It was one of the great mysteries in the Canadian fund market: why had no one created an ETF version of the balanced index mutual fund?
These days you can find ETFs focusing on just about every sub-sector of the market, and a pile of others with active strategies that make particle physics look easy by comparison. Yet until last week, no one offered an index ETF that included a simple mix of global equities and bonds. That’s shocking when you consider the balanced mutual fund is a staple in the industry, with over $766 billion in assets as of December. That’s more than five times the assets held by all Canadian ETFs combined.
That yawning gap has now been filled with the launch of three new ETFs from Vanguard. The new family of asset allocation ETFs are built using seven other ETFs. The Vanguard Conservative ETF Portfolio (VCNS) holds 40% stocks and 60% bonds, while the Vanguard Balanced ETF Portfolio (VBAL) uses the opposite proportion. The most aggressive version, the Vanguard Growth ETF Portfolio (VGRO), is 80% equities. All three ETFs carry a very competitive management fee of just 0.22% (expect the MER, which includes taxes, to come in at about 0.24%).
The reaction to the launch of these new funds was swift and overwhelmingly positive. Indeed, they’re probably the most important new ETFs to be launched in Canada in the last couple of years. So let’s spend some time considering whether they’re right for your portfolio.
What’s under the hood
Each of the new funds is built from four equity and three bond ETFs: the only difference is the proportion allocated to each. You can find the specific breakdown in the ETFs’ marketing brochure.
Let’s look at the equity component first. The underlying holdings include the Vanguard FTSE Canada All Cap (VCN) and Vanguard U.S. Total Market (VUN) for North America. For overseas stocks, the funds hold the Vanguard FTSE Developed All Cap ex North America (VIU) for western Europe, Japan and Australia, and the Vanguard FTSE Emerging Markets All Cap (VEE) for China, Taiwan, India, Brazil and other developing economies. All of these underlying ETFs use plain-vanilla, cap weighted indexes of large, mid and small-cap stocks.
While my model portfolios assign one-third each to Canadian, US, and international equities, the Vanguard ETFs allocate things a bit differently. In all three ETFs, Canadian stocks make up 30% of the equity allocation, while the US gets about 38% and overseas stocks get the other 32%. The international allocation is then subdivided with 77% in developed markets and 23% in emerging.
On the fixed income side, the new ETFs use a mix of Canadian and foreign bonds. About 59% of the fixed income in each fund is allocated to the Vanguard Canadian Aggregate Bond Index ETF (VAB), with another 18% to the Vanguard U.S. Aggregate Bond (VBU), and about 23% to the Vanguard Global ex-U.S. Aggregate Bond (VBG). These latter two funds use currency hedging, which is essential for foreign bonds.
What to make of Vanguard’s decision to include US and global bonds? As I’ve written before, I’m agnostic on this question: since interest rates in foreign countries do not move in lockstep with those in Canada, a global bond allocation might reduce volatility, but the benefit is modest, and if you’re managing your own portfolio it’s not worth juggling three funds. However, if there’s no additional work or cost involved, then it’s probably just fine to include US and global fixed income.
Kudos to Vanguard for sticking to the core asset classes in these funds, for using traditional cap-weighted indexes, and for setting a long-term asset mix that won’t change based on economic forecasts. They could have tossed in their new factor-based ETFs, or dividend-focused funds, or given the manager a wide berth to tweak the allocations, but they didn’t. That was a wise choice, because trying to improve on this simple model is, in my opinion, one of the knocks against many robo-advisors, who can’t resist adding unnecessary asset classes that sound sophisticated but do little more than pile on cost and complexity.
The appeal of one-fund portfolios
A couple of years ago, my model ETF portfolio evolved to includes just three funds instead of five, as the launch of new “ex-Canada” equity ETFs allowed investors to get US, international and emerging markets in a single fund. These new Vanguard asset allocation ETFs makes life even simpler by rolling the whole portfolio into a single fund. That should reduce the number of trades you need to make, and remove the need to rebalance. (The fund literature is not specific about how often this will occur.)
