In my recent blog post, Breaking Up With Your Vanguard Asset Allocation ETF, I shared a 5-ETF portfolio you could consider for your RRSP accounts.

 

Relative to a simpler, one-fund solution, it could reduce your product costs and foreign withholding taxes by up to 0.37%. That said, it also could add a few gray hairs to your head having to manage it all. Naturally, several clever readers were quick to ask whether other 3- and 4-ETF alternatives could accomplish the same goal, with a little less hassle.

I’ve answered two of these reader questions below, and provided the current asset allocations and costs for each portfolio.

 

3-ETF Portfolio

John: Rather than using VTI, VEA and VWO for the foreign equity allocations, why not just replace them with VT? This would be simpler and require less rebalancing.

Bender: Replacing VTI, VEA and VWO with the Vanguard Total World Stock ETF (VT) would definitely be simpler, and reduce the trading commissions when investing new cash or rebalancing the portfolio. You’ll pay a bit more for the convenience – between 0.01%–0.06% per year, depending on your asset allocation – but this seems like a reasonable trade-off. You’ll also lose out on U.S. micro-cap stock exposure. U.S. micro-cap stocks are included in VTI, but excluded in VT. That said, these stocks account for less than 1% of the VTI/VEA/VWO trio. VWO also includes a small allocation to China A shares, but VT is expected to gradually include China A shares this year, making both options even more alike.

 

4-ETF Portfolio

Erin: Would holding VTI and VXUS be similar to holding VTI, VEA and VWO? Other than losing China A shares, is there any other difference?

Bender: Holding a combination of the Vanguard Total Stock Market ETF (VTI) and the Vanguard Total International Stock ETF (VXUS) would be very similar to holding VTI, VEA and VWO. Even the total costs are within a basis point of one another. As you noted, VWO already includes a small allocation to China A shares, but VXUS is expected to gradually include China A shares this year, making both options even more alike.

 

Good Things Come to Those Who Weight

If you’ve decided to switch to one of these more tax-efficient portfolios in your RRSP, you’ll likely need help calculating the ETFs’ target weights whenever you’re placing trades. Remember, the asset allocations I’ve included above can change daily.

This is where my new calculator comes in handy. Whenever you’re ready to place trades in or rebalance your portfolio, simply reference the most recent month-end index fact sheet (in USD) for the indexes listed to the right of your desired portfolio. Locate the relevant market capitalizations (in USD) on the fact sheets, and enter the values into the blue cells in the spreadsheet. The asset allocations will automagically adjust on the left-hand side. You can then enter these weights into your portfolio rebalancing calculator.

 

For example, let’s assume you’re managing the 3-ETF Portfolio.

  • Download the FTSE Global All Cap Index (in USD) fact sheet as of May 31, 2019. You’ll see the total market cap for this index is $49,605,584 USD, while Canada has a market cap of $1,551,527
  • Input both of these figures into the spreadsheet to the right of the 3-ETF Portfolio, which will adjust the asset allocations for the ETFs on the left.
  • Now you’ll be able to determine, if you were trying to mimic the equity weights in VGRO, your target weights should be 00% in VAB, 22.19% in VCN, and 57.81% in VT.

Got more questions about Vanguard’s Asset Allocation ETFs? You can now send me your queries as voice recordings, and you’ll likely end up with a cameo role in our new “Ask Bender” podcast segment!