Vanguard Australia Diversified ETFs – The Only Investments You’ll Need?

Vanguard has always had diversified managed fund. I remember using these many years ago, but I stopped adding money into these funds as I was distracted by other new investments. However, when I look back the performance of my investments, I am blown away by the returns from these Vanguard diversified managed funds, and they pay regular quarterly distributions into my bank account.

Furthermore, at the end of the financial year, Vanguard provides a full tax summary that you can simply give to your accountant (I use H&R Block). For simplicity and effectiveness, investing in Vanguard and getting H&R Block to manage your taxes is, in my opinion, a foolproof strategy.

One of the main issues with Vanguard’s diversified managed fund was that its fees were quite high. However, recently Vanguard has released their suite of four diversified ETFs:

  • Vanguard Conservative Index ETF (VDCO)
  • Vanguard Balanced Index ETF (VDBA)
  • Vanguard Growth Index ETF (VDGR)
  • Vanguard High Growth Index ETF (VDHG).

Investors now only need to determine how much risk they are willing to tolerate and then allocate money appropriately, e.g. if you are willing to take on more risk then invest in VDHG whereas if you want to take less risk you pick VDCO. Everything else is handled by Vanguard, which makes investing simple and easy.

These ETFs can be purchased off the ASX, which can be done with an online broker such as CommSec. I try to purchase ETFs in $25,000 increments on CommSec as the fee is $30, which is the most bang for your buck.

Most financial advice follows the “age in bonds” principle whereby you own your age in government bonds, e.g. if you’re 30 then 30% of your wealth is in government bonds. Whether you strictly follow “age in bonds” or not, the main principle is that as you are nearing retirement you reduce risk in your portfolio. With Vanguard diversified ETFs, you can simply carry this out by buying VDHG when you’re young but as you get older you start to buy more VDCO to reduce risk. Although not exactly conforming to “age in bonds”, “age in VDCO” is a simple alternative rule-of-thumb. For example, if you’re 30, own 30% VDCO and 70% VDHG. As you buy, simply buy whichever ETF you’re underweight in.

I love to dabble in new exotic investments such as ROBO and cryptocurrencies, but I try to follow the core-satellite approach, which states that you limit exotic investments (the “satellite”) to a small portion of your portfolio (e.g. only 30%) while the bulk of your investments (the “core”) are in low-cost passive index funds. Vanguard’s diversified ETFs are perfect investments to take the role of “core” investments.

More information can be found at Vanguard Australia’s official website on its diversified ETFs.

https://www.vanguardinvestments.com.au/diversifiedETFs/

For those who prefer managed funds rather than ETFs, see below Vanguard Australia’s page on its diversified managed funds.

https://www.vanguardinvestments.com.au/diversified

3 thoughts on “Vanguard Australia Diversified ETFs – The Only Investments You’ll Need?”

  1. I like Vanguard products and own a couple of their ETFs and will be looking at a couple more down the track.
    This group of Diversified stocks are a good idea on paper with their spread of risk but I need to see some definitive decent returns
    to justify owning them ahead of other similar ETF’s. I know they are new and returns will improve but at approx $50 a share for returns at around 2.4 % ie $0.28c a quarter for VDHG(only figure available) I couldnt invest my money in them ahead of other Vanguard products like VAS or VHY which are at 4% and 5% Yield.
    With regard Dividends I am looking at 5% minimum for all my investments and while I factor in growth as a important part of inflation fighting its the yield with franking credits which is my No 1aim..

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    1. Thanks Mark. The lower yield I’m sure is due to the international exposure in these diversified ETFs. Australia equities would definitely yield more and have franking credits. International equities would also have a heavy weighting to US equities which Have high valuations relative to earnings and dividends. My understanding is that the returns of these diversified ETFs would be similar to their managed fund equivalent ie the lifestrategy managed funds.

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    2. Why not frame your mindset towards overall returns ? Because you limit your exposure to high dividend shares, you have missed out on USA high overall returns for the last few years. Are you now also missing out on returns ex USA ? such as Asia and Europe ?

      Vanguard has framed their overall returns nicely: Capital growth+dividends paid which makes comparison easy. You have missed out on 20% plus returns for several years. VDHG is what you need. You enjoy a better sharpe ratio than a dividend focus strategy.

      However, there are flaws to VDHG.
      1. Large spread between buy and sell …cuz it is new. The market maker price isn’t the best.
      2. Lots of capital gains expected due to rebalancing. Not beneficial for non retirees.

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