Q: “I currently have $30,000 invested in the TD e-Series funds. When the time comes to move to ETFs, what is the best way to do this while still making automatic contributions? Should I put my biweekly contributions into a money market fund and then make ETF purchases four times per year?” – C.D.
Too many investors think of the TD e-Series funds as little more than a stepping stone, and they can’t wait to “graduate” to ETFs. The appeal is understandable, since a portfolio of ETFs will typically carry a management fee of about 0.15%, compared with about 0.45% for the e-Series funds. But when I get this common question, I encourage the investor to think carefully before making the leap to ETFs, especially if their portfolio is small and they’re making automatic contributions.
For starters, management fees don’t tell the whole story. Index mutual funds are more investor-friendly than ETFs, and while the cost difference can be dramatic on large portfolios, the gap is narrower on smaller accounts. A fee difference of 0.30% shaves off just $30 annually per $10,000 invested, and that will be reduced—perhaps eliminated—by $9.95 trading commissions, bid-ask spreads, and the drag caused by uninvested cash.
More important, the benefits of an automated savings plan are likely to trump a modest reduction in management fees. Sure, you could keep contributing cash to the account and make a few manual trades every quarter or so, but I have seen this type of arrangement turn a disciplined investor into a market timer. When it comes to make those quarterly purchases, it’s easy for doubts to set in: “Should I really buy more Canadian equities now, when the economic news is so grim? Do I want to add more to this bond fund that seems to be falling in value?”
When you make automatic contributions and then rebalance only once or twice annually, you’ll make fewer tough decisions.
Testing the waters
Of course, if you can overcome these obstacles, there are indeed many advantages to using ETFs, especially as your portfolio gets larger and more complex. So if and when you decide to move away from the e-Series funds, here’s a strategy I’ve recommended for several DIY investors: start by switching to an ETF for your bond holding only, while continuing to use e-Series funds for your equities.
This makes sense for many reasons. First, your bond fund is probably your largest single holding, representing 40% or 50% of a balanced portfolio, so this one move will make a big impact. The e-Series version of the TD Canadian Bond Index Fund has an MER of 0.50%, which is expensive in this era of low expected returns on fixed income. Replacing it with the Vanguard Canadian Aggregate Bond (VAB) or the iShares High Quality Canadian Bond (XQB), which have fees of just 0.13%, would quickly reduce your portfolio’s cost from 0.44% to 0.29% (assuming a 40% target allocation for bonds).
Now that you have one ETF in your portfolio, you can get familiar with trading techniques. If you’ve only used mutual funds in the past, it takes a while to be comfortable reading ETF quotes, calculating the number of ETF shares to buy or sell, and placing limit orders properly. If you’re used to managing your portfolio on the weekend or after work, you’ll need to start trading during market hours and understand that your orders will be filled immediately rather than overnight.
Limiting all of this activity to just a single bond fund will reduce your stress and the likelihood of making a significant error.
Staying regular
The other benefit of this hybrid strategy is that it allows you to continue with your regular monthly contributions—though you will need to make an adjustment.
For example, let’s say you’re using a balanced portfolio of e-Series funds in your RRSP, with 40% in bonds and 20% each in Canadian, US and international equities. You’ve set up an automatic contribution of $500 a month and a systematic investment plan that puts $200 into the bond fund and $100 into each equity fund. If you switch to an ETF for your bonds, you can keep adding $500 to the RRSP and continue the systematic purchase of $100 of each equity fund. But the $200 that used to go to your bond fund would now just sit in cash.
You can add the cash to your bond ETF once or twice a year if necessary, and pay TD’s usual $9.95 commission. In any period where stocks happen to fall in value, however, you could also add the cash to your e-Series equity funds to rebalance your portfolio at no cost. This can reduce your costs and the amount of guesswork compared with an all-ETF setup.
During the transition, count the idle cash as part of your fixed income: if your target allocation is 40% bonds and you’re holding 36% bonds and 4% cash, that’s fine. Sure, there is some opportunity cost to sitting in cash rather than being invested in bonds, but it’s likely to be modest. With the expected return on a broad-based bond fund at barely 2%, you’re not missing out on much by having a couple of thousand dollars out of the bond market for six or 12 months.
