Vanguard All-Equity ETF Portfolio (TSX: VEQT) is often praised as a one-stop, globally diversified equity solution. And while it’s a great investment for the right investor, I don’t think it qualifies as the smartest investment you can make today.
While I can’t give personalized advice, I can point out some clear deficiencies in VEQT that might hold it back from being the ultimate choice. Again, this is all my opinion, so YMMV.
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Above-average Fees
VEQT charges a 0.24% management expense ratio (MER). On the surface, that’s reasonable for a fully managed, globally diversified exchange-traded fund (ETF). However, competing asset-allocation ETFs now offer similar exposure for 0.20% or even 0.18%. At that point, VEQT starts to look pricey by comparison.
For a provider that built its brand on cost-cutting and making indexing cheaper for everyone, it’s surprising, if not a little embarrassing, that Vanguard hasn’t trimmed VEQT’s fee to match peers. The difference may not seem like much, but over decades, every basis point adds up.
Canada bias
VEQT has a home-country bias, with roughly 30% of its portfolio allocated to Canadian stocks. Vanguard says it does this to reduce currency risk and improve tax efficiency, but in my opinion, 30% is excessive.
Canada represents only about 3% of the global equity market. VEQT’s weighting is roughly 10 times that. Other asset-allocation ETFs usually keep Canadian exposure in the 20%-25% range. This is still overweight, but more reasonable.
If you already have Canadian dollars in your savings, own a home here, and work for a Canadian employer, you’re already heavily exposed to this country. Concentrating even more of your investments here just compounds that risk.
Higher risk
VEQT is made up entirely of equities — more than 12,000 stocks worldwide. While that level of diversification means it’s not going to zero, it still carries full equity market risk. That means it can (and has) fallen double digits in a year, such as during the 2020 COVID-19 crash or the 2022 bear market.
That’s fine for investors with a high risk tolerance and decades to ride out volatility. But for retirees or anyone with a shorter time horizon, an all-stock portfolio is inappropriate. You need bonds or cash to smooth returns and protect capital.
The bottom line
VEQT is an excellent product for certain investors. It’s low-cost (if not the cheapest), globally diversified, and easy to own. But “smartest” depends on your situation. For cost-sensitive investors, the fee is a mark against it. For those already loaded with Canadian exposure, the home-country bias is another. And for anyone who can’t stomach deep drawdowns, an all-equity allocation just isn’t a fit.
