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Vanguard All Equity ETF (VEQT): My New One-Ticket Investing Solution

Vanguard changed the self-directed investing game in Canada with the launch of its new suite of asset allocation ETFs. Now investors can get an ultra low cost, globally diversified portfolio of equities and bonds with just one product. The funds first came in three flavours – VCNS, VBAL, and VGRO – each with a different target asset allocation for the conservative, balanced, and growth-minded investor. Shortly after came the sweetener, at least for me, when Vanguard introduced an all-equity version called VEQT.

Asset allocation ETFs take away the biggest pain point for DIY investors by removing the need to periodically re-balance when adding new money or whenever markets veer off course. Simply buy units of a single ETF and hold, and/or add new money as needed. Vanguard’s professional managers take care of the rest so you can enjoy a mostly hands-off investing experience.

What is VEQT?

The Vanguard All Equity ETF Portfolio trades under the ticker symbol VEQT. It’s one of five asset allocation ETFs offered by Vanguard. Just like the name suggests, VEQT’s asset allocation is made up of 100 percent equities. VEQT is a “fund of funds”, meaning it’s a wrapper that contains four other Vanguard ETFs. Here’s what’s under the hood:

  • Vanguard US Total Market Index ETF 39.8%
  • Vanguard FTSE Canada All Cap Index ETF 29.8%
  • Vanguard FTSE Developed All Cap ex North America Index ETF 23.0%
  • Vanguard FTSE Emerging Markets All Cap Index ETF 7.4%

While investors are often cautioned not to put all their eggs in one basket, in this case with just one ETF your investment portfolio would have exposure to more than 12,200 stocks from around the globe. It doesn’t get much more diversified than that.

Sector weightings for VEQT include:

  • Financials 26.3%
  • Industrials 13.5%
  • Technology 12.1%
  • Consumer Services 10.5%
  • Oil & Gas 9.5%
  • Consumer Goods 9.0%
  • Health Care 7.6%
  • Basic Materials 6.0%
  • Utilities 3.0%
  • Telecommunications 2.5%

Finally, VEQT (like all of Vanguard’s asset allocation ETFs) comes with a management fee of 0.22 percent. The total management expense ratio (MER) will be known at a later date but it is expected to be 0.25 percent.

VEQT | My New One-Ticket Investing Solution

It was January 2015 when I sold all of my dividend stocks and switched to an index investing strategy. At the time I went with a two-ETF solution comprised of Vanguard’s FTSE Canada All Cap Index ETF (VCN), and Vanguard’s FTSE Global All Cap ex Canada Index ETF (VXC). This was a variation on the three-fund model portfolio popularized on the Canadian Couch Potato blog (the third fund being Canadian bonds – VAB).

The simple two-fund portfolio worked out great for me, growing by a total of 41.43 percent in the three years from January 2015 to January 2018. Last year was more challenging and the two-fund portfolio lost 4.25 percent after a weak fourth quarter sunk the stock markets.

I wasn’t looking to make a change but back in February 2019 Vanguard launched VEQT – adding the 100 percent equity allocation ETF to its product mix. I was intrigued enough and so on March 4th of this year I wrote about potentially adding VEQT to my portfolio in an effort to reduce my home country bias.

One comment on that blog struck a chord with me and caused me to eventually change my mind:

“I think you’re over complicating things, and should just go with VEQT in both accounts. The one fund asset allocation ETFs are a game changer for DIY investors, so why mess with the simplicity of them? There are good reasons to have some home bias anyway – we spend in Canadian dollars so it’s not great to have too much exposure to foreign currency risk, especially in retirement. Historically, about 30% home bias has been the sweet spot for reducing portfolio volatility.”

He was right. The simplicity of the one-fund solution far outweighed any benefits I’d gain from tinkering with the Canadian equity exposure in my portfolio.

On March 6th I pulled the trigger, replacing VXC and VCN in my RRSP and TFSA accounts with my new one-ticket solution, VEQT.