See how this goes for a year or two: after that, go ahead and switch to an all-ETF portfolio if you’re comfortable. If you decide it’s not worth the extra work, just sell your ETF and go back to using the e-Series bond fund. You can try again in the future, but don’t feel compelled: you’re not settling for a second-rate solution. On the contrary, chances are you’ll execute your plan more consistently than many ETF investors, and you may even wind up with better returns as a result.
Very good advice. The article just came 6 months too late for me (moved everything from e-series to a 4 ETF portfolio), but it makes a lot of sense.
The big thing that has kept me from switching from e-Series equity funds to ETFs is volatility. If I sell my e-Series shares today, it usually takes a couple of days before that money appears in my available cash. Then if I use that cash to buy an equivalent ETF, I run the risk that the market will have risen in the intervening time, meaning I can’t buy as many shares with the money I have available. That could more than negate the savings in MER, at least for a few years.
Of course, the market could just as easily decline during those two days, which would be great, but it’s a gamble.
I could sell off my e-Series shares more gradually to spread out the risk, but that means more ETF purchases–each of which costs me $10.
Is there another solution I should consider, or am I worrying too much about this?
@Brad: I think you’re probably worrying too much, but you could replace one equity fund at a time (Canada one day, the US another, and international on a third day) so you are never 100% out of the market.
Im just getting into TD e-series funds now, what do you think about having more value in the US Index, considering the state of Canada’s economy, as you mentioned, + international woes; China, Japan, Europe..? E.g. “Balanced” portfolio would be:
40% Canadian Bond Fund
10% Canadian Index Fund
30% US Index Fund
10% International Index Fund
What would you suggest in place of the regular index fund purchasing that is possible with the e-Series funds, for example? I understand one should limit ETF purchases to once or twice a year to avoid having to pay the commissions unless the portfolio is very large. If larger contributions are made regularly, that could potentially leave a large amount of money sitting in a money market fund while waiting for the annual/semi-annual rebalancing.
One strategy I have contemplated is continuing with the regular contributions and purchasing the equivalent index funds while waiting for that annual/semi-annual ETF purchase to not lose out on any opportunity cost compared to having the money sit in a money market fund, not to mention the disproportionate weighting on the fixed-income portion of the portfolio. While in a registered account, there is no fear of facing capital gains (or losses), do you think this strategy would be effective in an unregistered account considering any gains/loss will have tax implications?
I’ve found that to avoid becoming a market timer with my ETF-based portfolio, I’ve had to automate almost all decisions with a spreadsheet. This spreadsheet even emails me when I have to take some action. Without this automation, it’s very easy to delay actions for emotional reasons. I can see the e-series solution working out better for many people, even with larger portfolios.
It’s possible to use ETFs right from the beginning, but you have to keep emotions out of decisions, and you have to let go of having exact percentage allocations. My son just waits until his cash level gets to a threshold and he puts it all in the ETF furthest below it’s target. This often drives this ETF allocation over its target, but that will get corrected in future purchases. This approach has been workable for my son, but I’m not sure it would work for most people.
As far as regular contributions go, what has worked well for me is to set up bi-weekly deposits to a designated savings account at my bank (credit union), timed with my paycheques. Every two months (6 times per year), I transfer the entire amount from that account to my online broker account to make my ETF purchase, buying whatever segment is furthest below target allocation, rebalancing at least once at year. For me, six times a year seemed a reasonable balance between excessive trading fees vs. keeping too much cash sitting idle. I use qTrade, so the trades are not free.
I use both the 3 ETFs and the 4 e-series mutual funds with a pretty simple spreadsheet. I rebalance with my monthly contributions and ETF dividend payouts. Usually I just buy the most out of whack e-series funds. If allocations get really far off I’ll do a switch from one e-series fund to another. But this is a pretty rare occurrence.
Then, when the mutual fund balances are substantial enough I’ll move some money out of them into the ETFs. I still muse upon what that amount is. I seem to have settled on 15K per mutual fund. I’ll move 10K out to the corresponding ETF leaving 5K in the e-series in case I do have to do some kind of rebalance. This is a pretty rare occurrence and usually corresponds to other large lump sum contributions that might be happening (depositing the tax refund each year for example)
Seems to be the best of both worlds, but perhaps overthinking it a bit too. I suspect my 15K threshold could be substantially larger without losing much benefit.
