For almost 20 years, the TD e-Series mutual funds have been one of the cheapest and easiest ways to build a Couch Potato portfolio. For most of that time they’ve gone about their business without much fuss, all the while outperforming the vast majority of their peers. But now there are some changes in the offing for these venerable old funds.
And don’t despair: the changes are mostly for the better.
If you hold any of TD’s e-Series index funds, you may have received a notice of these impending changes, and as a unitholder, you have the right to vote on them. In practice, though, they’re going to be approved whether or not you show up at the unitholder’s meeting in September. So let’s take a look at what’s going on and why.
New structure and new benchmark indexes
Several TD funds are undergoing changes, but we’ll focus on the four e-Series index funds that have long been part of the Couch Potato model portfolios:
e-Series Fund | Fund Code | MER |
---|---|---|
TD Canadian Bond Index Fund | TDB909 | 0.50% |
TD Canadian Index Fund | TDB900 | 0.33% |
TD U.S. Index Fund | TDB902 | 0.35% |
TD International Index | TDB911 | 0.50% |
So, what’s new here? Rather than directly holding individual stocks and bonds, as they do now, these e-Series funds will instead use one of TD’s index ETFs as their underlying holdings. In other words, they will become a mutual fund “wrapper” for the ETFs.
Although they’re not well known, TD launched a family of index-tracking ETFs more than three years ago, and there are funds in each of the major asset classes. They’re comparable to the more popular offerings from Vanguard, iShares and BMO in my model portfolios, with competitive fees:
ETF | Ticker | MER |
---|---|---|
TD Canadian Aggregate Bond Index ETF | TDB | 0.11% |
TD Canadian Equity Index ETF | TTP | 0.07% |
TD U.S. Equity Index ETF | TPU | 0.11% |
TD International Equity Index ETF | TPE | 0.20% |
The above ETFs have very similar mandates to the TD e-Series funds, but they track different benchmark indexes. Since the e-Series funds will soon be using the ETFs as their underlying holdings, their benchmark indexes will change accordingly:
Asset Class | Current e-Series Benchmark | ETF (and new e-Series) Benchmark |
---|---|---|
Bonds | FTSE Canada Universe Bond | Solactive Broad Canadian Bond Universe |
Canadian equities | S&P/TSX Composite | Solactive Canada Broad Market |
US equities | S&P 500 | Solactive U.S. Large Cap |
International equities | MSCI EAFE | Solactive GBS Developed Markets ex North America Large & Mid Cap |
By way of background, fund companies pay licensing fees to their index providers, and the big names like S&P, MSCI and FTSE likely charge more than lesser-known competitors. So when TD launched its ETF lineup, they decided to team up with Solactive, a relatively new German firm that has also provided indexes for Horizons ETFs, Morningstar and other Canadian fund providers, presumably for a lower fee.
Will this make a difference to performance? It’s doubtful. So long as an index is designed to track a broad market using a traditional cap-weighted methodology, any differences are likely to be minimal. ETF investors should already understand this if they’ve chosen between funds in the same asset class from Vanguard, iShares and BMO, which generally use different index providers. Assuming the costs are the same, it’s hard to make a strong argument that any of these is inherently superior or inferior to the others. Have a look at the top holdings and the sector breakdowns in the e-Series funds and the corresponding ETFs and you’ll see they are nearly identical.
Never mind the theory: since we have three full years of performance for TD’s ETFs, we can see how the Solactive indexes have stood up to their competitors in practice. After adjusting for the fee difference between the e-Series and ETF versions, the Solactive indexes outperformed those of the e-Series funds in U.S. equities (+0.18% annualized) and international equities (+0.32%), and underperformed in Canadian equities (–0.35%) and bonds (–0.19%) during the three years ending July 31. So it’s been a coin flip, and the variations are likely random: there’s no reason to expect they’ll persist.
That said, any time a fund switches to a different benchmark index, that counts as “a change to the fundamental investment objectives,” and the fund provider needs to obtain the consent of a majority of unitholders. That’s why TD is reaching out to investors in the e-Series funds, and I’m not sure why anyone would vote against such a proposal.