Selling VXC and VCN

Foreign Withholding Taxes with VEQT

One thing I did consider before making the switch to VEQT was foreign withholding taxes. The U.S. government levies a 15 percent tax on dividends paid to Canadians. Since I had foreign equity exposure through VXC, the estimated foreign withholding tax “drag” on my portfolio was around 0.48 percent (on top of the 0.27 percent MER). That made holding VXC relatively costly at a total of 0.75 percent.

I downloaded Justin Bender’s Foreign Withholding Tax calculator at his Canadian Portfolio Manager blog and determined that VEQT only had an expected foreign withholding tax of 0.24 percent – or just half of the taxes imposed on VXC. Combined with the lower expected MER of 0.25 percent and the total all-in costs for my new one-fund portfolio would be just 0.49 percent.

Final thoughts

Four years ago I decided to shed my behavioural biases and follow the overwhelming evidence that investing in a low cost, broadly diversified portfolio of index funds will lead to better investor outcomes. I achieved this with a two-ETF portfolio because at that time a one-fund solution did not exist.

Then along came the balanced ETF. Pioneered in Canada by Vanguard but now offered by the likes of iShares, Horizons, and BMO, these asset allocation ETFs are what do-it-yourself investors like me have been waiting for.

Cheaper than using a robo-advisor, and easier to manage than an unwieldy portfolio of multiple ETFs, a one-ticket solution gives investors the best of both worlds.

Still, I didn’t have what I was looking for until the all-equity ETF (VEQT) came along. It was my “Desert-Island” pick for a panel that chose the best ETFs for a MoneySense feature.

100 percent equity allocations aren’t for everyone. I’ve got a long time horizon, high risk tolerance, years of investing experience, plus a defined benefit pension backstopping my retirement. VEQT works for me. You might be better suited for VBAL, or VGRO.

The bottom line is there’s an asset allocation ETF – a one-ticket solution – for every self-directed investor who wants to simplify their holdings, lower their costs, and broaden their diversification. Are you ready to make the switch?

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32 Comments

  1. sam on May 23, 2019 at 4:29 am

    i bought veqt as my first ever investment in stocks.Thanks for this article.

    • Robb Engen on May 23, 2019 at 11:03 am

      Hi Sam, glad you enjoyed it!

  2. Paul Marshman on May 23, 2019 at 6:54 am

    The devil of index investing is that you’re swept along by whatever winds are driving the world markets. That’s served you well in a period of rising markets, but I wonder how happy you’ll be in the coming years if we experience a prolonged downdraft, as some are predicting. As you say, this fund is better suited to younger investors with a long timeline than to retirees. What are the dividend yields of these funds?

    • Robb Engen on May 23, 2019 at 11:13 am

      Hi Paul, to address your first comment about index funds being at the whim of the market – the idea that one can simply get in and out of the market and participate in all the upside with none of the downside sounds great in theory, but is a disaster in practice.

      The evidence is clear, no one can time the market with any sort of long term reliability or skill, so investors are better off staying invested. Markets historically go up two-thirds of the time so you’re best to participate in the roller coaster rather than trying to time your way on and off the ride.

      I’m sure there will be a correction or prolonged downturn at some point. I hope so since I’m still in the accumulation phase and can get more ETF units with every purchase.

      Retirees may shudder at the thought of a downturn but I’d suggest that any money invested should not be relied on for immediate retirement income. A bucket approach would be more desirable where you spend from a cash or fixed income “bucket” first before needing to sell any equities.

      Rather than looking to dividend yield, retirees generate retirement income by selling shares as needed. I’ve linked to this many times but this is the best explanation I’ve seen on the subject: https://www.moneysense.ca/save/retirement/a-better-way-to-generate-retirement-income/

    • Dale Roberts on May 26, 2019 at 6:04 am

      @Paul Marshman, I agree with Robb’s observations that a simple asset allocation approach has worked well in the past. But we need some bonds in the mix for managing sequence of returns risk, and emotional behaviour.

