All-in-one ETFs Q&A

The last blog post I wrote about all-in-one ETFs was back in 2022. It’s time to bring the conversation about all-in-one ETFs back to the top of the blog list, and refresh the conversation. Since that first post, I’ve talked about this product with hundreds of clients, and my views on all-in-one ETFs have not changed: all-in-one ETFs are great value and an easy and effective way to invest.

There’s a lot to like about this investment, including:

·      It does the job of choosing which individual ETFs you should invest in

·      It decides on the allocation to Canadian, US and global stock markets

·      It’s incredibly well-diversified

·      It gives you the luxury of never looking at your investments if you don’t want to

·      It is great value for money

An all-in-one ETF makes sense for any kind of investor, but it is particularly amazing for folks who really want nothing to do with choosing, following, and maintaining an investment portfolio. And in my experience as a financial coach, that’s a lot of people! If that sounds like you, read on as I answer the most common questions I get about this investment.

What is an all-in-one ETF?

An all-in-one ETF is a fund of funds product. It’s actually an ETF portfolio. While most ETFs hold individual stocks or bonds, this is a fund that owns underlying ETFs. Most all-in-one ETFs will hold between five and eight individual ETFs: one Canadian stock ETF, one or two US stock ETFs, one or two international stock ETFs, and perhaps one or two bond ETFs. The portfolio manager who runs the fund is doing the work of picking those underlying investments so that you don’t have to. They also choose the allocation to the different geographies, and they rebalance the fund now and again to make sure that you always have the right asset allocation.

Think of it like buying golf clubs. You can buy the clubs individually, choosing the type of club, what it’s made of, the length, and other factors like “flex” and “loft” (factors that Chat GPT told me about but I don’t understand). I would never buy individual clubs – I’d go for the set. I’d let someone decide for me which clubs I need.

The ETFs held in an all-in-one ETF are passively managed funds, and this is a good thing. It means that the funds are simply tracking a market index instead of being run by a portfolio manager who is making investment decisions about what stocks to buy and sell (called active management). It also means that the cost is really low. The MER ranges from about 0.17% to 0.2%. That’s a real bargain when you consider that a bank mutual fund can run you about 2% per year, and a financial advisor charges at least 1%. Also, studies have shown that passive investments outperformed these actively managed funds.

How do I choose which all-in-one to invest in?

There are four major providers of these ETFs in Canada: Vanguard, BlackRock, BMO, and TD.  All of these ETF providers are very well regarded and stable, and they all offer very similar products. Which provider you choose does not really matter - you’re going to get a great product at a low price.

The bigger question when choosing one of these ETFs is your asset allocation. Asset allocation is simply how you divide up your money between bonds and stocks. (These ETFs are sometimes called asset allocation ETFs.) These all-in-one ETFs come in different asset allocations. Some have a very high allocation to stocks and a low allocation to bonds, and some are just the opposite, with a low allocation to stocks and a high allocation to bonds. No matter what kind of investor you are and how much volatility you want to take on, there’s an all-in-one ETF for you.

Can I really just never look at my investments?

This is truly one of the main benefits of holding an all-in-one ETF. If you pick one that has the right asset allocation for you, you could choose to forget you even have it, ignoring it for years. This is especially true if you’re saving for a retirement that is still many years down the road. If you are adding money to the account now and then, you will have to go in and place a trade to buy the ETF, but this is really easy to do and will probably take you about five minutes a month.

Using an all-in-one ETF also removes the risk of monkeying around with your investments. It can be tempting to try to time the market by selling a specific ETF based on market movements or switching between funds. This kind of activity – trading and market timing – doesn’t work, and an all-in-one ETF is pretty much guaranteed to give you better performance.

Should I own more than one all-in-one ETF?

It might feel uncomfortable to have all of your retirement savings in one product. You might get the feeling that you’re not properly diversified if you invest just in one thing. Don’t worry – you are diversified. Remember that an all-in-one ETF has five to eight individual ETFs within it. Imagine if you opened your account statement and saw that you owned six ETFs. Would you think you’re well diversified? Yep, you sure would. It’s the same thing with an all-in-one product. You just have to remind yourself that there are many golf clubs in your bag.

You might also wonder if you should own all-in-one ETFs from different providers. Should you own one Vanguard, one from BlackRock and one BMO, for example? No, this is not necessary. That’s because all of these companies are very reputable and stable, and you are going to have a very well diversified set of investments that will look very similar, no matter which provider you use.

The only reason you would want to have more than one all-in-one ETF is if your accounts have different asset allocations. It’s really common for your retirement account to have a high allocation to stocks and a low allocation to bonds. But your TFSA might have a totally different purpose – you might be saving for a new car or for a down payment on a home. You might have a different stock-bond mix for this money, and you would need a different all-in-one ETF.

Are there situations where all-in-ones don’t make sense?

There are a few reasons why you might not want to own an all-in-one ETF.  With this investment, you don’t have any say over your allocation to different geographies. Some people have strong views on how much they want to invest in the US market, for example. The all-in-one ETF will decide for you - , 40% to 50% of the stocks in the ETF portfolio will be in the US market. If you want to own more or less, you’ll have to buy individual ETFs so that you can make that choice yourself. Keep in mind that this isn’t necessarily a good thing since it can be really hard to figure out what the right allocation is, and what’s going to perform best in the future.

All-in-one ETFs also don’t make sense for someone who might need to take money out of their account in the short term. For example, some people use their TFSAs primarily for retirement savings, but they also see them as an emergency fund. If they have a big expense that they need money for, they know their TFSA is there for them. And if they don’t have that big expense, they simply leave the money there for retirement. When you own individual ETFs, you can build a portfolio stock ETFs and bond ETFs. If you have that emergency and you need to take money out of the account during a stock market decline, you can draw from the bond ETF instead of selling the stock ETF, which might be in negative territory. With an all-in-one, you have to sell everything to get the money, and that might mean selling when stocks are down.

In conclusion

I’m a big fan of all-in-one ETFs for people who don’t want to choose individual funds. While it might seem too easy, there’s no catch. Invest and rest easy.

Photo by sydney Rae on Unsplash