When I wrote an article about how my American friends can easily index their portfolio with Vanguard Target retirement funds, I was wondering when/if these products would come to Canada.

To rewind a little, the Vanguard retirement funds allow you to pick a fund based on the year that you want to retire. The fund will then automatically adjust your asset allocation of indexed equity/bonds as you get closer to retirement.  All of this for a fee of less than 0.16% – cheaper than what we would pay for a basket of index ETFs in Canada.

Up until recently, Canadians could almost mimic these all-in-one balanced ETFs with either Tangerine mutual funds with a MER of around 1%, or via a Robo Advisor that would charge a fee of at least 0.40% + ETF MERs.  These fees are reasonable, and the products are great, but can we do better with just as much convenience?

Vanguard has created three new ETFs that I believe are game changers for passive index investors out there.  These three ETFs are essentially balanced ETFs with set asset allocation and will rebalance automatically to maintain the set ratio of equity/bonds.

No more doing calculations then buying/selling positions to maintain your asset allocation –  simply keep buying one ETF and forget it!  Oh and get this, the MER is 0.25% which is not far off from what you’d pay for a basket of low-cost index ETFs – which you would need to rebalance yourself.  To lower costs even further, consider a discount brokerage that offers commission-free ETF trades.

Vanguard All-in-One ETFs

Here are the three Vanguard ETFs straight from the Vanguard website:

Vanguard ETF Investment objective Ticker Strategic asset allocation
Vanguard Conservative ETF Portfolio Seeks to provide a combination of income and moderate long-term capital growth. VCNS 40% equity/
60% fixed income
Vanguard Balanced ETF Portfolio Seeks to provide long-term capital growth with a moderate level of income. VBAL 60% equity/
40% fixed income
Vanguard Growth ETF Portfolio Seeks to provide long-term capital growth. VGRO 80% equity/
20% fixed income

The Holdings

Vanguard Conservative ETF Portfolio (VCNS – 40% equity/60% fixed income)

  • 35.4% Vanguard Canadian Aggregate Bond Index ETF
  • 14.9% Vanguard US Total Market Index ETF
  • 14.3% Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged
  • 11.8% Vanguard FTSE Canada All Cap Index ETF
  • 10.7% Vanguard US Aggregate Bond Index ETF CAD-hedged
  • 9.9% Vanguard FTSE Developed All Cap EX North America Index ETF
  • 3.0% Vanguard FTSE Emerging Markets All Cap Index ETF

Vanguard Balanced ETF Portfolio (VBAL – 60% equity/40% fixed income)

  • 23.8% Vanguard Canadian Aggregate Bond Index ETF
  • 22.4% Vanguard US Total Market Index ETF
  • 17.8% Vanguard FTSE Canada All Cap Index ETF
  • 14.8% Vanguard FTSE Developed All Cap EX North America Index ETF
  • 9.5% Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged
  • 7.2% Vanguard US Aggregate Bond Index ETF CAD-hedged
  • 4.5% Vanguard FTSE Emerging Markets All Cap Index ETF

Vanguard Growth ETF Portfolio (VGRO – 80% equity/ 20% fixed income)

  • 29.9% Vanguard US Total Market Index ETF
  • 23.8% Vanguard FTSE Canada All Cap Index ETF
  • 19.9% Vanguard FTSE Developed All Cap EX North America Index ETF
  • 11.9% Vanguard Canadian Aggregate Bond Index ETF
  • 6.1% Vanguard FTSE Emerging Markets All Cap Index ETF
  • 4.8% Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged
  • 3.6% Vanguard US Aggregate Bond Index ETF CAD-hedged

Final Thoughts

As you can see from how I opened the article, I’m pretty bullish about these ETFs.  Vanguard has created a product that offers a globally diversified indexed portfolio by purchasing a single low-cost ETF.  I’m not sure it can get much better than this for a passive investor.

If you are an investor with a long timeline before retirement, consider VGRO which has a higher percentage of equities. As you get closer to retirement, you may want to reduce the volatility in your portfolio by increasing your bond allocation by switching to either VBAL or VCNS.  Or you could buy a bond ETF to supplement the portfolio – whichever is easier for you.

Are there any downsides?  I’m not sure if this would be considered a downside, but there are tax implications that you should be aware of.  Since these ETFs automatically rebalance between equity/bonds on a regular basis to maintain their ratios, they will incur capital gains tax (in addition to taxation on their distributions) if they are held in a taxable account.  Because of this, I would recommend keeping these ETFs within tax-sheltered accounts.  I wonder if Blackrock (iShares) will counter with a similar product.

For more reading on passive investing, here are 6 other ways to index your portfolio.

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Very shortly I plan on starting to invest in my one month old son’s RESP. Do you think these investment vehicles would be good for such a thing, or are they more suited for retirement timeframe?

