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Gamechanger? Vanguard Canada launches 3 new Asset Allocation ETFs (plus my take)

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Vanguard Investments Canada Inc. has announced the listing of three new low-cost Asset Allocation ETFs that give investors one-stop shopping to the firm’s globally diversified strategies. They began trading on the TSX today (February 1, 2018.)

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. Continue Reading…

How to choose your financial oasis

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By Lidia Staron

Special to the Financial Independence Hub

So, you have a job where you have to start at 9 a.m. in the morning and end at 5 in the afternoon. It pays a good amount; you’re able to enjoy life and you also have the capacity to pay the bills.

And then it hits you: you asked yourself the question, “Do I want to live here for the rest of my life? Or do I want to go somewhere else and live there instead?”

Questions such as these are pretty common, especially if you’ve reached your 30s. Some people quit their day jobs and turn to freelancing instead, because of the freedom to work from home. Do you want to do that?

In today’s article, I am going to talk about choosing your financial oasis. An oasis, by its definition, is a haven where everything is perfect. So, how do you choose yours? Read on to find out

1.)  Is it Better to Go Abroad?

One of the questions you need to ask yourself is if it is better for YOU to go abroad or not? I emphasized the word “you” because not everyone wants to go abroad due to a lot of reasons such as family, friends, your current job, among others.

Now, if you ask me, the answer to the question depends on where you live. If you live in a developing country where money is a bit harder to earn, then I highly recommend moving to another state or province.

Conversely, if you already live in a country or state that doesn’t have a lot of problems (especially when it comes to money and taxes), then I would suggest that you stay.

Again, this decision is entirely up to you. You have to weigh the pros and cons so that you can have a clearer mind to make the decision.

2.) Find a place with low Income Tax

If you do decide to move out of your country or place and into a new one, find a place where there is low income tax.

You see,  some countries take a huge chunk of your salary per month for taxes. Heck, they even take almost 30% of your salary just for taxes!

Ideally, find a place where income tax is not present. There are certain states in the U.S such as Washington, Florida, Nevada, and Texas that do not require Income taxes.

If you found a place where there is still an income tax, make sure that it doesn’t require more than 15% of your total salary.

3.) Find a place with a low cost of living

One of the criteria for moving into a new state is that it should have low-cost living.

There are certain places that do not have a huge cost of living, such as Iowa, Indiana, Oklahoma, Arkansas, to name a few. Continue Reading…

Franklin Templeton extends Canadian ETF family with Emerging Markets, Global Dividends

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As my latest Financial Post blog this morning explains, mutual fund giant Franklin Templeton Investments Canada has expanded its ETF lineup with a pair of new “Smart Beta” ETFs and an actively managed balanced ETF. Click on the highlighted text for full story: Franklin Templeton boosts Canadian ETF offerings with Emerging Markets play.

As I note in the piece, Franklin Templeton has long had an Emerging Markets mutual fund, famously managed until last year by globetrotting fund manager Mark Mobius, who retires on January 31st after a 30-year career with the company. Franklin Templeton once had a closed end version of the fund but it was closed down in September of 2001, a company spokesman said.

The new Franklin LibertyQT Emerging Markets Index ETF (CAD) bears the memorable ticker symbol FLEM on the TSX, allowing Franklin Templeton to play catch-up to long-established Emerging Markets ETFs from rivals BlackRock Canada (iShares) and Vanguard Canada. You can find more about the new ETF family here.

FLEM is a four-factor “Smart Beta” ETF: the single biggest “factor” at 50% is a quality screen, along with 30% value, 10% momentum and 10% low volatility. Its largest single geographic weighting is South Korea at 15.4%, followed by 13.9% in China, 13% in India, 12.8% in Taiwan and 10.8% in Russia, according to Franklin Templeton vice president of ETF business development Amed Farooq.

The expected Management Expense Ratio (MER) for FLEM is 0.55%. The two other ETFs are The Franklin LibertyQT Global Dividend index ETF (FLGD/TSX, MER 0.45%) and an actively managed balanced ETF, Franklin Liberty Core Balanced ETF (FLBA/TSX), with an MER of 0.45%.

Time to “rebalance” from US equities to Emerging Markets?

