Every year, the finance world launches new products and investment options, most of which can be confidently crumpled up and thrown in the bin.
But every now and then, something genuinely helpful and worthwhile is created. One of those things is ‘one fund portfolios’, also known as ‘all in one’ funds.
In the last few years, a couple of notable and increasingly popular low cost all-in-one funds for Aussie investors have popped up: VDHG and DHHF.
In this post, I’ll take a look at both of these, discuss the pros and cons of investing in a one fund portfolio, and share my personal thoughts on whether I’d invest in them.
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One fund portfolios are essentially designed to be an all-in-one solution. That is, everything an investor might need in a single fund.
This usually consists of a few broadly diversified index funds, including international shares, wrapped up into one single share (an ETF) which can be purchased from any online brokerage.
These funds give investors ownership in thousands of companies from Australia and around the world, without the need to construct a portfolio themselves. The fund is managed for a small fee, and the income distributions from the underlying companies and ETFs inside the fund are passed onto the investor.
Aussies haven’t really had access to these all-in-one ETFs until relatively recently, so broadly speaking, they’re kind of a new invention for us.
Let’s take a look at two of the most popular options.
VDHG is an all-in-one style fund which Vanguard created in 2017. You can find the product page here.
VDHG itself holds a portfolio of index funds. Together, that forms a globally diversified portfolio, which includes Aussie, international, emerging markets and small cap shares.
What does VDHG’s portfolio look like?
The VDHG portfolio is 90% allocated to ‘growth’ assets (shares), and 10% allocated to so-called ‘income’ assets, being fixed interest and bonds. VDHG is roughly 40% invested in Australian assets, the rest international.
You can also see it uses a ‘Hedged’ version of international shares and bonds. Taking this into account means around 60% of the portfolio is invested in assets in Australian currency.
Vanguard will manage the fund to keep the various parts of the portfolio within their target range.
Management fees: The fee for VDHG is 0.27% per annum, which is automatically deducted from the fund in tiny increments on a regular basis, just like other ETFs.
Overall, VDHG would have to be close to the most popular investment option for long term investors in the FIRE community. It was basically the only simple, long term, low cost, all-in-one fund… until recently, when Aussie fund manager BetaShares came up with the following option!
DHHF is an all-in-one style fund which BetaShares created in 2020, made up of four index funds, all of which are ETFs. You can find the product page here.
One for Australia, the US, Developed countries outside the US, and emerging markets. The specific ETFs it holds are A200 for Australian shares, VTI for the US market, SPDW for developed markets outside US and SPEM for emerging markets.
DHHF is invested across all countries and all company sizes too. In jargony terms, it’s an ‘all-world’, ‘all-cap’ portfolio.
What does DHHF’s portfolio look like?
The DHHF portfolio is 100% invested in stocks. No cash or bonds like VDHG.
I think it’s great BetaShares is providing this option for those who don’t want any bonds/cash in their portfolio. Here’s the target allocation for DHHF:
Like VDHG, close to 40% of the portfolio is Aussie shares, the rest being international. But unlike VDHG, DHHF doesn’t use any hedging in its portfolio. More on this later.
Management fees: The fees for DHHF are lower than VDHG at 0.19%. But because some of the ETFs it invests in are listed in the US, there is a small tax drag from this (long story, explained here) which, funnily enough, ends up bringing the total cost to around 0.27%.
Tax: Given DHHF’s portfolio is made up of ETFs, whereas VDHG’s portfolio is made up of managed funds, this leads to another difference. They operate slightly differently, with managed funds being forced to sell shares when people redeem their money and leave the fund.
This creates capital gains events for all holders, not just those who are selling out. ETFs are able to avoid this, meaning capital gains events are created at the individual level, rather than at the fund level for all involved.
Basically, DHHF should be a bit more tax efficient over time, with its distributions being largely dividends only, no large capital gain payouts.
Extremely simple. Just throw your savings into one investment every month. No need to balance a portfolio, or even look at anything else. More holdings means more admin and more things to track. The simplicity in one of these funds is pretty remarkable – they’re quite a handy innovation.