Tax consequences
An important question to consider is whether there will be any tax consequences as a result of these changes. When the e-Series funds begin tracking different benchmarks, they will inevitably need to sell some stocks to bring their holdings in line with the new indexes. That could result in capital gains being realized and then passed along to unitholders using taxable accounts. (This is a non-issue if you use the TD e-Series funds in a TFSA or RRSP.)
But this is unlikely to be a problem. The e-Series funds will not need to liquidate their entire portfolios and then buy ETF units on the exchange. That would be what you or I would have to do, but institutional investors moving millions don’t need to do this. Instead, the mutual funds will package up their existing stocks in the same proportion as in the Solactive indexes. Then they’ll exchange those baskets of stocks for newly created units of the ETF. Perhaps it helps to think of this like exchanging 24 individual bottles of beer for a case of the same beer. No party is gaining or losing on the transaction, so this is not a taxable event.
Now, even after this in-kind exchange takes place, the e-Series portfolios will not precisely match their new benchmarks, so there may need to be some trading on the margins. According to the management circular, the estimated turnover in the four funds will range from 3.2% to 7.9%. In all four cases, the document says these trades “will be done in such a way, while using up any available tax loss carry forwards, to limit the tax impact to unitholders. This may take several years.”
What do they mean by “tax loss carry forwards”? Well-managed funds take advantage of tax-loss harvesting opportunities as they come up, and then carry forward those losses to offset future gains, which is why many index funds distribute almost no taxable gains to their unitholders. The 2018 financial statements for the TD Canadian Index Fund, for example, reveals $111 million in carried-forward losses, which means it’s unlikely to distribute gains any time soon.
For what it’s worth, RBC made a similar move in 2017, when they began using their own ETFs as the underlying holdings for their index mutual funds, switching benchmarks in the process. Their Canadian, US and international equity funds did not distribute any capital gains that year, though surprisingly their bond index fund did. (You probably shouldn’t be holding a traditional bond index fund in your non-registered account to begin with.)
If you’re wondering whether the structural change to the US and international e-Series funds will have an effect on foreign withholding taxes, the answer is no. When a Canadian mutual fund or ETF uses a US-listed ETF as its underlying holding, there can be an additional layer of foreign withholding taxes that applies even in TFSA and RRSP accounts. However, if the underlying holding is a Canadian ETF, this is not an issue: the foreign withholding taxes are the same as if the fund held the underlying stocks directly.
Lower fees
There’s more good news for e-Series unitholders. As part of the proposed changes, the e-Series funds will all enjoy a 0.05% reduction in fees. Note this table includes only the fund’s management fee. The full MER, which includes taxes, will be higher.
e-Series Fund | Current fee | New fee |
---|---|---|
TD Canadian Bond Index Fund | 0.45% | 0.40% |
TD Canadian Index Fund | 0.30% | 0.25% |
TD U.S. Index Fund | 0.35% | 0.30% |
TD International Index | 0.45% | 0.40% |
Five basis points isn’t going to allow you to retire earlier (it’s one latte a year on every $10,000 invested), but it’s a move in the right direction. With these fee reductions, a traditional balanced portfolio with 40% bonds and 20% in each of the three equity asset classes will see its MER dip below 0.40%, which is as cheap as an index mutual fund portfolio has ever been in Canada.
Wider availability
Finally, there’s been another big change to the e-Series funds that has gone largely unnoticed—partly because TD has done absolutely nothing to publicize it.
The biggest knock against the e-Series funds has always been that they played hard to get: you could only buy them in a TD Mutual Funds account (which you can open at a bank branch) or through TD Direct Investing, the bank’s online brokerage. Investors using other brokerages could only purchase the Investor Series (I-Series) versions, which have much higher fees.
But no more: the e-Series funds can now be purchased through other online brokerages. I can’t confirm that they’re universally available, but BMO InvestorLine, Scotia iTRADE and RBC Direct Investing have added them to the lineup. (If you’re able to confirm availability at other brokerages, please share this in the comments section.)
A little background on the reasons for this change. If you bought the I-Series funds through an online brokerage other then TD Direct, a significant part of your fee was a “trailing commission” paid to the brokerage. Trailing commissions are designed to compensate advisors for their ongoing advice, and they are still the way most mutual fund advisors are paid. But discount brokerages, by definition, cannot offer financial advice, and investor advocates have been arguing for years that it was unethical for them to collect these fees.
After facing pressure to stop this practice, TD sent a notice to investors who held their I-Series index funds through discount brokerages and told them their units would be automatically switched to the e-Series versions. This represented a significant fee reduction for anyone holding these funds, even if the investors didn’t notice. Going forward, DIY investors will not be able to buy I-Series funds at all: only the e-Series versions will be available.
For those who still appreciate the benefits of index mutual funds over ETFs, the TD e-Series offering just got a little better.
Hi Dan,
I have a few questions that I hope you can help me with. My 14 year old son has done a lot of reading (and listened to your podcast) and wants to start investing and I am suffering from a little “over analysis paralysis”….. I currently have a TFSA (50K), a RRSP (200k), and RESPs for each of my two children with an advisor at TD. I want to start on the path to DIY investing together with him. I am leaning towards using a TD direct investing account to use the four e-series funds you recommend. I think if he sets up a monthly automatic payment of $100 (which he is committed to investing), the management fee is waived??
1. Can a 14 year old set up a TD direct investing account or do I have to do it for him?
2. Is this platform good for a keen youngster and a procrastinating father? I plan to open my own account and mirror him…..
3. What type of account should I open for him? For me?
4. Once we get the hang of this, should I think about transferring my TFSA and RRSP and are there any hurdles or pitfalls involved?
Thanks for all the great info!
Chris
@Chris: Thanks for the comment, and I’ll do my best to help, though some of this will require some additional research.
First, the management fees of the e-Series funds are not waived if you make monthly contributions. It is only the administrative fees charged by TD Direct that are waived if you make monthly contributions (or if your account balance is above the minimum). Best to call TD to confirm the details.
1. No, a 14-year-old cannot open an investment account. You will need to open the account in your name “in trust for” your son. Any income or gains in the account will be potentially taxable, and the reporting can be complicated. So it would be worth reading up on ITF accounts and speaking to your tax preparer first.
2. It’s up to you, of course, but I would suggest that you and your son are in quite different situations and you may not want to use the same platform. The e-Series funds may well be suited to your portfolio (especially if you’re not comfortable using ETFs), but for a teen starting from scratch, it’s not ideal to set up a portfolio of four funds. Have you considered a roboadvisor for him? You would need to confirm that the roboadvisor allows ITF accounts.
3. For your son, your only choice is a non-registered ITF account until he reaches the age of the majority. If you have a TFSA and an RRSP with your advisor, then you should probably open the same account types at your new brokerage. Just make sure you don’t overcontribute to these accounts, which can be easy to do if you have accounts with an advisor and on your own (e.g. the TFSA limit is $6,000 per year per person: you can’t put $6,000 in the TFSA managed by your advisor and another $6,000 in a self-directed TFSA). You should let your advisor know you have external accounts.
4. If you find you’re comfortable managing your own portfolio, then it may be worth eventually transferring your accounts from the advisor. But give it time. It’s easy to underestimate what’s involved in DIY investing. It doesn’t need to be difficult, but it does require you take responsibility for some things your advisor was probably doing for you. Good luck!
Hi Dan
I’ve been using the e-series for a few years and enjoying the results. I am a little confused by the lack of a December distribution for the TDB911. I’ve been trying to find info on the lack of dividend this past December as have been receiving them like clockwork at the same time as the TDB900 and TDB902.
Can you clarify this situation for me
Thanks Herb
@Herb: It’s probably just a delay in reporting due to the holidays and the weekend. I would give it a few days.
Hello Dan,
My wife and I currently have RRSP’s (Individual & spousal) as well as RESP’s (individual and family) for our 3 children with TD. Most if not all of the portfolios are made up of actively managed mutual funds and I am entertaining the idea of moving everything over to TD Direct Investing and putting them into the TD-e-series funds (CP model portfolios). Just wondering if I should transfer everything in cash or in kind (still trying to wrap my head around that process and terminology). Essentially wanting to know if I should be setting up the new portfolios and asset allocation once its been ported over to TD Direct investing or before it is transferred?
Thx in advance and best regards,
Clay
Hello Dan
I spoke to a service representative at TD Asset Management about the TDB911 December distribution. His first response was that as the distribution was variable there was no requirement to pay out in December and that there was not enough income to pay out a distribution.
I encouraged the rep to dig deeper and he admitted there had been an estimated distribution for December of over $0.09.
He also confirmed that the fund has paid out quarterly distributions since 2004.
I am awaiting additional information from the rep at TD
Is it possible that the changes to the fund that you have documented could have affected the funds ability to pay out the distribution?
Thanks for your thoughts
Herb
@Clay: In general, I suggest transferring all of your current holdings to your new brokerage “in kind.” It always takes a least a week or so for the transfers to occur, and often significantly longer. If you request the transfer “in cash” it means the holdings will all be sold first, and that means your portfolio could sit in cash for a significant time until the transfer is complete. This could work in your favour if the markets fall during the interval, but it usually seems to work the other way around. :) Once the in-kind transfer is complete, you can sell the holdings and repurchase the e-Series funds within a day or so, avoiding the risk of being out of the market for too long.
@Herb: I can’t speak to the specific problem with TDB911, though I have heard from others who have noticed the same thing, so clearly it’s an issue this year. I have seen it with other TD funds in the past: I recall one year when I had to hold off reporting my model portfolio returns because of this error.
To provide a bit of background, the TD rep is confusing the issue if he suggested that the fund has “no requirement” to make a distribution. It’s true that the mutual funds and ETFs do not have to pay cash distributions: they can simply reinvest any dividends or interest payments, and this would be reflected in the net asset value of the fund. Investors would still get the full benefit either way. However, all funds are legally required to report all dividends, interest and capital gains at the end of the year, and if you hold the fund in a taxable account you will receive a T3 slip with this information.
All of which is to say this sounds like a reporting issue more than anything else. The fund is not withholding anything from investors: all of the income received in the fund during the year is reelected in the current value of your holding. But for some reason TD has not yet declared the year-end distribution properly. This is not really an issue for anyone holding the fund in an RRSP or TFSA, but it will need to be resolved before the fund issues tax slips for this holding it non-registered accounts. I’m sure it will resolved well before then.
Thanks for the information. I’ll let you know if I get more info from TD
Herb
From TD
For every fund TDAM has, unless cash flow/dividends are a part of its mandate, we try to reduce distributions on it whenever possible. Distributions equals tax to the client so it is generally more valuable to the client to have no payout but see the value through fund performance.
So basically, no TDAM fund intends to pay a distribution, unless distribution/cash flow payments are a specific part of its mandate for the investor. The TD international Index fund does not have cash flow as part of its strategy, it simply has been doing so out of necessity.
end TD
What do you think of the above?
Personally it sounds like bafflegab to me.
Herb
@Herb: The TD rep’s response isn’t just bafflegab, it’s simply incorrect. This person really should be called out for giving clients this kind of advice.
As I mentioned in my last comment (and as I’m sure you understand), mutual funds don’t have to pay distributions in cash, and most don’t. A common exception is monthly income funds, which is probably what the TD rep means by “unless cash flow/dividends are a part of its mandate.” That much is true enough.
But then the rep says this: “Distributions equals tax to the client so it is generally more valuable to the client to have no payout.” This is nonsense. It repeats the common misunderstanding that you don’t need to pay tax on dividends or interest if these are reinvested by the fund rather than taken in cash. If only that were true! Whether the distributions are paid in cash or reinvested, they still must be declared and reported on a T-slip (if held in a taxable account), and tax must be paid on any interest, dividends or capital gains.
TDB911 simply holds the TD International Equity Index ETF (TPE), so the dividends received by the mutual fund are expected to be very similar to those of the ETF. TPE is currently reporting a dividend yield of 2.56%, so you should expect something similar from the mutual fund. But, again, I’m not sure why this has not been properly reported yet.
Hello, thanks for the great info. I’m ready to begin my journey into index investing through my TD Direct Investing account, but I’m wondering what your thoughts are on TD’s new asset allocation ETF’s? Specifically, TOCC, TOCM, and TOCA. I’m honestly grappling with which products to purchase – a combination of the E-series funds, and rebalance each year as needed, or one of these all-in-one products? Only the e-series have free trades, so a monthly purchase of TOCM, for example, would be $9.99. Any thoughts or advice would be much appreciated, thanks!
I want to convert my TFSA Comfort Balance portfolio to a TFSA TD e-Series Balanced portfolio.
What is the best way to get it done?
@Seamus: The TD One-Click ETF Portfolios have a significant allocation to actively managed funds, so they’re the wrong choice if you’re looking to use an indexed strategy. And you’re correct: ETFs are generally not appropriate if you’re making regular monthly purchases and paying $9.99 commissions. It sounds like the e-Series funds are idea for situation.
Hello,
January 17, 2021 and still no 4th quarter re-investment distribution of the TDB 911 fund. Any thoughts?
Thanks, Joe
Hi Dan,
Just wondering if you can suggest something for my situation regarding RESP. My kids are in grades 10 and 7 now and I would like to move away from equities. I have done a lot of reading and the suggestion is to move to fixed income when the kids enter high school. But are there any fixed income ETFs that I can buy or is/are there better alternatives? I have been thinking about VCNS or VBAL or XBAL. In order to meet my goal, some capital gain along with dividend is needed as I need to grow the portfolio by 5% yearly. Hope to hear some suggestions. Thank you!
Are you anticipating any major changes to the eSeries model portfolios for 2021? I have some $ to invest and was going to rebalance at the same time. Or when will your 2021 info be available?
Hi Dan,
It looks like TD is now offering commision free ETFs. Would it now make sense to transfer all e-series funds to their underlying ETFs? With no commissions and lower MERs, it seems you could save a fair bit on fees this way.
@Brenda: There will be no changes to the model portfolios for 2021.
Hi Dan,
I just turned 19 and opened up my TFSA account. I have around 8k saved so far and I wanted to know how I should proceed from here.
How much should I put into my TFSA? Do I then purchase the e-series funds with all the money deposited to the TFSA?
What kind of asset allocation should I go for?
Thank you!
I see there’s been some comments regarding the Dec distribution for TDB911. I spoke with a rep today at Asset Management who advised they received a lot of calls on the subject and have spoken with the fund manager. I was advised the decision was made simply to not do a Dec dividend/distribution and no further explanation or information could be provided.
I’ve been trying to click on the conversion form to go from an existing mutual fund to an e-series but the link seems to be dead. Is this no longer an option? My current mutual funds are charging me 1.78% in MER fees.
Hi Dan,
I’ve been using the eSeries mutual funds for a few years now, and now that I’ve filled up my RRSP (~100k) and TFSA (~85k) contributions, I’m looking to add a taxable account. At the same time, I think I’m at the point where I should switch from the mutual funds to the underlying ETFs. I’m not using any of the benefits of the mutual funds anymore (monthly contribs etc.).
For now, for ease and sanity’s sake, I’m going to do a direct translation from the 4 mutual funds to the underlying ETFs (instead of searching out different ETFs to get into), but I plan to split them between my 3 accounts instead of holding the 4-way split in each of my RRSP and TFSA accounts, which I’m doing now.
In other articles/comments you have said that the Canadian bond eSeries ETF/mutual fund is not tax efficient to hold in your taxable account, but I don’t understand why. Can you elaborate on this a bit and also if I’m holding one of the equity eSeries ETFs in my taxable account, does it make a difference which one?
Also, Is there any benefit to holding the mutual fund version eSeries in my taxable account over the ETF?
Thanks in advance for any help! Chris
@Abde: Best to call TD and ask for instructions for your specific funds.
@Chris: First off, I would encourage you not to overcomplicate your portfolio. “Asset location” strategies, i.e. holding different ETFs in each account in an attempt to achieve optimal tax-efficiency is the easiest way to make your portfolio way more difficult to manage. And any benefits you might achieve are likely to be very small.
Regarding the tax-inefficiency of traditional bond funds, this may help. It’s old and the specific numbers have changed, but the problems is exactly the same:
https://canadiancouchpotato.com/2013/03/06/why-gics-beat-bond-etfs-in-taxable-accounts/
Yes, the e-Series funds tend to be easier to manage in a taxable account:
https://canadiancouchpotato.com/2017/01/26/ask-the-spud-can-i-make-taxable-investing-easier/
Hi Dan,
I am a dual U.S. / Canadian citizen. I’ve lived in Canada my entire life, however I file taxes to both countries. I’ve been a fan of Canadian Couch Potato for many years. I recently had a windfall of cash and am looking to invest this through an “couch potato” index tracking method. This will be inside a taxable account.
Due to dual citizenship, my investing options are limited. I do not invest in a TFSA. I hold e-series funds in my RRSP. I also hold equity in my home. As a US tax payer, investing in a taxable account can result in expensive tax forms if I do it incorrectly. I’ve consulted my tax filer and my idea was to purchase a one-fund solution in USD, such as VT.
I will have to track exchange rates on transaction dates for Canadian filing, but other than that it seems to be an elegant solution. Is this a good choice? Should I be purchasing something additionally to leverage “tax loss harvesting”? Is there anything that I may not be considering?
@Hunter: As you can imagine, I cannot give to tax advice, but sounds like you have received good advice from an expert already, and you’ve covered all the important bases. As for tax-loss selling, if your holding in VT were to fall significantly you could swap it for a comparable ETF (such as ACWI from iShares) to harvest the loss and maintain market exposure.
Hi there,
I set up my TFSA with the e-Series funds about a year ago and it’s done quite well (15%!). I came to this page by chance, and I’m thinking I should have set up with the ETFs. If the performance of the Funds/ETFs is similar, but the MERs are lower with the ETFs, shouldn’t I be holding the ETFs? Or are the MERs built into the returns that you mentioned above?
Thanks for everything you do!
@Steven: For a discussion of the advantages of ETFs vs. e-Series funds, see the table on the model portfolio page:
https://canadiancouchpotato.com/model-portfolios/
Hi Dan,
I am about to open a TD Direct Investing account at TD, where I do my personal banking. I am planning to build a 4 fund portfolio couch potato strategy using TD E-series index funds. My questions is, would it better off to make monthly contributions or quarterly if I don’t have too much budget to invest at the moment?
Thank you
@Supi: The minimum preauthorized contribution to TD e-Series funds is $25 and you can contribute monthly or quarterly (or at other intervals):
See “Pre-Authorized Purchase Plan” here:
https://www.td.com/ca/en/personal-banking/how-to/ways-to-save/automated-savings/
Hi Dan,
I am planning to set up a non-registered account (registered accounts are maxed out) on Questrade containing three TD e-Series index funds (the canadian index, US index, and international index). When buying TD e-Series funds on Questrade, there is a $9.45 commission fee. I am having trouble determining how this might impact my yearly returns, if for example I invest $1,000 per month (for a total of $12,000 per year). This means that I would pay $9.45 x 3 funds = $28.35 per month, and so $340.20 in commission fees per year. Does this seem high on a $12,000 total yearly investment? I am very new at DIY investing, which is why I was looking into TD e-Series funds as opposed to ETFs for my non-registered account, to make tax reporting easier. Thank you!
Hi Dan,
Would buying TD e-series through Wealthsimple Trade be the same as buying through TD?
@Arielle: The normal advice about e-Series funds and ETFs don’t apply at Questrade. It’s the only brokerage that offers free ETF trades and charges commissions on mutual funds, the opposite of everywhere else. You should never buy e-Series funds at Questrade. I would suggest simply using an asset allocation ETF. It’s easy enough to do the tax reporting on a single fund. And if you’re planning to go all equities in your taxable account, VGRO has the added benefit of just one annual distribution.
@Chris: Wealthsimple Trade does not allow you to buy mutual funds, and there would be no benefit, since you can buy ETFs for zero commissions.
Hi Dan,
Thanks for the content. Just one quick question:
I have been using the TD E-series for a few years now. Is there a reason why I shouldn’t just change to using the TD market ETFs directly instead of the E-series funds? Especially with brokers available out there that charge no commissions (e.g. Wealthsimple, Questrade). From what I understand from your post, it would give me a much lower MER with essentially the same holdings.
