XEQT vs XGRO: How Much Risk Do You Actually Need?
Both are iShares funds. Both cost 0.20%. One gives you everything. One softens the ride. The complete guide to choosing between them.
The one-sentence difference
XEQT is 100% stocks. XGRO is 80% stocks and 20% bonds. Same fund family, same 0.20% MER, same global diversification approach. Different risk profiles. This is the entire comparison. If you are 50 and wondering which is right for your stage of life, that question has its own dedicated guide.
What adding 20% bonds actually does
Bonds are the financial world's shock absorbers. When stock markets fall sharply (as they did in March 2020 and throughout 2022) bonds typically hold their value better than equities. A 20% bond allocation does three things for an XGRO investor versus an XEQT investor.
First, it reduces maximum drawdowns. When XEQT fell approximately 30% in March 2020, XGRO fell roughly 26%. That 4% difference matters enormously if you are close to retirement or the type of person who makes poor decisions when watching their balance decline.
Second, it reduces long-run returns. Bonds return less than equities over long periods. A 20% bond allocation means less upside in bull markets and slower compounding over decades.
Third, it provides a rebalancing lever. When stocks fall 30%, bonds are relatively stable. XGRO automatically rebalances by selling bonds and buying equities into the downturn, which is mechanically similar to "buying the dip" without you having to muster the courage to do it yourself.
The 2022 bear market was unusual because the Bank of Canada raised interest rates aggressively to fight inflation, and rising rates cause bond prices to fall. In 2022, XGRO's bond allocation provided less protection than historical averages would suggest. The bond cushion is not perfectly reliable, particularly in inflationary rate-hiking environments.
The iShares risk spectrum
XEQT and XGRO in context of the full iShares all-in-one ETF lineup:
How each performed in real market crashes
| Event | XEQT | XGRO | Cushion |
|---|---|---|---|
| March 2020 (COVID crash) | -30% | ~-26% | +4% XGRO |
| 2022 Bear Market (rate hikes) | ~-20% | ~-17% | +3% XGRO |
| Max Drawdown (since inception) | -29.74% | -47.94% (older vintage) | Varies |
The 30-year return cost of XGRO
What does the 20% bond allocation actually cost in long-run wealth? Assume $500 per month over 30 years:
XGRO's 20% bond allocation costs you approximately $70,000 over a 30-year, $500 per month investment journey. In exchange you get a maximum drawdown that is roughly 4% smaller and a psychological experience that is measurably less stressful during crashes.
Who should choose which?
| Your situation | XEQT | XGRO |
|---|---|---|
| Investment horizon 20+ years | ✓ | · |
| Investment horizon 10 to 20 years | ✓ | ✓ |
| Investment horizon under 10 years | · | ✓ |
| High tolerance for volatility | ✓ | · |
| Moderate risk tolerance | · | ✓ |
| Would panic-sell in a 30% crash | · | ✓ |
| Would hold through a 30% crash | ✓ | · |
| Approaching retirement (10 yrs out) | · | ✓ |
| 25 to 40 years old, accumulating wealth | ✓ | · |
| RESP for child starting university in 5 yrs | · | ✓ |
| RESP for a newborn (18yr horizon) | ✓ | · |
| Want maximum long-run wealth | ✓ | · |
| Want a smoother, less volatile journey | · | ✓ |
What bonds does XGRO hold?
XGRO's 20% bond allocation is split across four iShares bond ETFs: XBB (Canadian aggregate bonds), XSB (short-term Canadian bonds), XGUS (US aggregate bonds), and XEB (global bonds). Together, these provide exposure to government and investment-grade corporate bonds across multiple currencies and maturities. This is also the glide path approach we recommend in the XEQT vs target date fund comparison: XEQT in your accumulation years, then XGRO and XBAL as retirement nears.
Approximately 55% of the bond sleeve is in government bonds (considered among the safest fixed income instruments), with 45% in investment-grade corporate bonds. Over 82% of the bond holdings are rated A or better. The bond allocation primarily serves as a volatility dampener rather than a yield generator.
The behavioural argument for XGRO
Here is an argument for XGRO that financial advisors rarely make explicitly: if you are the type of person who will panic-sell your investments during a market crash, XGRO might produce a better actual outcome than XEQT even accounting for its lower expected return.
Theoretical long-run returns are irrelevant if you sell everything in March 2020, crystallize a 30% loss, and miss the subsequent recovery. The best investment is the one you can actually hold.
A 26% drawdown in XGRO might keep you invested through the storm. A 30% drawdown in XEQT might cause you to sell. If that is your honest self-assessment, the mathematically "inferior" choice is actually the better one for you.
Can you start with XGRO and switch later?
Yes, and many investors do exactly this. Starting with XGRO while you are learning to handle volatility, then switching to XEQT once you have lived through a real drawdown and proven to yourself you can hold through it, is a perfectly rational strategy.
In a registered account (TFSA or RRSP), the switch is clean: sell XGRO, buy XEQT, no immediate tax consequences. In a non-registered account, selling XGRO triggers a taxable capital gains event if you have unrealised gains. Consult a tax advisor in that scenario.
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