Extremely diversified. As far as owning shares in lots of different businesses, it doesn’t really get more diversified than these two options. Thousands of companies from Australia and all over the world, from all sorts of industries – healthcare, technology, financials, consumer products, mining… everything.
Protection from yourself. Some people spend countless hours agonising over how much to invest in Aussie shares vs international, and so on. The more time you spend worrying about this stuff, the more holdings you’re looking at and thinking about, the more likely you are to tinker with it or make sub-par decisions.
Extremely efficient / High return on time invested. If you can earn a very similar return for less time invested, then that makes a lot of sense! And that’s certainly the case here, with DHHF and VDHG both likely to provide very solid long term performance as markets continue growing and paying dividends for the rest of our lifetimes. You can be confident you’re investing in a very sensible, highly diversified share portfolio without wasting any time.
Fees. Investing in DHHF or VDHG is more expensive than investing in low cost funds yourself. For example, if you bought VAS for Aussie shares and VGS for global shares, your fees would average 0.14% per annum vs 0.27%. That’s $1,300 per year on a $1m portfolio. Not an obscene amount, but not nothing either.
Lack of flexibility. With an all-in-one fund, you can’t choose which holding to top up (or sell down). If Aussie shares are underperforming, you’d ideally want to buy more and top up the cheaper fund in your portfolio. Having separate funds gives you this optionality, and should result in slightly higher returns.
Set allocation. If you don’t like the allocation that Vanguard or BetaShares has chosen, then VDHG and DHHF may not suit you. Maybe you want more of your portfolio in Australian shares, or more in global shares. Or maybe for some reason you want the ability to adjust your allocation over time. You could always have other investments sit alongside a one fund option, but they are what they are.
Manager control. It’s worth mentioning that BetaShares and Vanguard have control over how the fund is invested on an ongoing basis. As managers, they may decide to tweak the portfolio allocation over time, and I understand both have made minor changes in the past. Probably not something to be worried about, but you should at least be aware of it.
Boring. To be fair, this could also be put in the ‘pro’ column since boring investing tends to be the most profitable kind. But nevertheless, if you’re someone who wants a type of stimulation out of the investing process, you probably won’t get it from DHHF or VDHG! As mentioned, you can always invest in other things too, with DHHF or VDHG being the core of your portfolio, which is a very sensible approach.
If you’ve read this blog for a while you know I’m a fan of avoiding complication. The simpler things are – your life, your finances, whatever – you get those relaxed vibes and the whole situation is more enjoyable.
So, in that spirit, who should use these all-in-one funds? Probably most people… myself included 😉
But understandably, we’re human, so we like to tweak things for our own tastes, often desire more control over our investments, and like to save on fees where we can.
Yes, you’ll pay slightly higher fees and possibly get slightly lower returns than doing it yourself. But the simplicity and peace of mind with a fund like DHHF or VDHG (plus the fact that everything is done automatically) could also make you behave better as an investor and actually lead to higher returns.
While there’s always a reason to quibble why one thing is better than another (and no shortage of people on the internet doing so!), it doesn’t really matter. These funds might not be perfect, but they’re perfectly good.
While the names and breakdowns are different, they’re extremely similar beasts, with roughly the same amount of Aussie and international shares.
One main point of difference is VDHG has 10% of cash-like investments (bonds and fixed interest), while DHHF is 100% stocks. Personally, I prefer to decide how much cash I’m keeping based on life circumstances. For the funds I want to invest, I want it fully invested.
As mentioned earlier, DHHF is also likely to be more tax efficient over time since it is made up of ETFs, as opposed to managed funds with VDHG. No large chunks of capital gains will be paid out.
Another difference is currency. Because VDHG uses some hedging, around 60% of its assets are based in Australian dollars, versus 35-40% for DHHF.
Having much more than half my investments in overseas currencies would make me a little bit nervous, if most of my wealth was in DHHF. But given most people have cash and other investments like super and maybe even property, it’s not really a huge concern.
So there are a few differences between DHHF and VDHG, but broadly speaking, we’re kind of splitting hairs at this stage. Overall, I do like DHHF a bit better since it’s 100% shares and has a simpler portfolio.
Regular readers will sense that I’m a bit of a minimalist at heart. For this reason, sometimes I secretly fantasize about having all my money in a single investment fund. But for now, I’m quite happy with my portfolio which still feels simple enough.
