Author Topic: Vanguard Asset Allocation ETFs  (Read 4170 times)

Reggie

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Vanguard Asset Allocation ETFs
« on: September 14, 2019, 11:04:19 AM »
I guess I'm late on this one as these seem to have been out for a year now but have a lot of people started converting their ETFs to the Vanguard Asset Allocation ETFs?

https://www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm

Between my spouse and I, we have 7 registered accounts (2 TFSA, 2 RRSP, 2 LIRA, 1 RESP) and I try to keep my desired portfolio split across all the accounts.  And I try to keep each account somewhat diversified as well but right now some accounts might be heavier on US and then another heavier on CAD but overall the 7 accounts have the desired split.  I only hold 4 different ETFs in total but it's sometimes tough to keep balanced.

The Vanguard Asset Allocation Growth (VGRO) fund sounds a lot like what I'm trying to achieve but it's a little more diversified (holds the 4 ETFs I have plus 2 or 3 more).  The only difference is the MER is 0.22%.  My current MER using 4 funds comes out to about 0.13% (based on my rough calculations).  So I give up 0.09% MER for slightly better diversification and assurance that each actual account is also properly diversified. On $500,000 that's still an extra $500 a year expense (minus what I save on trades, maybe $100).

I feel like $400 a year is ok for the better diversification and not having to really do anything. What is everyone else doing?




Ottawa

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Re: Vanguard Asset Allocation ETFs
« Reply #1 on: September 16, 2019, 11:08:09 AM »
Hey Reggie,
We have the same issue as you with a wide range of accounts...balancing across them all is tough. Also, we have 7 etfs...basically the VGRO (Except 'fixed income' is a mix of ZPR-preferred shares, CHB -high yield and ZRE -REITs).  I wouldn't mind getting the bond mix VGRO offers.

We will soon have 1 LIRA once I transfer out pension...and more to put into a non-reg account.  I may buy exclusively VGRO for the pension transfer cash... since our MER is 0.27%...0.22 is a savings! 


Lews Therin

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Re: Vanguard Asset Allocation ETFs
« Reply #2 on: September 16, 2019, 11:23:10 AM »
I don't want Bonds, so I ignore VGRO.

On the other hand, you'd not want to hold VGRO in a TFSA, since you'd lose the withholding taxes...

It's simpler, but it loses out on a few things.

I'd rather have Bonds in RRSP, Stocks in TFSA, and dividends returners in Taxable (In two years when my income is stable at nothing.)

Prairie Moustache

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Re: Vanguard Asset Allocation ETFs
« Reply #3 on: September 16, 2019, 10:15:57 PM »
I'm in the same boat as Lews, allocating your assets across all your accounts when you're starting out makes a lot of sense, but for people who don't want to get "into the weeds" VGRO is amazing.

Lews, could you explain the withholding taxes point, or direct me to a blog post?

Lews Therin

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Re: Vanguard Asset Allocation ETFs
« Reply #4 on: September 17, 2019, 05:36:27 AM »
I'm in the same boat as Lews, allocating your assets across all your accounts when you're starting out makes a lot of sense, but for people who don't want to get "into the weeds" VGRO is amazing.

Lews, could you explain the withholding taxes point, or direct me to a blog post?

Reply number 8: https://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/

Basically, 15% of US dividends are withheld, and you get them back at tax time in a taxable account, or through the magic of treatys in a RRSP, but in a TFSA, or a large ETF that is holding a US wrapper, it doesn't come back.

Reggie

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Re: Vanguard Asset Allocation ETFs
« Reply #5 on: September 17, 2019, 02:19:29 PM »
I don't want Bonds, so I ignore VGRO.

On the other hand, you'd not want to hold VGRO in a TFSA, since you'd lose the withholding taxes...

It's simpler, but it loses out on a few things.

I'd rather have Bonds in RRSP, Stocks in TFSA, and dividends returners in Taxable (In two years when my income is stable at nothing.)

Good point Lews. So essentially using the same Canadian listed ETF which US dividends will return slightly less in a TFSA?

