Larry Berman CFA, CMT, CTAVanguard Balanced ETF PortfolioVBAL.TOCOMMENTOct 01, 2018

With young investors, he wants them to get off to a good start and not get scared on their first endeavour ;)

Instead of building a portfolio of 5 or so ETFs, he'd start off with something like VBAL. It's a balanced portfolio by Vanguard, with about 60% equities and 40% fixed income. Probably too high in fixed income, traditionally, for a new investor. But because it's their first time out of the gate, the fixed income can help buffer some of the volatility from the equity side and give them potentially a positive experience.

Now if markets tank they're going to lose money, but it won't be as aggressive as for someone who's 80-100% in equities.

It gives you a 60/40 portfolio and it rebalances for you every few quarters. It's exposed to Canadian and international bonds as well as stocks. It's not a nice vehicle for the average investor looking for a passive solution to markets. Though not the best solution, it is cheap. The problem is the balance; better are risk-managed ETFs that offer more growth without bonds in the mix.

VBAL and XBAL are great, one-stop shops for smaller accounts. Leave it and forget it. Typically has about 40% fixed income, which would have had a tough run up till about a year ago. 

VBAL costs about 25 bps for the MER, XBAL costs about 20 bps. VBAL is 41% Canadian content, XBAL is about 45%. XBAL has outperformed for the last 3 and 5 years.

Investing time horizon is long, 10 years in this case. So that lets you take on a bit more risk. Though you'll find 10-year timeframes in the equity market that have delivered losses, that makes the balanced portfolio of stocks and bonds so important.

If you don't want fluctuations at all, there's always cash or a money market fund. But for this time horizon, consider using an ETF with growth potential. For a conservative investor, think about VGRO or VBAL. VGRO is more aggressive, at 80 stocks/20 bonds. VBAL is more balanced at 60/40.

VCNS is for the very conservative, mostly bonds with a bit of equity. It will still grow over time because of the equity allocation, but will be more stable. You could even mix in more bonds yourself. Consider working with a professional on this for a diversified portfolio.

It holds stocks and more bonds. He bought it originally for conservative accounts, but sold it after 6 months because they didn't perform. The fund sold its winners to rebalance.

A good Vanguard ETF for bonds and stocks in a balanced portfolio? VBAL and VGRO. VBAL is more balacned, and VGRO. Now, be more conservative so choose VBAL, but VGRO is better for growth. They both track North American stocks.

VGRO-T vs. VBAL-T vs. VCNS-T. Would the three be enough for a retirement portfolio? VGRO-T is 80% equity, 20% bonds; VBAL-T is 60% equity, 40% bonds; and VCNS-T is 40% equity, 60% bonds. Don't hold them together. They hold the same thing at different proportions and equate to VBAL-T if all held equally. Move between them as market conditions dictate.

For a static asset allocation this is a great solution. Not what he subscribes to. Risk changes over time. Not good if you think that markets aren’t efficient. He thinks they are not.