There are other advantages to a one-fund solution as well. When your portfolio includes a different fund for each asset class, it’s easy to dwell on the individual parts rather than the whole. (“My portfolio returned 8% last year, but Canadian stocks didn’t do as well as international. Maybe this year I should put less in Canada.”) With a one-fund portfolio, you’re less likely to fall prey to these distractions and stay focused on the long term.
The new Vanguard ETFs are also much cheaper than other one-stop solutions, such as the Tangerine Investment Funds and robo-advisors. The obvious disadvantage of ETFs is that you usually pay a commission to buy and sell them, whereas index mutual funds and most robo-advisors don’t have trading costs. But if you’re now able to use only one ETF per account, you may still come out ahead even if you’re paying $10 per trade.
Consider the Tangerine funds, which are simple, convenient and well diversified, but carry a relatively high fee of 1.07%. A $50,000 holding in one of the Tangerine funds would carry an annual fee of $535. If we tack on a couple of basis points for taxes, the new Vanguard ETFs should have an MER of about 0.24%, giving that $50,000 holding an annual fee of just $120. Even if you spend another $10 per month on commissions your all-in cost would still be less than half as much as the Tangerine option.
The new balanced ETFs offer a similar cost advantage over robo-advisors, most of whom add an additional 0.50% fee to the cost of the underlying ETFs. One of the primary advantages of robo-advisors over do-it-yourself options is the automatic rebalancing, but now that this feature is built in to the Vanguard ETFs, the value offered by a robo-advisor is somewhat less than it used to be.
Not so fast
Since the ETFs were announced on February 1, my inbox has been bursting with emails from readers who want to know whether these funds have revolutionizing index investing in Canada. Many seem to think virtually every other option—Tangerine, the TD e-Series funds, robo-advisors, and even portfolios of individual ETFs—have become obsolete overnight.
Now there’s no doubt the Vanguard asset allocation ETFs will have broad appeal for investors who want to keep things simple without paying more for convenience. But before you liquidate your portfolio and go all-in with a brand new ETF, make sure you consider the big picture.
One of the key benefits of mutual fund options such as Tangerine and TD’s e-Series is that they allow you to set up pre-authorized contributions, and these get invested automatically. (This is also true for robo-advisors, though they use ETFs rather than mutual funds.) Don’t underestimate the importance of disciplined savings and systematic investing. If you use an asset allocation ETF instead, you’ll need to make a trade every time you add money to your accounts. Even with a one-fund portfolio, you can easily fall into the trap of wondering whether this is the “right time” to buy.
The point here is that if you are successfully using one of these other options and you’re not enthusiastic about buying ETFs, don’t feel pressured to switch.
And while a one-ETF solution is a great choice for investors who hold all of their investments in TFSAs and RRSPs, those with larger portfolios may want more flexibility. If you have a large non-registered account as well, you may want to consider using individual ETFs for each asset class for more tax-efficiency.
These new Vanguard asset allocation ETFs are a welcome addition to the marketplace, and if you’re looking for an easy way to get started with ETFs, you just found it. But always remember that investing is about process, not products. Cheap and easy solutions certainly help, but in the end it’s up to you to stay focused on saving, investing with discipline, and tuning out the noise.
Hi Dan,
Thanks for the quick reply and your wise insight.
1) The USD to CAD exchange is quite favourable, so I am in the process of dispose of USD assets using the Norbert’s gambit.
2) It came to me suddenly as a revelation that I can’t help to share with you regarding the One Fund strategy that may benefit other readers.
Having made decision to transition toward ONE FUND strategy with VGRO, and with relatively larger amount of funds to be invested, I am facing a conundrum. The stock market has had a awesome run in the last few years (with the exception of minor correction in the last few weeks.), so I was hesitant to commit to one large trade. Looking for a solution and after much thought, I decided to divide the assets and purchase termed deposit (GIC, 30d – 1year+), I will spread my purchase of VGRO through a year + period.
