Skip to main content

The breakthrough of robo-advisers is to offer a way to instantly turn the cash you want to invest into a properly diversified, well-tended portfolio.

The three new balanced exchange-traded funds from Vanguard do pretty much the same thing. So have robos been outflanked? The answer is no. Robos still rule for the investor with minimal financial savvy, other than an understanding of how important it is to take a sound, disciplined approach to investing. If you’re comfortable investing with ETFs and want a simpler approach, definitely take a look at the Vanguard Conservative ETF Portfolio (VCNS-T), the Vanguard Balanced ETF Portfolio (VBAL-T) and the Vanguard Growth ETF Portfolio (VGRO-T).

Robo-advisers charge roughly 0.5 per cent to manage your portfolio, and there’s an additional cost of 0.2 to 0.25 of a point from the ETFs in your portfolio. The Vanguard balanced ETFs have an estimated management expense ratio of around 0.24 per cent, which includes the cost of the underlying Vanguard funds that are used in these portfolios. Call it a wash in comparing the cost of the ETFs used by robos with the Vanguard balanced ETFs.

The cost differential thus comes down to the 0.5-per-cent advice cost the robo-adviser charges. What does that money buy you that you don’t get with the Vanguard ETFs? At almost all robo advisers, the advice fee includes the cost of stock trades. ETFs trade like a stock, which means most online brokers charge you roughly $10 to buy and sell. If you make contributions to your investments bi-weekly or monthly, your total commissions can be a considerable cost.

Robo-advisers earn their fees in part by rebalancing your portfolio – periodically bringing a portfolio back in line with your target mix of stocks and bonds by selling some of your winners and buying more of your losers. The Vanguard ETFs effectively do the same thing by maintaining level exposure to all the various component investment categories.

Obviously, there’s some overlap between the Vanguard ETFs and robo-advisers. Where robo-advisers differentiate themselves is in providing a turnkey solution for someone who wants to invest, but doesn’t want to:

  • Choose an online brokerage firm and set up an account;
  • Learn how to trade stocks online;
  • Set up and follow a regular contribution plan to their investment account.

Robos do all the work for you, while the Vanguard ETFs do a lot of work. There’s definitely room for both in the investing world.