100% of TH-cam revenues received by the Canadian Portfolio Manager channel have been donated to SickKids Foundation. If this video has helped save you a few dollars on fees or taxes, please consider donating a portion of your savings to SickKids Foundation: www.sickkidsfoundation.com/
Wow. This was the best video I've seen on asset allocation. Very clear and easy to understand. I love that you backed your suggestions with an analysis of real data from a long 50-year time frame. Well done!!
You guys are the nicest Canadians I have ever met on TH-cam, respectively. I love the fact that your information is presently factually and clearly and concise, is a breath of fresh air. Donating to sick kids all your proceeds is Amazing! Thank you so much guys for being great people.
The best straight forward advice. Love it. It is not like many experts who give no advice and leave you with incomplete information to make your own decisions. Thank you so much. I was thinking of 60-40 for money that I need in 5 years, RESP, now I am thinking this can be risky. I have the ability but not the willingness to lose any of it.
@Fassel Hussain - If you haven't checked out our "How to Invest Your RESP" video yet, you may also find it useful for deciding on an asset mix: th-cam.com/video/y70GqxHj8WY/w-d-xo.html
Shannon, I very much appreciate the data based information. REALLY nice to FINALLY have actual time examples for investing as opposed to the generic long or short term descriptors.
Very clear, concise, insightful advice backed up by factual data. What stood up the most for me was that taking higher risk even after ten years is only 50% likely to beat the less risky investment. Thank you!
Excellent video. I’m 2 years from retirement and I own almost 100% dividend paying Bluechip stocks. If I opt out now and move to a conservative Etf I won’t have enough to retire! Yes I’m rolling the dice but I have to add when markets fall and increase my dividends. Small amount in GICs to carry me 4 years to postpone my cpp. I have to take more risk or I will definitely be short and have to continue to work until 70+
This video is excellent and I will be sharing with my 30-something kids. Sensible, non-judgmental, clear and concise and impressive that you backed it up with such a clearly presented data analysis. You’ve earned a subscriber!
This was very useful. I have my money in a target date fund, but seeing the worst 20 years return made me nervous. Looking at the asset allocation of my target date fund, I feel like it is taking more risk than I am personally comfortable with. I will consider moving to a target date fund with date earlier than I actually plan to retire.
Wonderful video. Knowing your risk tolerance is definitely the most important part in determining asset allocation but remember there is no such thing as a free lunch. The relationship between risk and return is very real. Not meeting long term goals because you were too conservative in your asset allocation is a risk all it’s own. For the high income earner who doesn’t have a good pension, their investment return may be the only way to keep up the lifestyle they are used too.
@LoganT101 - Not meeting your long-term goals because you didn't take enough risk is certainly a possibility. If you're not comfortable with taking more risk (i.e. you would likely sell your equities when the next stock market crisis occurred), you may need to adjust your savings strategy and reduce your expenses to compensate for your lower expected returns. Taking more risk when you can't stomach it isn't a good solution to this problem, as it could have devastating consequences to your financial health.
Great risk video Shanon, thank you! How does inflation affect the decision to have a bond weighted portfolio? Are bonds more for deflation protection? What would the short and long term duration spread need to be to go with a more heavily weighted bond portfolio?
A bubble can occur with growth stocks tho. Or during a long-term bear market a lot of ppl/organizations pull money out of riskier assets and buy into "safer" stocks🤔. Still learning myself here.
Wow, this is the perfect video I needed right now. You perfectly described me as the young investor who is an aggressive saver, but overestimates their risk tolerance lol. Thanks.
For a retiree who is coming into a large lump sum this fall, and will withdraw 3 to 4% a year, would you dollar cost average or lump sum invest in VBAL or go with something like VRIF?
I'm retired and bought $150K of VRIF so far. It doesn’t pay enough in dividends % wise so I paired it with different BMO Covered Call High Dividend ETF'S and other ETF'S
@HamiltonRb - This is one of those situations where you should generally work with a fee-only planner to determine an appropriate strategy for the new lump-sum cash. I would suggest reaching out to Robb Engen (Boomer and Echo), who is an indexing advocate and offers fee only advice: boomerandecho.com/fee-only-advice/
@galaxytrio - This was one of the main reasons we created this video (so investors would revisit their portfolio risk during a period of relatively good market returns, and not wait until the next market downturn before making changes).
this is really helpful thank you! So right now my investments are all in tax sheltered accounts (TFSA, RESP, RRSP) and the time horizon is 15+ years for all of them so I am investing in VGRO but whats happens 5-8 years from now when my child's RESP now only has a less than 9 year time horizon, do I sell all the VGRO and buy something with less risk because now the time horizon is less or do I keep it in VGRO because it had a large time horizon to start? - this secondary part of investing has always confused me.
At 7:13, there's table that says VEQT had a loss of $12,794 for the worst 10 year period. VEQT was created in 2018 and it's not even 3 years old. Was this amount extrapolated/guessed? Don't get me wrong. Great video and very informative. Thanks a lot!
Although VEQT itself is newer it's just combining other ETFs that have existed for much longer so you can calculate their returns to the percentage they are held within VEQT to get what it's performance would have been.
@burnt1ce85 - The data is based off similar index returns minus fees. You can find the methodology on page 2 of the Vanguard model ETF portfolios: www.canadianportfoliomanagerblog.com/model-etf-portfolios/
Bonds are horrible lol! Sold my bond index because it was bringing my entire portfolio down. I need to find alternatives. The best alternative so far is a 20% yield on Anchor staking UST.
Historically lump sum would give you a higher return over time than DCA. This is because on average the financial markets move upwards, so the earlier you can get your money invested the more time you have to capture those gains.
For anyone looking for more resources on this topic, Chapter 3 of Larry Swedroe's book, "Your Complete Guide to a Successful & Secure Retirement" provides a very detailed discussion of your ability, willingness and need to take risk. I found this book, and especially this chapter extremely helpful in making my own asset allocation decisions (along with videos like this one). Some other great books on asset allocation: "All about Asset Allocation" by Rick Ferri "Asset Allocation: Balancing Financial Risk" by Roger Gibson Any of William Bernstein's books, my favorite of which being, "The Four Pillars of Investing"
For someone with a long time horizon (10+ years), it is unlikely the investor will invest a lump sum at year 1 and then wait until the end. He/she will likely make additional investments periodically over the years, which in effect will reduce his overall time horizon as well as the average cost. The actual return at the end of the time horizon will therefore not be the worst case scenario as illustrated. Also, it is now probably safe to assume that the government will not let the market crash 50%. They will interfere way before that point by running the money printing machine at full tilt.