This provides my some comfort, but on a second thought, one could use VGRO/GIC to re-balance one’s account. Once a year or so, investors can re-assess and rebalance between VGRO and GIC holding – this may offer some flexibility for some investors… When market is red and hot, one can sell some VGRO to purchase GIC, vice versa…
What your thought on this? Thanks again. BTW Moneysense is now sold, I would love to hear something on that as well, since you previous worked for the magazine and had a great interview with its editor.
@FanDan: “When market is red and hot, one can sell some VGRO to purchase GIC, vice versa…” This strategy is essentially market timing. If you’re comfortable with 80% equities (the asset allocation in VGRO) then a more disciplined strategy is to simply maintain this asset mix indefinitely. The fund rebalances itself to maintain a consistent exposure.
Hi guys, in order to make life easier come tax season – which Vanguard funds would you recommend to invest in, for a Canadian?
Index funds in Canadian dollars that would have exposure to U.S. markets is what I’m looking for – or I believe that would be wise.
I have a main investment account, RRSP and TFSA @ my bank.
These are self-directed accounts and everything I have purchased is on the TSE, so I’m completely new to any foreign investment.
It’s 100% stock based (reits/banks/telecom/energy/insurance).
I just think it might be wise to purchase something in foreign markets and I was thinking that would be in the RRSP to keep things simpler come tax season.
Thoughts?
Any insights on whether Vanguard will eventually create a 100% equities version? I would love keep all bonds in my non-taxable accounts and have all overflow into the non-registered accounts be equities. Can you pull some strings?!
@Jamie: Alas, I have zero influence on Vanguard’s product development. :)
What is your recommendation regarding new etf by ishare xgro and xbal?
With lower mer of 18% compared to 25% is it a better option than vgro and vbal for tsfa account.
@DRS: Stay tuned, I’ll be writing about these soon.
Hi Dan,
Great post. Question from someone who doesn’t mind dealing with 7 ETFs instead of one.
-VGRO.TO has 0.22% management fees
-But if you weight average (based on allocation) the fees for the 7 underlying ETFs, you get 0.14% management fees
Why buy VGRO.TO then? if you can easily reproduce this asset allocation in your portfolio and save 8 bps on management fees? (0.22% – 0.14% = 0.08%)
@Charles: First, while it is theoretically easy to reproduce the portfolio in a fund like VGRO, managing a portfolio of seven ETFs is not as simple as it may sound. If you are currently doing that successfully, then there’s no reason to change. If you’re not, don’t underestimate the challenges.
The balanced ETF, for example, rebalances on an ongoing basis so you will drift away from your target asset mix. Most investors are not diligent about rebalancing.
Unless you are using a discount brokerage with zero commissions, a multi-ETF portfolio will also be expensive in terms of trading costs, especially if you are adding new money from time to time. With funds like VGRO, you’ll make far fewer trades.
There is also a huge behavioural benefit to using a single balanced fund. During a year when some asset classes are up and others are down, you’ll be less distracted and less likely to tinker with your portfolio. (“Should I buy bonds when they’re doing poorly? Why wouldn’t I buy more U.S. stocks?”).
All of these are worth at least 8 basis points!
Hi Dan!
I’m a beginner, sorry if this is a dumb question.
If going with VGRO in my 30s, what would be a good strategy to transition to holding more bonds as I approach 40? Would I sell VGRO and buy VBAL? Would there be a period where I hold both VGRO and VBAL?