This whole thing about commissions does not apply to many of us.
Questrade has no fees for ETF purchases.
VZ, I’m curious, if Questrade doesn’t charge for trading, how do they make money? Is there a monthly subscription charge?
I follow a strategy very similar to Dean.
I use a TD Waterhouse direct trading account to hold both ETF’s and e-series funds. I keep approx 5-10% of my portfolio in e-series funds since it essentially allows zero cost rebalancing by switching among the various e-series funds instead of buying/selling ETF’s.
TD Waterhouse also allows automatic weekly contributions which I use to periodically purchase more e-series units.
Every few years I sell off the e-series to purchase ETFs, but only when there is $20k or so accumulated.
Another nice advantage to this approach is that leftover ETF dividends can be used to immediately purchase new e-series units so that you’re never sitting on uninvested cash
@Michael: Questrade charges commissions to sell ETFs, so they make money there. It works well for regular contribution (you can buy your underweight ETFs monthly commission free) then re-balance annually (if needed) only payment one set of commissions per year.
I have a question for people using e-series funds, or mutual funds in general: most of them have a penalty if you holdings of a fund within a certain amount of time after buying it. I think 30 days is common. E.g. if you buy some shares of a fund one day, then sell it less then 30 days later, they apply some penalty to the sale (I have 20% in mind). This is to discourage rapid trading in funds, which is IMO a good thing.
My question is, if you sell off part of the fund to do some rebalancing, do they assess the penalty on the newest contributions first or oldest? E.g. let’s say that today you want to sell $1,000 of you TD Bond Index fund holdings. In the past 30 days you’ve put $2,000 into that fund. But 31 days ago you already had $10,000 in it. Do they look at the $2,000 from the past 30 days and say you’re selling some of that early and apply a penalty? Or do they look at the older $10,000 and say you’ve got an amount of holdings older than 30 days that is more than you’re currently selling so no penalty?
FYI, this question is basically about rebalancing TD e-series funds: I contribute automatically every two weeks and I need to rebalance for the first time ever, and I’m wondering do I need to stop contributing for 30 days to the funds that need to be sold to avoid this penalty.
Thanks.
Simon, my experience is they sell off the oldest units first. So as long as you are not selling off any units you’ve actually bought in the last 30 days you should be fine. I too buy every two weeks or so, and have never been hit with an early redemption penalty.
@Simon: Early redemption fees on mutual funds are discretionary: they are usually there to discourage short-term trading, not rebalancing. And if you do a “switch” order from one e-series fund to another to rebalance you won’t ever be assessed any charge. If you are ever assessed these fees, call TD Direct and ask them to refund them.
@Dean: I do the same as you – regular contributions go in to e-series funds and then based on some threshold I roll out of the e-series fund and in to the lower MER ETF. That usually happens about once per year per asset class for me, but I don’t really keep track. For me the e-series or ETF question is not an either/or proposition. The gotchas are the minimum holding periods on the mutual funds and also TD does not like you to buy and sell the same fund within about a month.
@Brad: You can sell your e-series funds and use the proceeds to buy ETFs in the same day. Both have the same settling period. However you need to do it over the phone because the website won’t recognize the proceeds from the sale of the mutual fund on the same day (price isn’t set until end of the day). In my experience most traders will do this for you at the web commission rate if you ask. You have to sell a dollar value of the mutual fund, not a unit value. That way they have a pretty good idea of what proceeds you’ll be getting.
If someone already has an automatic contribution plan set up with e-funds, IMO it usually makes sense to keep it as-is. Then simply wait until you have a large amount built up (say 20 or 30k) and dump it all into ETFs – aside from any purchased in the past 30 days, to avoid being hit by an early redemption penalty. Keep the automatic contributions going though, and next time you hit your target amount in e-funds, again just liquidate it into ETFs and repeat.
If you like, you can work out about how long it will take to hit – say – 25k given your contribution amounts, and set a recurring calendar reminder every however many months or years that is to dump the balances into your ETFs. You can take that opportunity to rebalance as well, of course.
The simplicity of automatic contributions is great. This way you only have to manually intervene very infrequently: every year or two, say. And you still get the benefit of low-expense ETFs.
