What are All-in-one index funds

Nick -

Your bank is probably evil and so is mine. Any of the big banks in Canada (and even the smaller ones) push their own mutual funds on financially ignorant individuals and get them to pay exorbitant fees that are up to 1000% higher (over 10 times) then index funds and offer little to no benefits.

Mutual Funds and Index Funds

Source: Wealthsimple 

Index funds and mutual funds both try and offer you an easy way to get a diversified portfolio but while index funds offer management fees ~0.25%, mutual funds often charge between 1-3%. The reason that banks will tell you for their fee is because they will “beat the market” but that statement is simply untrue in almost all cases and in the long term the vast majority of banks are not worth the high fees they charge.

All-in-one Index Funds

If there was a downside to index funds it would be that there are many to pick from and it can be intimidating, enter “All-in-one” (AIO) index funds! The goal of this product is to keep the the fees low but be a one stop shop, and there are options for pretty much anyone.

There are many AIO options but we will be looking at the 3 most common situation:

  1. You’re young and are saving for the long term (multiple decades)
    Popular Options: VEQT, XEQT, HGRO
    These are globally diversified and 100% equity meaning they have the largest growth potential (and most volatility) of any of the AIO index funds in this list.
  2. You’re still a ways from retirement but you may need this money sooner (10+ year horizon)
    Popular Options: VGRO, XGRO,HBAL
    These are globally diversified and between 70-80% equities meaning they are still growth oriented but less volatile then their 100% equity counterparts.
  3. You’re getting closer to retirement and may need to withdraw funds in 5-10 years.
    Popular Options: VBAL, XBAL, HCON, VCNS, XCNS
    These are globally diversified and range from 40-60% equities meaning they are the least volatile of the options but still offer considerable returns at a very low cost.

All of these products range from 0.2-0.4% management fee (referred to as MER) and while there are differences like some are more weighted to US companies, some are more Canadian companies, some are more international, etc. they are all probably better in the long run then any actively managed fund that your bank will offer you.