Updated: Oct 1, 2021
Have you ever heard of the KISS principle, “Keep It Simple, Stupid!”? I thought I had our investments set up fairly simple and straight forward, until I actually retired. I tried explaining how I was doing things to my wife several times, where money was coming from, how I planned to draw everything down, and her eyes glazed over more than once! At the point of retirement and actually getting ready to withdraw money, I knew I needed to simplify the whole process more, and take the thinking out of it as much as possible. I did the majority of this simplification in the 6 months after we retired, and I have a plan to do the rest of it over the next 5-10 years.
Just before we retired I had our registered retirement portfolios (RRSPs and LIFs) set up and balanced in 7 Vanguard ETFs. VCE (Canadian equities), VRE (Canadian REIT), VSP (USA equities), VEF (Foreign equities), VEE (Emerging Market equities), VAB (Canadian bonds), VBU (USA bonds), & VBG (Foreign bonds). With this mix I was in Canadian, American, Global, and Emerging markets, and within these markets I was also vested in index-tracking equities, REITs, and bonds. I had determined my own mixes in all these ETFs and managed to them yearly during my periodic cash injections. All of these ETFs had low fees, averaging 0.12% MER on all 7 combined. To me it was simple, because I had been doing it for several years and built the program myself. I was tracking all the account balances on a spreadsheet, and had calculators built-in to show me what I needed to do to rebalance my portfolio. But to my wife, it was very noisy and confusing. I found it wasn’t east to explain the system I had been maintaining when I explained it to her, and even more difficult to explain how and when we would withdraw all these ETF shares to maintain tax efficiency and all the ETF balances. That was a waving, red flag for me. This made me take a real good look at it, and my conclusion was that I should probably cash out and move into one of Vanguards all-in-one ETFs. Many of these ETFs were not available when I started, so I never looked at them in any depth. I built more spreadsheets and entered theoretical mixes to try to get to the 50-50 equity-bond mix I wanted, and was having trouble making it work. Then low and behold, Vanguard released a new fund called VRIF around Sept 2020. When I looked at VRIF, what I was holding before for ETFs was basically available in this new Vanguard product in the balances and simplicity I wanted. VRIF balances across all the same markets and asset classes, has hedges to the Canadian dollar, and is invested in approximately 50% equities, and 50% bonds. VRIF promises a minimum 4% income stream to holders, which it will achieve through a combination of dividends and/or cashing in some shares if required. As it is invested in a balanced portfolio in the market, it will very most likely experience some capital appreciation (and periodic losses) over time and return those benefits to investors over time, making it tax efficient. It’s main goal is a stable income and overall value for retirees. VRIF is an ETF specifically designed to make registered account drawdowns and income conversions much simpler and more tax efficient for retirees once they begin the decumulation stage of life. It is arguably not designed for investors in their savings and growth stages. As a blended income ETF, there is no guesswork on what you will buy or sell to achieve your goals, as it is all bought or sold in the balances or needs that are maintained and managed by the funds’ goals. It has a higher MER at 0.32%, but in my opinion is still value-add and very affordable given it’s higher management oversight, simplicity, reliability, and tax-efficiency.
So in early 2020 within a few months of VRIFs inception in Vanguard suite of funds, I would liquidate all of our individual ETFs, with the exception of VRE (REIT), inside our registered investment accounts, and move all the cash proceeds into VRIF. In the next 5 years I will remove VRE (REIT) from these registered accounts, by cashing them out for our income needs, and/or moving them elsewhere (I still love REITs), so that only VRIF is held in our RIFs and LIFs. Then, VRIF will supply all our income needs from these tax-deferred accounts until they are drawn down. They will pay a minimum 4% income monthly in dividends, with potential to pay more, and I can cash in one ETF for lump sum withdrawals versus 7 to meet our annual income goals.
This has definitely made things simpler!