@Simon
Recently, I reluctantly moved (loved eseries but was paying few hundred dollars more than etfs every year) eSeries portfolio to ETF. Some of those invesments were less than 30 days but TD didn’t charge a dime.
@Nathan
Doesn’t selling your e-series balances every year cause a capital gain and immediate tax hit? I’d rather just invest in ETFs in the first place and only realize the capital gain many years from now when I absolutely have to.
@ Anthony
As a self-directed investor, you should focus on long-term prospects, not shorter-term concerns as you describe. It can’t be predicted with certainty which market will outperform over the short-term or long-term. How many people predicted the Canadian equity rally in 2016, for example?
Search Dan’s archives regarding home bias.
This infographic is useful
https://www.vanguardcanada.ca/advisors/articles/research-commentary/investing/home-bias-canadian-investor.htm
Overall, your current approach is 12% overweight Canadian equity as opposed to Dan’s 30% overweight Canadian equity likely won’t have significant volatility effect on your portfolio.
If you’re following a couch potato strategy, the most important issue, as the posters above mention, is keeping a consistent approach over the long term to avoid behavioral mistakes that reduce an average investors returns by about 1.5%.
Good luck with your investing.
I jumped straight into ETFs using VB as it seemed too much of a hassle to use e-series (read that TD people would try to sell another of their product and make it difficult for me).
-I had to remember when the markets open/close
-Learned that I buy a ‘share’ and not ‘$50’ of VXC
-Keep getting dinged for inactivity fee
-$1 fee for using their app to buy/sell
-Happy about their free to BUY (only have to pay to SELL)
~~~
Regarding this ‘graduation’, Why not just have any money above 30k be using ETFs instead of selling all the e-series and then moving it over? Cant that be another transition method? Kinda like rebalancing by only buying more instead of sell then buy.
You’ve recommend not to begin ETFs as a novice investor or as an individual with less than $50,000 to contribute. But even if you have a wee little portfolio of $10,000, what is the harm in purchasing three or four index ETFs and letting them sit for 15-20 years, and maybe/maybe not re-balancing annually? Is this an unrealistic picture?
@Rachael: No advice will apply to everyone, but I generally assume investors will be saving throughout their lives, not making one small lump sum investment and holding it for 20 years. The situation you describe, I think, is extremely unusual.
Good article. I was curious about the actual historical performance, say, for the last 10 years. How has a portfolio of TD e-series mutual funds performed versus an “equivalent” portfolio of ETFs? I wonder if you factor in the MER/management fee difference, commissions, bid/ask spreads and tracking errors, what was the historical break-even point (in portfolio dollar size) where ETFs made more sense than e-series funds? I’m sure a lot of assumptions are needed for this analysis! :)
@Bobby: The historical performance of the e-Series funds are available on my model portfolios page. You can compare these to the model ETF portfolios on the same page, but keep in mind that the ETF performance is partly hypothetical because the funds have not been around as long. It’s also important to note that the ETF portfolios include emerging markets, while the e-Series do not. The ETF performance numbers also assume no trading costs:
https://canadiancouchpotato.com/model-portfolios-2/
Overall, I think it’s fair to say that a well-executed ETF portfolio is likely to outperform because of the lower fees. But it is significantly harder to manage an ETF portfolio properly, so in practice that advantage can easily disappear.
@Erik
I appreciate the reply, going thru the archived articles like you suggested, very informative stuff. I’ll probably just stick to the even split across the 3 indexes as suggested. Thanks.
Great advise as always. I couldn’t decide between the two approaches so went with both: In my RRSP I have the CPP E-series and in my TFSA I have a Money Sense ETF portfolio. Both have the four asset groups with a 25% split. (the ETF is slightly different as I incorporated emerging markets at 3%)
I must say the Eseries convenience outweighs the cost in my opinion. With the advantage of setting up a monthly contribution plan, a SIP and with no commissions for trading, I can literally ‘set it and forget it’ ..only adjusting once a year or if one of the asset groups deviates by 5%.
Another great post Dan.
Personally I think the method Dean described would be a good option for people the majority of investors who have a low enough savings rate such that their regular contributions are in tax deferred accounts. But if your savings rate is high enough that a significant amount has to be going into taxable accounts then it makes more sense to buy ETFs right off the bat for two reasons (1) to avoid capital gains from switching, and (2) the contributions should be large enough that the commissions are small on a percentage basis.