Now you just gave me more work to do... I'll have to calculate if it still makes more sense to go all VGRO. I feel like there might still be value in having US exposure in a  TFSA even if there's a little withholding tax. In the long run I want all my accounts to grow comparatively bevause I don't know which account I'll draw from first or when (ex: if the tfsa is all Canadian  exposure and the Canadian stock market has a terrible year and I plan to withdraw from that account in that year.) That wouldn't be ideal as I wouldn't want to sell my lowest performing account.

Lews Therin

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Re: Vanguard Asset Allocation ETFs
« Reply #6 on: September 17, 2019, 02:21:59 PM »
You don't want bonds in your tfsa, so vgro is not supposed to be in there!

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #7 on: September 18, 2019, 04:41:14 AM »
This stuff with withholding comes up SO often.

Going 100% VGRO if that is your preferred allocation is a completely sane option. The extra tax drag will be a bit less than 0.3% in accounts it matters. A bit less because some bits won't have withholding (bonds, Canadian, depending on structure UK stocks for example where there is no withholding). 0.3% comes from average 15% on 2% yield.

The best thing is to put true US stuff (VTI, say) in your RRSP because the US sees it as a pension scheme and doesn't take a cut. And then in your TFSA put a Canadian domiciled ETF that holds stocks directly, not a Canadian ETF that holds a US ETF (eg ZEA.TO is a nice one).

The most important thing is asset ALLOCATION; don't let the tail wag the dog. Yes, saving 0.3% is good, optimising is good - but on smaller portfolios it is negligible in dollar terms, in larger portfolios where much of the money is unregistered it isn't going to matter much.

FLBiker

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Re: Vanguard Asset Allocation ETFs
« Reply #8 on: September 18, 2019, 12:02:44 PM »
I've been following this discussion with interest.  I'm a US citizen moving to Canada next year.  Can anyone tell me how the above advice would need to be adjusted based on US citizenship?  Feel free to PM me so as not to derail the thread.  Thanks!

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #9 on: September 19, 2019, 01:18:50 AM »
I've been following this discussion with interest.  I'm a US citizen moving to Canada next year.  Can anyone tell me how the above advice would need to be adjusted based on US citizenship?  Feel free to PM me so as not to derail the thread.  Thanks!

AFAIK the short version is: you certainly don't want to use the TFSA, you should stick to US-domiciled funds (so VTI, etc). I'm not sure about RRSPs, I think it is a grey area.

Goldielocks

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Re: Vanguard Asset Allocation ETFs
« Reply #10 on: October 03, 2019, 02:20:37 PM »
I've been following this discussion with interest.  I'm a US citizen moving to Canada next year.  Can anyone tell me how the above advice would need to be adjusted based on US citizenship?  Feel free to PM me so as not to derail the thread.  Thanks!

Stay away from TFSAs and RESP's until you are no longer a US tax filing / paying citizen.

The minor exception would be if you have low taxes, don't mind a lot of paperwork that you do yourself, and would only hold the account for a few years, then the RESP grant monies may make sense.   BUT, the grant money is only up to $1000/yr, max, (and taxes in the USA) so that is a lot of work..every year the account is open.

K-ice

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Re: Vanguard Asset Allocation ETFs
« Reply #11 on: October 03, 2019, 08:18:01 PM »
I will share what I am doing. They are listed in order of their preferred spot. I started before VGRO existed. I am pretty happy with my allocation.

RRSP and TFSA are full.

Are there any major location issuers here?

RRSP:
VAB (bonds)
VTI (USD total stock market)
VXC (All cap ex Canadian, only here to help balance allocation)

TFSA:
VXC (All cap ex Canadian)
VIU (I wanted more international exposure to balance the VTI above)

Taxable:
VDY  (Canadian dividend)


Legsofsteel

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Re: Vanguard Asset Allocation ETFs
« Reply #12 on: October 04, 2019, 01:55:01 PM »
You don't want bonds in your tfsa, so vgro is not supposed to be in there!

VGRO would be better in a non-registered account?

Goldielocks

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Re: Vanguard Asset Allocation ETFs
« Reply #13 on: October 04, 2019, 02:19:05 PM »
I will share what I am doing. They are listed in order of their preferred spot. I started before VGRO existed. I am pretty happy with my allocation.

