Gamechanger? — Vanguard’s one-ticket ETF solution comes in 3 flavours

Both investors and advisors are asking for “simple yet sophisticated single-ticket investment solutions that provide well-diversified global equity and bond exposure within a low-cost ETF structure,” says Atul Tiwari, managing director for Vanguard Canada. The new ETFs offer investors three different risk profiles and regular rebalancing.

In effect, each ETF is a fund of funds although Vanguard describes them as having an “ETF of ETFs structure.” Each holds seven existing core Vanguard index ETFs (which I list in the postscript below). Each new ETF of ETFs has a management Fee of 0.22%. Vanguard says that when one of its ETFs invests in underlying Vanguard funds, “there shall be no duplication of management fees.” Spokesman  Matthew Gierasimczuk said “There are no duplicate fees beyond the 0.22 management fee, other than a basis point or two for operating expense and the trading fee for buying or selling the ETF.”

The three asset allocation ETFs cover the normal range from Conservative to Balanced to Growth, as reflected in the product names. Equity weights range from 40% for the Conservative offering, to 60% for the Balanced and 80% for the Growth.

Here are the 3 ETFs and their ticker symbols on the TSX:

Vanguard Conservative ETF Portfolio (VCNS) seeks to provide a combination of income and moderate long-term capital growth by investing in equity and fixed income securities with a strategic allocation of 40% equities and 60% fixed income.

Vanguard Balanced ETF Portfolio (VBAL) will provide long-term capital growth with a moderate level of income split 60% equities to 40% fixed income.

Vanguard Growth ETF Portfolio (VGRO) provides long-term capital growth by investing in equity and fixed income securities with 80% equities and 20% fixed income.

In a press release, Vanguard Canada head of product Tim Huver said the ETFs offer “a simplified and scalable solution for financial advisors, and a one-stop globally-diversified and transparent option for investors … Investors can rely on Vanguard’s global investment experts to continuously assess their portfolio’s exposure and rebalance it back to its intended risk level.” 

With the three new ETFs, Vanguard Canada now offers 36 ETFs, with C$14 billion in assets under management. Vanguard Investments Canada Inc. is a wholly owned indirect subsidiary of The Vanguard Group, Inc.

You can find more at Vanguard Canada’s website.

Postscript: My Take

After sleeping on this announcement, it strikes me as more significant than I had initially perceived. Read more

Happy 2016, and a few financial New Year’s Resolutions

new year goals or resolutions - colorful sticky notes on a blackboard

To all readers of FindependenceDay.com, we wish a very happy — and Findependent! –2016.

A reminder that as of January 1st, 2016, you can contribute a further $5,500 to your Tax-free Savings Account or TFSA. That’s the first thing they remind you of at RBC Direct Investing, one of the main two financial institutions our family uses.

I have to admit that personally I’ve made no formal list of New Year’s Resolutions, although I have declared that I’d like to take my stress levels down a tad, perhaps by using the word “No” a little more often. We’ll see.

In the meantime, for a good formal list of financial New Year’s Resolutions, the Financial Post’s Angela Hickman recently published a good starting point. Click on Five financial resolutions for 2016, and how to (really) make them happen.

Below, I’ve taken the liberty of summarizing the 5 points. Again, click the red link above for the full piece.

1.) I resolve to figure out my finances

2. I resolve to stick to a budget

3. ) I resolve to get out of debt

4.) I resolve to save more

5.) I resolve to stop wasting money

These are all valid suggestions and especially useful for younger folks for whom financial independence is still a faraway goal.

7 eternal truths can also become New Year’s Resolutions

Read more

Build TFSA wealth with this free book offer if you subscribe to The Successful Investor

Try The Successful Investor and get Findependence Day free

FindependenceDayBookThe article below is a joint venture between TSI Network and the Financial Independence Hub. TSI Network is making the following Special Offer for Hub Readers:

Try out Pat McKeough’s flagship advisory, The Successful Investor for just $59, and get a free copy of Findependence Day (Canadian edition).

For more details, click link below:

Build Real Wealth With your TFSA.

Below is the jointly written article that ran last week at the Hub:

 

tsi_network_dailyBy TSI Network and Jonathan Chevreau

 

TFSAs let you earn investment income—including interest, dividends and capital gains—tax free.

The federal government first made the Tax-free Savings Account (TFSA) available to Canadian investors in January 2009. These accounts let you earn investment income — including interest, dividends and capital gains — tax free. You could contribute $5,000 in 2009 to start your Tax-free Savings Account.

