Your Complete Guide to Index Investing with Dan Bortolotti

Comparing the Costs of Index Funds and ETFs

2017-12-02T21:20:17+00:00July 30th, 2012|Categories: Discount brokers, ETFs, Index funds|Tags: |128 Comments

[Note: This post was updated in May 2014 when the ING Direct Streetwise Funds changed their name to the Tangerine Investment Funds.]

The growing popularity of index investing has a lot to do with the increasing number of ETFs available, and that’s largely a good thing. ETFs generally have lower management expense ratios (MERs) than index mutual funds in Canada, so they are usually the best choice for large portfolios, especially if you make infrequent lump-sum contributions.

But ETFs carry additional costs that are often ignored by beginning investors. Trading commissions are the most obvious: it typically costs $10 to buy or sell ETFs, while index mutual funds can be traded for free. (Some brokerages do offer a limited selection of commission-free ETFs, and a few independents offer trades for less than $10.)

Are index funds or ETFs right for you?

All of which is to say that as marvelous as ETFs are, they are often inferior to index mutual funds for investors with small accounts. My rough minimum for using ETFs is $50,000, but the actual cut-off varies a lot depending which specific ETFs or index funds you use, the commission charged by your brokerage, how many trades you make, and whether the brokerage charges an annual account fee.

To help you make this comparison yourself, I’ve built a spreadsheet you can download here. You can fill in the each of the yellow cells according to your individual circumstances and it will calculate the total annual cost of several different options. I have pre-programmed the spreadsheet with three versions Global Couch Potato as well as the Tangerine Balanced Portfolio, which has the same asset allocation. You can customize it any way you like, but be careful not to mess up the formulas.

If you’re an investor who focuses only on MERs, you’ll be surprised at some of the results. For example:

  • If you’re investing $50,000 in the Global Couch Potato and plan to make 12 ETFs trades annually at $9.95, the TD e-Series funds are a less expensive option.
  • If you plan to make quarterly ETF trades (16 per year) then even the RBC index funds are essentially the same cost for balances up to $30,000. This is why ETFs are often inappropriate if you’re building a balanced portfolio in a TFSA or RESP, since these accounts are unlikely to be larger than that.
  • For small accounts, many brokerages charge an administration fee. If you assume a $50 to $100 annual fee, then the Tangerine Investment Funds become appealing for accounts under $20,000 or so, despite their 1.07% MER. In many cases they are cheaper than the ETFs and the RBC index funds, and while it may be slightly more costly than the TD e-Series funds, it is far more convenient for new investors.

Download the spreadsheet and give it a try. Compare your own portfolio’s costs to the Global Couch Potato options, being sure to include all trading costs and account fees.


  1. Ruane December 2, 2014 at 11:38 pm

    Hi Couch,

    I’m sorry to ask this question so long after the blog post.

    I’m confused about your spreadsheet…you’re showing an annual account fee of $100 for all the options except the Tangerine balanced fund. Where is the $100 number coming from? I keep looking at the TD website at the e-series fund and can’t find any mention of an account fee – what am I missing?

    PS I’m an investment newb who just discovered your blog. <3 Thanks


  2. Canadian Couch Potato December 3, 2014 at 9:37 am

    @Ruane: Welcome aboard. :) TD Direct Investing has a $100 annual fee on RRSPs unless the account is at least $25,000. See page 6 of this brochure:

    Note, however, that you can open a “Basic RSP” for just $25 and this will give you access to the e-Series mutual funds, but not ETFs.

  3. Ruane December 3, 2014 at 10:13 pm

    Wow, fast response. Thanks – very helpful.
    I will call TD to ask about it (maybe it’s not an option?), but am I crazy to read that document to mean that if I used a TFSA to invest in an e-series fund, I wouldn’t pay that fee at all?

  4. Canadian Couch Potato December 4, 2014 at 9:00 am

    @Ruane: Yes, most brokerages do not charge a fee for TFSAs, even if they are small. This is probably holdover from a few years ago when the contribution limits prevented anyone from having more than $5,000 or $10,000 in the account.