RRSP and TFSA are full.

Are there any major location issuers here?

RRSP:
VAB (bonds)
VTI (USD total stock market)
VXC (All cap ex Canadian, only here to help balance allocation)

TFSA:
VXC (All cap ex Canadian)
VIU (I wanted more international exposure to balance the VTI above)

Taxable:
VDY  (Canadian dividend)
This is a good setup.   As TFSA grows, you may need to rebalance more than with just the new money into the account, so consider pushing the VIU into taxable.. then you don't need to use TFSA to rebalance within it.   Especially if VIU is volatile and you can get the foreign tax credit and the potential for tax loss harvesting. 

(Note - I have not looked up VIU, there may be something about it that makes my comment about foreign tax credit and VIU nonsense... when I say VIU, I mean international fund or even "emerging markets").

Blissful Biker

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Re: Vanguard Asset Allocation ETFs
« Reply #14 on: October 05, 2019, 10:31:09 AM »
I am enjoying the thread and thinking through my own strategy:

RRSP
   ZAG (Canadian bonds)
   VUN (US Equity)
   VCN (Canadian Equity)
   XEF (International Equity)

TFSA:
   XEF (International Equity)
   XEC (Emerging Markets Equity)

Taxable
   VCN (Canadian Equity)

I am holding the US equities in the RRSPs with the intention of using Norbert's Gambit to switch from the Cdn$ VUN to the USD VTI and take advantage of eliminating the withholding tax.  But in 2 years, I still haven't pulled the trigger because USD feels so expensive.  We live near the border and used to regularly shop in the US but it doesn't make sense with the current exchange rates.   The withholding tax benefit feels small in comparison to getting an lousy exchange rate on a huge chunk of our stash.  So I remain paralyzed with indecision. 

I put the higher risk investments (XEF and XEC) in the TFSA thinking high risk = high reward but it hasn't really worked out to date.  The powerhouse of the US economy has made my RRSP grow substantially and I will eventually pay taxes on all that lovely growth.

Any input is very welcome.

To the original question of VGRO.  I am a fan and steer new investors that way, including my kids, eventually.



K-ice

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Re: Vanguard Asset Allocation ETFs
« Reply #15 on: October 05, 2019, 01:08:44 PM »
I think VTI is better than VUN in your RRSP. 

Perhaps someone else can better explain why...

edit:  https://www.moneysense.ca/columns/ask-the-spud-when-should-i-use-us-listed-etfs/
« Last Edit: October 05, 2019, 01:12:23 PM by K-ice »

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #16 on: October 06, 2019, 07:15:07 AM »
VTI > VUN.TO in RRSP because you don't lose 15% of dividends to the IRS.

I'm leery of putting bonds inside a registered account. It's arugable either way, but if you are in it for the long haul, and consider bonds to underperform stocks, you want to tax shelter stocks.

Yes I understand the income from bonds is not treated favourably, but still.

Stasher

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Re: Vanguard Asset Allocation ETFs
« Reply #17 on: October 18, 2019, 10:06:33 AM »
Damn this thread really has me thinking now how I lay out my AA across my TFSA and RRSP, they key thing is I am FI and no longer working. I haven't changed my AA % either and am 60% Int 30% Can and 10% bond and identical in both accounts.

TFSA
XAW - world ex Canada index
VCN - Canada index (I hate that this is tied to mining/O&G and so volatile in changing climate)
ZAG - Canada bond
RRSP
XAW
VCN
ZAG

So from the comments above having ZAG and XAW are not wise in the TFSA?
If I completely sold off VCN as I don't want to be tied to O&G so much being XAW is so international and only a bit US would it be ok in TFSA still?

Would the TFSA then be 100% XAW and RRSP be a split of XAW and ZAG ?

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #18 on: October 18, 2019, 10:46:31 AM »
Damn this thread really has me thinking now how I lay out my AA across my TFSA and RRSP, they key thing is I am FI and no longer working. I haven't changed my AA % either and am 60% Int 30% Can and 10% bond and identical in both accounts.