@Tanah Merah - The worst one year loss is more of a behavioural exercise. If an investor placed $1,000,000 of their hard-earned money in VEQT, and the next day their investment dropped to $500,000, I doubt they would be excited about how they will now be able to save periodically at cheaper prices over the next 10 years. They might sell their holding in a panic and never recover from their losses (which would be a devastating blow to their retirement plan). Also, assuming the governments will not let the market crash 50% is an unwise assumption. What if the recent pandemic was even deadlier than what we experienced (with a much higher mortality rate among young and healthy individuals)? Or what if we didn't have the knowledge to create vaccines to fight this new threat, or the technology to work remotely? In these cases, I doubt the government would have had much control over the fate of the stock markets.
@@JustinBenderCPM Read some stuff quick. On the return/risk scale, I imagine short-term bonds are higher expected return but higher risk than HISA? Just trying to find an easy solution. From my quick search, it seems like XSB and VSB are the most known Canadian options for short-term bonds? Thanks!
Great video, Shannon. 👍 I always learn a lot from you and Bender. Do you think bonds are still an attractive asset class for long term investors given today's low interest rates? Or is it better to have a tilt towards equities, especially when we don't know if the current high inflationary environment is here to stay or not.
@Freedom 35 Blog - Thanks! Although bonds have very low yields right now, equities could potentially have worse returns than bonds over the next 10 or more years. Depending on your comfort level with this risk (and the inevitable losses you will experience on your equities during market downturns), you'll need to decide on the percentage of bonds to include in your portfolio (if any). If you're not comfortable taking more risk, you may need to increase your savings to account for lower expected returns on your bonds going forward. As for the possibility of unexpected inflation going forward, we feel that the best strategy for this is a broadly diversified mix of stocks and bonds.
Super great and informative as always. Which on will better suit RESP needed in13 years? VRGO, VEQT or VBAL? Same question for RRSP with withdrawal time of 20ish years? I'm kind of a buy don't look at it person!!
@A Taheri - Unfortunately, as your time horizon shrinks, you will need to review your asset mix and possibly make some adjustments, based on your individual circumstances (there's no "right" ETF for everyone). A fee-only financial planner could help you with these decisions.
@Marcello Nesca - If you hold VEQT or XEQT in a TFSA or RRSP, you may want to consider selling the ETF and buying an asset allocation ETF that includes bonds. However, if you hold VEQT or XEQT in a taxable account, and the fund has a large unrealized capital gain (and you're in a high tax bracket), you could add a tax-efficient bond ETF to your investments, like the BMO Discount Bond Index ETF (ZDB), to avoid realizing the capital gain on VEQT or XEQT. Good luck! :)
I believe I understood it, and I'm doing my best to explain it: First of all these are simulations performed on past performance. So, the simulation has to be started somewhere. In this case, they chose 1970 as the starting year. Basically they invest either a lump sum at the beginning or monthly for 20 years. (How the contribution is actually made wasn't discussed in the video). Jan, Feb, March 1970 etc. till you reach 20 years. One simulation period can be Jan 1970 to Jan 1990. Another one can be Feb 1970 to Feb 1990. Another can be March 1970 to March 1990.... Then August 1975 to August 1995 etc. They've run through all the possible 20-year periods starting from X month and ending in the same month 20 years later. The simulation period is between 1970 and 2020. There are 373 possible simulations in that period based on the number of different starting months and their corresponding ending months. In 61.4% of the simulations, one beats the other. So, in 229 simulated 20-year periods the one beats the other.
@@excitedaboutlearning1639 Good explanation, that's what I understood it to mean as well. What I wonder, though, is what the average return for each is across the 373 periods. The way they present the information is appropriate if you want to minimize your losses, but if you are seeking the highest average or the highest upside it would likely be different.
Hi! The Horizon’s etf’s are a corporate type of ETF’s and as per their website they do not hold the stocks underlying their ETF’s rather than a guaranteed agreement with third parties, normally banks. Do you think this structure is safer than iShares or vanguard? What if these third parties don’t honor the agreement?
@kashyap.vikram - These swap-based ETFs have additional tax and counterparty risks (relative to plain-vanilla ETFs). You can read about the pros and cons here: www.looniedoctor.ca/2023/09/15/horizon-etf-corporate-class-risk/ www.looniedoctor.ca/2023/09/22/corporate-class-fund-tax-2/ www.looniedoctor.ca/2023/09/29/horizons-corporate-class-etf-tax/
@Christian Janell Tapic - You're very welcome! Combining VEQT and VFV seems unnecessary - VEQT already includes a companies included in the S&P 500 Index (which VFV tracks).
So in general your saying if you need the money sooner than 5 years you should never go into ETFs? Not sure if im misunderstanding that. So what would you recommend if someone wanted money sooner?
@Chris H - You're understanding correctly. If you need the cash in the short-term, you should be invested in safer securities that don't fluctuate in value (like investment savings accounts or GICs if you don't require liquidity).
Just curious why would you recommend VEQT here when over a 20 year span its returns were in the negatives up until year 13? Doesnt that mean VCIP would be a more profitable investment despite being lower risk?
@Chris H - Over this historical worst case scenario timeframe, VCIP (which has less equity risk) would have outperformed VEQT (which has more equity risk). In other words, taking more risk is expected (but not guaranteed) to provide you with a higher return over the long-term.
Super basic question here but im just getting into this stuff. Just to be absolutely clear when you say VCIP returned 4% after 9 years that means your money would essentially gain 4% interest right? So $1000 turns into $1040? If so would that rate of return even be worth it? Dont some of these funds have fees and whatnot? Thanks for the video and link to this page!
@Chris H - A 4% "annualized" return over 9 years means that on average, your money earned an average of 4% each year. So $1,000 earned 4% in year 1, $1,040 earned 4% in year 2, $1,081.60 earned 4% in year 3, etc.
Great video...But just wondering why you recommend staying away from asset allocation ETFs if the cash need is less than 5 years. Is it because in the event of a downslide I can better control which asset class to divest or am I missing something?
@Kathleen McGrath - If you need the money in less than 5 years, you should consider holding cash equivalents (like investment savings accounts) or GICs (if you don't need the immediate liquidity). Most other investments (including one of the more conservative asset allocation ETFs) could lose money over this short-term time period.
I am new to this game and might be missing something, but I am having a hard time grasping how investing in bond ETF would represent a risk reduction, since unlikely "actual" bonds, etfs don't guarantee your initial investment back, and other than dropping a bit less than equities during a market fall, bond etfs seem to be always in the red, at least since the beginning of 2020. Long story short, other than liquidity, I fail to see the point of bond ETFs at all. Any thoughts?
@Kijiji Kijiji - Canadian bond ETFs returned over +8% in 2020. Fixed income is meant to reduce the risk of a portfolio in the event of a severe market downturn. This helps investors better control their behaviour and not panic (most investors cannot handle a 100% equity portfolio, even if they think they can).