Both the two new smart-beta ETFs provide a rebalancing opportunity for investors who feel US stocks have run up sufficiently to start taking profits. Earlier this month, famed investor Jeremy Grantham warned of one last market “meltup” for US stocks before another correction, and said his firm was rebalancing into Emerging Markets. You can find the full January 3rd article here: Bracing yourself for a possible near-term melt-up.

You can also find his comments made in a recent interview with Consuelo Mack’s WealthTrack show here.

I asked about this at the ceremonial opening of the TSX Monday morning, which focused on the ETF launches. Financial advisor John De Goey said he was doing just such a rebalancing for his clients and in an interview, Franklin Templeton senior vice president Dennis Tew said he knew of at least one advisor with a large book of business who likewise has been rebalancing from US income funds to Emerging Markets equities.

Balanced ETF managed by Franklin Bissett

Continue Reading…

Using annuities to create your own personal Pension In Retirement

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The reason why retirement planning is so difficult is because the one variable we need to know – how long we have to live – is impossible to predict. Sure, we have mortality tables and family history to help guide us, but statistically speaking, half the population will outlive their median life expectancy.

That makes longevity risk – the risk of running out of money before you die – a very real threat to your retirement. And yet many Canadians ignore this threat by not saving enough during their working years; retiring before they’re financially ready, taking Canada Pension Plan benefits too early, withdrawing too much from their RRSPs, and so on.

Nearly half of Canadians are worried they won’t have enough money to live a full lifestyle in retirement, according to a recent survey by RBC Insurance. They interviewed 1,000 Canadians aged 55 to 75 about their retirement readiness and came out with some interesting findings.

The retirees, or soon-to-be-retirees seem to want it all, according to the poll, yet many will lack the savings to do so:

  • 80 per cent want to live at home for as long as they can
  • 72 per cent said it’s important to own a car.
  • 68 per cent said it’s important for them to be able to travel at least once a year
  • 53 per cent want to go out for lunch or dinner a few times a week

Having enough money to support their desired lifestyle is a real concern, highlighted by the fact that 62 per cent of those surveyed are worried about outliving their retirement savings.

The one retirement income tool that didn’t appear on the radar was an annuity. Just 12 per cent said they are using or plan to use one in retirement.

How Annuities Can Help In Retirement

An annuity provides a predictable income stream for life – much like how a defined benefit pension, CPP, and OAS pays benefits for as long as you live. Nothing protects you from longevity risk quite like a guaranteed lifetime income.

It’s puzzling why more Canadians don’t choose to turn even a portion of their savings into an annuity – to pensionize their nest egg, to borrow a phrase coined by financial authors Moshe Milevsky and Alexandra Macqueen.

Lack of knowledge around annuities definitely plays a role. While nine in 10 Canadians polled by RBC know they don’t need to invest their entire retirement savings into an annuity, just 28 per cent know that an annuity doesn’t have to be managed once it has been purchased. Continue Reading…

Retired Money: Finally, a “Tontine” proposal for true Longevity Insurance

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Even if they’ve saved a million dollars, retiring baby boomers lacking Defined Benefit plans and their inherent longevity insurance justly fear outliving their money. It’s been said some fear this more than death itself.

The latest instalment of my MoneySense Retired Money column looks at an intriguing proposal made this week by the CD Howe Institute. Click on this highlighted text for the full link: An annuity that pays off — if you live long enough.

CD Howe has proposed the creation of a “pooled risk insurance” scheme called LIFE, which has all the hallmarks of a 17th century concept known as the tontine.

Moshe Milevsky has long suggested tontines as one remedy for outliving our money

Annuity expert Moshe Milevsky — also a finance professor at the Schulich School of Business and author of books like Pensionize Your Nest Egg — says LIFE is a “great idea.” He actually made the case for the resurrection of “tontine thinking” three years ago in a book I reviewed at the time also at MoneySense: Tontine: Retirement Plan of the Future? 

The CD Howe paper (Headed for the Poor House) authored by Bonnie-Jeanne MacDonald doesn’t actually come out and call LIFE a tontine scheme but it certainly appears to contain the DNA of one.

LIFE stands for Living Income for the Elderly. The idea is that by sharing mortality risk, those who make it to age 85 start to receive monthly payouts for as long as they live, funded in part by the less fortunate members who die between 65 and 84. Apart from normal investment returns, the lucky survivors would enjoy the “added return” of the mortality premium.

Continue Reading…