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  5. VBAL: What might you suggest for the following situation? [Vanguard Balanced ETF Portfolio]
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Q: What might you suggest for the following situation?

There is $27,000 held in registered accounts with an expectation to augment those savings at a rate of about $1,100 per month to address two prime objectives. The first is to accumulate sufficient funds for a down payment on a condo within five years. The second is to adequately augment savings for retirement, hopefully, 16 years from now.

A financial advisor is suggesting investing in a low risk, balanced fund with a MER of 1.9%. The management fee seems high and the expected return from the investment not particularly exciting. We have a relatively low threshold for risk, especially for those funds earmarked for retirement, but are willing to try something other than a balanced fund to improve returns. Taking on additional risk is especially palatable for that portion of the savings earmarked for the condo purchase, likely about 50% of the overall savings.

Thanks in advance for your input.

Asked by Bruce on May 07, 2021
5i Research Answer:

A few comments: A low-risk, balanced fund should not be expected to have high returns, by design. Even moreso with current low interest rates. But, a balanced 60/40 ETF such as VBAL can offer much the same, at fees of 0.25%, for significant cost savings. One could even lower this by buying an equity ETF and a bond ETF separately in a desired percentage allocation. Two: Five years is not that long if one has a defined use of cash at the end of term. We would not want too much risk here. VGRO is more aggressive at an 80/20 mix (same 0.25% fee), but once one gets to 80% equity there is going to be some risks. The question of course is where will markets be when it comes time to withdraw the whole amount? Three: The fact that new money is expected to come in helps the situation a lot. As long as this is occurring on a regular basis, market volatility is going to be less of a factor, and if markets decline 'more' can be bought with the same fixed amount of cash. There are more aggressive ETFs such as VFV (S&P 500) or small cap growth (IWO) but we would consider the risk and time frame very carefully on these.