@@JustinBenderCPM thats why I keep a rather large emergency fund outside of equities. If i have 10-20k and my XEQT holding of 40k drops 50% so what? Markets go through corrections. If it permanently stayed below 50% we’d have bigger problems on our hands lol. The hard truth is that anyone investing funds without having a savings cushion (expecting to sell some shares to pay bills if needed) is playing with fire big time.
Basic question here (sorry for my poor english as french is my first language) considering that does ETF are a package of ETF are we not paying fees on each an every of does ETF? If so, is that not a lots of fees? Thank in advance and keep up the good work 😃😃
@Mario Chevrette - That's a very common question, and the answer is, no, you are not paying the underlying ETF fees AND the asset allocation ETF fee (you are just paying a single fee of 0.19%-0.24%).
Hi Shannon thank you for your help. For the past 6 months I’ve been stuck trying to find the right asset allocation. Ive taken many risk tolerance tests with different results from 100%, 80 and 60 stocks. I’m turning 38 in 2 months. Have no debt, steady pay, I am renting, and have about $24000 Saved up. I started investing in VEQT and now stopped scared that maybe I need to buy VGRO or VBAL. I know that stocks fluctuate up and down and am not afraid because I won’t be needing the money I invest for 20 years and want to build up a nice nest egg. Any suggestions on how I can choose one and stick with it ? Thank you
@jesse sangha - If you became anxious with your 100% equity portfolio, this is a good indication you have a lower risk tolerance than you may think. Consider starting with a less risky asset mix, and focus on your savings strategy instead.
@Decipher Code - VGRO is a Canadian-based multi-asset class ETF, which includes U.S. equities (like VTI), Canadian equities, international equities, emerging markets equities, Canadian bonds and currency-hedged foreign bonds.
Hi. Completely new to investing. I wanted to know if I am buying etf XGRO (20% bond, 80% equities) as my retirement vehicle (I probably have another 20 years to go), how can I change my allocation as I approach retirement age to something more conservative (40% bonds, 60% equities -XBAL)? Do I sell all my shares in the XGRO etf and buy the more conservative etf? Can I do this given it will be in RRSP account? Since these etfs are already allocated, I am just having trouble figuring out how one can make changes to allocation if I need be.
@jiking94 - Since XGRO is in an RRSP, you could simply sell it and purchase XBAL when you're ready (as there will be no tax implications in an RRSP). If you'd like to gradually transition to a more conservative asset mix, you could continue holding XGRO, but begin adding new contributions to a bond ETF (like XBB). Eventually, the total portfolio amount in bonds could reach 40% (the same as XBAL), so you could sell XBB and XGRO at that time and buy XBAL.
Shannon, you state, "Don't invest in any asset allocation ETF if you require the cash in less than 5 years." I have a question about this (perhaps I am just a little confused!?) and it does not pertain to my own situation. It is directed at my mother who has long since retired and is in her early 80s and widowed. Given her age (and health), would the VRIF be a good option for her or not? I believe it is part of the AA ETFs that Vangard puts out. Would she draw a regular monthly income (I believe they VRIF targets 4%) from this and is it relatively secure? And, does she have access to this investment should she require to sell for health-related reasons (i.e. retirement home, private home care, etc)
@R R - In this situation, I would recommend working with a fee-only financial planner to determine an appropriate asset allocation for your mother. You could speak with Robb Engen, as he is also an "ETF-Friendly" financial planner: boomerandecho.com/fee-only-advice/
@PeanutbutterPavement - We used index returns minus the ETF fees (the same methodology as our model ETF portfolios): www.canadianportfoliomanagerblog.com/model-etf-portfolios/
@Fred Atlas - Guaranteed Investment Certificates (GICs) are interest-paying deposits held by an insured Canadian bank. As the name suggests, GICs are guaranteed by the Canadian government (in the event your institution were to become insolvent) up to certain limits (generally, $100,000 across different account types): www.cdic.ca/your-coverage/how-deposit-insurance-works/
@@JustinBenderCPM I guess they are similar to bank or building society savings accounts here in the UK, which you will be lucky to get 0.5% interest now. And they are guaranteed up to £85000 for each bank etc you have money in
Thanks as always for the video! Justin, in the past you've said that you do not recommend any of these ETFs for taxable accounts, due to the premium bond issue of the underlying bond ETFs. You've instead recommended some kind of 3-ETF portfolio, using ZDB as the bond component... is that still the case?
@Steven Patterson - For 99% of DIY investors, I see more pros than cons of holding the same asset allocation ETF across all accounts (including taxable). The premium bond tax-inefficiency is a relatively small problem overall. I'll be releasing a number of asset location videos over the next few months, which will discuss alternative asset location strategies, but these will likely only appeal to less than 1% of DIYers.
If I buy VEQT in a taxable account and my amount grows to $1M then Vanguard decides to close the ETF … I will get a massive tax bill, right? Are there any measures I can put in place to lessen the blow in a taxable account? I am worried that if I buy VEQT and it closes before my retirement I will be financially ruined. Thanks for your help. 🙏
For example should I buy both XEQT and VEQT equally in a taxable account so that if one ETF closes I don’t have to pay tax on the other ETF until I sell? Is it a good strategy?
@Calvin Cheung - Although the closure of an ETF is always a possibility, this usually only occurs with unpopular ETFs (we would argue that VEQT wouldn't likely fall into this category). Either way, the possibility of a fund closure at some undetermined time in the future is no reason to delay your investment strategy.
@@JustinBenderCPM should I buy both XEQT and VEQT equally in my taxable account so that if one ETF closes I don’t get taxed on the other ETF unless I sell? Is this a good strategy? Or I am just complicating things for no reason?
Would it be correct to say that during this 10-year scenario, if we compare similar funds, they all performed poorly? In other words, if I am aware of the levels of risk, would I be right to think that if the Asset Allocation ETFs of vanguards or Black rock have performed poorly, the same has been the case in the market with similar fund (ETF or mutual fund) and that, this should not prevent us to choose these funds rather than others?
Also, thank you very much for your videos which are very enlightening and above all thank you for taking the time to answer most of the comments... it's really appreciated. Merci from Montréal :)
@Mario Chevrette - Thanks for watching! It would probably be correct to say most globally diversified ETFs or mutual funds with similar risk profiles would have performed poorly over periods when the Vanguard or BlackRock asset allocation ETFs performed poorly.
Good video, but you didn't define "risk." It seems many investment pro's define it a bit differently. Volatility isn't part of it according to Buffet, he defines it as the "permanent loss of capital."
For individuals with longer time horizons (20+ year) is it wiser to put the riskier Asset Allocation (VGRO, VEQT) ETFs in the RRSPs/TFSA (assuming both are maxed out) and then have VBAL in the non-registered account (which will be less susceptible to the forthcoming bear market) to maintain the adequate Asset allocation across the entire portfolio (assuming I was going for the 80/20 equity/F.I asset allocation)?