      That said, greater income and income growth, along with lower volatility stock mix both reduce that sequence of returns risk. Simple works, but we can tweak to improve slightly. We can reduce the need to sell stocks in market declines.

      I like some juicier income and lower volatility US Achievers for my ‘semi retirement’ or whatever this is, ha.

  3. Potato on May 23, 2019 at 7:08 am

    Hi Robb, on the train so I haven’t double-checked your math, but it looks like you’re over-stating the reduction in foreign withholding taxes by comparing your entire new portfolio (VEQT) with just a portion of your old portfolio (VXC), rather than adjusting for the portion that VXC made up. Same for the MER. If your allocation is similar, it should be a wash. If you’re adjusting your allocation in the switch and reducing your home-country bias, then you’ll likely end up with more FWT.

    • Robb Engen on May 23, 2019 at 7:28 am

      Hi John, I was comparing VXC to VEQT straight up for simplicity. You’re right that the reduction in MER and FWT is only slightly less when compared to my 20/80 VCN/VXC portfolio.

      According to Justin’s calculator my old portfolio had a MER of 0.23% and FWT of 0.38%.

      The new portfolio has an estimated MER of 0.25% and FWT of 0.24%.

      Since my portfolio is now 100% VEQT and it has a 30% Canadian allocation, the FWT drag is lower.

      • Dale Roberts on May 26, 2019 at 5:59 am

        Thanks Robb and John, interesting to watch your subtle shifts. Of course the bigger picture is the bigger concern and you do everything right by keeping fees low and investing on a regular schedule.

        According to Justin’s calculator you’ll give up almost a quarter of the foreign income?

        Dale

      • Potat on May 27, 2019 at 12:09 am

        Ah, ok, it’s because VXC holds US-listed international funds and gets hit with an extra layer of FWT, whereas VEQT uses Canadian-listed underlying funds.

  4. Alberta A. on May 23, 2019 at 8:23 am

    I really like the “simplicity” of having to deal with only one ETF, or maybe 2 or 3 ETFs, to be more conservative.

    That’s great if you are younger and starting on the road of investment. You buy one ETF, and forget it until decades later!

    But, what about people who are already in their retirement (no pension plan, except CPP and OAS), and are DIYers?

    They need some monthly income to put food on the table, and to pay for utilities (no mortgage). I don’t know VEQT yield, but it may not be enough to bring in the monthly paycheck.

    Moreover, can we trust any financial businesses to put all of our eggs in one ETF?

    Let’s say someone retired in her mid-60s with a 1.5M$ portfolio (getting there myself), should she sell everything to move to a one (or 3) ETF portfolio?

    Still confused about the “one-poney” solution 🙂

    • Robb Engen on May 23, 2019 at 11:21 am

      Hi Alberta, please see the link I posted in the reply to Paul’s comment. Don’t get hung up on dividend yield. Selling shares is the equivalent of creating your own dividend.

      Also, don’t confuse one ETF with putting all your eggs in one basket. As I explained, these asset allocation ETFs are “funds of funds” – a wrapper that contains several other ETFs. There is truly no need to hold multiple ETFs – in fact that defeats the purpose and the benefits that an all-in-one ETF delivers.

      Vanguard manages over a trillion dollars world wide. They’re not going anywhere. If you’re paranoid about an investment firm going under please check out the Canadian Investor Protection Fund which insures your money in case of insolvency:

      For an individual holding an account or accounts with a member firm, the limits on CIPF protection are generally as follows:

      – $1 million for all general accounts combined (such as cash accounts, margin accounts and TFSAs), plus
      – $1 million for all registered retirement accounts combined (such as RRSPs, RRIFs and LIFs), plus
      – $1 million for all registered education savings plans (RESPs) combined where the client is the subscriber of the plan.