One thing that doesn’t seem to have been mentioned is that tdb 911 is lower cost (when including foreign withholding tax) (registered and non) than both I shares and vanguard, not to mention free trading when with TD. If I remember correctly only BMO zea was cheaper. Is this info still correct? I have not transfered out of the fund for this reason.
Also, I wondering how the new TD etfs are going to work? Perhaps a core selection will be free to buy?
@phil
XEF from iShares holds the equities directly now. avoiding the second foreign withholding tax.
https://www.blackrock.com/ca/individual/en/products/251421/ishares-msci-eafe-imi-index-etf
Vanguard released a new product VIU, which also holds the equities directly.
https://www.vanguardcanada.ca/individual/mvc/detail/etf/overview?portId=9569&assetCode=EQUITY##overview
Dan wrote about VIU last year.
https://canadiancouchpotato.com/2015/12/11/decoding-vanguards-new-international-equity-etfs/
I recently moved three TD e-series accounts over to Questrade and similar concerns as above. I wanted to share my experience and lessons-learned to help out anyone thinking about doing the same. First off, you cannot simply move your e-series funds over to Questrade as the e-series funds are proprietary to TD accounts. Since I did not want to be out of the market too long for fear of market volatility I decided to switch all my e-series funds to their i-series equivalents which then can simply be transferred `in kind` over to Questrade. This switch to i-series funds is done easily online at no cost to you and is completed overnight by TD (if submitted before noon est.). After completing this I then requested in my Questrade account an `All in kind` transfer of these funds from my TD account to Questrade account. For me, this request was completed in about a week but according to Questrade’s website can take up to a month. Nevertheless, this is a `in-kind` transfer I am still in the market the whole time. Once the mutual funds arrived in my Questrade account I then sold them which took another couple of days. Then after receiving my funds from the mutual fund sale I then simply purchased my ETFs according to my desired portfolio mix.
The first lesson I learned form going through this process was that Questrade charges a flat $9.95 fee for the sale of EACH mutual fund. Therefore, the second time around instead of moving all my e-series funds into their equivalent i-series funds I moved all my e-series funds into a single balanced i-series fund (I used TDB300 – TD Managed Index Income Portfolio – I, but any fund available to Questrade matching your portfolio mix will work). This ended up saving me $100+ dollars in transaction fees in my next accounts. Finally, if you’re closing out your TD account after the move there is a $75+GST fee that Questrade will reimburse you for (after 3 months). Don’t forget to request that I simply set a calendar alert to remind me. In the end the process make look long and daunting but with a little planning and some well placed calendar alerts it really was not. Here is a summary of the steps I took:
1) Move e-series funds to single balanced i-series fund
2) Submit transfer `All in kind` request to Questrade (Day step 1 is complete)
3) Sell Mutual Fund in Questrade after it arrives (1 week to 1 month after step 2)
4) Purchase ETFs after sale of mutual fund complete (1 to 3 days after step 3)
5) Request account TD account fee rebate from Questrade (3 months after step 3)
Hopefully this helps someone in the future,
Cheers,
Jason
This is very timely because my CCP is finally large enough to consider doing this in my non-registered account–moving from eSeries to ETF. I’m still not sure whether it makes a huge difference–about $300 on $100K and the mutual funds easily swing far more than that value that every single day.
I was always under the impression that if you sold x shares in a fund and immediately purchased x shares of the exact same fund in a different container (account), that you didn’t have to pay capital gains? Though I’d probably worry about trying to calculate the true capital gains years later–trying to factor in the value before and after the move.
Also wondering, It’s just a matter of opening a TD Direct Investing account to get this ETF ball rolling, right? That’s what the “Model Portfolios” page seems to imply.
@Anthony
That sounds like a reasonable plan.
If you’re learning more about index investing and you haven’t seen it yet, I would recommend viewing Dan’s video from the Retire Rich 2014 conference, which talks the investing process. It’s the best 30 minute video that I have come across.
http://www.moneysense.ca/save/retirement/retire-rich-dan-bortolotti-on-index-investing/
@Jason: This is great advice: many thanks for sharing.