@RAB: Not a dumb question at all: others have made this suggestion as well. In my opinion, however, if you are already resigned to using two ETFs rather than one, then it would be cheaper to combine VGRO with a bond ETF (or with GICs). That would allow you to hold VGRO indefinitely and just make your overall portfolio more conservative as you get older by adding to the fixed income holdings.
https://canadiancouchpotato.com/2018/12/31/beyond-one-stop-etf-shopping/
What is the difference in us withholding tax on these 3 different ETF approaches:
1) Vanguard S&P500 [$us] (VFV)
2) Vanguard S&P [$cdn hedged] (VSP)
3) Vanguard Growth [global] (VGRO)
@Barry: VFV and VSP have the same withholding tax implications: the hedging doesn’t make a difference. VGRO is a different animal because it is a balanced portfolio, not just US equities. The withholding tax on the US equity portion of that fund, however, is the same as it is for VFV and VSP. Specifically:
– In an RRSP and a TFSA, the 15% withholding tax on dividends applies and is not recoverable.
– In a non-registered account, the tax applies but is recoverable via the foreign tax credit.
Thank you for all the great info. In the interests of simplicity I want to invest in at least one or more of the “all in one” ETF funds within my TFSA and RRSP. – both held in a self directed account with a large bank. I have at least 7 year time horizon before I would need to start drawing on my RRSP (when it convert to a RIF) and also don’t plan to access my TFSA until around the same time. I have $100,000 cash to invest in my RRSP an $50,000 to invest in my TFSA. This money is currently in money market funds and a few equities and not earning much. The idea of investing either of these entire amounts in one or two funds is a bit daunting. And so is a huge market correction that can’t be balanced out in this time period. Would it make sense to do mix of Balanced and conservative ETF funds (VBal and VCns) in each account? Or does this defeat the purpose of these funds? Am also looking at IShares XBAL. I know I can move the funds “in kind” to a RIF if the market was tanking at the time, and am OK with some risk along the way. I am also reading that even the best bonds may be in for a period of low returns as we will be in a rising interest rate environment in the years to come – so funds with a higher weighting in equities (balanced vs conservative) might be a good idea even for a senior. I am 65 and a have good defined needed pension so these funds are being set aside.for possible needs a bit further done road into my 70’s and 80’s. Thank you for any advice.
@Fran: All good questions, but it sounds like you need a proper financial plan that will address all of them carefully.
Is VBAL a good option for a taxable account? I’m about to open a taxable account as my RRSP and TFSA accounts are maxed out. I’m 48 and roughly have 70% equities 30% bonds in my registered accounts. The taxable account is intended to boost my retirement savings. I hope to retire in 10 years.
The reason I ask is because I read here that a bond component is not tax efficient. I’m hesitant to go with VGRO as the allocation mix maybe too aggressive given my planning horizon.
Does an “ETF of ETF’s” literally hold shares in the ETF’s that make it up or does it simply follow the buying strategy of the component ETF’s and own equities and bonds directly? The documentation from Vanguard is a little vague on this (“Invests primarily in equity and fixed income securities, either directly or indirectly…”) and I’m trying to wrap my head around how redemption functions.
@Ian: Yes, funds of funds literally hold units in the underlying ETFs. As the end in investor you simply buy redeem units of the wrap the same way you would any other ETF.
@GK: As an all-in-one solution VBAL is a reasonable choice in a taxable account, though not ideal. You could consider combining the all-equity fund Vanguard just launched (VEQT) with a more tax-efficient bond ETF, such as ZDB. That way you also have full control over the asset mix.
Hello, I’ve only ever had a Tangerine investment fund and quite like the idea of not having to worry about it. I’m looking to grow my money better and start tinkering on my own. Where is the best place for a noob to buy the VGRO or VBAL? If I use my TFSA/RRSP, are there tax implications for these specific fund? From what I read as well, if I’m using a brokerage account, I have to buy manually (when to buy/not to buy etc)vs an easy preauthorized transfers from my tangerine accounts. Sorry, if these are bad/redundant questions!
@Cindy: These are not bad questions! These ETFs are excellent choices in a TFSA or an RRSP, and you can transfer your existing accounts without tax implications, i.e. a transfer is not considered a withdrawal. It is true that you would need to be comfortable buying new shares of the ETFs on the stock exchange with every new contribution, and this can be intimidating if you have never done it before. So do be in a huge hurry to switch from Tangerine if that is working for you.
Hi Dan,
I cashed out of the stock market last year and currently hold my registered investments in a HISA at Simplii getting 3.15% (TFSA) and TDB 8150 at TD Direct getting 1.6% (RSP). I also have a RDSP at TD Direct, which is invested in TDB 8150.
I would like to simplify my trading going forward by holding all three registered investments in my TD Direct account and investing all three in VGRO.. This will be my first experience buying ETFs. I am not concerned about trading fees as my RSP and TFSA are maxed and I will be making only one contribution to my TFSA each year. My RSP is mid six figures and I am looking for a long term investment (I am mid-life).
I have a few general questions about buying VGRO.
Is there a best day/time of the week to buy VGRO through TD Direct or is timing even a consideration for large lump sum ETF trades? Are there any special considerations for holding ETFs in a RDSP? Do you have any additional comments about having one ETF for all three registered accounts?
Regarding my non-registered investments, I have a significant amount of savings (mid six figures) in a HISA at Simplii, currently getting 3.15%. I have been moving these funds between Simplii, Tangerine, and EQ Bank to get the best rate but would like to simplify my management through ETFs. I may be using these savings for a real estate purchase in the next five years, so my risk is perhaps slightly lower than my registered investments.
Would you recommend VGRO for non-registered funds, or is there another ETF that makes more sense?
Finally, are ETFs covered by CDIC?
Thank you in advance for your information and comments.
@Kirsty: I cannot advise you on your specific situation, but overall there is nothing wrong with holding a fund like VGRO in all account types. Yes, there are solutions that are more tax-efficient, but all of them are more complicated and if you have never traded ETFs before, then simplicity is paramount.
It doesn’t matter what day you trade ETFs. In general it is better to avoid trading during the fist an last 15 minutes of the trading day, but otherwise there’s no issue.
ETFs are not covered by CDIC insurance. This only applies to deposit accounts and GICs:
https://canadiancouchpotato.com/2014/06/02/ask-the-spud-how-are-investors-protected/
Last question: are you sure that VGRO, with 80% stocks, is appropriate for your risk profile? It is an aggressive portfolio that can easily lose 30% of more in a bad bear market. You mentioned that you cashed out of the market last year. If you did that because you were nervous about where the markets were headed, then you are probably not a candidate for such an aggressive portfolio.
I appreciate your feedback Dan. I cashed out because I knew I wouldn’t have the time or energy to stay of top of my accounts going forward, and was fortunate to have sold at a good time. I just didn’t have the time to research ETFs until recently so I’ve been sitting in cash for a while. I’m happy to have found your blog. Thanks again!
re Charles Potato’s questions and Canadian Couch Potato’s answer, double dipping is not allowed, so there is no savings of 0.8%. Total direct & indirect mgt fee cannot exceed 0.22%.
Hello Dan,
I started investing with your model portfolio 3 years ago, then found VGRO and liked the simplicity, and sold some positions and invested some funds into it that looks now like this:
25,000 in VAB
64,000 in VXC
37,000 in VGRO
I am 61 years old and a small business owner and do not mind being aggressive with my holdings, but have always been an optimist and do not see myself retiring early, probably at 70 and that part-time. Should I continue on my quest to simplify things and sell VAB and VXC and purchase VGRO now to really simplify my holdings, and the possibility of tinkering with things?
@Pierre: There is certainly nothing wrong with switching to a one-fund portfolio. The more important issue is making sure your asset mix is appropriate. You mention you were using my model portfolio, but you seem to have excluded Canadian equities (except for what is in VGRO). And you’ll want to make sure that an 80% equity portfolio is right for your situation.
Dan, I recently retired with a small pension, and have to draw from my investments to live. I have approx. 800K and ideally would like a one stop fund that would pay out approx. 4% yield, but I don’t think that item exists as of yet, so if that is the case which of these funds would you recommend?
