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VGRO: holding an all-in-one ETF vs. individual ETFs

You’ve started your investing journey. You’re reading the blogs, you’re a member of the Facebook groups, and opened your online brokerage account. First, you invest in VGRO, a fantastic all-in-one ETF from Vanguard, one of the world’s largest issuers of ETFs. Good on you for taking that huge step towards financial independence.

But what if I told you, with a little more effort, you could save more towards your retirement nest egg by looking under the hood? VGRO is basically an ETF of ETFs, where each unit of VGRO is composed of multiple ETF holdings. You can invest in VGRO but investing in the underlying VGRO holdings could help you save more by reducing the extra fees you’re paying for rebalancing.

All-in-one ETFs have been gaining in popularity since they were introduced in Canada in 2018. They’re an easy way to invest in a diversified portfolio. Plus, they’re much cheaper than other investment vehicles such as mutual funds or even Robo-advisors.

However, some savvy investors prefer investing in the underlying holdings of these funds as it offers more flexibility and is even more cost-efficient in the long run.

To better explain, we look at one of the most popular all-in-one ETFs, VGRO, and explain how you can benefit further from investing in the VGRO holdings. Otherwise known as the underlying ETFs within VGRO.

What are all-in-one ETFs?

All-in-one ETFs are ETFs composed of other ETFs (underlying ETFs) and packaged together as a balanced fund. They are also called one-funds, self-balancing or asset allocation ETFs and come in various allocations of stocks and bonds, ranging from aggressive (100% stocks) to conservative (80% bonds). They’re balanced automatically so that their allocation and risk exposure are maintained at all times.

VGRO, a popular all-in-one ETF created by Vanguard, is their “Growth ETF Portfolio” with 80% stocks and 20% bonds. Its underlying holdings are other Vanguard ETFs:


Why investing in VGRO (or any all-in-one ETF) makes sense

It’s simple

The main reason for investing in all-in-one ETFs like VGRO is how simple they are to manage. Since every unit is balanced according to your chosen asset allocation, you never have to worry about rebalancing your portfolio to maintain your allocation. If you’re trying to build long-term wealth, all you have to do is buy the all-in-one ETF regularly.

It’s a diversified option

All-in-one ETFs also offer broad diversification. Think of diversification as not putting all of your eggs in one basket. This is important because having a diversified portfolio means that your risk is spread across stocks and bonds in different geographies and industries, based on risk preference.

It’s cheap (compared to robo-advisors and mutual funds)

VGRO, like all Vanguard’s one-fund ETFs, has an MER of 0.25%. It’s a no-brainer compared to other all-in-one investment vehicles. Typically, mutual funds have an MER of 2% to 2.5% in Canada and robo-advisors about 0.5%.

It’s accessible

All-in-one ETFs are accessible because their unit price is relatively low. Most all-in-one ETFs currently trade around $25-$30, and you can buy just one unit. You would have to spend hundreds at once to start purchasing the underlying ETFs.

For all these reasons, VGRO, and other all-in-one ETFs, have gained traction in Canada. This is especially true since the Canadian Couch Potato started recommending them on his blog as an alternative to his 3 ETF model portfolio.

VGRO gives you a low-cost opportunity to easily manage your money to replace expensive mutual funds. For most investors with little investing knowledge, experience, and just starting to build a nest egg, buying VGRO is a simple way to build long-term wealth.

However, if you’re ready to start investing on your own, want a bit more control over your portfolio, and are cost-conscious, invest in VGRO holdings.


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Why you should invest in VGRO’s individual holdings

If you’re thinking of saving on fees by going the DIY route, you may want to consider going a step further and invest in VGRO’s underlying ETFs. Here are a few reasons to do so.

It’s even cheaper

Holding each individual ETF separately is cheaper than having the corresponding all-in-one ETF. While paying a little extra to not worry about rebalancing, know that these fees can really add up over time since the fees are calculated on a percentage of your growing portfolio.

VGRO has an MER of 0.25% while holding the individual underlying ETFs with the same allocation will cost only 0.16% in fees. That means you save $9/year for each $10,000 invested.

It doesn’t seem like much, but when your portfolio gets more extensive, you’ll pay hundreds more in fees each year. Bonus: you’ll be able to reinvest your savings into your portfolio to earn compounding interest over time.

It gives you flexibility in your allocation

While all-in-one ETFs are diversified, it may not be the diversification you wish for. VGRO has almost 30% of its holdings in Canada, but Canada only represents about 4% of global GDP. You may be OK with this bias, but you may also want to reduce the exposure of the Canadian market in your portfolio to reduce your risk.

The only way to do that would be to balance your portfolio with more assets from outside of Canada. But then, you would have to rebalance periodically, defeating the point of investing with all-in-one ETFs.

It allows you to adjust your investing strategy over time.

A common investing practice is to reduce risk as you get closer to the end of your investing time. Investors typically increase the bond portion of their portfolio to reduce volatility risk as they get closer to retirement.

How would you change the proportion of stocks and bonds in your portfolio over time with all-in-one ETFs? Let’s say you were invested 100% in VGRO. Would you sell all of it to buy another all-in-one ETF with a higher portion of bonds, like VBAL? Do you keep VGRO and buy an even more conservative all-in-one ETF like VCNS to increase the number of bonds? Would you keep VGRO and buy more bond ETFs on the side?

None of these options sound great: the first option is expensive in fees and potential capital gain taxes (if in a taxable account). The two others would force you to perform rebalancing moving forward, which is what you were trying to avoid.

How to invest in the VGRO holdings (or any underlying ETFs)

Investing in the underlying ETFs of all-in-one ETFs is quite simple.

The fact sheet of all one-fund ETFs should contain the underlying holdings and their percentage allocation. If the allocation works for you, you can decide to replicate the same holdings in your portfolio or modify them to suit your needs.

Once you decide on your allocation, you’ll have to calculate how many units to buy of each ETF to get to your desired distribution based on risk and then rebalance regularly to maintain it over time.

To save on fees, rebalance by buying the underweight assets with new contributions to your portfolio, rather than incurring trading fees by selling your overweight assets to purchase the underweight ones.

There are a ton of great resources and spreadsheet templates to choose from to help you rebalance. Alternatively, if you are with Questrade, you can also use Passiv, a tool that can help you manage your portfolio.

The bottom line

All-in-one ETFs like VGRO are cheaper alternatives to mutual funds and Robo-advisors. They are also an easy way to get your feet wet if you want to try DIY investing. However, they are not very flexible, making it complicated to have a long-term investment plan. By holding the underlying ETFs, you allow your portfolio to better reflect your investment preferences over time, and you save on fees in the long run.

This article is a guest contribution from Brendan Lee Young of Passiv. Passiv is portfolio management software that makes DIY investing easier. It integrates with your brokerage account and you automate your portfolio management. With Passiv users can invest and rebalance their portfolios in one click.