Is it risky to invest everything in one all-in-one ETF?

Question

I’m new to investing and have been reading books like The Barefoot Investor. A lot of portfolio suggestions include combinations like VAS/VGS or A200/VTI, but I’ve also come across all-in-one ETFs like VDHG and DHHF, which seem like a simple, well-diversified option.

While diversification is a key advantage of ETFs, I can’t help but feel uneasy about putting everything into a single all-in-one ETF. What happens if it changes in a way that forces me to sell early and trigger capital gains tax?

Is it common (or even advisable) to invest 100% in an all-in-one ETF like DHHF or VDHG? Or should I split my investments between multiple ETFs for added security? Would love to hear what others think!

Answer

Investing in ETFs is a popular choice for both new and experienced investors due to their inherent diversification, cost-effectiveness, and ease of management. When considering all-in-one ETFs like VDHG (Vanguard Diversified High Growth Index ETF) or DHHF (BetaShares Diversified High Growth ETF), you’re looking at products designed to provide a comprehensive investment solution across multiple asset classes, including domestic and international equities, bonds, and sometimes commodities or real estate.

The appeal of these all-in-one ETFs lies in their simplicity. They are designed to be a single-fund investment strategy, reducing the need for you to balance and rebalance multiple ETFs to achieve a desired asset allocation. This can be particularly attractive for new investors or those who prefer a hands-off approach to their investment portfolio management.

However, your concern about the potential risks of investing 100% of your portfolio into a single ETF is valid. While these funds are diversified across different asset classes, they are still single products managed by one provider. Changes in the fund’s management strategy, fee structure, or asset allocation can affect your investment. If such changes do not align with your investment goals or risk tolerance, you might feel compelled to sell your holdings, potentially triggering capital gains tax.

Diversifying across multiple ETFs, such as a combination of VAS (Vanguard Australian Shares ETF) and VGS (Vanguard MSCI Index International Shares ETF), or A200 (BetaShares Australia 200 ETF) and VTI (Vanguard Total Stock Market ETF), can offer more control over your asset allocation. This approach allows you to tailor your portfolio more precisely to your investment preferences and risk tolerance. It also provides the flexibility to adjust individual components of your portfolio independently, which can be beneficial if changes occur in specific markets or sectors.

In deciding whether to invest in a single all-in-one ETF or a combination of multiple ETFs, consider your investment goals, risk tolerance, and the level of involvement you wish to have in managing your investments. Both strategies have their merits, and the best choice depends on your personal financial situation and investment objectives.

At Pearler, we offer a wide range of ETFs, including both all-in-one solutions like VDHG and DHHF, and individual asset class ETFs like VAS, VGS, A200, and VTI. This variety allows you to choose whether to simplify your investment approach with an all-in-one ETF or to build a customized portfolio that suits your specific needs. Remember, taking the time to understand each option will help you make informed decisions that align with your long-term financial goals.

You can find out more about this topic here: Why Is Vdhg So Popular

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hi Diego.

That is a valid concern.

Some people opt for building their own portfolio so they have more control, just as you point out.

I’d say it is now fairly common to pick just one ETF.  But that said, many people will invest in other things on the side, such as another ETF they like or a single stock or two.

There’s only a very small risk that the all-in-one funds change in a way that would really annoy most investors.  That seems wildly unlikely, as the fund would then have outflows and it would hurt the ETF manager.  But it is a possibility, so it depends on what you’re comfortable with.

I wrote about some of the pros and cons of the ‘one fund’ approach in this article: https://strongmoneyaustralia.com/dhhf-vdhg-on...

Cheers, Dave

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