Standing back for a minute, it’s amazing how investing in shares continues to become easier, even in just the last few years.
DHHF and VDHG are both great ways to benefit from owning thousands of successful companies, locally and globally, as they become ever-more profitable and pay dividends throughout our lifetime.
Both are relatively low cost, very diversified, easy to understand and easy to manage long term investments. It doesn’t get more hands-off than this!
If you want to make your investing simple, effective and super passive, these one fund portfolios might be the ideal option for you.
Are you investing in DHHF or VDHG? Would you consider it in the future? Let me know in the comments below.
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Getting comfortable with the balance between ‘Keep It Simple Stupid’ and ‘I can allocate things better, even though I know that I’m likely to be lead by emotion’ is exactly why I’m in VDHG.
It’s ‘boring’, it’s not going to shoot the moon – but in the habit building phase, it’s perfect for my family.
The vision I have is that we build up a large enough foundation in VDHG, and then can start to focus more closely on asset allocation and planning etc.
It’s not as fun to say, “hey, after 2-3 years of consistent investing, yep – still got the exact same thing, just more of it”.
But ultimately it’s got its place.
Thanks for your work and the community you continue to foster – Taylor
Thanks for your sharing your thoughts and personal plan Taylor. Sounds excellent, even if a little boring 😉
Even later you may well decide it’s still the best option for your situation to carry on with.
Yet another succinct write up.
Personally I’m a little wary of Betashares as they have changed the structure of some of their ETFs in the past quite significantly ….. makes me feel a little uneasy.
Cheers Phil!
What do you mean by changed the structure? I may have missed that. I’m aware of some changes, but no massive ones. The biggest one I can think of is BlackRock changing IWLD to an ethical fund which was a pretty big switch.
Previously the entire diversified suite of ETFs (4 of them like Vanguard) with Betashares had very different holdings. They then changed them all and now most are ethically labelled and except DHHF. Even DHHF had its allocations completely changed in Dec 2020 to become 100% growth assets- it was previously 90/10 with an entirely different line up of underlying holdings.
How quickly folks forget.
Oh I did see the old holdings, with some property etc. I feel like that was a very good change with DHHF, but of course things like that can change in the future, as flagged in the post. Completely understand if the lack of certainty is a dealbreaker though. Probably not going to make a whole lot of difference to an investor’s long term returns, but definitely be pretty annoying if that was to happen again, depending on how much someone cared about the specific assets in the portfolio. Those that care are prob more likely to DIY anyway.
Totally agree. I was caught in the last change and the cgt event was …. well, unpleasant.
Hi,
Great article!
Do you think it would be ‘doubling up’ and a waste of time to invest in both?
Thanks
Jade
Thanks Jade. Yes, technically it is doubling up, but if someone absolutely can’t decide which one to buy, owning both wouldn’t do any harm 🙂
Think…Tenure, existence (Managed fund) , stability , experience , $ under management and questioning the WHY 10% bonds ( stock market across 200 yrs of history of value creation) would probably be some considerations as well.
Great write up Dave, and I too sometimes have daydreams of running a single fund portfolio – at times it would be nice!
I guess my perspective between the two would really be shaped by that fundamental asset allocation decision – to have 10% of funds in bonds or not. That will really be specific to each investors personal circumstances, risk appetite, capacity, and views on the future of bonds as a diversifying benefit in different market conditions.
10% is a big allocation to have in bonds if none are needed, but in the right circumstances could be the difference in reducing some volatility.
Haha thanks mate, and glad to hear I’m not the only one having these little daydreams 😉
The bonds is certainly a key differentiator, but I’m surprised to hear you feel 10% is a big deal. Given Vanguard will be doing the internal rebalancing, it may not have too much of a drag. If anything, I feel the tax differences between the two could possibly be a greater drag than the bonds.
For those who want bonds, wouldn’t they usually prefer to hold them separately to their shares, so they can access ‘only’ bonds as a source of cash in a downturn rather than sell stocks? Ultimately, the folks tossing up between these two options are unlikely to approach the decision with an intense level of scrutiny… nor is it really warranted to achieve a great long term result (jokes on us then, haha!). I would be quite surprised if the long term returns from DHHF and VDHG are much different from each other, how about you?
