs in different locations, swap out the US exposure for an even cheaper US listed ETF, and cancel out the weightings of any individual stock holdings. I'm honestly not terribly worried about a few percentage points of "tracking error" against the benchmark weightings in XEQT as those specific country weightings are arbitrary once you get down to percentage points. Given that I'm in the accumulation phase, I simply add to what is out of balance when I'm able to make no contributions. I would never sell anything to rebalance unless the ratios started to seriously diverge despite ongoing contributions.
@Marcello Nesca - You may want to work with a fee only planner leading up to your retirement to determine if an all-equity ETF still makes sense. Most investors will gradually add GICs and bond ETFs to their portfolio as they approach retirement, so that a significant market downturn will not impact their cash flow (i.e., they can simply use the proceeds from their maturing GICs to fund their retirement expenses until their equities recover).
Hi Justin, hope all is good on your end! Haven't seen any news videos from you in a while. I know you were planning to upload a video on FHSA account last summer. Is that still the case?
Excellent video Justin. Thanks. I've been a two etf guy since xaw came into existence in 2015. Im super lazy so i dont rebalance, only add to the lowest etf when i have cash. Generally that would be xaw since xic has been around longer. I figure my lack of trades saves the rebalance costs even if i happen to have more maple than the suggested 30%.
Many thanks for this highly informative video. Which online brokerage(s) offer the lowest fees to purchase VEQT/XEQT? Do WS/Quest Trade do it for free or do they charge additional MER fee? Thx.
hey Justin, been following your vids since Norbert Gambit. I had a question regarding the VEQT asset allocation - do you think 30% in VCN is too much home bias and currency risk given that I am a Canadian investor investing with Canadian dollars?
@Kien Diep - In my opinion, 30% is a reasonable allocation to Canadian stocks...there are several reasons why a heavier home bias (than the 3% global market cap weighting of Canada), can make sense: www.canadianportfoliomanagerblog.com/home-bias-in-the-vanguard-asset-allocation-etfs/
Thanks for the informative video. A lot of consideration goes into the cost when building your portfolio, but when considering withdrawal for retirement and tax efficiency at that time as well, is it better to build you portfolio with an all in one ETF or have individual ETFs for diversification (not necessarily the same ones VEQT/XEQT hold) over both the build and drawdown years?
Haha I thought this video would be about dumping them in favour of an asset allocation ETF that included bonds! Still, a solid, informative video as always Justin!
Thank you for all your videos, you are one of my favorite personal finance channels in Canada! A few issues with these all-equity ETFs: 1. Home bias - they weight canada at 25%+ which does not reflect its actual share in the world's equity market. This means it is not necceseraly a good idea to mimic their distribution. Personally I build a portfolio based on MSCI World index which better reflects the global economy. 2. Mix and match - when buying the underlying etfs directly you can mix and match and reduce the MER even more (e.g VCN, XUU, XEF, VEE).
@amitoh88 - I'm glad you've been enjoying the channel! :) 1. There are many reasons to favour a higher than market-cap weighting to Canadian stocks, such as lower volatility, lower taxes, lower foreign withholding tax drag, better tax treatment in corporate accounts, behaviour benefits, etc. I plan on addressing these aspects in a future video. 2. Careful when mixing and matching for lower MERs. VEE is now less tax-efficient than XEC, and XUU has experienced periods of tracking error, due to its decision not to simply hold its U.S.-based counterpart, ITOT: Tax-Efficient Changes to XEC: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-meW1Pf5uvNM.html Investing in U.S. Equity ETFs: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-LhCHLaoV9DM.html
As always, a great video. My question, is what is the best way to unwind an existing 4 equity fund ETF approach into a 1 fund solution without triggering a ton of unnecessary capital gains in the process? Keep holding them and just buy XEQT/VEQT with new money? Or, sell the whole lot and rebuy XEQT/VEQT? The latter seems like an expensive swap...
@chris090009 - If the 4-equity ETFs are in your non-registered account (and they have large unrealized capital gains), and you're in a high tax bracket, you can just start adding new money to the all-equity ETF (and maybe just top-up/rebalance the 4-ETF combo occasionally, like once a year.
Wealthsimple Trade has finally made "couch potato investing" as hands off as mutual funds. I now have VEQT setup as a weekly 'recurring buy', and the annual dividend is automatically reinvested. I can't see it being worth anyone's time to rebalance 4 funds every month when the entire process has been automated for such a low premium.
Great video. Thanks. How does VEQT/XEQT come up with its allocation mix? I think there’s no guarantee that is the perfect allocation percentage. The tracking error by a DIY investor may sometimes work in his/her favor. Do you have any thoughts about breaking up VBAL or VGRO into two components?…a bond ETF and VEQT. And maybe holding them differently across different account types?
