How Vanguard asset allocation ETFs can help manage investment risk

07 February 2019 | ETF information


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Matt Gierasimczuk (moderator): Todd, investment risk is on the minds of many Canadians, particularly over the past year. How do our asset allocation ETFs help Canadians manage their investment risk?

Todd Schlanger (Vanguard senior investment strategist): Sure. So, the primary way is through asset allocation. So, what we're doing is really constructing an equity-bond mix, and a range of those mixes, because not only does that give you a good idea of, let's say, the return outlook that you could have for the portfolio, but also the risk profile. So, a simple way to look at it would be what's the range of returns that I could have in a given year? So, if you look at the maximum one-year return or maximum one-year loss, the asset allocation tends to give us that spectrum, if you will.

If you think about the asymmetry that we often see where investors often care a lot more about losses than gains, the asset allocation ETFs really give you that range of mixes so that you can really tailor the risk profile with that investor's risk appetite and goals and so forth.

Matt Gierasimczuk: And I know you've been tracking the investment risk appetite of Canadians with Vanguard's investment risk speedometers, what have the most recent findings shown you in terms of how Canadians are looking at investment risk?

Todd Schlanger: Sure. So, what we're doing, actually, is publishing something called a risk speedometer. So, if you think about the speedometer you could have on your car where you have a needle that tells you how fast you're going. What we've done is essentially created a risk measure. We're looking at cash flows. How much are investors putting in equity-type assets versus fixed income, and then how does that compare relative to history? And that gives us this risk speedometer where we can look and see how is investment risk appetite today relative to history?

And, encouragingly, what we've seen is that as the market's gone up and down since we started the speedometers in 2017, we've seen a pretty balanced risk appetite. And so that's something we're encouraged by, because to us, hopefully it means investors are looking past patches of volatility you can have in the markets, and really staying disciplined on the long-term goals they're trying to achieve.

Matt Gierasimczuk: That's great. Thanks, Todd.

Todd Schlanger: All right, thanks, Matt.

Important information

Recorded on October 11, 2018.

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