# Vanguard only ETF portfolio



## FinancialUnderdog (Mar 30, 2015)

Hello, 

Long time reader, first time poster.

I'm thinking of contributing regularly to my TFSA accounts by buying pre-determined ETFs every month. Three to five funds, and nothing else. Long term thinking, won't need money for at least 5 years. Primary goal is to keep it cheap, simple, and easy to balance.

Would you recommend going with Vanguard-only portfolio? I've looked at them, and their MERs seem very low, and I can cover all the bases with them. 

VAB 10%
VCN 20-30%
VXC 60-70%

Help a newbie out


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## uptoolate (Oct 9, 2011)

Can you buy the funds at no cost? This would be the biggest drag. Canadian Couch Potato is a good place to go for pros and cons of mutual funds v. ETFs when first starting out. If you are set on buying the ETFs then I would make one purchase each month rotating through the funds you have chosen. Vanguard is a good company to pick if you are only going with one provider.


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## rebel_ins (Apr 6, 2009)

There is nothing wrong with a Vanguard only portfolio.

However, buying ETFs every month will be expensive due to trading commissions. If you were to invest, say, $100 each month in each ETF, then with a broker like TD Direct Investing you'd pay 10% in commissions fees on every trade. This will hinder your returns.

I would avoid this plan unless:

1. you have more than $50,000 already invested (or can invest that much as a lump sum);
2. AND the commissions are 1% (or less) of the monthly amounts to be invested.

If you cannot meet both conditions, then I would look at Tangerine or TD e-Series mutual funds instead: http://canadiancouchpotato.com/model-portfolios-2/


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## FinancialUnderdog (Mar 30, 2015)

Yes, I believe when using QuestTrade you buy ETFs at no charge (don't know about selling but I'm not planning to sell for a while).


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## bumblebee (Jan 15, 2015)

Looks good.
At Questade it's free to buy ETFs, but you pay ECN fees if you place market orders. At fractions of a cent per share (0.0035) that cost is mostly negligible. 
Selling would cost you 1c/share (I think it's $5 min/$10 max)
Also, make sure you have at least $5k minimum balance so you don't pay any of their silly inactivity fees (buying does not count as 'activity' - you have to complete a commissionable trade which costs $$$)

btw, time horizon of 5 years is very tight.


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## leeder (Jan 28, 2012)

If you're with Questrade, I don't have any problems with your plan. Product wise, Vanguard products are top notch. 5 years still seem like a short period for me, especially if you have plans to use the money after the 5 years (e.g., buy a house, etc.). Otherwise, the allocation is reasonable, provided that you can tolerate the risks of market downturn.


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## My Own Advisor (Sep 24, 2012)

leeder said:


> If you're with Questrade, I don't have any problems with your plan. Product wise, Vanguard products are top notch. 5 years still seem like a short period for me, especially if you have plans to use the money after the 5 years (e.g., buy a house, etc.). Otherwise, the allocation is reasonable, provided that you can tolerate the risks of market downturn.


Agreed with Leeder. Vanguard have some of the best ETF products going. Nice tilt to VXC as well.


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## FinancialUnderdog (Mar 30, 2015)

bumblebee said:


> Also, make sure you have at least $5k minimum balance so you don't pay any of their silly inactivity fees (buying does not count as 'activity' - you have to complete a commissionable trade which costs $$$)
> 
> btw, time horizon of 5 years is very tight.


Didn't realize they have inactivity fee! Thank you for heads up. I'm planning to invest $7K right away + around $2K every month, so that should cover it.

As far as rebalancing goes, would you recommend doing it once a year or more often?


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## uptoolate (Oct 9, 2011)

FinancialUnderdog said:


> As far as rebalancing goes, would you recommend doing it once a year or more often?


Not more than once a year unless things get really out of whack. You can set tolerances going in. If you are contributing each month then you can pretty much balance as you go by adding new money to the underweight category. This will work well until your balances get large.


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## FinancialUnderdog (Mar 30, 2015)

Thank you for your help, fellas! I'll put it into action.


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## Flash (Nov 25, 2014)

Is 0.25% MER more economically than let's say splitting VXC in VUN/VFV and VDU (0.08/0.15 and 0.20 MER)

When it comes to ETF's, it's pretty much this, except I was looking at 30% VCN, 30% VFV, 30% VDU. But now it got me thinking. Is 0.08 and 0.20 MER culumative, resulting in a total expense of 0.28, or is more economical than 0.25% of VXC?

p.s. sorry for hi-jack


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## GreatLaker (Mar 23, 2014)

Flash said:


> Is 0.25% MER more economically than let's say splitting VXC in VUN/VFV and VDU (0.08/0.15 and 0.20 MER)
> 
> When it comes to ETF's, it's pretty much this, except I was looking at 30% VCN, 30% VFV, 30% VDU. But now it got me thinking. Is 0.08 and 0.20 MER culumative, resulting in a total expense of 0.28, or is more economical than 0.25% of VXC?