@Tanah Merah - Vanguard and BlackRock likely ran a few backtests when they were deciding on their asset mix (there is certainly no guarantee either will be "perfect", but they are both reasonable). The main reasons an investor may decide to break up VBAL or VGRO into two components (a bond ETF and an all-equity ETF) would be: 1. They want to employ an asset location strategy across their various accounts. 2. They want to have the flexibility to easily (and tax-efficiently) shift to a more conservative asset mix over time (i.e., by gradually increasing their bond ETF allocation).
@@JustinBenderCPM Thanks Justin. Does frequent rebalancing actually improve portfolio returns? Should rebalancing base on fixed time intervals or whenever the current asset allocation deviate from the target allocation by a certain percentage?
Great video - thanks! I actually come at this from another direction: is there a way to further simplify the all-equity ETF by buying a passive all-equity mutual fund instead? Interested in avoiding "phantom capital gains" and other bookkeeping/tax complexities that one gets with a ETF. I understand that in the USA, Vanguard offers passive equity ETFs in mutual fund wrappers but it appears that these are not available in Canada, or are they?
@Tom Johnston - Unfortunately in Canada, low-cost index-based ETFs have been the popular choice over index-based mutual funds. Perhaps this is because Canadians started to loathe high-cost mutual funds, which eventually caused them to hate ALL mutual funds (including low-cost index mutual funds).
@@JustinBenderCPM can you do a video that talks more about phantom gain? sold all of my holdings over 2 years to purchase all in 1 VEQT and owed more taxes than i expected.
i started off with 2 ETF funds, one that tracks the global market and the other Canada. i found rebalancing portfolios and the emotional aspects of investing always getting in the way of me making rational decisions, hence difficult in staying on target, so i sold everything and stuck with a one fund portfolio in VEQT. no regrets at all!
@@JustinBenderCPM thanks for the affirmation! one fund ETFs are definitely not "sexy" but honestly with a busy life and the stress of "timing the market", or "getting rich quick", i decided to go all in on this fund. the dividends from the first year alone i'm sure offset the unrealized losses from buying "too high". with these funds there's no better opportunity than now.
I’m not sure that VEQT would be a great option for me because I only hold Canadian equity in my non-registered account so that I can benefit from the low tax rate on the dividends.
Stéphane Gariépy - Very true! You could substitute the Canadian-based XUU for US-based ITOT, but it's not a perfect replacement (as XUU doesn't just hold ITOT).
How does tax efficiency play into it? i.e. you treat your TFSA/RRSP as a single investing approach, and you concentrate all of the US underlying ETFs into your RRSP that way you are saving the 15% witholding tax on the US portion of the all in one ETF that would normally be in your TFSA. Would this be enough to offset the negatives described in the video?
@Amak503 - Asset location is a completely different discussion (and it's nowhere near as simple as "just hold U.S.-listed U.S. equity ETFs in your RRSP). If you're interested in learning more, I would suggest watching (and re-watching) my three asset location videos: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-lQBpRLlEmGg.html ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-ScoLiJOeL6A.html ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-ezDWpZ6HNyk.html
Hi Justin. Thank you for this video. What about the gain in putting in the RRSP all the US/International ETF involved in VEQT (for the witholding tax reduction) and the remaining ones in the TFSA/cash account versus VEQT alone in every of these 3 account types? Is there a big benefit to do that?
@Jeremie Bisson - You would need to adjust your before tax asset allocation to account for the tax bill in the RRSP assets (and eventually in the non0-registered assets), but if this was done properly (which is a big IF), and if Norbert's gambit was correctly used to convert currencies back and forth (another big IF), and if the asset mix was kept on target each month (yet another big IF), then yes, there could be some small additional benefits in the foreign withholding tax reduction.
Keep in mind that when you rebalance, you might end up having to mix up the allocations anyway. For example, if rebalancing requires you to sell some US ETF and buy some bonds, then you'll sell in the RRSP - but you generally shouldn't withdraw from the RRSP until retirement, so you'll end up buying the bonds in the RRSP. Overall, you'll still get the benefits of this strategy (with the IFs Justin mentions), but in terms of complexity, it could end up as complicated as holding the same allocations in every account.
@HackerCSVideos - Although VUN and XUU are similar, they are not equivalent. Check out my video below to learn more: Investing in U.S. Equity ETFs: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-LhCHLaoV9DM.html
@@mrslcom Warren Buffet has said he wants his heir’s funds invested in 2 index funds (90% SP500 and 10% ST Bond). No way to verify this but it makes sense if the trust is simple. For those comfortable with numbers and software (buying/selling etc) it’s not much harder. Keep it simple. It’s not really portfolio value that defines need for prof help (to a point) but more ability/willingness of investor and or complexity in situation ie, mult accts and factors incl kids resps, self owned biz, asset holdings in diff countries, shared assets or trusts w/family etc.