@Andriy Tovstiuk - It's best to choose an appropriate allocation for your portfolio and stick to this mix. For a discussion on various asset location strategies, you'll need to roll up your sleeves and digest the following videos: Asset Location - Part 1: Key Concepts - th-cam.com/video/lQBpRLlEmGg/w-d-xo.html Asset Location - Part 2: The Ludicrous Strategy - th-cam.com/video/ScoLiJOeL6A/w-d-xo.html Asset Location - Part 3: The Plaid Strategy - th-cam.com/video/ezDWpZ6HNyk/w-d-xo.html
@@JustinBenderCPM Yes - watched all of those vide, they were great, thanks for putting those together. Rather than purchasing the underlying ETFs in the all-in-ones (like in the videos), do you see any benefit of purchasing different all-in-ones i.e. VBAL, VGRO, VEQT (based on account type/short term risk level/time horizon) - yet maintaining one consistent asset allocation ratio overall
@@andriy1 - If you're including more than one ETF in your portfolio, it really defeats the purpose of a single asset allocation ETF. I would be more inclined to use VEQT with a bond ETF to obtain my desired exposure (it's easier to visualize how much you have in equities vs. fixed income this way).
John Jakobs: "Why don't you just make ten riskier and make ten be the top risk level and make VEQT a little riskier?" Justin & Shannon: [pause] "VEQT goes to eleven".
@blackgrandpa7652 - My choices are more diversified than VFV (VFV only includes large-cap U.S. stocks, while asset allocation ETFs include Canadian stocks, U.S. stocks (broad-market), international stocks, and emerging market stocks).
This historical comparison of balanced etfs to all equity etfs has a serious thesis flaw. For 48 of the past 50 years bonds had a good return. I remember the days when bonds paid well over 5% and the stock market was only 1-2% better. Bonds pay basically zero now. Maybe 1% with significant downside risk to the par value. If interest rates go up 2%, bonds will fall 20%. The stock market might fall too and you might be waiting 5-10 years for a recovery too. Lets also keep in mind none of those etfs by Vanguard are more than a few years old. VEQT less than 2 years. So how they model 50 years of returns is assumed to be retrofitted accurately is unknown. The stretch is even larger by looking at etfs with bonds like VBAL. The last thing about this thesis is it’s based on comparing to worst case scenarios. I get the author’s purpose. Protecting capital is her highest priority. I somewhat agree. But balanced etfs with bonds is high risk too now. It might be better to hold GICs, high interest savings accounts at credit unions like Hubert Financial that pays me 1.25% or keep it in cash. 20% of my $2 million portfolio is in cash earning SFA. It hurts but its my safety net. My Hubert Account is a small part of my cash, about 5%. But its over $100 K. Its been with them 10 years now. A well run credit union that managed through the financial crisis in 2008 quite well.
The asset allocation ETFs are new but the markets the underlying ETFs track have been around since dirt was new, allowing fairly accurate back testing, if I understand correctly.
@S O - As D C mentioned, the hypothetical returns of the Vanguard Asset Allocation ETFs were back-tested using index data minus fees. Wherever possible, we've used net return index data for the foreign equities. We will be posting this data in the Model Portfolios section of the CPM blog shortly (including the 50 years of back-tested returns for the BMO and iShares Asset Allocation ETFs).
@@JustinBenderCPM Thanks for an excellent video, I am very curious, can you please tell me which consecutive nine year period VGRO like portfolio gave only 0.2% cumulative return. Thanks again.
@@raymaking2634 - A VGRO-like portfolio would have lost an average of -2.0% (not 0.2%) between February 29, 2000 and February 28, 2009. The total dollar loss on a $100,000 portfolio during this period would have been $16,255. Over its worst 10-year period (between June 30, 2000 and June 30, 2010), it would have returned an average of +0.2%. The total dollar gain on a $100,000 portfolio during this period would have been $2,521.
@YB C - It's better to think of your portfolio returns as a combination of the returns on your stocks and bonds (don't think of them in isolation, or it will just disappoint you when bonds are underperforming or outperforming equities). This is another behavioural benefit to holding balanced asset allocation ETFs - you won't be comparing the returns of the two asset classes as much as you would if you held each asset class in your portfolio separately.
100% of TH-cam revenues received by the Canadian Portfolio Manager channel have been donated to SickKids Foundation.
If this video has helped save you a few dollars on fees or taxes, please consider donating a portion of your savings to SickKids Foundation: www.sickkidsfoundation.com/
Wow PWL has Ben, Justin, and Shannon, that’s a lot of firepower!
Wow. This was the best video I've seen on asset allocation. Very clear and easy to understand. I love that you backed your suggestions with an analysis of real data from a long 50-year time frame. Well done!!
@yomi001 - That is so kind of you to say! Thank you for your thoughtful comment :)
I agree. One of the best I have seen. Really good professional advice. Thank you
You guys are the nicest Canadians I have ever met on TH-cam, respectively.
I love the fact that your information is presently factually and clearly and concise, is a breath of fresh air. Donating to sick kids all your proceeds is Amazing! Thank you so much guys for being great people.
@Matt Fortier - Thank you so much for your kind comments (it's comments like yours that make running this channel so enjoyable :)
I truly appreciate the idea that taking more risk does not always lead to more return. Thanks Shannon.
I came here from a link on Canadian Couch Potato - great look at asset allocation from different angles and good use of data.
That was the best asset allocation video! Clearly explained.
The best straight forward advice. Love it. It is not like many experts who give no advice and leave you with incomplete information to make your own decisions. Thank you so much. I was thinking of 60-40 for money that I need in 5 years, RESP, now I am thinking this can be risky. I have the ability but not the willingness to lose any of it.
@Fassel Hussain - If you haven't checked out our "How to Invest Your RESP" video yet, you may also find it useful for deciding on an asset mix: th-cam.com/video/y70GqxHj8WY/w-d-xo.html
Shannon, I very much appreciate the data based information. REALLY nice to FINALLY have actual time examples for investing as opposed to the generic long or short term descriptors.
@D C - Thank you so much! I'm glad you found the video and data to be helpful :)
Justin and Shannon, your back tested data on asset allocation etfs are the best. Incredibly insightful. Thank you.
@brian4137 - We're so glad you found it helpful :)
Very clear, concise, insightful advice backed up by factual data. What stood up the most for me was that taking higher risk even after ten years is only 50% likely to beat the less risky investment. Thank you!
