Do you need steady and predictable income when you retire?
If you’re looking for a passively managed portfolio Exchange-Traded Fund (ETF) for your retirement income, the VRIF Vanguard Retirement Income ETF Portfolio might be an ideal solution for you.
VRIF is part of Vanguard Canada’s popular asset-allocation portfolio series. It is the latest offering by Vanguard, and it launched for trading on the TSX on September 9, 2020.
Let’s take a closer look at the new ETF in my Vanguard VRIF ETF review to help you determine whether the ETF is a good choice for you.
All-In-One ETFs have grown 62% in AUM between 2017-2019
All-In-One ETF
Vanguard VRIF is a well-balanced and globally diversified retirement income ETF portfolio for Canadian retirees.
- Low-cost ETF.
- No need to rebalance.
- Simple to use.
- International exposure.
- Easy to purchase and sell.
- Too new to determine performance using past results.
What is Vanguard VRIF ETF?
The Vanguard Retirement Income ETF portfolio is the latest all-in-one ETF portfolio launched by Vanguard. It is a globally diversified ETF portfolio that is designed to maintain a target of a 4% income stream for unitholders.
The 4% is based on the total of your VRIF holdings, and it pays you the amount divided into monthly installments for each year.
The new ETF portfolio complements the existing suite of Vanguard all-in-one asset allocation ETFs. However, it differs from the others in several ways. It is a tax-efficient income stream that you can hold in both taxable and tax-sheltered accounts like a TFSA or RRSP.
It takes on a total return approach through an approximate asset allocation of 50% equity and 50% fixed income. It allows Vanguard VRIF to disburse payments from capital appreciation and portfolio yields to maintain its targeted 4% annual payouts.
When it comes to other all-in-one solutions, investors had to sell ETF units as necessary to meet their spending needs. Otherwise, investors would have to rely on smaller quarterly distributions that would earn them around 2% per year.
VRIF introduces a predictable monthly income stream to help investors meet their monthly expenses without worrying about rebalancing or selling ETF units.
How do All-In-One Portfolios Work?
All-in-one ETF portfolios are extremely well-diversified, low-cost, and simple to use portfolios that make life easier for investors than managing a portfolio of multiple holdings.
All-in-one portfolios can seem too good to be true for DIY investors because they completely take over buying and selling ETFs to provide you with a regular income in your portfolio.
Holding multiple ETFs requires more involvement and a deeper understanding of the ETFs. With more than 5,000 (and increasing) ETFs available globally, creating a reliable ETF portfolio can be quite overwhelming unless you are an expert.
Additionally, a self-constructed portfolio cannot guarantee you a steady payout. This is an advantage unique to all-in-one ETF portfolios like Vanguard VRIF.
If you are looking for retirement income, actively managing an ETF portfolio might be the last thing on your agenda for your golden years. An all-in-one ETF could be a much better choice for you compared to creating your own ETF portfolio, especially if you want to spend less time investing.
What does Vanguard VRIF Invest in?
Vanguard VRIF seeks to provide you with the benefits of a complex structure in a convenient solution for you. It is a broadly diversified ETF portfolio that can be essential in safeguarding your assets during volatile market conditions.
It pays you a regular monthly income, and it comes with full transparency about what it invests in. It aims to achieve a balanced 50% Fixed Income and 50% equity split.
VRIF Asset Allocation
The Vanguard Retirement Income ETF portfolio seeks to provide you with a combination of consistent income with the possibility of some capital appreciation. The ETF portfolio achieves it by investing in both equity and fixed-income securities in roughly equal proportions.
VRIF Vanguard ETF Allocation
In this section of my Vanguard VRIF review, I will give you the asset allocation to underlying Vanguard funds. The low-cost retirement income ETF consists of eight existing low-cost underlying Vanguard index ETFs, including four Vanguard equity ETFs and four Vanguard fixed-income ETFs.