To be honest, I actually enjoy doing the rebalance every with new contributions. It’s kind of fun, in a nerdy way.
But for simplicity (and cost), this is probably a better option. I will probably use them when we move our RESP’s over to a brokerage account, likely next year.
Do we know how often they rebalance?

i’m with itrade, but can you buy these ETFs without commissions at certain discount brokers (maybe Questrade) and then make monthly contributions without paying commissions every time? Thanks

When you are talking tax sheltered accounts do you favour TFSA or RRSPs for the tax implications of theses new ETFs?

These products can be a simple all in one solution for investment challenged newbies. Vanguard ETFs tend to be a bit light in the yield department. Any idea on what these new products will yield?

Since this is a fund of fund it is straightforward to compute the yield. I have computed yield in this google sheet https://goo.gl/V3SJ3A

I love Vanguard funds and these ETFs are really good. A target date fund changes the asset allocation with time i.e. the portfolio becomes less riskier as we approach the target date. Typically, distributions are spread across years. In your case you might have to sell and purchase the new ETF. This could potentially be a huge taxable event.

Wish they had a 100% equity option!

I am a big Vanguard fan and the fact that you can just buy one product, both lowers costs (especially with a free ETF purchase) and creates efficiency. This is very useful for someone like me, who is a novice to investing. I was very excited to see that these are coming soon.

I have a silly question. This certainly makes things much simpler (which as a layman investor I like), when you want to change from VGRO to VBAL you would have to sell all the VGRO and buy VBAL correct? Would you do that all at once or over the course of time? I will be a biweekly purchaser according to my paycheck, would I instead just begin to purchase VBAL instead of VGRO? Thanks.

I am currently (just started) investing into my RRSP with VGRO. 2 quick questions (well the 1st one is a question within a question):

1) Assuming you started an RESP when your child was born (I’m not a parent yet) and invested in VGRO, at what approximate age do you think it would be appropriate to sell off my VGRO holdings and start buying VBAL ? and further, would it make sense at a certain age (maybe 2-3 years before starting studies) to then switch to VCNS ?

2) If using your alternative method instead, and simply buy a bond ETF like VAB to make it more like a VBAL portfolio, I’m curious what you think of using VSB instead? Currently in my TFSA I am using XAW, VSB & VCN @ 80%, 30% & 20%, respectively. So I’ve invested in VSB already.

Is there a way to purchase these funds via an automatic investing plan? I currently have those Tangerine mutual funds in TFSA and set to contribute X$ weekly/monthly etc… I find this super convenient but realize they are higher in MER. I did look into the TD e-series and I think there is some way to make purchases automatic, but again somewhat higher in fees.

I’m keen on the commission free brokerages out there, but I assume I still have to remember to make those purchases manually?


For these ETFs, do you just constantly purchase them on a regular basis independent of the price?

I live overseas as a non resident… Therefore I do not need to pay any Taxes back home… Therefore would it be possible for me to pay for Vanguard directly from America Via online… And if so which companies would I use? Would I just sign up for Vanguard directly online orse also some other online companies? I assume I would be liable for American taxes?

I currently hold mutual funds and today I submitted a request to move all of my investments to a discount brokerage (Questrade). I am about 20 years away from retirement so my plan is to heavily invest in VGRO. Would it make sense to invest in VCNS as well when markets are bearish, and then invest in VGRO when markets are bullish? Do I minimize risk doing it this way? I want to maximize growth as much as possible.

Thanks for the reply. Volatility is not a concern at all as I want to maximize growth. I guess I’ll just stick with VGRO. I hope Vanguard comes up with a socially responsible version of VGRO soon!

Hi, are there equivalent rebalancing ETFs if one wanted to keep everything in USD?

My daughter will be entering University in 4 years, would these ETFs be a good choice if my timeline is about 4 years?


Thanks for the great posts, always interesting to read :)

With such a new ETF is there any concern regarding the returns or lack of historical returns? I’m considering VRGO but am having difficulty gauging what sort of return to expect, the inception to date return is not showing strong but 1 yr is not long enough to really be indicative of what this ETF is capable of over the long term. VRGO is no doubt a simple option with a great MER but I’m not clear on the aspect of returns.

Anyhow, I would appreciate your thoughts.

Thanks in advance.

That is because the fund is less than one year old. As per Vanguard website, “Canadian law does not allow the display of performance data for ETFs less than one year old. Performance data will be provided after the Vanguard ETF has distributed securities for at least one year.”

Thanks for the reply. So given the lack of performance history, are people looking at the underlying ETFs to determine what sort of returns can be expected from a balanced ETF like VGRO?

Oh, one more thing when I pro-rate the MER of each underlying ETF against the asset allocation % of each ETF, I get a total blended VGRO MER of 0.16%. Is the difference between this value and the VGRO MER the price to pay for the auto-balancing? Or is there a problem with the pro-rating approach?

If the pro-rating approach is ok, could I do the same to predict the potential 5yr VGRO return?

thanks for confirming :)