      • Andy on November 11, 2019 at 4:23 pm

        Hi Robb,
        Just a comment on using VBAL as a one ETF solution. I recently emailed Dan Bortolloti about using VBAL as my one ETF when using the total return approach as you mentioned in the link here:
        https://www.moneysense.ca/save/retirement/a-better-way-to-generate-retirement-income/
        He suggested I would need greater flexibility to (buy/sell) stocks using his total return method.
        Using VEQT for the equity portion and VAB for the bond along with 5 years of GIC ladder protection could be a feasible way to accomplish this.
        Because the GIC’s are part of the safer money portion, you would have to add them to whatever % you invest in VAB as your total income portion of the portfolio.
        For example:
        a 60/40 portfolio might look like this depending on what portion you are dedicating to each of the 5 GIC’s in the ladder.
        If you had 1 million to invest for example:
        60% VEQT (600,000)
        20% VAB (200,000)
        20% GIC’s (5- 40,000 GIC’s each maturing every year over 5 years).
        This way, you could sell or buy from VEQT and VAB to maintain your portfolio balance.
        I think the all-in-one ETF’s are a great solution for accumulation, but to use this method when decumulating requires a little more thought as outlined in Dan’s article.

        • Robb Engen on November 11, 2019 at 4:36 pm

          Hi Andy, thanks for your comment. You (and Dan) are right in that the ‘balanced’ asset allocation ETFs are certainly less flexible for retirees looking to use the ‘bucket’ method for generating retirement income. I like what you’ve proposed – VEQT for the equity bucket, VAB for the bonds, and rolling GIC ladders for the maturing cash.

    • Derrick Voogd on May 24, 2019 at 8:55 am

      The biggest difference for individuals in the retirement phase (vs. accumulation) is really just equity to bond allocation. Robb does a great job above explaining the 100% equity portfolio of VEQT. If I was in your shoes Alberta A I would still use a one-fund portfolio, but have a larger bond allocation. VCNS has 60% bonds, and VBAL has 40% bonds – both great options for someone in your situation.

      • Mari-Ann on August 3, 2019 at 8:39 am

        Following Alberta’s post as am I’m in a similar position and age and am a very conservative investor. However I am learning and making changes. I like the idea of some equities but am happy with GICs too. We have found our greatest wealth builder is our salaries and we manage to save each month. I’m going to look into the vanguard conservative etf fund. Can I directly invest with vanguard or have to open a roboadvisor account?

        • Robb Engen on August 5, 2019 at 9:24 am

          Hi Mari-Ann, there’s nothing wrong with investing conservatively, especially if you’re a great saver to begin with. No need to open a robo-advisor account.

          What you’ll have to do is open a discount brokerage account online (all the big banks have a discount brokerage arm – I’m with TD Direct Investing, but there’s RBC Direct, BMO Investorline, CIBC Investor’s Edge, Scotia iTrade, etc.).

          Once that’s set up it’s just a matter of funding your account and then buying the appropriate ETF. If it’s the Vanguard conservative all-in-one portfolio then look for the ticker symbol VCNS.

  5. Ronado on May 23, 2019 at 8:24 am

    What does this look like income tax ways (internal wi fund and external) and especially for non-registered accounts and what do u recommend for non – registered accounts. R u saying that the dividends r taxable in an RRSP as well as TFSA as i thought RRSP are free from foreign tx. thks Robb

    • Robb Engen on May 23, 2019 at 11:32 am

      Hi Ronado, the foreign withholding taxes are unavoidable even inside an RRSP or TFSA. Basically any Canadian listed ETF that holds foreign securities will have to pay foreign withholding taxes (it’s 15% of the dividends, so we’re talking about maybe 0.3 to 0.4% max). You don’t pay it, the tax is withheld at the source.

      One way to avoid foreign withholding taxes is to hold U.S. listed ETFs directly. Doing so means dealing in U.S. currency, which comes with its own fees when converting from Canadian dollars. You can avoid these currency conversion fees with a move known as Norbert’s Gambit. This adds further complexity that I’m not willing to do at this point, but might need to look at as my portfolio grows.

      Finally, the asset allocation ETFs are perfectly fine for your non-registered or taxable account. You can file for a foreign tax credit using Schedule 1 (Canada). This ensures that you don’t pay tax on the same income in both Canada and the foreign jurisdiction. Form W8 can also be filed to reduce the amount of withholding from U.S. dividends.

