Vanguard Australia ETF Portfolios

Conservative, Balanced, Growth, High Growth. You might be familiar with these terms from your Superannuation fund.

These words are not specific to Super.

Vanguard also constructs their index fund portfolios according to a Conservative, Balanced, Growth, High Growth investment allocation.

Better yet, Vanguard publicly publishes the holdings of their index fund portfolios.

However Vanguard’s Index funds attract higher fees than building a portfolio from their ETF counterparts.

What I will show you in this post is how to construct your own Vanguard Australia ETF Portfolio based on the information that Vanguard publishes about their index fund portfolios.

This will allow you to draw on the expertise of Vanguard’s fund managers without paying the Vanguard index fund management fees!

If you are short on time, jump straight to the ETF portfolio that you are interested in to see what the Asset Allocation should be:

• Vanguard Australia Conservative ETF Portfolio
• Vanguard Australia Balanced ETF Portfolio
• Vanguard Australia Growth ETF Portfolio
• Vanguard Australia High Growth ETF Portfolio

Asset Selection

Each of Vanguard’s Index Funds invests in a mix of different asset classes.

Below I have listed the various Vanguard ETF’s that are on offer alongside the corresponding Vanguard Australia Index Funds.

There is no difference between the investment holdings of the ETF and Index Fund. They are two different ways of investing in the same set of assets.

ETF’s are simply easier and cheaper ways to invest than Index Funds.

Growth

• VAP = Vanguard Australian Property Securities Index Fund
• DJRE = SPDR Dow Jones Global Real Estate Fund
• VAS = Vanguard Australian Shares Index Fund
• VGS = Vanguard International Shares Index Fund
• VGAD = Vanguard International Shares Index Fund (Hedged)
• IJR = Vanguard International Small Companies Index Fund
• VGE = Vanguard Emerging Markets Shares Index Fund

Income

• VAF = Vanguard Australia Fixed Interest Fund
• VIF = Vanguard International Fixed Interest Index Fund (Hedged)
• VCF = Vanguard International Credit Securities Index Fund (Hedged)

Vanguard Australia’s ETF Portfolios

The Conservative, Balanced, Growth and High Growth Vanguard portfolios all invest in the same asset classes.

What differs between each portfolio is the Asset Allocation.

The Conservative Portfolio is allocated:

• 70% Income
• 30% Growth

Whereas the High Growth Portfolio is allocated;

• 10% Income
• 90% Growth

The Balanced and Growth portfolios are inbetween.

If you are close to retirement age you will want to maximise the Income you receive and will be less interested in future capital growth.

Therefore you would focus on investing with a Conservative Portfolio asset allocation.

Alternatively if you are a recent uni graduate you will want to take advantage of compound growth over the years ahead of you.

Therefore you would focus on investing with a High Growth asset allocation.

Let’s cut to the chase and review Vanguard Australia’s ETF Portfolios.

Vanguard Australia Conservative ETF Portfolio

High Level Asset Allocation

• 70% Income
• 30% Growth

Conservative Portfolio Asset Allocation

The Vanguard Australia Conservative Index Fund portfolio looks like this:

Income = 70%

• 10% in Cash
• 18% in VAF
• 42% in Vanguard Global Aggregate Bond Index Fund

Note: Vanguard’s Global Aggregate Bond Index Fund is new on the market as of 1 July 2017. There is no equivalent ETF at the moment. I recommend investing in a mixture of VIF & VCF as a proxy until such time that Vanguard launches the equivalent ETF on the ASX.

Growth = 30%

• 12% in VAS
• 8.5% in VGS
• 5.5% in VGAD
• 2% in IJR
• 2% in VGE

Vanguard Australia Balanced ETF Portfolio

High Level Asset Allocation

• 50% Income
• 50% Growth

Balanced Portfolio Asset Allocation

Income = 50%

• 15% in VAF
• 35% in Vanguard Global Aggregate Bond Index Fund

Growth = 50%

• 20% in VAS
• 14.5% in VGS
• 9% in VGAD
• 3.5% in IJR
• 3% in VGE

Vanguard Australia Growth ETF Portfolio

High Level Asset Allocation

• 30% Income
• 70% Growth

Growth Portfolio Asset Allocation

Income = 30%

• 9% in VAF
• 21% in Vanguard Global Aggregate Bond Index Fund

Growth = 70%

• 28% in VAS
• 20.5% in VGS
• 12.5% in VGAD
• 5% in IJR
• 4% in VGE

Vanguard Australia High Growth ETF Portfolio

High Level Asset Allocation

• 10% Income
• 90% Growth

High Growth Portfolio Asset Allocation

Income = 10%

• 3% in VAF
• 7% in Vanguard Global Aggregate Bond Index Fund

Growth = 90%

• 36% in VAS
• 26.5% in VGS
• 16% in VGAD
• 6.5% in IJR
• 5% in VGE

Creating your own Vanguard ETF Portfolio

Now comes the clever part.

With this portfolio you ‘borrow’ the asset allocation published by Vanguard but go ahead and purchase the ETF’s yourself rather than investing directly in Vanguard’s managed funds.

This portfolio might be for you if:

• You accept that Vanguard’s fund managers (who are responsible for billions of dollars of investment funds) might know slightly more than you do about this portfolio management game
• You grew up in the time of Napster and BitTorrent and resent paying for things that others produce

Highly Intelligent, Low cost… Morally Questionable?