One of the most common questions I hear from budding Couch Potatoes is, “Should I use index mutual funds or ETFs?” While index funds generally have higher annual costs (MERs), they do allow investors to add and withdraw money with no fees. ETFs have the opposite problem: they can have much lower management fees, but they incur commissions (typically $10 to $29) every time you buy or sell shares. That usually makes them unsuitable for people who contribute to their accounts every month. As a result, dollar-cost averaging with ETFs can be impractical.
There’s no perfect solution to this problem, but a reader in Regina explained that he’s come up with a compromise, and I think other ETF investors might consider adapting it to their own situation.
Donald has $65,000 in his RRSP, and he’s using iShares and Vanguard ETFs to achieve the following asset allocation:
Emerging markets equity
Donald and his wife recently paid off their mortgage and he’s now planning to supercharge his savings by contributing $2,000 a month to his RRSP.