The MERs are not additive. You have to calculate a weighted average. Say for a portfolio of 60% VFV @ .08% and 40% VDU @ .20% the blended MER = (.60 x .08) + (.40 x .20) = .128. (Just an example, not a recommended portfolio.)

Remember that VXC also has emerging markets in it which tend to have higher MER than USA or EAFE ETFs. To have a Vanguard Canada portfolio equivalent to VXC you would also have to include VEE.

You do pay a premium with VXC for the convenience of owning one fund instead of 3, and not having to worry about rebalancing.


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## Flash (Nov 25, 2014)

GreatLaker said:


> The MERs are not additive. You have to calculate a weighted average. Say for a portfolio of 60% VFV @ .08% and 40% VDU @ .20% the blended MER = (.60 x .08) + (.40 x .20) = .128. (Just an example, not a recommended portfolio.)
> 
> Remember that VXC also has emerging markets in it which tend to have higher MER than USA or EAFE ETFs. To have a Vanguard Canada portfolio equivalent to VXC you would also have to include VEE.
> 
> You do pay a premium with VXC for the convenience of owning one fund instead of 3, and not having to worry about rebalancing.


Thanks for your explanation.
So if I don't mind buying 3 instead of 1, then it's more economical and higher return owning the 3 separately?


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## GreatLaker (Mar 23, 2014)

Flash said:


> Thanks for your explanation.
> So if I don't mind buying 3 instead of 1, then it's more economical and higher return owning the 3 separately?


Yes, provided you hold the underlying 3 funds in the same ratio as VXC does and you rebalance occasionally, returns should be higher by the difference in MER and trading fees. (Unless your broker gives free ETF trading you will also have to factor in trading commissions on 3 funds instead of 1 into your analysis.)


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## Flash (Nov 25, 2014)

Cheers, learned something new
Regarding trading fees, one could theoretically buy the same amount of units from each ETF as he would when buying just the one no?

Ex.
1 ETF: Buy 100 shares every month = 1200 shares/yr = 12 trades
3 ETF: Buy 100 share every month, each month from different ETF = total of 1200 shares, 400 each. = 12 trades

For simplicity I assumed the 1 ETF has equal 1/3 holdings of each individual 3 ETF. For a different ratio, one could buy more of 1 ETF and less of another, if that has a lower ratio.


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## CalgaryPotato (Mar 7, 2015)

You could, you'll never totally be in balance, but as long as the amount you're adding monthly isn't a huge portion of what you already have it shouldn't be a big deal.

But for me, when they used to offer aggregate mutual funds that held other mutual funds that jumped MER's from 1.5 per fund to 2.5% per the group, it was a huge difference and it was worth the effort for me to manage things separately. 

But now I hold XAW which covers 5 underlying funds with MER's between .07 and .2 and XAW costs .2. It's worth it to me to pay ~.05% of my portfolio to keep my rebalancing to 3 funds rather than 7.


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## cman2 (Jan 14, 2011)

bumblebee said:


> Looks good.
> At Questade it's free to buy ETFs, but you pay ECN fees if you place market orders. At fractions of a cent per share (0.0035) that cost is mostly negligible.
> Selling would cost you 1c/share (I think it's $5 min/$10 max)
> Also, make sure you have at least $5k minimum balance so you don't pay any of their silly inactivity fees (buying does not count as 'activity' - you have to complete a commissionable trade which costs $$$)
> ...


You don't need to incur costs to keep the account active with Questrade. Buying an ETF (which is free with Questrade) every quarter will do the trick.


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## jwsclark19 (Nov 24, 2014)

cman2 said:


> bumblebee said:
> 
> 
> > Looks good.
> ...



This is correct. I have a pure Vanguard portfolio, and don't have to pay inactivity fees, even though etf trades are free. In questrade's outline of fees, "free trades" count for not having to pay inactivity fees. Just looked it up on their website.


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## FinancialUnderdog (Mar 30, 2015)

In case anybody is interested, my Vanguard-only portfolio (VAB 10% VCN 20-30% VXC 60-70%) is flat against when I bought the good chunk of it back in April of last year.

Oh, the joy of investing


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