TFSA
XAW - world ex Canada index
VCN - Canada index (I hate that this is tied to mining/O&G and so volatile in changing climate)
ZAG - Canada bond
RRSP
XAW
VCN
ZAG

So from the comments above having ZAG and XAW are not wise in the TFSA?
If I completely sold off VCN as I don't want to be tied to O&G so much being XAW is so international and only a bit US would it be ok in TFSA still?

Would the TFSA then be 100% XAW and RRSP be a split of XAW and ZAG ?

XAW is 50+% US

Depends really on the absolute numbers how worth it it is, but if you're FIRE you must have a decent amount in your RRSP? If so you want to put anything US domiciled in there, and you want basically everything in the RRSP to be US domiciled (just makes things easier in terms of income in USD IMHO).

So, I'd put ZEA.TO for international ex US into the TFSA, VTI in the RRSP for US. You can put VXUS for international ex US in the RRSP too.

Canada can go in the TFSA.

Basically use up the RRSP room with US stuff first because you get a benefit from doing so. Then everything else (and yeah ZEA.TO rather than XAW.TO) in the TFSA. XAW just holds US domiciled things inside it, which means you have an extra drag in both RRSP and TFSA. It is avoidable.

Stasher

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Re: Vanguard Asset Allocation ETFs
« Reply #19 on: October 18, 2019, 11:17:56 AM »
Thanks Daverobev
Canadian Couch Potato is pushing on XAW since switching from VXC so just curious on your belief in ZEA
https://canadiancouchpotato.com/2017/01/13/model-portfolio-update-for-2017/
https://cdn.canadiancouchpotato.com/wp-content/uploads/2019/03/CCP-Model-Portfolios-ETFs-2018.pdf

Outside of using your funds suggested then I would look something like this and would set up my asset allocation % across the accounts as if looking as one account not separate portfolios to get right mix and technically could still achieve 60/30/10?
RRSP
XAW
ZAG
TFSA
VCN
« Last Edit: October 18, 2019, 11:21:53 AM by Stasher »

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #20 on: October 18, 2019, 11:44:15 AM »
Thanks Daverobev
Canadian Couch Potato is pushing on XAW since switching from VXC so just curious on your belief in ZEA
https://canadiancouchpotato.com/2017/01/13/model-portfolio-update-for-2017/
https://cdn.canadiancouchpotato.com/wp-content/uploads/2019/03/CCP-Model-Portfolios-ETFs-2018.pdf

Outside of using your funds suggested then I would look something like this and would set up my asset allocation % across the accounts as if looking as one account not separate portfolios to get right mix and technically could still achieve 60/30/10?
RRSP
XAW
ZAG
TFSA
VCN

CCP is ok, and not 'wrong' but not always optimal. He/they (him + Justin Bender) have given what I would consider conflicting suggestions (ie, saying don't worry about this because of X; but in another thing, don't do this because of the same X). XAW is not optimal in an RRSP because the IRS does not withhold 15% on dividend distributions it knows are in an RRSP; because XAW is a Canadian domiciled ETF holding US domiciled ETFs, you lose that 15% and it is unrecoverable (at 2% yield, you lose 0.3%).

You have to try and factor any tax on RRSP withdrawals, that's the only thing. If you're always paying zero tax then yes. If you're paying average 10%, you have to factor that.

Kashmani

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Re: Vanguard Asset Allocation ETFs
« Reply #21 on: October 18, 2019, 03:10:03 PM »
Over the course of the past 1 1/2 years, I have converted all RRSPs and TFSAs to VBAL, which is Vanguard's balanced asset allocation fund. While the MER is slightly higher than what I had before, the automatic rebalancing is a useful feature. I also found that psychologically, seeing a single fund is easier to deal with - I don't care when bonds are down or what is lagging. It is all happening behind the scenes.

All in all, I find VBAL to be a very good product for the 0.22% MER. I am actually in the process of converting the kids' RESPs to VBAL as well.

I do find that for a non-registered account, VBAL is not the best option since the tax situation is complex. With eligible dividends taxed so favourably compared to interest or foreign dividends, I use a Canadian high-dividend ETF (VDY) and a Canadian preferred-share ETF (CPD) in the non-registered account.