  5. George December 15, 2014 at 7:11 pm

    Hi, great website – I’m a huge fan! Quick question, my father’s workplace covers all expenses, apart from the MER if my father invests with Manulife. Currently, all of his money sits in:

    Is the MER actually 0.086%? Or am I missing something?

  6. Canadian Couch Potato December 15, 2014 at 8:44 pm

    @George: Thanks for the comment. It’s possible to have funds with MERs that low if they are held in an employer-sponsored RRSP plan. The employer may pay Manulife for the administration of the plan as a benefit to the employees. I would suggest your father contact his HR department to verify this.

  7. George December 16, 2014 at 1:18 pm

    Thank you for your prompt reply CCP! You really are a hero!

  8. aj January 25, 2015 at 4:21 am

    Why do you recommend not to buy ETFs if you don’t have more than $50,000 in it?

    Questrade for example doesn’t charge to buy ETFs. I from what I understand on this blog, we should be buying, not selling ETFs.

    So if I make 12 trades (just purchases I assume?) then it’d cost $0?? I’m I missing something?


  9. Canadian Couch Potato January 25, 2015 at 8:50 am

    @aj: If cost is the only factor you’re considering, then commission-free ETFs clearly have the advantage. But it’s not the only factor. This may help:

  10. Shannon February 16, 2015 at 3:28 am

    I have a portfolio of approx. $135k in the four basic e-Series funds. At this point, I am thinking of diversifying into other asset classes, which I understand will need to be done via ETFs, since e-Series lacks small-cap offerings, for instance. However, since I already have the e-Series, my thought was to leave them alone for my core asset classes, and just buy ETFs with new money. What is your opinion of having a mixture of e-Series and ETFs?

  11. aj July 17, 2015 at 3:20 pm


    I notice that the couch potato ETFS in the spread sheet on this page are different on the ones in your other link.

    Vanguard FTSE Canada All Cap VCN
    Vanguard US Total Market VUN
    Vanguard Canadian Aggregate Bond VAB

    VS under ETFs. You only offer the Vanguard ETFS

    Vanguard Canadian Aggregate Bond Index ETF VAB
    Vanguard FTSE Canada All Cap Index ETF VCN
    Vanguard FTSE All-World ex Canada Index ETF VXC

    which is the recommended couch potato one?

  12. Canadian Couch Potato July 17, 2015 at 3:40 pm

    @aj: There is no single recommended portfolio: either of these options is just fine. VXC did not exist in 2012, but it’s now a good choice for getting US, international and emerging markets in a single ETF.

  13. CMB August 5, 2015 at 5:19 pm

    Would now (Aug 2015) be a good time to set up the Vanguard ETF (VAB)- VCN) – and (VXC)?
    or wait for a correction, and then jump in?

  14. My August 16, 2015 at 4:54 am

    Dear CCP,

    I am a newbie to investing but would want to invest my savings on index funds. Ive got CAD$35K on my combined RRSP/TFSA and US$20K on a savings acct.

    I opened a TD waterhouse account as they were the only Canadian brokerage I found that allowed me to invest in US. I do not want to convert them. However, I dont even know where to invest them just yet. Any ideas?

    The RRSP/TFSA is definitely for long term investment while the US dollars-Im not very sure yet.

    I just need your advice on whether I should go ahead with ETF’s or should I just stick with E-series? I was even thinking of doing both. I would invest RRSP on e-series with monthly contribution, and invest on ETF’s with my TFSA (with q6months contributions and yearly corrections).

  15. Canadian Couch Potato August 16, 2015 at 9:42 am

    @My: I can’t advise you on how to invest your money: it depends entirely on your goals. But in terms of the products, you could indeed use a combination of e-Series funds with the CAD and US-listed ETFs with your USD. Even if you decide to contribute the USD to one of your registered accounts you would not have to convert it.