G’day Dave. Thanks for the new blog post, it was very good timing for me.
I’ve been accumulating VAS and VGS for a couple of years now. My plan was to get to 500k of VAS and 500k of VGS. The 500k VAS would give me 20k dividends a year and I’d sell 20k of the 500k VGS to give me a total of 40k for the year. (Round figures example).
But with the all in one ETF you can’t separate the global from the aussie when you sell. Everything must be sold together. So you’re selling aussie shares that give you dividends each time you sell a unit of the all in one ETF. Does this impact overall income? Does it matter?
I’m a little stumped on best drawdown methods between a VAS/VGS mix or a VDHG/DHHF approach.
Hey Pat. You’re correct that you don’t have the flexibility on which part of the portfolio you sell, but it also won’t matter. The reason is that you will still be receiving dividends from DHHF or VDHG throughout the year, which you can choose to use to spend and then sell whatever else you need. On the flipside, if you reinvest your VAS dividends and then sell the same amount of shares it’s basically the same result. In both cases you receive dividends throughout the year and will be selling a chunk as well and end up with a similar allocation at the end of it.
The only difference in dividend income would be that you have 50% Aussie shares, whereas these funds have under 40%, which means the portfolio will have a lower average yield. VDHG is higher due to the capital gain mentioned. Bottom line: it doesn’t really matter, just a slightly different way of ending up at the same result.
Hi Dave,
Hope you are well. Great article. I have got VAS and VGS at moment. Adding one of these guys above would make any sense?
Also you would have heard about MLT merging with SOL. I used to have MLT it’s all now SOL. I have been following SOL lately honestly I am not very convinced. I am think taking everything from SOL and putting into DHHF or VDHG or would it be smarter to put on VAS or VGS?
Any feedback would be much appreciated
Cheers
John
Thanks John 🙂 It wouldn’t really make sense to have DHHF or VDHG in addition to VAS/VGS since it replicates basically the same thing (Aussie and global shares). So one or the other is all that’s needed.
If planning on selling SOL since you’re not keen on it, then I would simply take that money and add it to the existing portfolio as above. Hope that helps.
Beautiful thanks heaps mate. That’s what I was thinking
Much appreciated
Thanks Dave. Very good article. DHHF has passed me by. I had not heard of it before… Personally I love the idea of a growing income in line with The Thornhill Approach. I’m unsure if VDHG and DHHF are the best funds for a growing income approach since you would probably have to sell at least some of your shares along the way rather than just having the dividends. I think of funds like VDHG in a similar manner to a high growth Superannuation fund. They are lovely and simple and accessible. I would just rather not have to ‘Sell The Farm’ in order to fund my living expenses. But Horses for Courses and all that…
Cheers Jeff!
Haha, I hear you mate, I still love receiving a nice income from investments too! In this case, the lower income is made up for with a higher growth component (global shares lower cash dividend payouts, but use that cash to buy back shares instead, increasing earnings and value per share). I prefer companies return cash to shareholders otherwise it tends to get wasted, and that’s still what happens in the US just in a different way. So it does even out and something you know I’ve softened my stance on over time.
And yeah, these funds are pretty similar to a high growth super fund in a few aspects, except super funds also usually invest in private real estate, private equity, infrastructure etc.
I’m 100% VDHG but am considering shifting to DHHF for the reasons you’ve listed. As cool as it was to get big distributions from VDHG last financial year, I was saddened at tax time to have a bill rather than a return for the first time in my life!
Is there a sensible approach to shift my VDHG holdings to DHHF? Or would my best bet be to just leave my VDHG and only purchase DHHF moving forward?
It depends how big the tax bill would be from offloading and how badly you want to switch. You could simply leave it as is and purchase DHHF instead from now on, with an eye to offloading VDHG during the next downturn when the CGT owing would disappear.
To be clear, you’ll still likely be getting bills frequently in the future if you have an growing portfolio!
What is your view of the Betashares ethical version DZZF?
It seems like a perfectly fine choice if that’s what someone is looking for. Personally, I’m not the biggest fan of ethical style funds (even though I like the idea) for the various reasons discussed in our podcast here.