Here is a table that breaks down the asset allocation.
| Asset Class | ETF | Weight |
| Canadian Equity | Vanguard FTSE Canada All Cap Index ETF (VCN) | 9% |
| Canadian Aggregate Fixed Income | Vanguard Canadian Aggregate Bond Index ETF (VAB) | 2.0% |
| Canadian Corporate Fixed Income | Vanguard Canadian Corporate Bond Index ETF (VCB) | 24.0% |
| Emerging Markets Equity | Vanguard FTSE Emerging Markets Call Cap Index ETF (VEE) | 1.0% |
| US Fixed-Income (CAD Hedged) | Vanguard US Aggregate Bond Index ETF CAD-Hedged (VBU) | 2.0% |
| US Equity | Vanguard US Total Market Index ETF | 18.0% |
| Developed ex-North America Equity | Vanguard FTSE Developed All Cap ex North America Index ETF (VIU) | 22.0% |
| Global ex-US Fixed-Income (CAD-Hedged) | Vanguard Global ex-US Aggregate Bond Index ETF CAD-Hedged (VBG) | 22.0% |
The Vanguard VRIF Asset Allocation is also geographically diversified. Here is the geographic breakdown of VRIF’s asset allocation:
- Canada 35%
- United States 20%
- Developed ex-North America 44%
- Emerging Markets 1%
The ETF is an even split between geographically diversified stocks and bonds.
Vanguard VRIF 4% Income
Vanguard VRIF offers a unique quality of providing its investors with a steady income that it pays out in monthly installments. The ETF will create 60% of its cash flow through actual income from the underlying assets and 40% of it from capital gains.
The basic target of the fund is to maintain a similar payment amount per share. A steady income is generally challenging to achieve, but VRIF will sell stock and bond shares to achieve a similar dollar amount payout.
Every year, the payout amount and payout rate will be reevaluated in January. However, the dollar amount given will be similar, and Vanguard has stated in this Q&A that it won’t change much. However, the 4% amount may go up or down, depending on how the markets perform each year.
The total return approach for retirement funding is designed to allow the fund to offer a relatively fixed income. In most cases, it will sell shares of stocks and bonds that increase in price. VRIF essentially harvests capital appreciation on your investments to create your retirement income at a steady rate.
Since VRIF will be providing you with a steady income using capital appreciation, it is unlikely that you will see high overall capital growth. Vanguard said that they can anticipate instances of capital returns through VRIF as rarely as once in ten years.
VRIF Vanguard Sector Weighting
VRIF is heavily invested into technology, financials, and consumer discretionaries. Here’s the sector weighting as of Nov 30, 2021:
Vanguard VRIF MER
The Management Expense Ratio (MER) represents a combined total of the management fee, operating expenses, and any taxes charged to a fund for a particular year. Unfortunately, the fund is too new to determine its MER.
However, we do have a figure for the management fees.
VRIF’s management fees before taxes are 0.29% before taxes. The MER could possibly remain within a reasonable range like other Vanguard all-in-one ETFs and remain much lower than the standard MER for mutual funds in Canada.
Vanguard VRIF Performance
Vanguard VRIF is a very new fund. It means that there is no past performance that I can present for you here.
As of Nov 30, 2021:
Vanguard VRIF Holdings – Top Stocks
Vanguard VRIF ETF vs. Other Vanguard ETFs
VRIF vs. VGRO
VGRO is Vanguard’s Growth Portfolio ETF. It is similar to Vanguard VRIF and consists of many other existing Vanguard ETFs. VGRO is also a self allocating fund that you don’t need to rebalance yourself.
The main difference between Vanguard VGRO and Vanguard VRIF is that VGRO has more of an aggressive approach, and it tilts towards capital appreciation. It aims for an 80% Equity and 20% Fixed-income asset allocation. VRIF targets a 4% consistent income for its investors. The fund aims for a 50% Equity and 50% Fixed-income asset allocation to achieve its target.
Read my full VGRO review here.
VRIF vs. VEQT
VEQT is a part of Vanguard Canada’s popular portfolio series. It is useful for a set-it-and-forget-it strategy for ETF investors like Vanguard VRIF. However, it has an entirely different approach to it. Vanguard VQET is a passive all-equity portfolio ETF.
VQET seeks to maintain 100% equity and has a more aggressive approach compared to VRIF. It entails having a high-risk tolerance and is not ideal for investors seeking fixed retirement income. Vanguard VRIF has a 50/50 split between Equity and Fixed-income.
Read my full VEQT review here.
