Skip to main content
// //

Despite the simplicity of its purpose, the Vanguard Retirement Income ETF Portfolio is a handful to understand.

So it’s no wonder that questions about VRIF have been flowing in ever since I introduced it in a Sept. 15 column. VRIF is the latest iteration of the balanced ETF, a type of exchange-traded fund that bundles a bunch of underlying ETFs into a convenient package that you buy in one transaction. The novel aspect of VRIF is that it’s designed to pay 4 per cent distributions to investors after fees. With five-year Government of Canada bonds yielding 0.35 per cent these days, that’s big.

The questions about VRIF reflect a potential customer base that is keenly interested, but appropriately cautious about it as a brand new product. Here’s a sampling of questions:

Story continues below advertisement

Okay, VRIF pays 4 per cent. But, of what?

I referred this question to Vanguard, and they said the monthly distributions are calibrated to deliver 4 per cent based on the net asset value of the fund at launch. The monthly amount will be adjusted once a year.

Is the heavy bond weighting a deal-breaker?

There’s a common view these days that with interest rates expected to stay low for a while, a big weighting of bonds in a portfolio will drag down returns. As noted previously, half of VRIF’s assets are in bonds.

One reason why this may not be the problem some imagine it to be is that VRIF is designed to be a stable platform for generating income as opposed to growth. A high bond weighting makes sense in this context by buffering stock market volatility and providing interest payments to help sustain the monthly distributions.

Vanguard says VRIF is expected to produce long-term average returns of 5 per cent, which means investors would get their 4 per cent and a dash of growth as well. Note the use of the word average here – it reflects the expectation of zigzag returns over the years and not expectations for any given year.

Are the payouts guaranteed?

No. Guaranteed investment certificates are where you go if you want to remove financial market risk from your sources of retirement income.

That said, VRIF will live or die on its record as a reliable source of 4 per cent income. Monthly payouts are a combination of dividends, bond interest and capital gains generated by strategically selling a bit of holdings that have risen in price. Vanguard estimates that in one year out of 10, the monthly payment would also include a return of capital.

Would VRIF be an alternative to going to cash?

No. Cash means no risk and VRIF units could fall in price. Generally, the term cash also refers to money you might need to dip into at some point. If you sell some VRIF, you reduce your flow of income.

Story continues below advertisement

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies