In my last post I reviewed the returns of my model ETF portfolios in 2021. Now let’s take a look at how the TD e-Series index mutual funds performed during the year.
We’ll start with the returns of the four individual building blocks. A reminder that published mutual fund returns are always net of fees, and they assume all distributions are reinvested.
Fund name | Fund code | 2021 return |
---|---|---|
TD Canadian Index Fund - e | TDB900 | 25.35% |
TD U.S. Index Fund - e | TDB902 | 25.25% |
TD International Index Fund - e | TDB911 | 9.79% |
TD Canadian Bond Index Fund - e | TDB909 | –2.98% |
Source: TD Asset Management
And now we’ll consider the returns of the five balanced allocations that make up the model portfolios, which span the range from conservative (30% stocks) to aggressive (90% stocks). The returns below assume your portfolio started the year with your target mix and that you never rebalanced:
Asset allocation | 2021 return |
---|---|
70% bonds / 30% stocks | 3.95% |
55% bonds / 45% stocks | 7.42% |
40% bonds / 60% stocks | 10.89% |
25% bonds / 75% stocks | 14.35% |
10% bonds / 90% stocks | 17.82% |
Source: TD Asset Management, Microsoft Excel
Stacking up against ETFs
As we’ve seen in past years, the e-Series funds generally stack up well against their ETF counterparts: despite their higher fees, the funds occasionally even outperform. In 2021, for example, the TD Canadian Index Fund delivered about 29 basis points more than the iShares Core S&P/TSX Capped Composite Index ETF (XIC). and the TD U.S. Index Fund had a slight edge on the Vanguard U.S. Total Market Index ETF (VUN).
We need to acknowledge the reasons for these differences. In the case of Canadian equities, the TD fund and the iShares ETF track different indexes: although both get exposure to the broad market (large, medium and smaller companies), their methodologies are not identical, so their relative performance will vary from year. Most of these differences are random and will even out over time.
In the US equity category, the differences go a step further. VUN tracks the total US market, with more than 4,000 stocks in its portfolio, while the TD fund tracks a large-cap index that includes only the 500 biggest companies. In any year when large-cap stocks outperform mid and small caps, the TD fund will come out ahead.
Similar caveats apply when you compare the performance of the balanced portfolios. For example, the TD e-Series portfolio with a mix of 40% bonds and 60% stocks returned 10.89% last year, compared with 10.29% for the Vanguard Balanced ETF Portfolio (VBAL), which has the same overall mix of bonds and stocks. But dig deeper and you’ll find that VBAL includes foreign bonds (which lagged Canadian bonds) and a slice of emerging markets stocks, which delivered negative returns in 2021. That explains the slight underperformance, and again, over other periods these differences will swing in the other direction.
That’s all, folks
Although 2021 again proved the TD e-Series funds can (in theory, anyway) be a good alternative to ETFs, recent changes in the industry are making them increasingly unattractive. As a result, the current edition of my model portfolios no longer includes the e-Series. This pains me a little, as these funds have been among my recommendations since 2010.
I’ll anticipate the questions that always follow changes to the model portfolios: no, I’m not suggesting that if you’re using the e-Series funds you should promptly liquidate them and choose one of the ETF options. If you’ve been using these funds successfully for years, then you should continue doing so. But I’m no longer eager to recommend the e-Series funds for new investors for several reasons.
The first is that one of their biggest benefits—the ability to buy and sell them without trading commissions—will soon disappear at several brokerages. Last year the Canadian Securities Administrators announced a ban on discount brokerages collecting trailing commissions from mutual funds, a rule that goes into effect on June 1. This was well-intentioned, as trailing commissions are ostensibly designed to pay for services that discount brokerages don’t offer, such as planning and advice. But the response from many brokerages has been to introduce commissions for buying and/or selling mutual funds, treating them just like stocks and ETFs.
In March, RBC Direct Investing will introduce a 1% commission on fund purchases (maximum $50) and CIBC Investor’s Edge will charge $6.95 per transaction. If you own the e-Series funds at one of these brokerages, they will likely lose any advantage they may have had over ETFs. (BMO InvestorLine and Scotia iTRADE haven’t announced their new policies yet.)
The lone rebel so far has been TD Direct Investing, which announced it would not charge commissions on mutual funds, so if you hold the e-Series funds there, you might be able to continue with no changes. But TD no longer allows you to access the e-Series through a TD Mutual Funds account, which used to be an attractive option for investors who preferred not to open a brokerage account.
Although none of these problems has anything to do with the e-Series funds themselves, the reality is that there are just so many better options now. The brokerage industry is turning the old rules on their head by charging investors to buy mutual funds while at the same time offering zero commissions on ETFs. No-fee trading is now available for at least some ETFs at many brokerages, including Questrade, National Bank Direct, BMO InvestorLine, Scotia iTRADE and Qtrade. Trading commissions, in and of themselves, are no longer an obstacle for investors looking to build an ETF portfolio.
Finally, the introduction of asset allocation ETFs has made the e-Series funds even less appealing. These all-in-one ETF portfolios have the great benefit of maintaining themselves: the e-Series portfolios, by contrast, have four components that need to be regularly rebalanced. The e-Series funds used to be more user-friendly than ETFs, but that’s much harder to argue today.
So again, if you’re a fan of the e-Series funds and you’re able to continue holding them with no trading costs, then don’t let me talk you out of it. But if you’re looking to build a low-cost, low-maintenance index portfolio, then asset allocation ETFs at a zero-commission brokerage are likely to be a better choice.
Wow, so much going on i the background. Thank you for this info, I have owned TD E-Series for many years in my sons’ RDSPs and my grandchildren’s RESPs. I am happy with the returns and being in this for long term, will not make any changes.
Very informative article. Thank you.
Thank you for this breakdown. It’s sad to hear about the added commissions for mutual funds. I’ve been successfully investing in the e-series funds through an easyweb mutual fund account for a while now (before they discontinued it), so I’m assuming the commissions don’t apply in my case. I think I’ll stick to these until TD discontinues this for good in easyweb even for existing customers (if ever). I’m still enjoying the set-and-forget approach with the exception of an annual rebalancing, and the ability to invest by dollar value, similar to some of the benefits of a robo advisor, but with half the cost. Thanks again for this article!
Hi Dan. I am so glad I subscribe to your emails as RBC (my main bank) recently convinced me to switch my TD web broker accounts to RBC Direct Investing accounts so I could have everything in one place and still purchase TD e-series at the same price. Apparently not the same price for long!
I am committed to switching now, so I plan to move to ETF’s instead as you recommend. If I want to keep the same 75 equity/ 25 bond split I have been using, is it more tax efficient to put the bond portion of my portfolio entirely in my RRSP and TFSA?
What would you recommend using for an RESP as I’m currently looking into this for my son. My RRSP is done in e-series but I’m open to change. We won’t be able to hit the 2500/yr to maximize the government contributions but will hopefully get 800-1000/yr.
Would you use Questrade then for this purpose and a 1 fund solution?
Hi Dan,
I fully committed to one asset allocation ETF for my TFSA and RRSP last year. Prior to that I was using your 3-ETF portfolio.
I do still have my taxable account with TD e-series, however, because I read that that would be an easier way to keep track of ACB over the next several decades.
I still access my TD e-series accounts from the TD page that I would also use to access my credit card (so, not TD DI). Of course, it’s entirely possible that TD may discontinue this method in the future (since they prevent new people from setting up this way).
In my situation, would you recommend that I switch over to an asset allocation ETF for my taxable account? (Purely from a tracking / tax calculation perspective.) I made a real effort to learn how to track my ACB a few years ago and I feel like I understand about 80% of what I need. But I don’t want to make any costly errors that compound over the years.
Thank you for your excellent blog posts and your new book (which of course I ordered).
Take care!
If I wanted to switch my e-series investments to ETFs which EFTs do you recommend they be converted to? The TD e-series has always performed well for me but I have recently opened a TD Direct Investing account so have more options now. Given that my investments are in registered products (RRSPs and RESPs) are there any consequences for switching? Would there be any negative consequences for holding the e-series for the long-term?