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #22 on: October 19, 2019, 02:43:12 AM »
Over the course of the past 1 1/2 years, I have converted all RRSPs and TFSAs to VBAL, which is Vanguard's balanced asset allocation fund. While the MER is slightly higher than what I had before, the automatic rebalancing is a useful feature. I also found that psychologically, seeing a single fund is easier to deal with - I don't care when bonds are down or what is lagging. It is all happening behind the scenes.

All in all, I find VBAL to be a very good product for the 0.22% MER. I am actually in the process of converting the kids' RESPs to VBAL as well.

I do find that for a non-registered account, VBAL is not the best option since the tax situation is complex. With eligible dividends taxed so favourably compared to interest or foreign dividends, I use a Canadian high-dividend ETF (VDY) and a Canadian preferred-share ETF (CPD) in the non-registered account.

Ok - but on anything that is US-domiciled, you are losing 15% of dividends received to the IRS.

So compare VT + VAB.TO to VBAL.TO. VT is Vanguard's global ETF.

VT MER is the same as VAB's 0.09%, done.

VBAL.TO 0.22% - actually the MER is 0.25% - plus 0.3% on a good chunk. Ok so VBAL is also very much not cap weighted, of the amount in stocks it is 30% Canada, 40% US. I don't know how the rest is held (ie, is it wrapping a US ETF for the "international" stuff).

I get it - simple is good. It really is. But you need to see what it's costing. I just did some calculations for something totally different, but basically a 0.5% MER is the same as ~12.5% tax on growth.

IMHO that simplicity is a) not that great of an asset allocation, and b) probably costing 0.3% more than the 'optimal' solution.

If that's ok, cool.

Goldielocks

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Re: Vanguard Asset Allocation ETFs
« Reply #23 on: October 23, 2019, 05:17:06 PM »
I was asked a question about US REITs...

Should these go into your RRSP?  (for US tax reasons).

e.g., I want to recommend that a friend get an RRSP in US dollar account (e.g., at questrade) and then when she buys US REITS (which she wants to do), she does it in her RRSP, in US funds....

I assume that the tax works.. right?

I also noted that US REITs still have advantageous tax rules (CDN ones don't) and therefore, may be a good consideration to include in an asset allocation for larger funds.

Stasher

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Re: Vanguard Asset Allocation ETFs
« Reply #24 on: October 24, 2019, 01:01:46 PM »
@daverobev to followup to your reply, thank-you for more insight.
I am no longer working and based on your comments here what might you suggest them I rebalance to in January after my net dividend payouts. Yes, I will research them and to decide what is best for me and that this is just an advice forum:)
@Goldielocks I also really value your input ...

Refresher....here is my current AA which i haven't changed since FIRE'ing
TFSA
XAW - 60
VCN - 30
ZAG - 10
RRSP
XAW - 60
VCN - 30
ZAG - 10

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #25 on: October 25, 2019, 01:27:26 AM »
@daverobev to followup to your reply, thank-you for more insight.
I am no longer working and based on your comments here what might you suggest them I rebalance to in January after my net dividend payouts. Yes, I will research them and to decide what is best for me and that this is just an advice forum:)
@Goldielocks I also really value your input ...

Refresher....here is my current AA which i haven't changed since FIRE'ing
TFSA
XAW - 60
VCN - 30
ZAG - 10
RRSP
XAW - 60
VCN - 30
ZAG - 10

Bearing in mind I'm no longer up on Canadian/US stuff (having moved to the UK and then France...), I think in the RRSP you can pick whatever combination of VT, VTI, and VXUS (Vanguard - total, USA, and total-ex-USA, respectively). They are low low low fee.

As I don't know your absolute numbers it's hard to say after that (ie, what the ratio of RRSP to TFSA is), but if you want Canada it would go just fine in either place. Keep US out of the TFSA completely, but put in ZEA for EAFE (which is most of the developed world ex North America). You have nothing unregistered?

BSL18

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Re: Vanguard Asset Allocation ETFs
« Reply #26 on: October 25, 2019, 06:42:17 AM »
Just hijacking the thread :-" and posting to follow.

