Is VDHG the answer to all your problems?
There isn’t a one size fits all approach for investing, there are many factors with the main ones being age, desired outcome and risk profile:
Age: In a nutshell, the closer you are to retirement the ‘safer’ your investments need to be. If you have a time horizon of 40 years you can take a longer term view
Desired Outcome: Why are you investing? Long term retirement needs, to save a house deposit? Or to assist an elderly family member
The two factors above should assist you to arrive broadly at your risk factor:
Risk Profile: How would you react if your investments went down by 50% overnight? How concerned would you be if your investments moved up or down by 3% a day? Do you need to withdraw funds at a moments notice?
If there was a one sized fits all investment it would probably need to encompass short term investments like cash and longer term investments like equities both in Aus and overseas. This is where Vanguards range of Diversified ETFs come in:
They all feature a Management Expense Ratio (MER) of 0.27%
To simplify, they invest in a range of other ETF’s or funds and are designed to give you exposure to a range of investments encompassing:
- Australian shares
- Global shares
- Emerging markets
- Global small companies
- Fixed interest
Why are there four different versions then?
Well they all feature different percentages in the above funds, at the lower risk end of the scale, VDCO invests predominately in bonds, fixed income and cash – close to 70%, with 30% of the fund in equities.
VDBA which sits at around 50% Income assets / 50% equities
VDGR at around 30% in Income assets and 70% in equities
VDHG at the other end of the scale invests approx. 8% in Income assets and over 90% in equities.
There is iterally one for every stage of your life and risk profile; start aggressively saving into VDHG in your 20’s and 30’s and switch down each decade until right before retirement, when you could roll over into VDCO.
18-40 – Accumulate into VDHG
40-50 – Switch to VDGR
50-60 – Switch into VDBA
60 + – Switch into VDCO and start drawing down income!
Please note that you can invest into the above four funds through some super funds and SMSF’s – as always anything we write on Unitz does not constitute advise etc.
This is by far the easiest and most diversified way to invest – I personally favour the three fund portfolio strategy detailed elsewhere on this site (20% domestic/60% Global/20% bonds) however these ETFS feature auto rebalancing and a lot less hassle than buying multiple ETF’s. You may choose to add a property securities fund or REIT to round off your portfolio – perhaps these ETFs will bring in the era of the 2 fund portfolio?
“Invest 80% in a broad range index fund and 20% into bonds, as you get closer to retirement, put more into bonds and less into the index fund so by the time you are 60 its 80% bonds and 20% index funds”