There are NR withholding taxes when receiving dividends from a US or International stock held in a TFSA. Does this also hold true for an ETF such as VBAL-T held in a TFSA?
@David: Yes, the withholding tax implications are the same as they would be if you held the underlying ETFs directly.
Hi. Are any of the VCNS.TO components are subjects to foreign withholding taxes if held in TFSA account?
Thank you.
@Michael: All ETFs that hold US or international equities are subject to unrecoverable foreign withholding taxes in a TFSA. It doesn’t matter whether you hold them directly or as part of an asset allocation ETF.
Hi Dan,
I am about to enter into index investing. I am wondering if asset allocation etfs would be good choice for resp/rrsp/tfsa. Or should I use your model portfolio, my reason being I could load up on equities in the event of an inevitable down turn by selling bonds or just buying equites. Or does that really make a difference since the all in one etf rebalances anyway? I use RBC and am comfortable with trading.
Thanks
Also thank you for all your work, I really enjoy the podcasts.
@Mike: As you’ve anticipated, these ETFs rebalance themselves, so they will always be buying more of what’s low and less of what’s high, and during volatile markets they will be rebalancing at the fund level. You won’t notice it, but the effect would be similar to the rebalancing you would do at the account level (and wit will be more disciplined). So you should not feel you are missing out on any opportunities by not using multiple funds.
As for being comfortable with trading, I hope now that you have become an indexer you will be comfortable with not trading. :)
Hi Dan,
I am new at this and would like some advise. I have recently open a brokerage account with an RRSP,TFSA,RESP and a non-registered account. I have Mawer 104 in my registered account. My intention would be to sell it to buy 50% VGRO and 50% VBAL for my registered accounts and obtain a 70% stock /30% rather than the 60/40 I currently have. I have quite a large amount now to put in the non-registered account and read on this blog that it is not tax-wise to have VGRO or VBAL. What easily manageable ETFs (to rebalance) could I hold in this account instead.
Kind regards,
Catherine
@Catherine: I don’t think it’s right to say that it isn’t “tax-wise” to hold VGRO or VBAL in a taxable account. It’s not necessarily ideal (because the fixed income portion is not especially tax-efficient) but that has to be weighed against the additional benefit of managing one fund instead of two. I’d argue it also depends on your individual situation. Someone in a low tax bracket investing a modest amount can afford to be less concerned with tax optimization than someone in the highest bracket making a huge investment.
That said, if an investor wants a 70/30 equity bond mix in a txable account, it probably makes more sense to use a combination of VEQT for equities and ZDB for bonds rather than a combination of VBAL + VGRO:
https://canadiancouchpotato.com/2018/12/31/beyond-one-stop-etf-shopping/
Thank you Dan for your quick response Would it be logical then to simply have VEQT and ZDB (70/30) in my taxable account as well as in all my registered accounts ?
Many thanks,
@Catherine: In registered accounts, it’s preferable to use a traditional bond ETF such as ZDB, VAB or XBB. ZDB is designed for taxable accounts specifically.
Hello, I’m a new investor, and I would like to invest in the VGRO etf, in my RRSP and TFSA. I’m just wondering how vanguard collects their 0.22% fee. I don’t really understand how it works. Could someone explain this?
@Rachel: The management fees on ETFs and mutual funds are taken monthly from the assets in the fund, so you will never actually see them deducted in your account. They will, however, reduce the cash distributions (i.e. dividend and interest payments) you receive.
That make sense. Thanks for clarifying. I have a few questions about dividends. How does the reinvestment work with the VGRO dividends? Are shares automatically purchased with the dividends, or do I have to notify someone for this to happen?
@Rachel: Dividends are paid in cash unless you sign up for a dividend reinvestment plan (DRIP) through your brokerage. Once you are signed up, then you will receive dividends in the form of new shares. Remember that you can only receive whole shares, so if the ETF is trading at $20 and the dividend is $75, you will receive 3 shares (worth $60) plus $15 cash.
Hi Dan, curious how to make the best of the fact I get paid in USD. I wonder if it makes sense to exchange my USD for CAD in order to by the one fund ETFs like VGRO-T or keep portions of my pay in USD and invest in the US ETFs.
Hey Dan,
The idea of a one fund solution is very appealing to me. I currently hold VCN/VXC/VAB (30%/50%/20%), in an RRSP, TFSA, and a Margin account, and the maintenance effort is a bit of a hassle, but it’s only done once a year, so it’s not too bad.
In the past you’ve said that making changes that involve realizing taxable gains may not always be the best idea: https://canadiancouchpotato.com/2017/01/13/model-portfolio-update-for-2017. Doing a switch would cause me to realize about $15K in Taxable gains in my Margin account
How does this weigh in on your opinion to switching to a one-fund account?
Thanks
@Nick: This is really a personal decision. Are you comfortable paying this tax now to obtain the benefit of a simpler portfolio, or would you rather defer the taxes longer? Are you in a higher/lower tax bracket this year than you expect to be in the near future? Do you have any unused losses you can carry forward to offset some of the gains?
hi Dan
i like the idea of simple too .. . for simplicity sake lets say i have lots of stocks and ETFs in my Non Reg account ( TFSA is maxed )
and half are in the negative and half in positive .
in theory if i sell all in one go and then buy a simple ETF … like above .. then i won’t have a capital gains problem because the amount of profit is zero , combined ??
i am in a low tax bracket , retired
thanks
@Nigel: Yes, capital losses can be used to offset capital gains. So if your losses and gains are more or less equivalent, then switching from stocks to ETFs could be done with very little in the way of tax consequences, especially if you are in a low tax bracket.
Hi Dan,
I am all-in for simple solutions. All my accounts (RRSP, TSFA, taxable account) are invested with MAW-104 and Mawer-105. However, I was wondering if it would make sense to sell all my MAW-104 in RRSP and TSFA and buy VBAL instead. I would decrease my overall MER and I would benefit from 2 investments strategies (active and passive). Is it too simple or it’s a defendable position ?
Thanks
@Jeff: In my view, the simple solution is to pick one strategy and one fund. If you want low-cost passive, use the ETF. If you prefer an active strategy, then Mawer at least offers that at relatively low cost with a good track record.
Hi Dan,
I am completely new to investing and wanting to optimize the process for myself. I have the money to start (2k to start with regular contributions every month).
I am torn between the TD e-series and Vanguard. I am 25 and have a DB pension plan, so I am comfortable with having high risk for now.
Can you clarify the main “issue” for vanguard regarding regular deposits. If I interpret your article correctly:
With TD (weighted MER .41) – if I have purchased the Canadian bond index, Canadian index, US index, and International index – I will have shares representing 10/30/30/30 (purchased with my initial 2k). Then every month when I transfer $200 (haven’t decided on actual number), will that amount automatically get invested into each index at it’s respective percent?
Whereas with Vanguard (MER/management fee .47), when I transfer the $200 to the account I have to go into it and physically purchase $200 worth of the single ETF? But because of the fee every time you purchase, you should wait till there is about $2000 and if the value is $20 then I can buy 99 shares of the ETF, $10 goes to the fee to buy and the remaining $90 stays in the account?
If I have all of that correct, then with Vanguard you’re paying more in both the fee percentage and the fee for buying the ETF everytime, and you also have to wait until you have a lump sum to buy more ETFs. The only advantage is that they will automatically rebalance the portfolio for me. Which – if I’m correct – is relatively simple with TD as it is just based on ensuring each index is close to the percent you want it to be. And if it isn’t, through TD, all I would have to do is use the “switch mutual funds” tool on the site?
If I am missing something drastic here or don’t understand it, could you clarify? As I said I’m brand new and want to make the best choice for myself (and my future!) Thanks! :)