TheAnswerIs.ca - Final Posting
Nov 2024
I started TheAnswerIs.ca to give young people the basic investment knowledge, and more importantly, the confidence to successfully invest for themselves. In October 2016, when the TheAnswerIs.ca Model Portfolio was launched, the easiest low-cost way to create a diversified portfolio, (economic sector and geographical), was to use six separate ETFs.
Historically, I have avoided investing in "flavour of the month" ETFs and stocks. I have found that by focusing on dividend paying ETFs and stocks, that have been around for at least 5 years, I have managed to avoid some real investing blowouts like the Tech crash of 2000, cannabis stocks in 2018/19, and a few other market explosions.
Now, there is an even easier way to invest... by purchasing a single ETF. "Asset Allocation" ETFs were launched about five years ago and are basically a one-stop shop for a fully diversified portfolio and an effective strategy for the most passive of passive investors. These ETFs are powerfully simplistic.
Each of these new, all-equity ETFs are very well diversified as they each own shares in over 8,000 companies across the world. Remember, the key to investing in an ETF that holds 100% equity is to make sure any money invested can be left untouched for a minimum of 10 years, and preferably much longer.
In my previous article ( A NEW way to invest ), I summarize the two largest new all-equity ETFs, VEQT and XEQT, and compare their economic sector and geographical diversification, as well as their individual Management Expense Ratios, (MERs).
Vanguard’s VEQT was the first Asset Allocation ETF launched in January 2019, and as a result, allows a comparison to TheAnswerIs.ca Model Portfolio for the period Q2 2019 to Q3 2024. The total returns for each of these portfolios, for the period indicated, are summarized as follows:
VEQT – 11.06% per year
TheAnswerIs.ca – 9.92% per year
iShares XEQT was launched in August 2019, and as a result, allows a comparison to TheAnswerIs.ca Model Portfolio from Q3 2019 to Q3 2024. The total returns for each of these portfolios, for the period indicated, are summarized as follows:
XEQT – 11.29% per year
TheAnswerIs.ca – 9.93% per year
The above portfolio comparisons indicates that over an approximate five-year year time frame, VEQT outperformed TheAnswerIs by 1.15% per year, and XEQT outperformed TheAnswerIs.ca by 1.36% per year. While this outperformance sounds small, over a 30-year investment horizon it can make a huge difference!
For example, $2,400 per year invested at 10% per year for 30 years equals $395,000. But $2,400 per year invested at 11.25% per year for 30 years equals $501,000, or $106,000 more! Small differences in returns, costs and contributions can make a huge difference over time. See: The Terrible 2's - Why 2% is the most dangerous number in investing.
While the returns of TheAnswerIs.ca Model Portfolio met my original expectations, the returns of both VEQT and XEQT are superior. VEQT and XEQT also possess other very attractive characteristics, as follows:
A single ETF purchase, compared to for example, six ETFs in TheAnswerIs Model Portfolio. The simplicity is fantastic as it has the potential to eliminate the "analysis paralysis" of trying to figure how much, and of what, to invest in.
Instant global diversification.
Instant economic sector diversification.
Automatic rebalancing so that one geographic area or economic sector does not become too overweighted or under-weighted.
As an investor approaches retirement, it is prudent to decrease equity exposure and increase fixed income or bond exposure. Both Vanguard and iShares make it extraordinarily easy to introduce fixed income (bonds), by switching to a different ETF within their respective “Asset Allocation ETF” families, as noted in ( A NEW way to invest ).
Extremely low costs compared to Series "A" mutual funds. The VEQT MER is 0.24% and XEQT MER is 0.20%, compared to Class “A” mutual fund fees that are about 10x higher at 2% per year.
While TheAnswerIs.ca Model Portfolio has performed well, given recent ETF product improvements that have now been tested by five years of history and performance, I conclude, that VEQT and XEQT are superior to TheAnswerIs.ca Model Portfolio, and worthy of consideration, especially for young novice investors.
Always conduct your own due diligence prior to making any investment.
As a result, I have decided to stop the quarterly updates of TheAnswerIs.ca Model Portfolio. I will leave the website operating for a while to answer questions that are posted to "Ask A Question" tab on the home page.
I do hope TheAnswerIs.ca has helped improve investment knowledge and confidence.
Invest long-term and prosper.
😊