Awesome video thank you. Somethings to think about
Excellent video. I’m 2 years from retirement and I own almost 100% dividend paying Bluechip stocks. If I opt out now and move to a conservative Etf I won’t have enough to retire! Yes I’m rolling the dice but I have to add when markets fall and increase my dividends. Small amount in GICs to carry me 4 years to postpone my cpp. I have to take more risk or I will definitely be short and have to continue to work until 70+
This video is excellent and I will be sharing with my 30-something kids. Sensible, non-judgmental, clear and concise and impressive that you backed it up with such a clearly presented data analysis. You’ve earned a subscriber!
This was very useful. I have my money in a target date fund, but seeing the worst 20 years return made me nervous. Looking at the asset allocation of my target date fund, I feel like it is taking more risk than I am personally comfortable with. I will consider moving to a target date fund with date earlier than I actually plan to retire.
Wonderful video. Knowing your risk tolerance is definitely the most important part in determining asset allocation but remember there is no such thing as a free lunch. The relationship between risk and return is very real. Not meeting long term goals because you were too conservative in your asset allocation is a risk all it’s own.
For the high income earner who doesn’t have a good pension, their investment return may be the only way to keep up the lifestyle they are used too.
@LoganT101 - Not meeting your long-term goals because you didn't take enough risk is certainly a possibility. If you're not comfortable with taking more risk (i.e. you would likely sell your equities when the next stock market crisis occurred), you may need to adjust your savings strategy and reduce your expenses to compensate for your lower expected returns. Taking more risk when you can't stomach it isn't a good solution to this problem, as it could have devastating consequences to your financial health.
Great risk video Shanon, thank you! How does inflation affect the decision to have a bond weighted portfolio? Are bonds more for deflation protection? What would the short and long term duration spread need to be to go with a more heavily weighted bond portfolio?
I go balanced and when the market is low I’d buy more equity. That has worked well for me. I think.
A bubble can occur with growth stocks tho. Or during a long-term bear market a lot of ppl/organizations pull money out of riskier assets and buy into "safer" stocks🤔. Still learning myself here.
Love how your and Justin's videos. Very clear - the presentation graphics and most importantly your explanations.
@Peter Ros - We're so glad you like them! (the videos take a great deal of planning, but it's worth it when we receive comments like yours! :)
Wow, this is the perfect video I needed right now. You perfectly described me as the young investor who is an aggressive saver, but overestimates their risk tolerance lol. Thanks.
Thank you so much! I've been always worried about how to or where to start. This was very informative and helps.
For a retiree who is coming into a large lump sum this fall, and will withdraw 3 to 4% a year, would you dollar cost average or lump sum invest in VBAL or go with something like VRIF?
I'm retired and bought $150K of VRIF so far. It doesn’t pay enough in dividends % wise so I paired it with different BMO Covered Call High Dividend ETF'S and other ETF'S
@HamiltonRb - This is one of those situations where you should generally work with a fee-only planner to determine an appropriate strategy for the new lump-sum cash. I would suggest reaching out to Robb Engen (Boomer and Echo), who is an indexing advocate and offers fee only advice: boomerandecho.com/fee-only-advice/
@@JustinBenderCPM Wow! cannot getter better advice than that!
I'm getting close to retirement and this makes me reconsider the heavy weighting of equity funds in my portfolio.
@galaxytrio - This was one of the main reasons we created this video (so investors would revisit their portfolio risk during a period of relatively good market returns, and not wait until the next market downturn before making changes).
This is awesome, thank you.
Would you recommend Robo-Advising until one has a better understanding?
Very interesting information, backed up by solid data. I really learned something and it changed my perception of asset allocation.
this is really helpful thank you! So right now my investments are all in tax sheltered accounts (TFSA, RESP, RRSP) and the time horizon is 15+ years for all of them so I am investing in VGRO but whats happens 5-8 years from now when my child's RESP now only has a less than 9 year time horizon, do I sell all the VGRO and buy something with less risk because now the time horizon is less or do I keep it in VGRO because it had a large time horizon to start? - this secondary part of investing has always confused me.
Great video! One question, does the backtest include dividend reinvestment? Or, can the ~2-4% yield be cashed with similar returns?
At 7:13, there's table that says VEQT had a loss of $12,794 for the worst 10 year period. VEQT was created in 2018 and it's not even 3 years old. Was this amount extrapolated/guessed?
Don't get me wrong. Great video and very informative. Thanks a lot!
Although VEQT itself is newer it's just combining other ETFs that have existed for much longer so you can calculate their returns to the percentage they are held within VEQT to get what it's performance would have been.
@burnt1ce85 - The data is based off similar index returns minus fees. You can find the methodology on page 2 of the Vanguard model ETF portfolios: www.canadianportfoliomanagerblog.com/model-etf-portfolios/
Hi Shannon, would love to know which 20years those were with the worst/best gains/losses. Thank you✌️🌷🌷🌷!
Bonds are horrible lol! Sold my bond index because it was bringing my entire portfolio down. I need to find alternatives. The best alternative so far is a 20% yield on Anchor staking UST.
Which method would be better for investing, lump sum or dollar cost averaging?
The future of the market is unpredictable so there’s no way to know in advance which method is better.
Historically lump sum would give you a higher return over time than DCA. This is because on average the financial markets move upwards, so the earlier you can get your money invested the more time you have to capture those gains.
Solid, sensible and clear content. Merci once again!
For anyone looking for more resources on this topic, Chapter 3 of Larry Swedroe's book, "Your Complete Guide to a Successful & Secure Retirement" provides a very detailed discussion of your ability, willingness and need to take risk. I found this book, and especially this chapter extremely helpful in making my own asset allocation decisions (along with videos like this one).
Some other great books on asset allocation:
"All about Asset Allocation" by Rick Ferri
"Asset Allocation: Balancing Financial Risk" by Roger Gibson
Any of William Bernstein's books, my favorite of which being, "The Four Pillars of Investing"
For someone with a long time horizon (10+ years), it is unlikely the investor will invest a lump sum at year 1 and then wait until the end. He/she will likely make additional investments periodically over the years, which in effect will reduce his overall time horizon as well as the average cost. The actual return at the end of the time horizon will therefore not be the worst case scenario as illustrated.
Also, it is now probably safe to assume that the government will not let the market crash 50%. They will interfere way before that point by running the money printing machine at full tilt.
@Tanah Merah - The worst one year loss is more of a behavioural exercise. If an investor placed $1,000,000 of their hard-earned money in VEQT, and the next day their investment dropped to $500,000, I doubt they would be excited about how they will now be able to save periodically at cheaper prices over the next 10 years. They might sell their holding in a panic and never recover from their losses (which would be a devastating blow to their retirement plan).
Also, assuming the governments will not let the market crash 50% is an unwise assumption. What if the recent pandemic was even deadlier than what we experienced (with a much higher mortality rate among young and healthy individuals)? Or what if we didn't have the knowledge to create vaccines to fight this new threat, or the technology to work remotely? In these cases, I doubt the government would have had much control over the fate of the stock markets.
