The One-Fund Solution

[Note: This post was updated in May 2014, when the former ING Direct changed its name to Tangerine.]

What’s the best way to get started with index investing? That’s the question Justin Bender and I ask in our new white paper, The One-Fund Solution. In our opinion, if you’re new to self-directed investing and you have a relatively small RRSP or TFSA, the place to begin is the Tangerine Investment Funds.

I’ve written about the Tangerine funds (formerly the ING Direct Streetwise Portfolios) before, and I often get pushback from readers. They point out these balanced index funds carry an MER of 1.07%, which is expensive compared to my ETF model portfolios, and even the TD e-Series funds. But most of this criticism comes from experienced do-it-yourselfers who forget that reading this blog means they’re among a small minority who consider investing something of a hobby. Most Canadians are not like them. Most people, even if they are good savers—and that’s the most important characteristic of a good investor—would rather watch Say Yes to the Dress than use a rebalancing spreadsheet.

My point is, rather than comparing the Tangerine funds to the optimal solution, let’s compare them to the typical investor’s situation. There is more than $900 billion in mutual funds in Canada, and the average MER of a balanced fund is 2.15% (according to Morningstar’s 2013 Global Fund Investor Experience Report). It’s true this figure includes a trailer fee for advice, something you won’t get with a Tangerine account. But the sad truth is investors with five-figure portfolios typically get either dreadful advice or no advice. And in many cases they don’t need to pay for professional help. If you’re just tucking away a couple of thousand dollars a year in tax-sheltered accounts, it’s tough for an advisor to add value.

That describes the majority of investors in Canada. According to recent report from Advocis, the average client of a mutual fund advisor in Canada has an account between $64,000 and $75,000. What percentage do you think have globally diversified, regularly rebalanced portfolios that cost less than 1.07%? And if those investors are paying a 1% trailer fee, how many are receiving good advice? I’d suggest at least three out of four would be better off simply socking away money in a Tangerine Investment Fund.

Justin and I fully explain the advantages of this simple solution in the white paper, but I’ll summarize the main points here:

Easy account setup. If you already have a chequing or savings account with Tangerine, opening a new investment account can be done online in about 10 minutes. Even if you’re not already a client, the application process is still almost entirely online.

No need to learn how to trade. Making ETF trades is often intimidating for novices, and mistakes can be expensive. With the Streetwise Portfolios you make all your contributions and withdrawals through the Tangerine website, which is much more user-friendly.

A single monthly contribution. Making pre-authorized monthly contributions is generally not possible with ETFs, and adding small amounts to an ETF portfolio can be inconvenient and costly. Tangerine clients can set up a single weekly, biweekly or monthly Automatic Savings Program with a minimum of just $25.

Automatic rebalancing. If you use multiple ETFs or index mutual funds, rebalancing requires you to monitor your portfolio and make calculations with a spreadsheet. It also means you need the emotional discipline to sell assets after they have gone up and purchase others that have fallen in value. The Tangerine funds make all that unnecessary, as they are automatically rebalanced quarterly.

Client support. Some discount brokerages—including Questrade and Virtual Brokers—have enticed investors with commission-free ETFs. I’m aware many readers are pleased with these bargain brokerages, and that’s fine. But they would not be my first recommendation for investors with small portfolios and no investing experience. I’d rather send them to Tangerine, where the mutual fund reps have been specifically trained to answer questions about index investing.

If you’re happily investing with a portfolio of ETFs or TD e-Series funds, keep up the great work. But if you’ve never invested on your own before—or if you have a friend or family member in that situation—download our white paper and learn how you can get started in indexing investing with a simple 0ne-fund solution.

 

172 Responses to The One-Fund Solution

  1. Aaron November 6, 2015 at 9:19 am #

    This is a great post, thanks for sharing! I’m in my early 30s and have been putting money into a mutual fund for ten years now, it’s around 25k. The MER is 2.13% which drives me crazy because as your article points out I just stick my money in there and don’t receive any advice even if I seek it out.

    My question is, is there any disadvantage to switching out of a mutual fund that I’ve held for so long into a new fund? Is there any cumulative value that I’d be losing out on?

