Since 2018, Canadians (and Americans) have easy-access to an array of auto-rebalanced asset allocation funds. These "funds of funds" combine equity and fixed-income in different ratios, in increments of 20%.

a 20% jump from one allocation to the next seems coarse

Suppose an investor's risk tolerance and financial situation was more suiting for a ratio that was between these 20% tranches. Say 70% Equity and 30% Bonds was the desired target. How can the investor achieve this, while keeping things simple?

It seems they can either:

  1. convince themselves that they're just splitting hairs, and stick with either 20%, or 40%.

  2. mix two mixed assets products, say a 80/20 fund with a 60/40 in a part ratio of 1:1. Since they carry roughly the same holdings (and track the same indexes), but in different target percentages, that would mathematically average out to 70/30 equity/bonds.

  3. go back to the primary constituents, and mix an all-equity fund with an all-fixed income, in a 7:3 part ratio, to obtain 70/30.

Option 1 is simplest, but uncomfortable. (settling for something less idea)

Option 2 seems like it works out, mathematically, but might be defeating the point of these no-brainer asset allocation funds.

Option 3 seems like it might save some management fees (an all-bonds fund is 0.06% MER, vs 0.20% MER for 60/40), but might not be as diversified (100%-equity funds tend to focus on a particular world region, for instance).

Option 2 and 3 both have the drawback of requiring manual rebalancing, although more so for option 3. (60/40 vs 80/20 side-by-side should perform more similarly than a 100/0 vs 0/100 would)

Is there a clear winner? What are the questions we should be asking?

Asset Allocation      | Vanguard ETF | iShares ETF | BMO ETF
100% stocks             VEQT           XEQT          ZEQT
80% stocks / 20% bonds  VGRO           XGRO          ZGRO
60% stocks / 40% bonds  VBAL           XBAL          ZBAL
40% stocks / 60% bonds  VCNS           XCNS          ZCON
20% stocks / 80% bonds  VCIP           XINC          N/A
Annual fee (MER)        0.24%          0.20%         0.20%

100% bonds              VAB            XBB/XQB       ZAG
Annual fee (MER)        0.09%          0.10%/0.13%   0.09%

[^^ source: Couch-Potato Model Portfolios]

Note: the couch potato website suggests doing option (3), but doesn't say explicitly in what way it is superior to (2) or (1)

1 Answer 1


(Reporting my findings)

There is quite some gap between 0%, 20%, and 40%, so if you feel like you should stay between two brackets, that's totally valid.

The other two approaches you give are also valid.

To mix a custom ratio, say 70% equity and 30% fixed-income you can either:

  1. Balance in a ratio of 7:3 in an all-equity and a all-fixed-income. e.g. $7 of VEQT for each $3 of XQB/XBB/HBB. Or do your own fund mix. That’s valid. and is your approach (3)

  2. Pick the two asset allocation funds that are closest to your desired ratio and form a linear combination of them. As long as the funds you mix have the same holdings, but in different proportions, you will produce a portfolio with a weighted average of their relative exposure. So, for 70/30, you would use your approach (2), and do 1:1 of XGRO and XBAL.

    If you wanted 75/25 instead, you would do 3:1 XGRO:XBAL. e.g.

    3/4 * XGRO + 1/4 XBAL = 0.75 * (80, 20) + 0.25 * (60, 40) = (75, 25)

    You could also pick mixed asset funds that have ratios that are further apart (e.g. VCIP and VGRO). From that perspective, XEQT and XQB are just the two ends of the spectrum.

With both options, you could place the equity-heavy side of the portfolio in a tax-reduced account, such as a TFSA.

In terms of tradeoffs:

  • For (1), you might have to rebalance often. Equities tend to outperform bonds in the long run. And consider that you might find it emotionally difficult to rebalance if your bonds or equities do very badly (and then do well again), so timing might be key -- be prepared to make some hard decisions to rebalance.

    Some advantages of this approach come from the fact that having your asset classes separated brings some flexibility. You might be able to choose a fixed-income fund that doesn't generate too much dividend, or have all your equities in a TFSA or other tax-saving account. And it might save you some minute management fees (approx ~0.1%).

  • For (2), the fund managers will keep each account in balance for you (independently, though). Your 80/20 fund should still perform better than the 60/40 in the long run, but their performance should be more similar than an all-equity vs all-fixed-income. So you shouldn't have to rebalance as much. This might mean fewer transactions, so fewer fees, fewer bid/ask spread penalties, and fewer transactions on which to record capital gains and losses.


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