For most Canadians, mutual funds are still the mainstay of their investment portfolios. However, many investors are fed up with high fees that are being charged on mutual funds that rarely match, let alone outperform, the market.

Investing in lower cost exchange-traded funds, or ETFs, seems like a good alternative.

The knock on ETFs is that they can be complicated for do-it-yourself investors to manage and get proper diversification across Canadian, U.S., and International stock markets, not to mention adding the right mix of bonds and knowing when to rebalance it all when markets fluctuate.

A balanced fund, with regular rebalancing and low-costs, would take away this pain point from DIY investors, but up until this year a one-ticket solution didn’t exist within an ETF format.

That all changed when two investment companies, Vanguard and Horizons, introduced their own all-in-one balanced ETFs. Designed to be a one-ticket solution for investors, these ETFs hold an appropriately diversified mix of foreign and domestic stocks and bonds, with rules that determine when and how often the portfolio gets rebalanced.

Vanguard and Horizons: One-Ticket ETF Solutions

I took a closer look at these all-in-one balanced ETF solutions from Vanguard and Horizons, and asked Ben Felix, associate portfolio manager at PWL Capital, to share his thoughts on their suitability inside registered and non-registered portfolios:

Vanguard All-In-One ETFs (VCNS, VBAL, VGRO)

On January 25, 2018 Vanguard launched three “asset-allocation” ETFs that are listed on the Toronto Stock Exchange and can be purchased through a discount brokerage.

• Vanguard Conservative ETF Portfolio (TSX: VCNS) – Holds 40 percent equities and 60 percent fixed income.
• Vanguard Balanced ETF Portfolio (TSX: VBAL) – Holds 60 percent equities and 40 percent fixed income.
• Vanguard Growth ETF Portfolio (TSX: VGRO) – Holds 80 percent equities and 20 percent fixed income.

Each portfolio consists of seven Vanguard ETFs wrapped up into one product, each representing broad and diversified asset classes across regions and market capitalizations (large, mid- and small).

Vanguard portfolios are monitored daily and rebalanced regularly to ensure they stay within their target weights of plus or minus two percent.

Investors can expect a total management fee of 0.25 percent, including HST.

*Update: Vanguard has recently added two new asset allocation ETFs to its line-up. First is the Vanguard Conservative Income ETF Portfolio (VCIP), which holds 20 percent equities and 80 percent fixed income. Second, there’s Vanguard All-Equity ETF Portfolio (VEQT), which holds 100 percent equities from around the globe. I recently switched my portfolio to VEQT.

Ask the expert on Vanguard:

Felix says that even when you consider additional foreign withholding tax costs, the Vanguard all-in-one products are cheaper than going through a robo-advisor service and investors are getting a comparable portfolio.

“The Vanguard asset allocation funds are good in a taxable account, as good as anything in a TFSA, and fine in an RRSP, though you could do a little better if you want to buy U.S.-listed ETFs in your RRSP.”

Horizons One-Ticket ETFs (HCON, HBAL)

On August 2, 2018 Horizons launched two “one-ticket” ETF solutions that are listed on the Toronto Stock Exchange and can be purchased through a discount brokerage.

• Horizons Conservative TRI ETF Portfolio (TSX: HCON) – Holds approximately 50 percent equity securities and 50 percent fixed income securities.
• Horizons Balanced TRI ETF Portfolio (TSX: HBAL) – Holds approximately 70 percent equity securities and 30 percent fixed income securities.

Each portfolio consists of seven ETFs from Horizons’ suite of Total Return Index (TRI) ETFs. They use an investment structure known as a Total Return Swap to deliver index returns in a low-cost and tax-efficient manner.

Although initially marketed with a “zero-percent” management fee, investors still pay the cost of the underlying funds and can expect a total management fee of 0.18 percent for HCON and 0.20 percent for HBAL.

HCON and HBAL are rebalanced semi-annually.

Ask the expert on Horizons:

Felix says the make-up of the Horizons ETFs is well suited for non-registered accounts, particularly for high-income earners. That’s because of its unique Total Return Swap structure, which doesn’t actually hold any stocks or ETFs.