  2. Canadian Couch Potato November 6, 2015 at 9:22 am #

    @Aaron: There is no disadvantage to switching out of a long-held expensive fund, unless the fund has a deferred sales charge (DSC), which would be triggered when you sell. If you use an advisor, ask him or her about this so you are not surprised. In the long run, it is still worth it to switch if your MER will be cut in half going forward.

  3. Bobby November 17, 2015 at 3:37 pm #

    Hi Dan, After many years, my wife and I, late 40’s, decided to gather all our savings in different institutions and put them all under one roof at RBC out of convenience. After speaking to a financial advisor at the bank (small town BC), she advised us that the RBC Select Conservative fund would be the best option for both our TSFA’s and RRSP’s. We have approximately $200,000 allocated between the two accounts. We never much thought of this before and assumed the bank would have our best interest at heart seeing as we are in our planning for retirement years. Recently I’ve been closely watching the funds performance and noticing there are a lot other conservative funds out there performing better than ours and that the MER at RBC is quite high at 1.85. My wife and I are seriously considering transferring our savings into the Tangerine balanced Portfolio but are uncertain if this is the right move. We are the put it there and don’t think about it crowd so Tangerine is definitely a draw. What are your thoughts?

  4. Canadian Couch Potato November 18, 2015 at 8:14 am #

    @Bobby: Thanks for the comment. I would be wary of comparing your fund’s performance to others. Very often investors make apples-to-oranges comparisons and draw the wrong conclusions. This is especially true over short periods. The RBC Select Conservative fund, for example, is about 55% bonds/cash and 45% equities (roughly equal amounts of Canadian, US and international). Unless a competing fund has a similar mix, any differences in performance are likely explained by whatever asset class has done well recently.

    A fee of 1.85% is high, though it is typical of what you pay to most bank advisors. You can certainly lower your costs with Tangerine or another option, but it’s important to remember that you would be on your own. So the question is, does your advisor offer any services you find useful, such as planning, making sure you have a savings strategy in place, discipline, and so on? Make sure you compare value and not just costs.

  5. Leonie January 16, 2016 at 5:23 pm #

    Hi, Dan,
    Thanks for your great articles.
    The Tangerine website states it does pay a trailing commission to itself. It is included in the MER. Just wanted to clarify, coz your article says that you are not paying Tangerinne a trailing commision. .
    Thanks leonie

  6. Isabelle November 7, 2016 at 8:19 am #

    ps: please note a possible fee listed on the Tangerine site: “TFSAs have no fees while you’re saving with us. If at some point you decide to transfer your funds to another financial institution, a $45 fee will apply.”

  7. Canadian Couch Potato November 7, 2016 at 8:32 am #

    @Isabelle: All investment firms charge a fee to close your account and transfer the assets elsewhere. Tangerine’s are actually among the lowest: most brokerages charge $125 to $150.

  8. Houston December 7, 2016 at 5:56 pm #

    Hi Dan,

    Just wondering if there are any downsides to using this fund in a taxable account.

    Thanks!
    Houston

  9. Canadian Couch Potato December 8, 2016 at 8:18 am #

    @Houston: The Tangerine funds (indeed, most balanced funds) are not a great choice in taxable accounts. Balanced funds contain a significant amount of tax-inefficient bonds. If you want to invest in taxable accounts at Tangerine it may be better to use a combination of GICs and their all-equity fund.

  10. Andrew January 2, 2017 at 1:12 am #

    Good evening Dan,

    I have found this website incredibly enlightening and I would like to congratulate you and your team on a job well done. Very informative!

    I have a few questions that I would like to ask you concerning index investing. I am 24 years old and looking to open the equivalent of a Roth IRA here in Canada for long term investing (30+ years)

    1. What is the Canadian equivalent to the Roth IRA?

    2. I have read that you can choose between lifecycle funds and index funds. If you choose index funds you have to rebalance your investments manually once or twice a year. It seems that the Tangerine investment account offers an index fund portfolio with the hands off/automatic re-balancing feature that lifecycle funds offer. Is this completely accurate?