This was an amazing video!!
What are the options for funds in an RRSP account if you want to use the money for a mortgage within 5 years?
@Canadian Finance Simplified:
- Investment Savings Accounts (ISAs)
- High Interest Savings Account ETFs (HISA ETFs),
- 1-5 year GICs
- Short-term government bond ETFs
@@JustinBenderCPM Read some stuff quick. On the return/risk scale, I imagine short-term bonds are higher expected return but higher risk than HISA?
Just trying to find an easy solution. From my quick search, it seems like XSB and VSB are the most known Canadian options for short-term bonds?
Thanks!
Great video, thanks
Great video, Shannon. 👍 I always learn a lot from you and Bender. Do you think bonds are still an attractive asset class for long term investors given today's low interest rates? Or is it better to have a tilt towards equities, especially when we don't know if the current high inflationary environment is here to stay or not.
@Freedom 35 Blog - Thanks! Although bonds have very low yields right now, equities could potentially have worse returns than bonds over the next 10 or more years. Depending on your comfort level with this risk (and the inevitable losses you will experience on your equities during market downturns), you'll need to decide on the percentage of bonds to include in your portfolio (if any). If you're not comfortable taking more risk, you may need to increase your savings to account for lower expected returns on your bonds going forward.
As for the possibility of unexpected inflation going forward, we feel that the best strategy for this is a broadly diversified mix of stocks and bonds.
Super great and informative as always.
Which on will better suit RESP needed in13 years? VRGO, VEQT or VBAL? Same question for RRSP with withdrawal time of 20ish years? I'm kind of a buy don't look at it person!!
@A Taheri - Unfortunately, as your time horizon shrinks, you will need to review your asset mix and possibly make some adjustments, based on your individual circumstances (there's no "right" ETF for everyone). A fee-only financial planner could help you with these decisions.
Thanks Shannon! If we already own VEQT or XEQT, and want to add more bonds can we just buy a bond ETF like ZAG to up our bond allocation?
@Marcello Nesca - If you hold VEQT or XEQT in a TFSA or RRSP, you may want to consider selling the ETF and buying an asset allocation ETF that includes bonds. However, if you hold VEQT or XEQT in a taxable account, and the fund has a large unrealized capital gain (and you're in a high tax bracket), you could add a tax-efficient bond ETF to your investments, like the BMO Discount Bond Index ETF (ZDB), to avoid realizing the capital gain on VEQT or XEQT. Good luck! :)
@@JustinBenderCPM yourself and Justin are awesome thank you kindly!
Great video. I don't really understand the concept when comparing VEQT vs VGRO. Could you explain: 61.4% of 373 monthly rolling 20 year periods."
I believe I understood it, and I'm doing my best to explain it:
First of all these are simulations performed on past performance. So, the simulation has to be started somewhere. In this case, they chose 1970 as the starting year.
Basically they invest either a lump sum at the beginning or monthly for 20 years. (How the contribution is actually made wasn't discussed in the video).
Jan, Feb, March 1970 etc. till you reach 20 years.
One simulation period can be Jan 1970 to Jan 1990. Another one can be Feb 1970 to Feb 1990. Another can be March 1970 to March 1990.... Then August 1975 to August 1995 etc. They've run through all the possible 20-year periods starting from X month and ending in the same month 20 years later. The simulation period is between 1970 and 2020.
There are 373 possible simulations in that period based on the number of different starting months and their corresponding ending months. In 61.4% of the simulations, one beats the other. So, in 229 simulated 20-year periods the one beats the other.
@@excitedaboutlearning1639 Good explanation, that's what I understood it to mean as well. What I wonder, though, is what the average return for each is across the 373 periods. The way they present the information is appropriate if you want to minimize your losses, but if you are seeking the highest average or the highest upside it would likely be different.
Hi! The Horizon’s etf’s are a corporate type of ETF’s and as per their website they do not hold the stocks underlying their ETF’s rather than a guaranteed agreement with third parties, normally banks. Do you think this structure is safer than iShares or vanguard? What if these third parties don’t honor the agreement?
@kashyap.vikram - These swap-based ETFs have additional tax and counterparty risks (relative to plain-vanilla ETFs). You can read about the pros and cons here:
www.looniedoctor.ca/2023/09/15/horizon-etf-corporate-class-risk/
www.looniedoctor.ca/2023/09/22/corporate-class-fund-tax-2/
www.looniedoctor.ca/2023/09/29/horizons-corporate-class-etf-tax/
Thanks for the very helpful content! What are your thoughts with investing veqt and vfv at the same time say 50/50
@Christian Janell Tapic - You're very welcome! Combining VEQT and VFV seems unnecessary - VEQT already includes a companies included in the S&P 500 Index (which VFV tracks).
Great job - very interesting, clear and concise 👏
@Marko Koskenoja - Thank you so much! Clear and concise was what we were shooting for ;)
So in general your saying if you need the money sooner than 5 years you should never go into ETFs? Not sure if im misunderstanding that. So what would you recommend if someone wanted money sooner?
@Chris H - You're understanding correctly. If you need the cash in the short-term, you should be invested in safer securities that don't fluctuate in value (like investment savings accounts or GICs if you don't require liquidity).
Just curious why would you recommend VEQT here when over a 20 year span its returns were in the negatives up until year 13? Doesnt that mean VCIP would be a more profitable investment despite being lower risk?
@Chris H - Over this historical worst case scenario timeframe, VCIP (which has less equity risk) would have outperformed VEQT (which has more equity risk). In other words, taking more risk is expected (but not guaranteed) to provide you with a higher return over the long-term.
You don't create videos anymore?
Super basic question here but im just getting into this stuff. Just to be absolutely clear when you say VCIP returned 4% after 9 years that means your money would essentially gain 4% interest right? So $1000 turns into $1040? If so would that rate of return even be worth it? Dont some of these funds have fees and whatnot?
Thanks for the video and link to this page!
@Chris H - A 4% "annualized" return over 9 years means that on average, your money earned an average of 4% each year. So $1,000 earned 4% in year 1, $1,040 earned 4% in year 2, $1,081.60 earned 4% in year 3, etc.
Great video...But just wondering why you recommend staying away from asset allocation ETFs if the cash need is less than 5 years. Is it because in the event of a downslide I can better control which asset class to divest or am I missing something?
@Kathleen McGrath - If you need the money in less than 5 years, you should consider holding cash equivalents (like investment savings accounts) or GICs (if you don't need the immediate liquidity). Most other investments (including one of the more conservative asset allocation ETFs) could lose money over this short-term time period.