Who Should Buy Vanguard VRIF?
You should consider investing in VRIF if:
- You want an all-in-one balanced investment portfolio that gives you globally diversified exposure to stocks and bonds.
- You do not want to spend time rebalancing your investments.
- You want to earn a fixed income from your portfolio for your retirement without much need for capital growth.
- You find the 50% Equity and 50% fixed-income security allocation suitable for your risk tolerance and investment goals.
Conclusion
Vanguard has long been a favorite investment company of mine, and I’m glad to see the VRIF doesn’t disappoint.
Vanguard VRIF is an excellent ETF for Canadians nearing retirement. VRIF is a simple solution for investors who do not want to create and manage their own balanced portfolios.
Additionally, the fund provides you with a reliable and stable 4% fixed-rate income – a quality almost impossible to achieve with a self-constructed ETF portfolio.
Vanguard is one of the top ETF providers in Canada changing how Canadians meet their investing goals. To round off my Vanguard VRIF review, I’m giving it a Wealth Awesome stamp of approval for investors seeking fixed income with some capital appreciation chances.
I am hoping Vanguard might expand on VRIF type product with other offerings more aggressive for larger income goals.
BMO has recently released VBAL.T that pays a fixed 6% and is 60/40.
Hey Christopher, How does the VRIF work when its within an RRSP account, specifically, how would the monthly income be accessed?
RRSP should defer the income tax for VRIF until you take it out later, usually an an RRIF.
Does the income grow as the market value grows, or is the income based solely on the number of shares?
For example if I own 1,000,000 dollars of VRIF and it pays me 40,000 in income per year, if the fund grows to be worth 2,000,000 (all capital growth without me personally buying any additional shares) will the fund still pay me the same 40,000 income?
Thanks
It should pay you $80,000 in your example, since it doubled in value. The percentage paid stays constant.
Thanks for the reply I overlooked that!
If I hold VRIF in a QuesTrade account, where does the monthly pay-out go? Does it get dumped back into my QuesTrade account, or is there a way to set up VRIF so that the payments are deposited directly to my chequing account at my bank?
Questrade doesn’t offer this feature, I’m not aware of any discount broker that does, including the big banks. But once you set up a withdrawal request once on Questrade, your information gets saved so it takes a minute to log in again and place a withdrawal request. I would just set a calendar reminder to do this. Hope this helps.
I’m assuming they can’t GUARANTEE a 4% dividend every year. What happens if the market it down? Will the still provide the 4% and just erode the capital?
Hey sorry this wasn’t the most clearly written in this article, I’ve revised the 4% income part. Basically, they are aiming to provide similar income per share, regardless of what the dividend yield is. You can read more in the Q&A number 5 here from Vanguard: https://www.vanguardcanada.ca/individual/articles/education-commentary/etf-information/vrif-qa.htm
I am new at this. If I was to put $100,000 into VRIF …what kind of taxes would I pay on the $400 month income? thanks
Hi Wendy, it depends on the type of account you put it in. If it’s a TFSA, it will be $0 tax. But if it’s a normal account, you’ll be paying your normal tax rate on any investment income earned.
talking taxable accounts ..
So … $4000 on $100,000 is taxed as normal income? is there no break for dividend income that you get monthly? or is the monthly payment not considered a dividend in VRIF?
Would the taxation be the same for vbal or vcns?
If a person bought the exact same ETFs that make up VRIF …. would the taxation be the same? I was originally looking at a 3 ETF portfolio.
thanks
Hi Wendy, yes the $4000 would be taxable. There isn’t a break if it’s a monthly dividend, but there are different tax rules for dividends vs normal income (it should be a slightly lower rate). Whether it’s VRIF, VBAL, or VCNS, this will apply. If a person bought the exact same ETFs that make up VRIF, the same also applies. Hope this helps, and always check with a tax professional if you are unsure!
Very informative article…. Quick question – Is there a similar investment vehicle available in the U.S. Market. I am not able to purchase this ETF from my U.S. Ameritrade account.
Thank you
Hey Joanne, you might want to try something called the Vanguard Target Retirement Fund which is based in America, but it depends on your situation. I’m afraid that my expertise is mostly in Canadian products so try to do a little more research on that.