@Edward: RE: “I was always under the impression that if you sold x shares in a fund and immediately purchased x shares of the exact same fund in a different container (account), that you didn’t have to pay capital gains?” Definitely not true. If there is a gain on the fund in a taxable account, you would be responsible for reporting it. Moreover, if there is a loss and you buy back the same fund (even in another account, including an RRSP or TFSA) you would not be able to claim that capital loss.
RE: your last question, I’m not sure I understand it, but the implicit idea in this post was that the investor already had a TD Direct account open to hold the e-Series funds, so switching to ETFs would not involve any new account openings.
I have been wondering about the benefit of using eSeries vs ETFs for smaller accounts as well. As VZ pointed out, customers of Questrade and other discount brokerages pay very little fees for buying ETFs (they do charge a couple of pennies if you don’t buy a full lot or something like that). Given that, are there still convincing arguments why one should use eSeries instead of ETFs if your account is under 50k?
2nd question:
In my own case, I am using such an account and automatically pay into it but I make the final decision of which stock to buy (rather than automating it) based on the portfolio percentages at that time. So I rebalance by purchasing more of a particular holding rather than selling off one. It seems in my mind that this is more of a true “buy and hold” but I am wondering if there are major downsides to this compared to doing an annual sell-some-and-buy-others style of rebalancing?
What is your advice for including a dividend-specific ETF as part of the Vanguard ETF portfolio? Can you include a CDZ, ZDV, or VDY and still have a couch-potato mentality?
Thanks
TD should allow free purchase of their own ETF lineup at TDDI to gather AUM… I would switch my kids RESP account ASAP if they did.
@Rachael
Dan, and the commenters below, addressed this question a bit in an earlier article.
Overall, a dividend specific ETF may assist someone investing in a taxable account requiring a monthly income who is in a lower tax bracket.
https://canadiancouchpotato.com/2014/05/01/the-high-cost-of-high-dividends/
Dan also posted a dividend investing series a few years ago, coming to the conclusion that for many investors a dividend-focused strategy doesn’t seem to offer more benefits than a total return-focused strategy.
https://canadiancouchpotato.com/2011/01/17/when-does-a-dividend-strategy-make-sense/
Dan has also written about the problem of some of the dividend ETFs being very sector concentrated, advocating combining them to balance this out.
https://canadiancouchpotato.com/2011/09/20/balancing-your-dividend-holdings/
Hope that can steer you in the right direction.
Just noticed that the Recommended Funds page was updated in the last few of days, and appears to have removed the non-e-Series index mutual funds (RBC/Altamira). Is there a reason for this removal? Possible to get those back, or a link to an archival version of the Recommended Funds?
I’m just about to implement a strategy where I use one or two of the non-e-Series index mutual funds to collect my twice-monthly contributions and then transfer them to the ETFs annually for long-term growth (RRSP). I’m not switching to TD, so I was keen on reviewing the recommendations for non-e-Series index mutual funds.
@Gavin: I removed these funds in an effort to focus on the ones I would genuinely recommend. The I-Series and RBC/Altamira funds are really a second-rate solution.
You may want to consider making your twice-monthly contributions to a low-cost bond mutual fund and using ETFs for the equities. Once a year you can sell some of the bond fund units to top up the equities is necessary. Just keep in mind that the I-Series bond fund has a fee of 0.83%.
With regards to switching from eseries to an ETF in a registered account, does it matter if I sell at a loss?
For example if I sold TDB 911 (which uses the MSCI EAFE Standard index) at a loss and purchased XEF (which employs the IMI version of the index) am I essentially locking in losses or simply switching securities? What if I purchased VIU rather then XEF?
Same question for when it comes down to shifting Canadian equities to a non-registered account for tax purposes. If I sold TDB900 in my RRSP at a loss and purchased VCN in my non-registered with new money to free up tax sheltered room am I locking in losses or again, just changing securities?
I’ve always been curious about this aspect of switching from eseries to ETFs.
Also thank you so much for the great content. I feel like I owe you tuition by now for the fantastic education!
@JN: Thanks for the comment. Part of the answer depends on what you mean by “locking in losses.” If you are talking about capital gains and losses from a tax perspective, then this is not an issue in RRSPs, but it could be in non-registered accounts. But if you sold an e-Series fund in a taxable account in order to replace it with a ETF, then any loss or gain on the fund would need to be reported.