  6. Sandy Fry on May 23, 2019 at 10:34 am

    Interested to hear a response to Alberta A’s question.

  7. Paul Cameron on May 23, 2019 at 6:24 pm

    By being 100% equity you are missing out on the benefits of rebalancing. I’ve seen studies that show a 90/10 allocation will out perform the 100/0 as it forces the sale of the high performing asset and the purchase of the underperforming asset.

    • Robb Engen on May 23, 2019 at 10:14 pm

      HI Paul, since VEQT is a fund of funds it will still benefit from rebalancing between its Canadian, U.S., and International holdings. And, since Vanguard does this automatically behind the scenes, that means I don’t have to make a judgement on when to rebalance on my own.

    • Ian on May 23, 2019 at 10:17 pm

      VEQT is composed of four ETFs and is automatically rebalanced. If euro stocks soar and Canadian stocks sink, the phenomenon you describe will still occur.

      Edit: beat me by three minutes Robb haha

      • Robb Engen on May 23, 2019 at 10:22 pm

        Ha! Nice – thanks for jumping in!

  8. Dave on May 23, 2019 at 6:51 pm

    Robb did you ever find any evidence to back that guys claim that “Historically, about 30% home bias has been the sweet spot for reducing portfolio volatility”?

    • Robb Engen on May 23, 2019 at 10:17 pm

      Hi Dave, are you suggesting I just blindly followed a recommendation from a random internet commenter? 😉

      Yes, there is wide-spread evidence that confirms this: https://www.pwlcapital.com/overweight-canadian-stocks-model-etf-portfolios/

      • Dave on May 24, 2019 at 7:03 am

        I dunno Robb, random internet commenters only have your best interests at heart, why wouldn’t you believe us??

        Thanks for the link! Like you I have been underweight Canada for awhile and while I had seen the 30% weighting recommended in multiple places I hadn’t seen any evidence to back it up.

  9. Cory on June 8, 2019 at 4:49 am

    Hi Robb,

    I recently moved all my money from a TD-e series couch potato portfolio into veqt.
    One thing I’m curious about though, is why is there no mention about dividends? With the e-series funds I used a drip to re-invest the dividends. Is that what veqt does automatically? I noticed vgro pays dividends?

    • Robb Engen on August 2, 2019 at 9:26 am

      Hi Cory, sorry I missed this comment. You’ll have to wait until the product has gone through a full year of returns before the 12-month trailing yield will be published. I’d expect it to be somewhere in the 2% range. I haven’t seen a distribution yet so I suspect it will be paid at the end of the year.

      When I held VCN and VXC, distributions were paid quarterly (not on a DRIP) into my cash account and then I just reinvested when I made my next contribution.

      • Cory Dettweiler on August 2, 2019 at 12:00 pm

        Ok, that makes sense. Thanks Robb!

  10. Brendan on August 2, 2019 at 8:49 am

    Great article. I’ve been waiting for a product like this as I am still young and in it for the long haul. Because of this I plan to re-invest dividends. Is there anywhere to find the expected annual yield % or will we just have to wait for the first year before Vanguard can give us a number? Or will it most likely share the average 2% of the TD E-Series strategy? Apologies if this question has already been blowing up your inbox!

    • Robb Engen on August 2, 2019 at 9:29 am

      Hi Brendan, I agree – VEQT is a great product for a young person with a long time horizon and a clear vision. As I mentioned to Cory above, they’ll post the trailing dividend yield after the fund has been on market for a year. But I suspect it will be in the 2% range and either paid quarterly or annually into your cash account.

  11. Adam on September 3, 2019 at 6:09 pm

    Sorry for commenting so late on this. For any dividends received from VEQT, why wouldn’t you use a DRIP? Are you saving it as cash until the price goes down before re-investing? I figured DRIP would make sense if we aren’t trying to time the market completely but I could be missing something. Thanks!

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