@JJ: There are really two questions here. The first is whether to switch from e-Series funds to ETFs. This could make sense, but remember that the benefit of the e-Series funds is that they are more user-friendly (no need to place trades on an exchange) and easier to set up with monthly contributions. There can still be a lot of value there.
If you do decide to switch to ETFs, then the second question is whether you should use the TD ETFs. I see no value in this at all. If you decide to use ETFs, I would suggest using an asset allocation ETF, which would not only lower your MER relative to the e-Series funds but would also eliminate the need to rebalance your portfolio.
Hello Dan,
I am having few confusions about how to invest in non-registered account:
Present conditions:
– Maxed out non-registered accounts. TFSA just contain VGRO and RRSP has company offered funds with global diversification. Once a year I rebalance myself.
– Have 1 year emergency funds in HI-SAVE account.
#1. I have read your whitepaper about how to calculate ACB https://www.pwlcapital.com/resources/as-easy-as-acb-understanding-and-tracking-your-adjusted-cost-base-with-etfs/?ext=.pdf . Thank you. It is very useful. My plan is to buy once each year and never sell it. Time horizon is 5+ – 10 years.
#2. In this page in one of the comment you have suggested to buy VGRO (all in one solution). But here: https://canadiancouchpotato.com/2013/03/06/why-gics-beat-bond-etfs-in-taxable-accounts/, it is mentioned that GIC will be a better choice. And further, here: https://canadiancouchpotato.com/2017/01/26/ask-the-spud-can-i-make-taxable-investing-easier/, it is mentioned that TD e-series will be a good choice too. In some articles on CCP, its mentioned to invest in BMO ZAG which are tax efficient (https://canadiancouchpotato.com/2014/02/13/new-tax-efficient-etfs-from-bmo/ ) . I am very confused. I want to buy and hold for 5+ – 10 years. Is there a simple solution for less to none house keeping apart from GICs.
Thanks in advance.
Hi Dan,
I have read your acb calculation whitepaper. Thank you for information sharing. I would like to begin investing in taxable account. Currently, I hold VGRO ETF in TFSA and globally diversified funds with least MER in RRSP from employer offering.
Please guide me on whether I should buy TD-Eseries, GICs (Source: https://canadiancouchpotato.com/2013/03/06/why-gics-beat-bond-etfs-in-taxable-accounts/) or tax efficient Bons (Src: https://canadiancouchpotato.com/2014/02/13/new-tax-efficient-etfs-from-bmo/). I am looking for 5 + to 10 years long term hold period and I am fine with acb calculation but also don’t want to over complicate investing. Plus. I will buy once a year and will not sell it in 10 years.
@Ishan: Your question #2 is a bit like asking whether you should buy a knife or a fork. The answer is, it depends on what you’re trying to do. VGRO is a portfolio of 80% stocks and 20% bonds, which cannot be compared to a GIC. I can’t offer recommendations that would be appropriate for your situation.
I have held a TD e-series account for my daughter. She is in Grade 10. In 2 years she will be going to college. RESP is in US equity, no bond. When is a good time to move the funds in preparation for withdrawing funds (college years)? Should I be moving funds to Bond (TD-e-series)? or ordinary savings accounts? Thanks
@Des: With a time horizon of 2 to 6 years, I think we can agree that an all-equity portfolio is no longer appropriate. But remember that even bonds can fall significantly in value over the short term (as they have this year). As a child approaches college age, it makes sense to use a mix of GICs and cash in the RESP to make sure you don’t suffer losses immediately before you need the funds for tuition. You can probably keep some small portion in equities for another year or two (maybe 20%), but the goal now is preserving the capital, not growing the investments.
Hi Dan,
I have some TDB900 but I’m looking to switch it out for something similar (Cnd large cap with low fees) but without the fossil fuel investments. Do the TD funds have such an option? If not, what would fit the bill?
Thanks.
@AK: Given the energy-focused nature of the Canadian market, any ETF that removes fossil fuels will be fundamentally different from a broad-market fund like TDB900. But you might have a look at these resources:
https://www.sustainableeconomist.com/fossil_fuel_free_portfolio
https://www.fondsdesjardins.com/etf/market-insight/responsible-investment/index.jsp
Hi Dan,
First of all, thank you for all your great work and for your availability helping us with our investments. My questions are simple:
1. I’m investing all into my TFSA right now as I read that at the end of the day, the amount of taxes you pay balances out with the RRSP. Is that true? Would you recommend to invest in both, one or the other?
