No-think investing

New target-date retirement ETFs another option for folks seeking easy solutions to invest for the future


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Hey there, time traveller!
This article was published 20/08/2022 (285 days ago), so information in it may no longer be current.

Easy does it.

That’s arguably been a key credo of the investment industry over the last several years with a stream of new and innovative funds aimed at making investing less onerous.

From exchange-traded funds to all-in-one portfolios to robo-advisors, we have a growing array of tools offering simplified exposure to stock and bonds markets at a low cost.

Austin Distel / unsplash

It’s been particularly good news for busy, young families where parents have little time to do deep dives on investment strategies for their long-term goals.

Now these time-starved investors have yet another option: target-date retirement exchange-traded funds (ETFs).

Target-date funds — at least for mutual funds — are not new. Some workplace defined-contribution plans in Canada offer these portfolios of mutual funds that are diversified and allocate capital to bonds, stocks and cash, according to each individual’s risk profile. These funds are regularly rebalanced to meet investors’ needs and become less risky — investing more in bonds than stocks — as individuals get closer to their target-date for retirement.

The new series of target-date ETFs, which you can buy and sell on a Canadian stock exchange, address two problems many young investors face, says the co-founder of the company behind them.

“The biggest one is that people find it increasingly hard to save,” says Myron Genyk, chief executive officer of Evermore Capital.

He points to a recent survey by the Healthcare of Ontario Pension Plan that found 32 per cent of Canadians have not saved anything for retirement while 33 per cent stated it’s harder to save in the last year due to inflation.

“And for those who do have the ability to save and are able to continue saving, the other problem is… just how to do it?” Genyk says.

That’s where target-date ETFs come into the picture.

Evermore offers eight ETFs, each separated by five-year-span target dates, with the earliest retirement date set for 2025 and the latest for 2060.

Each ETF is actually a portfolio of seven underlying ETFs offering exposure to 8,000 global stocks and 17,000 bonds with an overall, estimated management expense ratio (MER) of 0.45 per cent. That’s important because less of investors’ hard-earned money is going to fees — one more than one per cent per year for mutual funds — and more toward their goals.

These ETFs are also unique to the industry, for the most part.

“Our target-date ETFs are — as far as we can tell — the only ones in the world right now,” Genyk says.

Although a noteworthy development for DIY (do-it-yourself) investors or even individuals working with a fee-for-service financial adviser (not selling investment products), Evermore’s funds aren’t the only easy-does-it investments out there of course.

Evermore’s target-date ETFs are really just another spin on asset-allocation ETFs offered by the largest asset managers like iShares and Vanguard Group, says Toronto portfolio manager Dan Bortolotti, author of the Canadian Couch Potato blog.

“I’m a big fan of asset allocation ETFs,” says Bortolotti, who recently authored the book Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs.

These ETFs are essentially portfolios of about a half dozen underlying ETFs that are automatically rebalanced to maintain, for example, a 50-50 percentage split of bonds and stocks, much like Evermore’s, only without the target-date component.

And they are a relatively new development over the last decade.

“They didn’t exist when I started the Canadian Couch Potato blog advocating for investing that is low-cost and broadly diversified with an appropriate asset mix,” he says.

“You had to build your portfolio from individual blocks (ETFs), but now you can get that with a single fund.”

Among the most popular are Vanguard Canada’s all-in-one ETFs. Its VBAL Balanced ETF Portfolio, for example, has more than $2 billion in assets under management with an MER of 0.24 per cent.

“In one purchase you get the whole world of publicly traded bonds and equities,” says Sal D’Angelo,

head of product for Vanguard Canada. That’s roughly 25,000 securities from around the world.

“You don’t have to touch it because it rebalances automatically to that target asset allocation the client is trying to achieve.”

Vanguard offers a range of allocations from growth-focused to more conservative. It also has a new retirement income ETF portfolio with the ticker VRIF, aiming to pay a four per cent annual yield.

Of course, not all investors are comfortable DIYing. Many would prefer a little help. Even here, innovation offers robo-advisors — which are online portfolios of ETFs that are automatically rebalanced to meet investors’ goals.

Wealthsimple is the best known, but Canada has a few options, including Justwealth Financial Inc., which even offers target-date registered education saving plan (RESP) portfolios.

“I have twins who are born in 2021, and they’re in these portfolios with a target date of 2040,” says Andrew Kirkland, president of Justwealth, noting these work much like target-date retirement products, only with shorter timelines.

Central to the success of all these products is making it easy for busy Canadians to invest for their goals.

“We’re only successful if we can make it easy for investors to get started,” Kirkland says.

As a robo-advisor, Justwealth also provides advice, including financial planning services.

What’s more, these investments aren’t for everyone. As a portfolio manager with PWL Capital, Bortolotti provides managed portfolios of ETFs — essentially the same sort of investments — for high-net-worth investors.

Indeed, many recognize they could build and manage similar portfolios on their own.

Yet therein lies the rub, he adds.

“A lot ultimately say, ‘I get it; in theory, I can do this myself, but in practice, am I going to do it? Probably not.’”

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