    3. I do not need the money any time soon and I am comfortable riding out market fluctuations. I am looking for steady growth over the long term with a mostly, if not completely, hands off approach to start with at this time. I want a diversified portfolio with a varied asset allocation with more emphasis on stocks but with a healthy percentage invested in bonds. In your opinion, is the Tangerine Balanced Portfolio something to look into given these parameters?

    4. Since you mentioned that the Tangerine Investment Account’s MER (1.07%) is higher than most accounts will it be worth it to invest in this account? Will it eat up most of my returns?

    5. In your experience have you found that Tangerine is the only institution that offers this competitive hands off solution using index funds?

    6. Is there any other online discount brokerage that is similar and a good choice for young investors who are just starting out?

    Your responses would be invaluable to pointing me in the right direction.

    Thank you very much for your time and attention.

    Have a great day,

    Andrew.

  11. Canadian Couch Potato January 2, 2017 at 4:43 pm #

    @Andrew: Thanks for the comment, and glad you found the blog useful.

    1. The Tax-Free Savings Account (TFSA) is similar to the Roth IRA in that contributions are not tax-deductible but withdrawals are also not taxable as income. RRSPs (like IRAs in the US) work the other way around: contributions receive a tax deduction but withdrawals are taxable as income.

    2. Yes, the Tangerine funds are rebalanced quarterly, whereas a portfolio of individual index funds would have to rebalanced manually by the investor.

    3. I can’t comment on which of the Tangerine portfolios would be most appropriate in your situation. If you go through the account opening process, they walk you through a series of questions that will help you decide on the right one. I would caution that any portfolio that has a high percentage of stocks can never deliver “steady growth.” It should be expected to deliver long-term growth but the returns will be anything but steady!
    http://canadiancouchpotato.com/2012/06/25/what-are-normal-stock-market-returns/

    4. The MER is higher than a portfolio of individual index funds or ETFs, but the trade-off is that there is far less opportunity for errors, including bad behaviour (failure to rebalance, tinkering with the asset mix, etc.). For many investors (especially inexperienced ones) this has a lot of value. You may enjoy my recent article in MoneySense:
    http://www.moneysense.ca/save/investing/index-funds/ultimate-guide-couch-potato-portfolio/

    5. The Tangerine funds are the only family of balanced index funds in Canada. There are a couple of other individual offerings from banks, but none that I would be quick to recommend.

    6. The other option worth considering is a robo-advisor:
    http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/everything-you-need-to-know-about-robo-advisers/article32302639/

  12. Andrew January 3, 2017 at 1:25 am #

    Thank you so much Dan.

    You’re responses were truly enlightening.

    Thank you again for your time and attention sir.

    Have a fantastic day,

    Andrew.

    P.S. I found the MoneySense article immensely helpful. Each time I had a question the following paragraph would answer it. Very clear and well written.

  13. Andrew January 3, 2017 at 3:24 pm #

    Hi Dan,

    Long time reader, first time poster 🙂
    Love and appreciate your blog, keep up the great work. Thank you!

    Quick question:
    Thinking about opening an RRSP at Tangerine (Balanced Income Portfolio to start)….eventually I could see myself moving this to TD and start do the ETFs myself 🙂 Once I learn more of course!

    Is it easy to make this type of transfer when the time comes?

    ie. I know sometimes people get stuck with products that can’t be transferred.

    Thanks!

  14. Canadian Couch Potato January 3, 2017 at 3:34 pm #

    @Andrew: Thanks for the comment. Yes, it is a simple matter to transfer your account from Tangerine to TD Direct or any other brokerage. Tangerine charges a modest transfer fee of $45 and the fund will have to be sold, with the proceeds transferred in cash.

  15. Keri January 25, 2017 at 1:59 pm #

    HI Dan,

    I am thinking of opening an rrsp at Tangerine starting with around 18k and then 10k every year. I am 23 years old so I feel like I can take on some extra risk as I am young.
    My question is could I do 75% in the balanced growth, and the remaining 25% in the Equity Growth?

    or am I better off just allocating all my money into one fund and not splitting it out.