  16. Brad September 15, 2015 at 10:56 am

    With your calculations you are only considering the annual cost. After a couple years the money invested in an ETF is paying 0.5% less in expenses per year than an index fund. These values will rapidly add up and make the $10 trade commission negligible even on trades of $1000.

  17. Sandy May 10, 2016 at 12:59 pm

    The Canadian equivalents of Vanguard and iShares ETFs are so thinly traded–isn’t that a bit of a negative?

  18. Canadian Couch Potato May 10, 2016 at 7:39 pm
  19. Rahim August 3, 2016 at 7:59 am

    @CCP: I think I may have found a “loop hole” for investing in ETFs with small accounts. I just signed up for a Scotia iTrade account, who as you know offers commission free ETFs. I already invest in index funds through TD’s e-series (RRSP) and have amassed $50k and plan to continue investing here, but wanted to start to use my untapped TFSA. With $1000 to invest, I learned that I could BUY commission free with Scotia iTrade — and because it’s a TFSA account, there are no account or admin fees at all. As long as I’m a buy and hold investor (which I am), I can buy on a regular basis (ie. biweekly) and not have to worry about commisions, trading or account fees. This is a win-win for me. I can keep investing in the TD e-series for my RRSP but can now dabble with ETFs (especially in fund types not available through e-series such as REIT and utilities like water ETFs) using Scotia iTrade via a TFSA account. All in all, I prefer the index mutual fund approach using TD’s e-series funds but now am able to whet my appetite with ETFs as a small portion of my portfolio.

    Any thoughts around this? I wasn’t sure if you or your readers were aware of this option.

  20. Canadian Couch Potato August 3, 2016 at 8:24 am

    @Rahim: This all sounds fine. Similar commission-free ETF options are also available through Questrade and a couple of other brokerages. They can indeed give you an opportunity to get comfortable with ETF trading with small amounts until you are more comfortable. I would advise against giving in to the temptation to expand your portfolio beyond the basics. No portfolio needs to dabble in water ETFs.

  21. GG September 8, 2016 at 10:10 am

    My problem with this piece is you’re not mentioning time, you are only mentioning many trades, and you are not mentioning questrade with no yearly fee.

    Add another paragraph considering someone who buys an index ETF 1-4 times per year and holds for 20 years, and compare that to the lowest MER mutual fund you can find purchasable in a bank branch. The spread will be hundreds/thousands of dollars if they’re investing thousands per year.

    I find your 3 conclusions to be cherry-picked.

  22. Heather October 31, 2016 at 12:21 pm

    I agree with GG about not mentioning the Questrade fees. If it’s free to buy ETFs with Questrade, and their ETFs have about 0.3% lower MERs, wouldn’t Questrade always win in the debate over which platform to use??

    Very interested in your response. Your articles are always well written.

  23. Canadian Couch Potato October 31, 2016 at 12:37 pm

    @Heather: If you only look at costs when making the decision, then commission-free ETFs will always be cheaper. But there are other factors to consider:

  24. milly January 30, 2017 at 7:01 pm

    I know this is an old thread. I was just wondering about the spreadsheet. Is the amount invested (cell B4) the amount per year or in total?


  25. Canadian Couch Potato January 31, 2017 at 9:32 am

    @milly: It’s the total amount you have to invest right now. The spreadsheet will then calculate the MER on the funds for that amount over one year.

  26. wes March 27, 2017 at 2:22 pm

    you dont mention trading with quest trade on here at all. Tangerine and rbc etc. How does everyone feel about questtrade? I have heard good things and I would be wanting to buy etc and index funds . I also would not mind throwing a few 1000 in some single stocks or someting also ? Thoughts please ?

  27. SD June 26, 2018 at 4:29 am

    From the comments, I learned that ETF’s have an ECN fee, which isn’t taken into account in the spreadsheet. Can I ask why that it? Is it because these fees are so minimal that it doesn’t really matter?

  28. Canadian Couch Potato June 26, 2018 at 8:04 am

    @SD: ECN fees apply only at a small number of brokerages and they are generally insignificant. I would not consider them a meaningful factor in the ETF v. mutual fund decision.

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