I was thinking of going VEQT/TFSA and VGRO/RRSP (not yet at the point where I need an unregistered..) for simplicity, but I think there are interesting suggestions from everyone ni this thread.

Stasher

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Re: Vanguard Asset Allocation ETFs
« Reply #27 on: October 25, 2019, 06:49:54 PM »

TFSA
XAW - 60
VCN - 30
ZAG - 10
RRSP
XAW - 60
VCN - 30
ZAG - 10

Bearing in mind I'm no longer up on Canadian/US stuff (having moved to the UK and then France...), I think in the RRSP you can pick whatever combination of VT, VTI, and VXUS (Vanguard - total, USA, and total-ex-USA, respectively). They are low low low fee.

As I don't know your absolute numbers it's hard to say after that (ie, what the ratio of RRSP to TFSA is), but if you want Canada it would go just fine in either place. Keep US out of the TFSA completely, but put in ZEA for EAFE (which is most of the developed world ex North America). You have nothing unregistered?

My TFSA is maxed (nearly $100K) and everything else is in my RRSP (sub $500K)
I have some old market exempt and a LIRA stuff locked in elsewhere before doing my Index CCP portfolio
I have zero non registered.

RRSP ~ XAW (Int & US) < but you suggest ZEA/VT/VTI/VXUS as alternatives >
TFSA ~ VCN (Canada) and ZAG (bond)

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Re: Vanguard Asset Allocation ETFs
« Reply #28 on: October 25, 2019, 06:58:03 PM »
@daverobev to followup to your reply, thank-you for more insight.
I am no longer working and based on your comments here what might you suggest them I rebalance to in January after my net dividend payouts. Yes, I will research them and to decide what is best for me and that this is just an advice forum:)
@Goldielocks I also really value your input ...

Refresher....here is my current AA which i haven't changed since FIRE'ing
TFSA
XAW - 60
VCN - 30
ZAG - 10
RRSP
XAW - 60
VCN - 30
ZAG - 10

I have something similar, but I realized that I did not need to rebalance each fund 3 ways...
So, I pull one fund only into each bucket, and then split one of the larger ones across each account for rebalancing.

My ratios ended up:
Worldwide equities - TFSA
US Equities - RRSP (in USD account)
Bonds - RRSP
VCN - split across both RRSP and TFSA, to allow rebalancing within the accounts.

It just means that I only duplicate one asset class in each account.  I chose a version that has no commissions, to allow me to sweep cash dividends into it every quarter and rebalance once or twice a year.

This may not work with every rebalancing, but it is pretty close... AND, we have 8 different accounts to rebalance across, so I wanted fewer funds in each... more important than perfect rebalancing of BOND fund, for example.

------------
Bonds in the RRSP instead of the TFSA?
For me this works -- I have a Locked in RRSP that I don't want to grow as fast (assuming identical asset allocation), as I am trying to draw it down to collapse it and make it more flexible.   I am moving funds from the locked in to the regular RRSP.  I have excess RRSP room for my goals so the loss of contribution room is not a bit deal for me.

Also, I don't plan to pull from my TFSA for many years, so I don't need some conservative cash in there (bonds) right now.  I would rather accelerate its growth over the next 10-15 years.
« Last Edit: October 25, 2019, 07:06:09 PM by Goldielocks »

daverobev

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Re: Vanguard Asset Allocation ETFs
« Reply #29 on: October 26, 2019, 12:02:14 AM »
My TFSA is maxed (nearly $100K) and everything else is in my RRSP (sub $500K)
I have some old market exempt and a LIRA stuff locked in elsewhere before doing my Index CCP portfolio
I have zero non registered.

RRSP ~ XAW (Int & US) < but you suggest ZEA/VT/VTI/VXUS as alternatives >
TFSA ~ VCN (Canada) and ZAG (bond)

No need for ZEA in the RRSP; it is easier IMHO to keep that all in US$ for ease of rebalancing etc. VXUS does include some Canada but that's ok.

Stasher

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Re: Vanguard Asset Allocation ETFs
« Reply #30 on: October 29, 2019, 08:28:23 AM »
Thanks for the input on this, I will do my best to navigate the future on moving these around.