I am new to this game and might be missing something, but I am having a hard time grasping how investing in bond ETF would represent a risk reduction, since unlikely "actual" bonds, etfs don't guarantee your initial investment back, and other than dropping a bit less than equities during a market fall, bond etfs seem to be always in the red, at least since the beginning of 2020. Long story short, other than liquidity, I fail to see the point of bond ETFs at all. Any thoughts?
@Kijiji Kijiji - Canadian bond ETFs returned over +8% in 2020.
Fixed income is meant to reduce the risk of a portfolio in the event of a severe market downturn. This helps investors better control their behaviour and not panic (most investors cannot handle a 100% equity portfolio, even if they think they can).
@@JustinBenderCPM thats why I keep a rather large emergency fund outside of equities. If i have 10-20k and my XEQT holding of 40k drops 50% so what? Markets go through corrections. If it permanently stayed below 50% we’d have bigger problems on our hands lol. The hard truth is that anyone investing funds without having a savings cushion (expecting to sell some shares to pay bills if needed) is playing with fire big time.
Basic question here (sorry for my poor english as french is my first language) considering that does ETF are a package of ETF are we not paying fees on each an every of does ETF? If so, is that not a lots of fees?
Thank in advance and keep up the good work 😃😃
@Mario Chevrette - That's a very common question, and the answer is, no, you are not paying the underlying ETF fees AND the asset allocation ETF fee (you are just paying a single fee of 0.19%-0.24%).
@@JustinBenderCPM Wow! Ok Thanks you so much for the anwsers! Merci beaucoup :)
Hi Shannon thank you for your help.
For the past 6 months I’ve been stuck trying to find the right asset allocation.
Ive taken many risk tolerance tests with different results from 100%, 80 and 60 stocks. I’m turning 38 in 2 months. Have no debt, steady pay, I am renting, and have about $24000 Saved up. I started investing in VEQT and now stopped scared that maybe I need to buy VGRO or VBAL. I know that stocks fluctuate up and down and am not afraid because I won’t be needing the money I invest for 20 years and want to build up a nice nest egg. Any suggestions on how I can choose one and stick with it ? Thank you
@jesse sangha - If you became anxious with your 100% equity portfolio, this is a good indication you have a lower risk tolerance than you may think. Consider starting with a less risky asset mix, and focus on your savings strategy instead.
Thank you Shannon 🙏
I really appreciate you and Justin helping Canadian’s become confident investors.
@@jesse5615 It's our pleasure! :)
just curious ...you are almost 38 , renting and only have 24k saved up ? is it 24k or 240k ?
@@awesomekj5812 - Sorry, I'm not sure I understand your question.
Is NGRO a Vanguard fund like VTI ETF? I'm confused, in the US it's VTI.
@Decipher Code - VGRO is a Canadian-based multi-asset class ETF, which includes U.S. equities (like VTI), Canadian equities, international equities, emerging markets equities, Canadian bonds and currency-hedged foreign bonds.
Hi. Completely new to investing. I wanted to know if I am buying etf XGRO (20% bond, 80% equities) as my retirement vehicle (I probably have another 20 years to go), how can I change my allocation as I approach retirement age to something more conservative (40% bonds, 60% equities -XBAL)? Do I sell all my shares in the XGRO etf and buy the more conservative etf? Can I do this given it will be in RRSP account? Since these etfs are already allocated, I am just having trouble figuring out how one can make changes to allocation if I need be.
@jiking94 - Since XGRO is in an RRSP, you could simply sell it and purchase XBAL when you're ready (as there will be no tax implications in an RRSP).
If you'd like to gradually transition to a more conservative asset mix, you could continue holding XGRO, but begin adding new contributions to a bond ETF (like XBB). Eventually, the total portfolio amount in bonds could reach 40% (the same as XBAL), so you could sell XBB and XGRO at that time and buy XBAL.
Shannon, you state, "Don't invest in any asset allocation ETF if you require the cash in less than 5 years." I have a question about this (perhaps I am just a little confused!?) and it does not pertain to my own situation. It is directed at my mother who has long since retired and is in her early 80s and widowed. Given her age (and health), would the VRIF be a good option for her or not? I believe it is part of the AA ETFs that Vangard puts out. Would she draw a regular monthly income (I believe they VRIF targets 4%) from this and is it relatively secure? And, does she have access to this investment should she require to sell for health-related reasons (i.e. retirement home, private home care, etc)
@R R - In this situation, I would recommend working with a fee-only financial planner to determine an appropriate asset allocation for your mother. You could speak with Robb Engen, as he is also an "ETF-Friendly" financial planner: boomerandecho.com/fee-only-advice/
I'm curious how you back tested ETF's over a 10 year + period that haven't been released for longer than 3 - 5 years.
@PeanutbutterPavement - We used index returns minus the ETF fees (the same methodology as our model ETF portfolios):
www.canadianportfoliomanagerblog.com/model-etf-portfolios/
@@JustinBenderCPM awesome, thanks for the reply!
What are gics?
@Fred Atlas - Guaranteed Investment Certificates (GICs) are interest-paying deposits held by an insured Canadian bank. As the name suggests, GICs are guaranteed by the Canadian government (in the event your institution were to become insolvent) up to certain limits (generally, $100,000 across different account types): www.cdic.ca/your-coverage/how-deposit-insurance-works/
@@JustinBenderCPM I guess they are similar to bank or building society savings accounts here in the UK, which you will be lucky to get 0.5% interest now. And they are guaranteed up to £85000 for each bank etc you have money in
Thank you 👍🤓
@Peter Ros - You’re very welcome 😊
Thanks as always for the video! Justin, in the past you've said that you do not recommend any of these ETFs for taxable accounts, due to the premium bond issue of the underlying bond ETFs. You've instead recommended some kind of 3-ETF portfolio, using ZDB as the bond component... is that still the case?
@Steven Patterson - For 99% of DIY investors, I see more pros than cons of holding the same asset allocation ETF across all accounts (including taxable). The premium bond tax-inefficiency is a relatively small problem overall.
I'll be releasing a number of asset location videos over the next few months, which will discuss alternative asset location strategies, but these will likely only appeal to less than 1% of DIYers.
If I buy VEQT in a taxable account and my amount grows to $1M then Vanguard decides to close the ETF … I will get a massive tax bill, right? Are there any measures I can put in place to lessen the blow in a taxable account? I am worried that if I buy VEQT and it closes before my retirement I will be financially ruined. Thanks for your help. 🙏
For example should I buy both XEQT and VEQT equally in a taxable account so that if one ETF closes I don’t have to pay tax on the other ETF until I sell? Is it a good strategy?
@Calvin Cheung - Although the closure of an ETF is always a possibility, this usually only occurs with unpopular ETFs (we would argue that VEQT wouldn't likely fall into this category). Either way, the possibility of a fund closure at some undetermined time in the future is no reason to delay your investment strategy.