Every year until 2013, you could contribute an additional $5,000 to your TFSA. If you contribute less than the maximum to your TFSA in any given year, you can carry the difference forward. That means your TFSA contributions for 2009 and 2010 totalled $10,000, rising to $15,000 in 2011, $20,000 in 2012 and so on.

As of January 1, 2013 the annual contribution limit increased to $5,500, in line with the initial promise to adjust limits with rising inflation. It remains at $5,500 for 2015. That means that if you haven’t contributed yet (and were 18 years or older in 2009) you can now contribute up to $36,500. At some point, once the federal books are balanced, the Conservative government is on record that it will boost the annual TFSA limit to $10,000.

Canadian Tax-Free Savings Account concept word cloudHow to shelter your gains with a Tax-free Savings Account

Use your TFSA to complement your RRSP.

Generally speaking, your TFSA can hold the same investments as an RRSP. This includes cash, mutual funds, publicly traded stocks, GICs and bonds.

Contributions are not tax deductible, as they are with an RRSP. However, unlike withdrawals from RRSPs (or withdrawals for RRIFs to which most RRSPs are converted), withdrawals from a TFSA are not taxed. In this respect, RRSPs and TFSAs are mirror images of each other in the way they impact your taxes.

This makes the TFSA a good vehicle for more short-term savings goals, like saving up for a down payment on a first home. If funds are limited, you may need to choose between RRSP and TFSA contributions. RRSPs may be the better choice in years of high income when you’re in the top tax brackets, since RRSP contributions are deductible from your taxable income. In years of low or no income — such as when you’re in school, beginning your career or between jobs — TFSAs may be the better choice.

Investing in a TFSA in low-income years will provide a real benefit in retirement. When you’re retired, you can draw down your TFSA first, incurring zero tax liabilities. After that, you can begin making taxable RRSP withdrawals.

Hold low-risk investments in your TFSA. Read more

Your first investment act of 2015 is …

Canadian Tax-Free Savings Account concept word cloud… contributing as much as $5,500 to your TFSA (Tax Free Savings Account) if you’re Canadian. Launched at this time in 2009 and behaving somewhat like America’s “Roth” IRAs, it’s hard to believe this is already the seventh time you can contribute. By my calculations, that means $36,500 of collective contribution room plus any investment growth. That’s four years at $5,000 and now three years at $5,500: the maximum was boosted by $500 as an inflation adjustment for calendar 2013.

So if you’re one half of a couple, that means $73,000 in joint contribution room, even if you left it in interest-bearing investments paying almost zero. If you’ve been investing mostly in equities (either stocks or equity ETFs), it’s likely your TFSA had reached $40,000 or more by year-end, so it’s quite conceivable that some couples now have close to $100,000 invested in TFSAs between them.

Thursday, Jan. 1 was of course a holiday. While Friday, Jan. 2, 2015 is likely to be a quiet day for most, there’s no reason why you can’t contribute the next $5,500 to your TFSA that day, particularly if you use online banking and/or discount brokerages.

Good place for equity ETFs

What to invest in? In retrospect, those who invested in US investments with unhedged exposure to the US dollar would have done best up till now. Our daughter’s TFSA is more than half invested in US tech stocks and broader ETFs and the exposure to the greenback has boosted her TFSA to several thousand more than our own TFSAs with more exposure to the loonie.

Generally, I think a Couch Potato approach to investing in TFSAs makes the most sense, using broadly based ETFs from firms like Vanguard or iShares. Those closer to retirement may want a healthy exposure to Canadian dividends: foreign dividends will lose a bit of withheld tax in a TFSA and are better held in RRSPs for that reason. But for younger investors it may make sense to hold non-dividend paying US tech stocks in a TFSA for both the extra growth potential and the exposure to a strong US dollar that is showing no signs of weakening.

I still say the TFSA and Roths are the best games in an over-taxed town. While it’s true that many had hoped the 2015 limit would be more than $5,500, remember that unlike RRSPs, you can continue to contribute to TFSAs well past age 70 or 71: in fact, if you live that long you could still be contributing if you’re a hundred or more.

The key is to get the money in there as soon as you can and let it grow. And that means early January each and every year. While I think the benefit is particularly powerful for the young, they should balance the growth potential with debt repayment. There’s not much point in paying close to 20% a year in credit-card interest if you’re only earning 2% interest in a GIC or cash equivalent contained in a TFSA.

Last-minute wealth and tax tips for 2015

office binder taxes house family dollar symbolIf you’re reading this Monday morning, you have roughly two-and-a-half days to do certain things to optimize wealth or minimize tax before they close the books on calendar 2014.

For more, see my latest MoneySense blog just posted here.

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