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.

125 Responses to The One-Fund Solution

  1. Brian G August 12, 2014 at 4:11 am #

    For what it’s worth, Tangerine is not alone with their slow transfers. Last year I closed and transferred my RRSP from TD to another institution and it took TD over one month to complete the work on their end. It was unprofessionally done and required constant follow up on my part and they even “lost the paperwork” at one point and wanted me to fill out a new set of forms. It’s not right, but it happens because we’re Canadians I guess.

    All this said, do remember that transfers between institutions are relatively rare events so, I wouldn’t worry about it too much.

  2. Darren August 19, 2014 at 1:02 pm #

    Hello,

    I currently have around 30k saved it is sitting in a regulat TFSA account at 1.3% (Tangerine). I was thinking of moving it to a Tangerine Balance Portfolio. The only thing is I am also looking at buying a house soon so I will possibly be spending all or most of that money. Would it be worth it to switch the money from the regular TFSA to the Tangerine Balance Portfolio TFSA? The house may or may not happen soon. The thing is I’m unsure of what the fees are if I want to cash out my Tangerine Balance Portfolio TFSA after possibly only a few months.

  3. Canadian Couch Potato August 19, 2014 at 8:45 pm #

    @Darren: If there is any reasonable chance you will need your money for a home purchase in less than three to five years it really should not be in stocks. I realize rates are low now, but that is the price of safety. (There should be no transfer-out fees at Tangerine.)

  4. Steve L August 21, 2014 at 6:04 pm #

    Hi Dan,
    I have about 21k that I can invest. I currently have a chequing and savings accounts with tangerine. I was looking to open a TFSA and RSP account with them. Since I never contributed in TFSA I have the full amount available this year which is 31000$ if i’m not mistaking. I was thinking of putting 12 000 in the TFSA balanced portfolio and 2000$ in RSP balanced portfolio. I’m thinking of putting the remaining 7000$ with People’s trust tfsa high interest account which is at 3%. I want to do this because I don’t want to touch the money in the the tangerine portfolio if I ever need the money.

    I know the interest that People’s trust is offering will not be forever, but 3% is still better than buying GIC right now. If the situation changes then I will mofify my strategy.

    I was wondering if you think it is a good thing to do and if you suggest doing things differently. Should I just forget about PT bank and put 19 000$ all in the tangerine balanced portfolio?

  5. Canadian Couch Potato August 22, 2014 at 4:27 pm #

    @Steve: I’m really not able to comment on your planned strategy without knowing more about your needs, but there is nothing in your comment that suggests you’re doing anything unnecessarily risky. The only thing I would point out is that the People’s Trust account is a better choice for any amount you think you might need in the next five years or so. The Tangerine funds should be reserved for long-term investments only.

  6. Steve L August 22, 2014 at 7:30 pm #

    Thats what I thought. I don’t want to touch the money I will be putting in the TFSA balanced portfolio. I will be putting money monthly into the balanced portfolio and try to max it out. Every year I will contribute to the RSP, but I prefer maxing out the tfsa first as I’m in the low income bracket.

    I want to keep some cash on the side for emergencies and PT bank offer the best interest compared to other banks. I have another chequing account with national bank which I use to pay the bills. My works pay goes into that account since it was the first account I opened.

    Thanks for the tips Dan. Great job on the blog.

  7. Kelly O October 3, 2014 at 7:01 am #

    Hi,

    I am a young and new investor looking at investing a small amount of money (2000) in the Tangerine Balanced Growth Portfolio, however I plan, within the next 3-5 years, to have saved enough to make opening my own discount brokerage account a better option and at which point I would move my funds to there and mirror the same type of portfolio but at a lower MER. Does it still make sense to move my funds into the tangerine fund for now if I plan on keeping them in stocks but in a different form or should I just leave them in a regular bank account until I have saved enough to open my own discount brokerage account?

    Great blog by the way! Very helpful for confused young investors like me!

  8. Canadian Couch Potato October 3, 2014 at 8:03 am #

    @Kelly O: It definitely makes sense to get your $2,000 invested immediately rather than letting it sit in a bank account. There is always a learning curve in investing, and it’s better to start early with a small amount of money so you can gain experience when the stakes are low. I would not be in a great rush to open a discount brokerage account: the Tangerine funds are a good choice for many years.

    http://canadiancouchpotato.com/2012/03/05/some-advice-for-new-potatoes/

  9. Santana January 15, 2015 at 10:00 pm #

    If i am going to invest 15K, should i invest 5500 in the TFSA Investment fund and the rest in a regular Investment fund?

  10. Rob January 27, 2015 at 1:11 pm #

    What about BMO ETF portfolio mutual funds offered to Investorline users? Wouldn’t these fare as an attractive alternative to Tangerine’s funds for a small investor seeking a one-fund solution?

