How Vanguard's Diversified Growth ETF helps investors stay the course

This interview was filmed Thursday, 8 May 2025

There are many well-known quotes in the famous stock market book, Reminiscences of a Stock Operator by Jesse Livermore, perhaps none more so than, “Men who can both be right and sit tight are uncommon.”

Whilst that line itself has grown over the years, the passage that it comes from is worth revisiting in its entirety;

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. 

I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. 

"Men who can both be right and sit tight are uncommon."

The overarching principles are straightforward. Pick an area of focus and go for it. Don’t tinker around the edges, regardless of what the market is doing. Throw into the mix some diversification, and you’ve got the formula for one of Vanguard’s latest ETFs – the Vanguard Diversified All Growth Index ETF (ASX: VDAL).

VDAL is 100% invested in growth assets (shares), designed for investors with a very high tolerance to risk, and has a minimum suggested investment timeframe of seven years - be right and sit tight.

For good measure, the ETF “provides exposure to thousands of securities across domestic and global markets, giving investors easy access to a diversified, professionally managed solution through a single trade”, says Matt Cho, Head of Multi-Asset Solutions at Vanguard Australia.

In the Fund in Focus above, Cho breaks down how VDAL compares to other Vanguard diversified products, why strategic allocation matters more than market timing, and how diversification adds to the mix. 

Watch the video above to learn more, or read a summary of the interview below. 

Interview summary

All growth, all the time

“VDAL is designed to provide long-term capital growth through a diversified all-in-one portfolio,” says Cho. 

“It's designed for investors with a very high tolerance for risk and has a minimum suggested investment timeframe of seven years.”

With a 100% allocation to growth assets, VDAL distinguishes itself from other Vanguard diversified ETFs like VDGR and VDHG, which hold 70% and 90% in growth assets, respectively. This means the potential for higher returns, but also greater volatility.

“The implication for investors is that while the return potential for VDAL will be higher, they should be comfortable with potentially higher levels of volatility and drawdowns,” Cho explains. 

“Importantly though, VDAL is still built on the same process and philosophy that underpins the success of our range of diversified strategies and ETFs.”

A strategic, not tactical, approach

Rather than tweaking allocations in response to short-term market movements, Vanguard adopts a long-term, strategic asset allocation model for VDAL.

“We’re basing the asset allocation on our long-term expectations for risk and return, rather than adjusting the asset allocation on a short-term basis,” says Cho. 

“We also conduct rebalancing on a systematic basis to ensure the purity of that asset allocation.”

That means maintaining exposure to the ETF’s targeted allocation within a ±2% band, and only rebalancing when the benefits outweigh transaction costs. It’s all about consistency, not market timing - a key principle of Vanguard’s broader investment philosophy.

Diversification done for you

One of VDAL’s core advantages is baked-in diversification. The ETF spans thousands of securities across domestic and global markets, including emerging economies.

Cho puts it succinctly: “I often say that diversification is the only free lunch in investing", echoing the famous quote from Harry Markowitz. 

With exposure to a broad range of growth drivers - like innovation and AI in the US, demographic shifts in Asia, or local Australian thematic - VDAL allows investors to tap into global trends without the need to select individual stocks or sectors. 

“Ultimately, with VDAL or any of our diversified range of products, we’ve done the heavy lifting for you in terms of portfolio construction. So you don’t need to,” says Cho.

Riding out the noise

Investors today face a highly volatile environment marked by shifting interest rates and inflation uncertainty. But Vanguard’s approach is to look past the short-term noise.

“Our diversified products are really based on that long-term [view], so trying to see through a lot of that noise that you see in markets on a short-term basis,” says Cho. 

“Granted, volatility is part of the investment journey… but the drivers for long-term equity returns remain intact.”

VDAL provides access to those long-term drivers in a low-cost, single-trade solution. It’s designed to remove the need for tactical moves or active management decisions by individual investors.

Know thyself: Assessing fit and risk

While VDAL offers strong growth potential, it’s not for everyone. The key, according to Cho, is for investors to honestly assess their tolerance for risk and behavioural resilience.

“I think it’s also important to ask yourself as an investor, as an advisor, not only your expectations for returns, but your behavioural resilience,” says Cho. “So, for example, ask yourself - if the market’s down 20%, if the product’s down 20%, can I stay invested?”

In terms of investor profile, VDAL may suit younger investors in the accumulation phase or anyone seeking long-term capital growth without a pressing need for income or downside protection.

“It could be suitable for younger investors, investors in accumulation phase, or any investor looking for long-term growth or capital appreciation that might not necessarily have the need for income or capital protection along the way,” Cho explains.

The final word

If Jesse Livermore’s advice was to “sit tight” once you’ve made the right call, then VDAL is built to help investors do exactly that. With disciplined asset allocation, global diversification, and long-term focus, VDAL offers a straightforward way to stay the course - even when markets get choppy.

As Cho sums it up;

“What VDAL enables you [to do] is to get access to those drivers of global growth in a low-cost solution that can be accessed by a single trade.”