Hi Dan, great update, as always. Question: you say that, “TD no longer allows you to access the e-Series through a TD Mutual Funds account, which used to be an attractive option for investors who preferred not to open a brokerage account.”
I’m still able to buy e-series funds (registered) through TD EasyWeb (I don’t need a TD DI account). I use a set-it-and-forget-it approach. Is TD discontinuing this method of buying funds? Here’s hoping I’m somehow “grandfathered” in and can continue doing so…
I use asset allocation ETFs in my registered accounts, but I was going to use e-series funds in my taxable account because I don’t understand ACB, especially for a DRIP. I’m wondering, if I DRIP my ETF and don’t keep track of ACB, what can happen? Is it really that bad? I mean, brokers keep track of ACB, how far off can they be? (Real question, not sarcastic).
@Amy and Al: Regarding tracking the ACB of an ETF in a taxable account, this is not especially complicated. The key issue is not the buying and selling, it’s the adjustments that need to be made when the fund distributes return of capital and/or reinvested capital gains. Some brokerages make these adjustments for you, while others don’t: it’s better than it used to be, that’s for sure. In any case, I’d suggest sticking to a single ETF in the taxable account just to make your life easier.
This will also be helpful: https://www.canadianportfoliomanagerblog.com/tracking-the-acb-of-your-asset-allocation-etf/
@Rahim: I think it would be worth clarifying this with TD directly. I have heard from other investors who have said they are no longer able to make new purchases in their existing e-Series accounts.
@Charlene: If you’re comfortably set up at TDDI, then you could continue using the e-Series funds, unless TD changes its policy and starts charging commissions like other brokerages. If you do want to switch to an asset allocation ETF, have a look at my model portfolios and choose the one that is closest to the asset allocation you’re using now. There would be no tax consequences to making that change in an RRSP or RESP.
I fully agree it’s time to stop recommending the e-series. While they’re still a decent product, they will lose much of their appeal when brokerages start charging a trading commission. But really, the MER is high enough that it makes a big difference when you get into 6 figures portfolios. I’ve recently switched my e-series to equivalent index ETFs, except for my non-registered account because I have $50K+ worth of embedded capital gains in there, and I’m in a high tax bracket. I personally wish I had done ETFs from the start… much regrets!
I have had e-series through TD Mutual Funds for several years and just last week increased my automated payments and did some rebalancing yesterday. Other than being forced to update my investor profile recently, nothing has changed. I’ll starting keeping an eye on alternatives in case this is discontinued at some point in the future, but for now it’s functioning completely normally and is as convenient as ever. I have heard they no longer allow you to create new accounts but this is the first I’ve heard of existing accounts being affected. Mine is fine!
CIBC Investors Edge has the right (and reasonable) idea IMO. It will be treating purchases (and presumably sales) the same way it treats stocks w.r.t. the flat $6.95 commission. (FWIW, I’m with CIBC IE).
RBC Direct Investing commission’s of 1% (max $50) seems borderline criminal when you start slinging around large amounts of units/dollars.
My 2 cents
Great article and very interesting updates to consider. I have $160K + worth of e-series funds spread across my personal RRSP and Family RESPs (3 children = 3 individual RESPs). So with those 4 accounts, there’s 16 e-series funds I need to manage inside my TD DI account. Based on your past articles, I believe I’m within the reasonable range to switch to ETFs. To simply things, I think I want to move to an iShares/Vanguard asset allocation fund but I’m considering switching to a brokerage like BMO/Scotia where fees are waived on these funds. Do you think it’s worth the hassle of moving to take advantage of these ETFs and no fees (I make frequent purchases today).
I’m also curious to hear your thoughts on dividends. I don’t believe I’ve seen any of your articles talk about dividend performance on e-series vs Vanguard/iShares unless I’ve missed it. TIA.
@Jason: I can’t really advise you about whether you should switch brokerages. But I will say that if you are making the switch to ETFs, and you’re making frequent purchases, then $9.95 trading commissions will eat you up. ETFs just aren’t the right product for those making smallish, frequent contributions if you’re paying commissions on every trade.
RE: dividends, the returns of the e-Series and ETFs include dividends. They are “total returns,” which include dividends plus price appreciation.
