All-in-one ETFs vs building your own portfolio

What all-in-one ETFs actually contain

All-in-one diversified ETFs are funds-of-funds: they hold other ETFs or funds inside them, giving you exposure to multiple asset classes through a single ASX purchase. The two most popular in Australia are VDHG (Vanguard Diversified High Growth) and DHHF (BetaShares Diversified All Growth).

VDHG holds approximately 90% growth assets (Australian shares, international shares, emerging markets) and 10% defensive assets (bonds). DHHF holds 100% growth assets with no bond allocation, split across Australian and international shares. Both rebalance automatically back to their target allocations, which means you don't need to do anything to maintain the intended mix.

The case for all-in-one

The strongest argument for all-in-one ETFs is behavioural, not financial. A single fund with automatic rebalancing removes every decision except "how much to contribute and when." There's no temptation to tinker with allocations when markets move, no need to calculate which fund to buy next contribution, and no risk of your portfolio drifting out of balance because you kept buying the same fund out of habit.

For investors who are early in their journey, or who know themselves well enough to recognise they'd fiddle with a multi-fund portfolio, the small fee premium for all-in-one is worth paying. Behavioural drag — the cost of bad decisions made at inopportune times — easily exceeds the fee difference.

All-in-one ETFs are also ideal for small balances where the transaction cost of managing multiple funds outweighs the fee savings. If you're investing $300 per month, the overhead of splitting across three ETFs adds friction without adding much benefit.

The case for building your own

A DIY portfolio of two or three ETFs gives you control that all-in-one products can't match. You can adjust your Australian vs international allocation based on your view of relative valuations. You can add or exclude specific exposures — bond allocation, emerging markets weighting, currency hedging — based on your circumstances. You can sell one holding without triggering a CGT event across the whole portfolio, which matters once balances are large.

The tax efficiency argument becomes more meaningful at higher balances. All-in-one ETFs rebalance internally, which involves selling overweight assets and buying underweight ones. Those internal sales generate capital gains inside the fund that are distributed to unitholders. A DIY portfolio where you rebalance through new contributions (rather than sales) avoids generating those events entirely.

A common DIY starting point

The most popular DIY approach in the Australian ETF community is a two-fund portfolio: VAS (or A200) for Australian shares at around 30%, and VGS (or BGBL) for global developed market shares at around 70%. This gives broad diversification, low fees, and reasonable simplicity. Some investors add a third fund for emerging markets (VGE) or bonds (VAF) depending on their risk appetite and timeline.

The 30% Australian allocation is higher than Australia's roughly 2% of global market capitalisation, which is a deliberate home bias. The reasons are practical: franking credits on Australian dividends have real value for Australian taxpayers, and currency risk is reduced for income that will ultimately be spent in Australian dollars. Whether that home bias is the right level is a personal decision.

Which to choose

If you're starting out, prefer simplicity, or have a balance below $50,000 — an all-in-one ETF is a sensible default. The fee difference is small enough that it shouldn't be the deciding factor. If you have a larger portfolio, value flexibility, want to manage rebalancing CGT events carefully, or simply enjoy the process of managing a portfolio — a DIY approach is worth the additional attention it requires.

Neither choice locks you in permanently. Moving from all-in-one to DIY (or the reverse) is possible later, with CGT implications depending on how much gain has accumulated. The decision matters most when you're starting.