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Over the last year or so, I have been on the lookout for an ETF that is by itself dedicated to the beleaguered but recently resuscitated 60/40 portfolio. Surprisingly, it’s been a long and tedious slog.
At 80 and beset by assorted health challenges, I am realistic in supposing that I will pass before my younger and healthier wife. I know Vanguard’s Wellington (VWELX) would fit the bill, but Alberta will have enough responsibilities to shoulder without having to worry about any mutual fund restrictions or redemption fees that might someday be imposed. (Yes, I am aware that Vanguard just reduced many fund fees, but I have learned that the future is an uncertain devil.)
Just recently, I hit upon a worthy candidate—the iShares Core Growth Allocation ETF (AOR). The name is misleading because it’s not a growth fund by any stretch. Like the Wellington mutual fund, it’s a balanced ETF and even comes with a respectable 20% international exposure. Its expense ratio is .20 (.15 through 2026), about the same as for the Vanguard offering.
During the distribution phase, the simplification inherent in having your 60/40 allocation in just a single fund has a significant advantage over a multiple-fund strategy. Retirees or their beneficiaries can easily sell shares and withdraw the proceeds without having to concern themselves with the precise amount to redeem from each fund to maintain the 60/40 balance, as well as the domestic/international and large/small stock ratios. The iShares ETF is a highly diversified one-shot deal that can ease the burden of a retiree or beneficiary suddenly thrust into an unfamiliar world of fund investment. Just a thought.
Steve – here is an excellent (but short and concise) write up on this very topic (Life Strategy vs. iShares allocation ETF’s) from Mike Piper, and looked to me like he has answered virtually all the questions from this discussion.
https://obliviousinvestor.com/ishares-core-allocation-etfs-vs-vanguards-lifestrategy-funds/
In the remote event you are still looking for a response to your suggestion, here goes. Much apologies for the inordinate delay. You’re right, a it’s a nifty little article that talks (quite wisely) about the same topic. Wish I had referenced it in my post!
“I hit upon a worthy candidate—the iShares Core Growth Allocation ETF (AOL).”
Steve, I’m unable to find the iShares ETF (AOL). Could it be symbol AOR which is their Core 60/40 Balanced Allocation ETF?
Also, are you looking for something for a taxable, ROTH or a Traditional IRA account?
Olin,
Ouch! You’re right, it’s AOR. Apologies to everyone. My lame excuse is that I’m turning 80 next month!
I’ve just corrected my gaffe in the edit function. Thank you for catching it.
You’re right, iShares has 4x of these ETF’s (as well their ESG equivalents)
I do like the AOR, I have it for my HSA and I agree with Steve that it does check all of the requirements (ETF – yes, lower fees – yes)
What’s wrong with Vanguard’s Life Strategy Moderate Growth fund, VSMGX, expenses 0.13%?
Absolutely nothing wrong with it. It accomplishes much the same thing. But it only works for people at that certain place in their distribution phase.
Please explain your second sentence. It’s another 60/40 fund with an international component.
If you mean the second sentence, I’m not sure what you’re getting at. You’ve got a super-diversified fund patterned very much like AOR. I suspect you meant the third sentence. But here’s the “but.” It only makes sense for people who like the lifecycle strategy and recognize they only have that portfolio mix at one segment of the cycle. Hope that explains things a little more clearly.
You’re right, I should have written “last sentence”. I don’t see any difference between the ETF you are advocating and the Vanguard fund. Apparently you do. Did you use the link I posted and read the fund description?
You’re right! I assumed Vanguard’s Life Strategy series was the same as the Lifecycle series offered by many other fund groups, but it is different. As you say, the stock/bond ratio is fixed (like AOR) rather than systematically becoming more conservative over time (more bonds). With Vanguard, the decision about when to shift (if at all) is made by the investor, not by the fund sponsor.
But I neglected to point out perhaps the most important difference—Vanguard’s fund is a mutual fund, not an ETF, which is generally thought to be more flexible and tax-efficient. But that, too, is an investor’s choice.
And you don’t want to hold it in a taxable account due to capital gains distributions.
Nothing wrong with it, having it as a mutual fund imposes transferring (to other companies) constraints.
Since I have everything at Vanguard, with no plans to move, presumably that wouldn’t apply to me?
100% agree but as Steve noted earlier having an ETF gives one more flexibility. Vanguard funds are the gold standard and no one can argue otherwise. I would also have considered the Life Strategy funds if I was still with Vanguard (moved about 4 years back).
Thanks for the confirmation.
Is it able to avoid capital gains distributions?
Hi Randy,
While AOR is not expressly managed to limit capital gains, like most ETFs it is able to greatly minimize them.
Since it is an ETF, it won’t be “forced” to sell (as it does in a mutual fund) and declare CG. That said, if the said fund(s) are in a tax deferred or tax accounts, then cap gains are a non-issue,
I think you mean tax deferred or tax free. It will be interesting to see if they avoid passing along the gains that naturally come from rebalancing.
You’re right on again!