  11. Canadian Couch Potato January 28, 2015 at 7:57 pm #

    @Rob: Hard to say anything without seeing the details of the actual fund, but as long as the fees are low and the fund is broadly diversified it’s likely to be a reasonable alternative.

  12. Susan February 23, 2015 at 1:25 pm #

    Hello, I have a whole bunch of RSP GICs in Tangerine already, as well as a TSFA (and another with Royal and mutual funds with Philips Hager North). I also have a couple of unreegistered savings accounts with Tangerine.
    I would like to be getting more than the pittance GICs offer. What kind of returns can I expect with Tangerine’s One-Fund?
    I’m an unsophisticated investor who isn’t very good at keeping an eye on things so I would like a low-maintenance option. I’m 54 and hope to retire by 62 or so. (I also have a good defined-benefits pension from a private firm.)
    My RSPs are maxed out but not my TSFAs (I think around $10K but may be $15 in them) and I would like to max them out.
    Thank you for any help.

  13. Canadian Couch Potato February 23, 2015 at 11:09 pm #

    @Susan: Because the Tangerine funds have a high allocation to stocks, their returns are not predictable. You may want to look at their long-term performance to get some idea of their past returns and risk:
    https://www.tangerine.ca/en/investing/investment-funds/investment-fund/index.html
    http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Tangerine.pdf

    The Tangerine funds are certainly low-maintenance, but it is very important to make sure you choose one that is appropriate for your risk tolerance, especially if you are used to investing in stable investments like GICs.

  14. paola April 12, 2015 at 4:58 pm #

    Hi,

    Any suggestion on starting an investment portfolio for our kids? They have their own savings 1.5k each but I’m not sure how to invest their money on their behalf because of the taxes. Is there an option?

  15. Canadian Couch Potato April 12, 2015 at 10:09 pm #

    @paola: Children under 18 cannot have an investment account in their own name, but you may be able to set up an informal trust for them. This means you would administer the account until they turn 18, after which the account becomes theirs. If you can demonstrate that the money in the account is actually theirs (and not simply money you gave them to invest) the accounts may be taxable in their names. Even if you must pay tax on the income it may still be worth it if the accounts teach them about investing.

    http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/investing-basics/Pages/informal-in-trust-accounts.aspx

  16. Vicky May 5, 2015 at 10:39 pm #

    Hi Dan,

    I actually have a follow-up question regarding your response to Darren’s comment.

    If you are planning to buy property (or are at least open to that idea) within the next 5 years, what type of investment should you make with the money that you’re presumably saving for a down payment? Assuming that you have long-term investments in your TFSA and RSP, where should you park your short-term savings?

    I haven’t found on article on this here, but would love to see one!

  17. Canadian Couch Potato May 6, 2015 at 10:09 pm #

    @Vicky: If you are planning a major purchase within a few years, I’m afraid there’s only one responsible option, and that’s cash (or a GIC if you are confident you won’t need the money immediately). If the TFSA is full, a taxable account is probably fine for these savings, since interest rates are so low that there’s little tax liability anyway.

  18. Chen May 21, 2015 at 1:44 pm #

    I have about $40,000 in my TFSA and recently invested about $1100 into Tangerine Balanced Growth Portfolio. I just realized the limitation in the investment choices of Tangerine after having dumped all my savings into their TFSA. For the time being would it be wise to invest all the $40,000 into their MF? I have enough in my regular savings to not worry about the funds in my TFSA. Thanks!

  19. Canadian Couch Potato May 21, 2015 at 3:17 pm #

    @Chen: There are only four Tangerine funds to choose from, but each one is a balanced portfolio that is broadly diversified, so there’s really no need to have more investment choices, especially for a small portfolio. Just make sure the version you choose is appropriate for your risk tolerance.

  20. Tim May 26, 2015 at 12:20 pm #

    Hi Dan,

    I’ve got a TFSA and RRSP maxed out at scotiabank and have 15K I’m looking to invest long term. I don’t want to move my TFSA or RRSP money from scotia quite yet until I get a better grip on this stuff(I’m brand new to investing) – what would you recommend I do with the 15K when tax shelter is not available from TFSA/RRSP? I’m in a high tax bracket as well so tax efficiency would be ideal. thanks!

  21. Canadian Couch Potato May 26, 2015 at 1:43 pm #

    @Tim: I would like to help, but there is simply no way to answer that question without having a complete understanding of your financial situation and your goals. In the broadest terms, the best strategy is usually to include the non-registered account in the context of your overall portfolio and to simply use it to hold the most tax-efficient asset class. That is usually the Canadian equities, since the dividends are tax-favored and the capital gains can be deferred indefinitely.

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