    Thanks

  16. Canadian Couch Potato January 25, 2017 at 2:52 pm #

    @Keri: I’m not even sure Tangerine will let you hold two funds unless you specifically open two separate accounts. In any case, I would just stick to one. Before you go 100% equities, you may enjoy this podcast:
    http://canadiancouchpotato.com/2017/01/11/podcast-3-a-hedge-fund-manager-comes-clean/

  17. Keri January 25, 2017 at 3:44 pm #

    Awesome thanks for the link to that podcast as it was very informative. Honestly the first time I have heard about the 2 index fund portfolio.

    From the podcast a simple portfolio of 2 indexes seems to be the ideal long term investment based on the notion that I will never beat the performance of an index.. The 2 indexes in the portfolio consisting of 1 global equities fund and the other a local bond or fixed income fund with very low risk.

    By those standards should the tangerine balanced growth fund be used until enough money is collected to move onto a better 2 index portfolio?

    Or is it a a good investment because of its lower MER comparable to others especially no fees if buying through tangerine directly and not via a DIY brockerage account held else where. Even though I do see that out of the 75%, roughly 26% of it is held in Canadian equities which is not the best based on the podcast.

  18. Canadian Couch Potato January 26, 2017 at 11:19 am #

    @Keri: Glad you liked the interview, though I really meant to direct you to the “Ask the Spud” segment, which specifically addressed the idea of investing in 100% equities when you’re young. I didn’t mean to suggest you should use a two-fund portfolio: I stand by my own model portfolios, including the Tangerine funds. I just think it’s potentially dangerous to use an all-equity portfolio until you have had a lot of experience under your belt.

  19. rachel February 10, 2017 at 10:47 am #

    My husband and I are late 30s and have been investing in RRSP and TFSA accounts with Holliswealth since our 20s. We had no idea about investing so just followed what my parents did. We didn’t know that the fees were rather high and figured it was better than doing nothing with our money. We have built up a portfolio of about $200,000 including some inheritances.
    However, we are not comfortable putting all our savings into one basket, so would a Tangerine fund make sense for us to do on our own? We have about about $25,000 in cash (in addition to our emergency fund) that we could do something with on the side. Any other recommendations? Thanks so much for your information on this website! We are just starting to learn and would like to take better control of our finances.

  20. Rochelle February 24, 2017 at 11:59 am #

    Hi Dan,

    Thanks for this post. I just opened a Tangerine investment account and want to start adding small amounts each month. It was recommended that I do all equities (split equally between Canada, US and International). I know that is often not recommended but I am 29, have an indeterminate job with the federal government (defined pension for life) so I think I can have a higher tolerance of risk. Do you think that makes sense?

    Thanks!

  21. Cristina February 28, 2017 at 3:14 am #

    hi,

    Im 30 and am just starting to get into the investing game. None of my friends are currently investing on their own and my family pays for a broker and aren’t sure how to answer my probably simple questions (sorry if Im repeating earlier questions). Im looking at switching my RRSP (30k) and TFSA (46k) to Tangerine’s Balanced Growth Portfolio. At the same time I want to start to manage my own portfolio (start small with Dollar Cost Averaging). However Im finding it hard to start.

    1. I just read this article “How to build a 1-million dollar TFSA” http://www.theglobeandmail.com/globe-investor/retirement/retire-taxes-and-portfolios/how-to-build-a-1-million-tfsa/article29655504/ which promotes ETF’s. Thoughts on this?

    2. Should I get away from my Tangerine Balanced Growth Portfolio and look into building my own portfolio ETF’s on Questrade? or TD? or

    3. Should I and can I, keep a certain percent of my TFSA in Tangerine and maybe start my own portfolio using 10k from my TFSA?

    4. If I want to invest money and build my own portfolio, is it better to ensure my maximum amounts are in my TFSA and RRSP first and then invest?

    I guess Im just a little confused on investing within a TFSA. How it works, online banks to go through and online brokerage accounts. I’m a having a mental block with the lingo I guess. Any tips would be extremely helpful and appreciated!

  22. Canadian Couch Potato February 28, 2017 at 8:05 am #

    @Cristina: From what you’ve described I’d say it’s too soon to jump into ETFs. This article will help clarify the decision:
    http://www.moneysense.ca/save/investing/index-funds/ultimate-guide-couch-potato-portfolio/

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