@@JustinBenderCPM should I buy both XEQT and VEQT equally in my taxable account so that if one ETF closes I don’t get taxed on the other ETF unless I sell? Is this a good strategy? Or I am just complicating things for no reason?
@@Classical416 - You're just complicating things for no reason ;)
Today bond stock is not doing any risk adjustments maybe stocks/gold or similar stock bond does not make any sense
@Tomer Ben David - Stock and bond markets do not move in opposite directions every day (many days, they can move in the same direction).
Interesting times.. VCIP is 17.5% down while VEQT is 9% down from its peak atm..
Bonds have been doing poorly as of recent years
Would it be correct to say that during this 10-year scenario, if we compare similar funds, they all performed poorly? In other words, if I am aware of the levels of risk, would I be right to think that if the Asset Allocation ETFs of vanguards or Black rock have performed poorly, the same has been the case in the market with similar fund (ETF or mutual fund) and that, this should not prevent us to choose these funds rather than others?
Also, thank you very much for your videos which are very enlightening and above all thank you for taking the time to answer most of the comments... it's really appreciated.
Merci from Montréal :)
@Mario Chevrette - Thanks for watching! It would probably be correct to say most globally diversified ETFs or mutual funds with similar risk profiles would have performed poorly over periods when the Vanguard or BlackRock asset allocation ETFs performed poorly.
Good video, but you didn't define "risk." It seems many investment pro's define it a bit differently. Volatility isn't part of it according to Buffet, he defines it as the "permanent loss of capital."
@Jo Bo - If you take more equity risk than you can handle, and panic sell when markets tank, this will be a permanent loss of capital.
For individuals with longer time horizons (20+ year) is it wiser to put the riskier Asset Allocation (VGRO, VEQT) ETFs in the RRSPs/TFSA (assuming both are maxed out) and then have VBAL in the non-registered account (which will be less susceptible to the forthcoming bear market) to maintain the adequate Asset allocation across the entire portfolio (assuming I was going for the 80/20 equity/F.I asset allocation)?
@Andriy Tovstiuk - It's best to choose an appropriate allocation for your portfolio and stick to this mix.
For a discussion on various asset location strategies, you'll need to roll up your sleeves and digest the following videos:
Asset Location - Part 1: Key Concepts - th-cam.com/video/lQBpRLlEmGg/w-d-xo.html
Asset Location - Part 2: The Ludicrous Strategy - th-cam.com/video/ScoLiJOeL6A/w-d-xo.html
Asset Location - Part 3: The Plaid Strategy - th-cam.com/video/ezDWpZ6HNyk/w-d-xo.html
@@JustinBenderCPM Yes - watched all of those vide, they were great, thanks for putting those together. Rather than purchasing the underlying ETFs in the all-in-ones (like in the videos), do you see any benefit of purchasing different all-in-ones i.e. VBAL, VGRO, VEQT (based on account type/short term risk level/time horizon) - yet maintaining one consistent asset allocation ratio overall
@@andriy1 - If you're including more than one ETF in your portfolio, it really defeats the purpose of a single asset allocation ETF. I would be more inclined to use VEQT with a bond ETF to obtain my desired exposure (it's easier to visualize how much you have in equities vs. fixed income this way).
Dialing up my investment risk to 11...hahhahaha...gotta love Nigel Tufnel!
John Jakobs: "Why don't you just make ten riskier and make ten be the top risk level and make VEQT a little riskier?"
Justin & Shannon: [pause] "VEQT goes to eleven".
@@JustinBenderCPM So VEQT is one riskier!
Informative video, still 80% XEQT 20% TEC to the moon!
👌
Why no mention about vfv when its a far better option than any of your choices
@blackgrandpa7652 - My choices are more diversified than VFV (VFV only includes large-cap U.S. stocks, while asset allocation ETFs include Canadian stocks, U.S. stocks (broad-market), international stocks, and emerging market stocks).
This historical comparison of balanced etfs to all equity etfs has a serious thesis flaw. For 48 of the past 50 years bonds had a good return. I remember the days when bonds paid well over 5% and the stock market was only 1-2% better. Bonds pay basically zero now. Maybe 1% with significant downside risk to the par value. If interest rates go up 2%, bonds will fall 20%. The stock market might fall too and you might be waiting 5-10 years for a recovery too. Lets also keep in mind none of those etfs by Vanguard are more than a few years old. VEQT less than 2 years. So how they model 50 years of returns is assumed to be retrofitted accurately is unknown. The stretch is even larger by looking at etfs with bonds like VBAL. The last thing about this thesis is it’s based on comparing to worst case scenarios. I get the author’s purpose. Protecting capital is her highest priority. I somewhat agree. But balanced etfs with bonds is high risk too now. It might be better to hold GICs, high interest savings accounts at credit unions like Hubert Financial that pays me 1.25% or keep it in cash. 20% of my $2 million portfolio is in cash earning SFA. It hurts but its my safety net. My Hubert Account is a small part of my cash, about 5%. But its over $100 K. Its been with them 10 years now. A well run credit union that managed through the financial crisis in 2008 quite well.
The asset allocation ETFs are new but the markets the underlying ETFs track have been around since dirt was new, allowing fairly accurate back testing, if I understand correctly.
@S O - As D C mentioned, the hypothetical returns of the Vanguard Asset Allocation ETFs were back-tested using index data minus fees. Wherever possible, we've used net return index data for the foreign equities. We will be posting this data in the Model Portfolios section of the CPM blog shortly (including the 50 years of back-tested returns for the BMO and iShares Asset Allocation ETFs).
@@JustinBenderCPM Thanks for an excellent video, I am very curious, can you please tell me which consecutive nine year period VGRO like portfolio gave only 0.2% cumulative return. Thanks again.
@@raymaking2634 - A VGRO-like portfolio would have lost an average of -2.0% (not 0.2%) between February 29, 2000 and February 28, 2009. The total dollar loss on a $100,000 portfolio during this period would have been $16,255.
Over its worst 10-year period (between June 30, 2000 and June 30, 2010), it would have returned an average of +0.2%. The total dollar gain on a $100,000 portfolio during this period would have been $2,521.
@@JustinBenderCPM so I am confused ...is it a bad thing if somebody owns lets say 500k worth of VGRO ?
the only problem is nowadays bonds give you nothing.
@YB C - It's better to think of your portfolio returns as a combination of the returns on your stocks and bonds (don't think of them in isolation, or it will just disappoint you when bonds are underperforming or outperforming equities). This is another behavioural benefit to holding balanced asset allocation ETFs - you won't be comparing the returns of the two asset classes as much as you would if you held each asset class in your portfolio separately.
Buy gold.
And nobody mentioned she's extremely good looking...
Weird.
thirsty much
You got in the wrong site buddy! Seriously?! What a creep!