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.


157 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.

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