Thanks. I will check it out
Hi Dave,
If I came across 13 x $100.00 bills lying on the ground, I would pocket them soooooooo quickly, I would possibly start to do a jig and my face would light up. This could be dangerous for my health at my age.
The annual savings in MER together with the flexibility of individual ETFs/managed funds, for me, outweigh the ‘one size fits all’ approach of these two one fund portfolios.
Cheers Glenn
Haha yeah I hear you Glenn! A nice example to think about too 🙂
Some light reading from the voice in the wilderness Peter Thornhill MY SAY 68
24.07.2021 regarding ETFs.The old saying the proofs in the pudding.When it comes to achieving financial independance I’m yet to meet anyone that trumps Peter.
To me Peter and his reasoning makes him an old grumpy grandpa who didn’t fully learn about ETFs because is blindly invested in lics for years and is advocating for that. Listen to some of the interviews with him and you will see how little he understands about ETFs.
Dave,
Aren’t you worried they they may rebrand this ETF like they did with their all world and converted into ethical ETF and then you are stuck with what you did not sign up for? That is my main concern regarding the still small cap ETFs. Vdhg is massive but I would prefer dhhf and considering switching…
That’s always possible Thomas, though I think it’s unlikely given this particular fund is unique in the market being 100% stocks. Probably a reason they left it alone. The fund is over $100m now, and it’s likely to remain a popular option, so it’s not something that would worry me personally. And even if it changed, the decision is you could simply keep it and start buying something else, or sell it and switch and pay some tax. Hardly the end of the world.
Hi Dave,
We are FIREd and would be moving 500k so the tax bill can be significant if they decide to switch the character of the fund. Ah that 10% bonds in VDHG is so annoying! 🙂
Thanks for that great write up! I’m pretty happy with our current portfolio for us, but I’m going to invest in DHHF for my kids to get them started. They will have plenty of years as adults to choose their own investments if they wish to tinker or adjust allocations, but as a simple foundation I think DHHF will work well for them in the short and long term.
Good stuff Miranda, cheers! That makes a lot of sense to me, some damn good parenting there I think 😀
Awesome post, very informative.
Do you think VAS/VGS gives enough diversification without the emerging markets and small cap companies. On one hand I’m happy to go without them to see on MER but on the other hand i fear i’ll miss out by not having them.
Matt
Thanks Matt, glad you like the post! Yes, absolutely, I think VAS and VGS is plenty of diversification. It’s possible that emerging markets or small companies deliver slightly higher returns over time after fees, but it’s far from a certainty. On the other hand, it’s guaranteed to come with more fees, more holdings to manage and slightly more complexity vs having just two funds. Personal choice though. I wrote more about the choices of international investing here if you’re interested.
Awesome Dave, that makes great sense to me. I’ll check out your other post too. Keep up the great work!
I came across this site while researching VDHG a a potential for our SMSF.
Firstly congratulations for being FIRE’d and freely sharing with others who are on the journey!
I’m strongly considering the managed fund option for VDHG which would make it much simpler (and cheaper) for regular contributions. I see the MER is slightly higher for the managed option, however there will be no brokerage and simpler tax reporting. Thoughts?
Hey, thanks Faizal!
The managed fund option is still a great option, especially if you’re attracted to those particular features then it sounds like the right choice 🙂
When DHHF rebalances, do investors pay CGT? eg if it sells emerging markets and invests in Australian shares to maintain the correct weighting, then is the sale proceeds paid as distributions and CGT applied?
Would it make sense to invest in DHHF and VGAD to minimize currency risk?
Here’s my understanding: Rebalancing can result in CGT, but not always. It depends what has been sold and what captain gain has been made inside the fund. Only the crystalized capital gains are paid out as distributions, not the whole sale amount. The rest of the proceeds is reinvested. You receive info on your yearly fund tax summary about this and any CGT discount that applies.
Currency risk is a different conversation anda personal one. Are you comfortable with 60-65% of your share investments based in overseas dollars? Depending on what other assets and income streams you have personally, you might feel totally fine about this or you might not. Adding VGAD would reduce currency risk in that sense so could be a sensible move depending on your situation.