2. When should I be concerned of transitioning from stocks to bonds? I’m currently doing a 25/25/25/25 on the 3 e-series stocks you suggested + Canadian bond.
2. I never understood why International Index-E was in the list. It hasn’t returned much in the last years, compared to the US index fund for example. Is it for diversity in your investment?
4. TD doesn’t allow for the creation of e-series account anymore. Is their TD Direct investing platform a good alternative? I think there are extra fees to pay.
Thanks so much!
@Ryan: Thanks for the questions. They’re simple, but the answers are not necessarily straightforward.
1. If you are in the same tax bracket for your whole life, there is no meaningful difference between the TFSA and RRSP in terms of taxes. Either you pay the tax before the money goes in (TFSA) or after it comes out (RRSP). But that won’t be the case for most people. Choosing the right one for your situation depends on a number of factors. There is lots of good information online if you Google “TFSA v. RRSP.”
2. Your asset allocation should get more conservative as you get closer to your goal (e.g. retirement), but there’s no simple formula to follow. If you are young and you have a high tolerance for volatility you could continue to hold 75% stocks for a long time.
3. A decade ago you might have been saying the same thing about US stocks. The US has outperformed everything for the last 10 years or so, but that hasn’t always been the case, and it’s not likely it will always be true in the future. Global diversification ensures that you always have exposure to the next outperforming country.
4. TD Direct is a good online brokerage, but so are many others, and most of them now offer the e-Series funds. There are generally no admin fees to pay as long as you meet the minimum account size, which varies from brokerage to brokerage. There should be no commissions to pay when buying or selling e-Series funds.
@Ryan: To provide some extra input on question 4.
If you are at TD, I’d personally just use TD Direct Investing if you’re interested in the e-Series. Made that very recommendation to a family member who was already at TD. The user interface and environment is fine and anyone with a healthy dose of common sense will easily learn to navigate it.
The only fee to be aware of is the quarterly maintenance fee of $25/quarter. This can be avoided with assets in excess of $15k, or by contributing $100/month. Check the ‘Pricing’ section over at the TD DI website in case things have changed. Most of the other big banks have very similar thresholds. Trading mutual funds is free; ETFs are not!
I personally trade the e-Series over at RBC DI with no problems at all. Their fees were identical to TD DI. I have family members at both TD DI and RBC DI. Cheers!
Hi Dan, I’ve read your blog for many years and know you’re a big fan of the TD e-series funds as am I. Many TD customers including myself received an ominous letter from TD Mutual Funds that effective Nov 15, 2021 that they are ‘streamlining’ their fund offerings, including some that I hold, and I will no longer be able to purchase certain funds after that date. It doesn’t explicitly call out e-series, but these are the only TD funds that I hold! So it seems they haven’t explicitly announced it but it makes me wonder if they are discontinuing TD e-series. I’m happy to share the letter. Any insights on this possibly disappointing news?
@Michael: I don’t have any inside knowledge about TD’s plans. I know they recently discontinued the I-Series funds for their self-directed customers, which was a good thing, because these were unnecessarily expensive. Given that TD just re-tooled the e-Series funds (using their ETFs as the underlying holdings) I would be surprised if they discontinued them: I hope not. Please do share any news you hear from them.
HI Dan,
I can confirm that you can no longer purchase TD e-series via TD Mutual Funds. My trades kept getting declined with a message that my purchase was outside of my risk tolerance based on my profile…it wasn’t. I finally reached out and got passed through to someone who informed me that you can continue to hold what you have but you cannot purchase them unless you move to TD Direct Investing. I was just in the process of setting up an account there, but now i’m wondering if that’s the best scenario?
I have a Questrade account that I use for stock purchases. But now I’m wondering if I should just start rolling all of my new purchases over there and by asset allocation ETFs through them. You mentioned in an early comment that there are cheaper options than the TD ETFs. BUT, I do make regular monthly purchases, so e-series might still be the way to go?
This used to be so easy! Guess I’ve got some reading to do. :)