“The benefit of this “synthetic” exposure to stocks and bonds is that you do not receive any income from the fund. No dividends, no interest, only the total return of the index as a capital gain or loss. This is beneficial in a taxable account especially for those in a high tax bracket.”

When it comes to diversification Felix does say the Horizons one-ticket funds are not as well diversified compared to the Vanguard asset allocation funds. The Vanguard ETFs are total market funds, whereas the underlying indexes for the Horizons funds are heavily focused on large cap stocks, with minimal exposure to mid caps, and no exposure to small caps.

“The Horizons one-ticket funds are great in a taxable account for anyone taxed at a high rate, but they are probably not worth holding in a registered account, not to mention that they are lacking in diversification regardless of the account that they are held in.”

Final thoughts

For the past three and a half years I’ve enjoyed the simplicity and diversification of my two-ETF portfolio consisting of Vanguard’s VCN (Canadian equities) and VXC (Global equities). I call it my four-minute portfolio because I literally spent four-minutes monitoring and rebalancing it last year. Still, some people called my two-ETF solution too simple.

Is it possible for investors to build a diversified portfolio with just one ETF?

The simple answer is yes. With exposure to global stocks and bonds, these one-ticket solutions from Vanguard and Horizons offer broad diversification at a very low cost. That makes these balanced ETFs an appealing simple and low-maintenance investment option for do-it-yourself investors.

Earlier this summer the Canadian Securities Administrators disappointed investor advocates and did a disservice to Canadian investors when it announced watered-down reforms that failed to address conflicted investment advice and a best interest standard of care. Instead of much needed reform, investors got three paltry concessions from regulators:

1. Banning the deferred sales charge option (DSC) on mutual fund sales
2. Banning trailer fees charged by discount brokerages
3. Beefing up the inferior suitability standard and disclosures on conflicts of interest.

Or so we thought.

This week the new Ford regime in Ontario announced that it doesn’t intent to follow through with the proposed banning of deferred sales charges on mutual funds, saying “our government doesn’t agree with this proposal as currently drafted.”

“The CSA and [the Ontario Securities Commission’s] proposed amendments result from a process initiated under the previous government and, if implemented, will discontinue a payment option for purchasing mutual funds that has enabled Ontario families and investors to save toward retirement and other financial goals.”

It’s not right to charge investors to get their own money back (a deferred sales charge is a scheme that costs investors a percentage fee when they sell an investment within a seven year time period). Even Investors Group recognizes this and has put a stop to selling DSC funds.

It’s shameful that the Ontario government allowed the mutual fund industry to influence this proposal and thwart what would have been a small victory in the battle for investor rights and industry reform. If we can’t even get this proposal passed, what hope do we have for true investor protection and a best interest standard?

This Week’s Recap:

On Tuesday I reviewed Beat the Bank: Simply Successful Investing by Larry Bates. We had incredible interest in the book giveaway with a total of 123 entries. Thanks so much for your entries and insightful comments. Larry probably has enough new material from those to write Beat the Bank part two!

The winner of the book is Jan, who commented on September 11 at 9:44 a.m. Congratulations, Jan! I’ll send your book out in the mail this week.

On Friday I wrote about a new retirement study that suggested retirees might spend 130 percent of their preretirement income because every day is Saturday in retirement, and we tend to spend more on the weekend.

Canadian Financial Summit is Live Right Now:

Grab a ticket to the Canadian Financial Summit and catch my session for free for the next few hours (depending on when you read this) or get an All-Access pass to watch all 25+ sessions any time, any place.

You can even get access to the lifetime library, which includes last year’s sessions where I spoke about my four-minute investment portfolio.

Weekend Reading:

An interesting read from Budgets are Sexy: What everyone wants to do before they die!

The Humble Dollar blogger Jonathan Clements has a new book out (which I’m reading now) and he draws 31 of his favourite questions from it to help you figure out your money and happiness goals.

Desirae Odjick just got married (congrats!) and here she explains the one rule that prevented her from taking on more debt.

Readers had lots of questions about the New York Times’ recent story about the FIRE movement (financial independence, retire early). Here are some answers.