In registered accounts, this is just a behaviour issue. Many investors are reluctant to sell a fund that has fallen in price, even if they are planning to replace it immediately with a cheaper fund in the same asset class. This make no logical sense, however, as your market exposure remains the same.
The analogy I like to use is that if another car insurance company offers you the exact same coverage with lower premiums, would you switch, or would you say, “I don’t want to lock in the losses from the higher premiums I was paying before”?
@CCP: Fair enough re your own recommendations.
The MER on the TD I-Series Bond Fund made me think more about the NBC Canadian Index (0.66%) or the TD I-Series US Index (0.54%) that you used to have on the Recommended Funds. Not great, but not terrible for something that’s only going to ever have as much as my annual RRSP contribution limit in it (with an annual average balance of I guess half the contribution limit, since I just divide my contribution limit by the number of pay periods to produce the amount to auto-contribute).
I wondered about rebalancing with this strategy. Regardless of whether I go with bonds or equities for the mutual fund that collects my regular contributions, won’t there by a see-saw effect in terms of asset allocation? In other words, won’t I gradually become too heavy on bonds (for example) over the year until rebalancing time? And when I rebalance, should I truly “balance” for my target asset allocation, or under-balance the bonds because I know for sure that it’s going to get all my contributions over the year? Maybe it doesn’t ultimately matter for amounts under 20K over the course of a year?
@Gavin: Have a look at low cost balanced mutual funds for your regular contributions. I use TDB965 for my monthly RSP contributions, and also to invest ETF distributions until I rebalance. It’s not super cheap, and has a higher fixed income (48%) than I would like but it keeps funds invested that would otherwise languish in cash.
https://canadiancouchpotato.com/2010/09/27/under-the-hood-td-balanced-index-fund/
https://www.tdassetmanagement.com/fundDetails.form?fundId=2099&lang=en
The timing of this article is perfect. I just maxed out my TFSA using e-series funds. I was thinking of transferring my holdings to ETFs but now I’m wondering if it’s worth it based on the above comments. Are ETFs really that much harder to purchase and manage? Also, when/if I do purchase ETFS, does the trading commission come out of the fund itself or do I have to hold cash in the account to cover the balance?
@Brodie: Sounds like the hybrid approach I suggest here is the best way for you to answer the question about whether ETFs are harder to manage. To answer your other question, you need to cash in the account to cover the commission when you buy an ETF. For example, if you have $5,000 in cash, your ETF shares can only total $4,990 so you will have the $10 to cover the commission.
I’m pretty new to the world of investing but did a lot of reading on this blog and others and decided to open an account at Questrade to start investing in ETF’s instead of going with an TD e-series account.
I opened an RRSP, RESP and TFSA at the same time and put 5,000 in my RRSP and RESP and 5,500 in my TFSA. I avoid paying the annual fee for the RESP account since I have a total of over 15,000 in all my accounts.
I bought the same ETF’s in each account (Vanguard VAB, Vanguard VCN, Vanguard VUN, ISHARES XEC and ISHARES XEF) following the couch potato strategy (PWL Model ETF portfolio).
I plan on making only 1 lump sum payment in each account every year in the future and use the fresh money to “rebalance” my portfolio’s. I guess I avoid paying any fees since I don’t have to sell any shares? (This might no longer be possible as my accounts will hopefully grow, however, that is still years away).
Is this a good strategy or am I missing something?
Not sure if I will be paying penalties sine I will only be “trading” once a year?
Thanks.
Just to expand on what Koen mentioned – I just discovered this last week – if you hold $15,000 + in any combination of TD Water House accounts they will waive any account fees.
I am thinking to open an account with Questrade to buy etfs. I already have e-Series funds with my TD bank account. In terms of security of funds and convenience of moving/transferring/withdrawing money, is Questrade is better choice over TD direct investing account. Any one who has been with Questrade for some time might share her/his experience.
I join Mike, VZ and others above: for long term ETF holders, who buy and won’t be selling for a long time and who will be using new contributions to rebalance, Questrade with no ETF purchase fee seems to make most sense compared to all other strategies, irrespective of the dollar amount invested. Doesn’t this make Tangerine and TD strategies obsolete?
I would appreciate any clarification on this if my math is wrong.