Canadians’ favourite credit card isn’t from one of the big banks. It’s from a grocery chain. This is not surprising, given the PC MasterCard’s cult-like following.

A great article from Nick Maggiulli on why your time horizon isn’t long enough:

“So when you consider what you want to accomplish in life, don’t forget that in order to build a great business, family, product, brand, community, or movement it will take longer than you think.  Soextend your time horizon and stop focusing on the coming week or quarter and start focusing on the coming decade and century.”

After reporting on personal finance, Joe Pinsker used behavioural economics on himself, making one simple financial change to lower his spending.

This updated rule of retirement saving has you working longer, running out of money sooner. Here’s the new rule of $20.

This man lost his savings when cryptocurrencies crashed. Perhaps it’s a lesson not to put $120,000 into Bitcoin?

Michael Batnick looks at the cryptocurrency mania and suggests the next mania will be Cannabis stocks.

Speaking of mania, this week marked the 10th anniversary of Lehman Brothers collapsing and the start of the global financial crisis. Tom Bradley shares five lessons from the financial crisis.

Thinking of a reverse mortgage? Rob McLister shares how that compares to a HELOC.

Finally, Apple had its big launch event this week, announcing three new iPhones. The Star’s Kerry Taylor looks at AppleCare+ to see if the extended warranty is worth it for these pricey smart phones.

Have a great weekend, everyone!

Is every day a Saturday in retirement? That’s what behavioural scientists Dan Ariely and Aline Holzwarth claimed in a recent study about retirement income. The premise being that when you’re no longer working 40 hours a week (or more) all of a sudden you have 40 hours a week available to spend money. Every day is like Saturday. Not to mention, many of the things your employer used to pay for, such as coffee, a smart-phone, or gym membership, now falls on you.

The study’s conclusion? Retirees should expect to spend as much as 130 percent of their preretirement income after they retire. Yikes!

That flies in the face of typical retirement planning advice, which pegs the income replacement rate at around 70 percent of your preretirement income. A lot of expenses should disappear when you reach retirement age. Hopefully your kids have left home, and your mortgage is paid off. You’ll no longer have payroll deductions for income taxes, CPP, and EI. Say goodbye to the long, soul-crushing commute, along with the expensive business attire.

Because of these reasons (and others) some retirement experts, like Fred Vettese, even champion a much lower retirement income target of 50 percent of your income.

On the flip side, in this article about money myths, financial advisor Kurt Rosentreter seems to concur with the Ariely / Holzwarth study:

All the old retirement planning textbooks said you could expect to live off less than your working income (e.g. 70 percent). The reality of what we are seeing in the trenches doing this work everyday is that there are three phases: Age 60 to 70 where we are seeing as high as 110 percent of pre-retirement spending; age 75 to age 85 where costs can drop to 80 percent after the first spouse death; and costs in the final phase of age 85 onward than can be lower or higher depending on health care.

Every day is Saturday in Retirement

This study resonated with me because one of my biggest fears about retirement is that I’ll overspend and completely blow my carefully planned budget.

Why is that a fear?

We do spend more money on the weekend. That’s when we do our shopping, our leisure activities, and when we go out for dinner. Weekends can be expensive!

This gets magnified when we’re on holidays. Every day is Saturday when you’re on vacation, right? A couple of pints of beer (or 9 oz glasses of wine) with lunch, tickets to a museum, maybe go to a movie, it all adds up. There’s lots of free time and we fill it by going to places, doing things, and wining & dining along the way.

Don’t get me wrong. Most of this is planned spending. We save for our vacations so we can enjoy ourselves and indulge in interesting and new experiences. But that’s for a week or two every year. I couldn’t possibly keep up that spending pace for a month, a year, or for our entire retirement. Right?

I’m obviously projecting these feelings into my unknown and far-off retirement, but I wonder if this is a real fear for people, or if it’s just me.

I want to hear from retirees: Did you have an uptick in spending due to your increased free time in retirement? Is every day a Saturday in retirement?

Soon-to-be-retirees: Do you expect your retirement spending to be higher, lower, or the same as your current annual spend?

Let me know in the comments.