Hi Dan, what should be the recommended investing strategy if someone is looking to pick ETFs asset allocation. Since every purchase in ETF will cost trading commissions of $9.95, should it be once a month to buy ETFs for monthly contribution in RRSP or TFSA?
Hi Dan. I came across the Canadian Couch Potato as a result of the Millionaire Teacher which my son has brought home a year ago. We have our funds (RRSP, TFSAs, and an investment account) that is actively managed. For 2022, we have started weekly savings through contributions into an investment account (non-tax sheltered) of $2K into e-shares (40% bonds/60% equities) with DRIP selected. We are with TD and there have been no issues so far – we are 5 weeks in. Each week, we will use the cash flow to rebalance the proportions to ensure they are at 40%/60%. We are hoping to continue the weekly savings for at least the next 5 years. Currently in our mid-late 50’s, we are thinking of retiring in the next 7-8 years and are leaning towards drawing down from the RRSP before age 71 and to deferring both the CPP and OAS to age 70.
After reading your book the same day after it came last week, we are considering VBAL or XBAL (40% bonds, 60% equities) as a possible alternative or perhaps complement for the weekly savings. Another thought was to maybe go with the e-series this year and then switch to saving into the all in one ETF starting next year. The cost for trades at TD is $9.99 but they do have a TD Easytrade offering with 50 free trades a year per household member that would suffice for our needs (1 trade per week) without needing to go outside TD.
We have maxed out our RRSPs and TFSAs and are wondering if this is right approach to take for a fully taxable investment account and whether we would be less tax disadvantaged by going with one approach (e-series) vs. the other (single ETF). Our current actively managed portfolio is similar in nature (40% bonds, 60% stocks) – it makes sense to go with a higher proportion in equities but we are still a bit hesitant in this regard. We have defined benefit pension plans so there is a chance we may gain confidence to move to a 25%bonds, 75% equity portfolio with the investment account shortly.
We would really appreciate your thoughts on the following items – should we abandon the e-shares initiative we have embarked upon given there are no charges to us as TD clients? Or should we open TD EasyTrade accounts and channel our efforts into VBAL or XBAL? Is one better than the other if this is a taxable account? Is there anything else we need to be mindful of.
Thank you in advance for your feedback. I enjoyed the various examples in the book – even the one about resolutions where the man stopped looking at the scale after a few days.
It is unfortunate that some people are locked into these accounts that are changing. I’m with RBC Direct Investing for my work contributions. I now will be changing my entire strategy as over the long run a single purchase of an all in one etf every 3 months would be significantly cheaper than my current version which is to purchase even amounts of e-series.
@Karim: Thanks for your comment, and glad you enjoyed the book! As long as you are able to purchase the e-Series funds with no commissions (which seems to be the case at TD Direct) then there is no issue. There is nothing wrong with the funds themselves: the potential issue is that it rarely makes sense to use mutual funds funds rather than ETFs if both options incurred trading commissions.
Thank you Dan. I found out that the TD Easy Trade offering has a catch to it – the free trades are only applicable to TD ETF’s, and not any others so using Wealth Simple, Quest Trade or other mechanisms that have no added cost (detailed in the book) would be better in this regard. Sorry for the long initial message. Given these funds are being invested until retirement in a taxable account, are there any tax disadvantages to using e-series vs. an ETF when it will come time to draw down the funds? We are hoping to save 80-100K a year – are there decisions we can make now that are more practical from an investment choice perspective? Are there other considerations we need to be mindful of?
Thank you again.
Karim.
Hi Dan, if the TD e-funds no long pay trailing commissions to discount brokerages, will we see even lower MERs on these funds now? One has to think that discount brokerages make up a significant percentage of the receivers of those commissions.
Hi Dan,
Thank you for the link.
For some reason, ACB made sense this time! I even went back and read the Easy as ACB white paper, which is quite similar to the information provided in the link. (I had trouble with that paper a few years ago.)
Anyways, it all clicked this time. Just wanted to let you know! I’m in the process of switching to VEQT in my non-registered account right now.
Take care!
@Jim: I think it’s fair to say that the fund industry has zero incentive to lower fees, so I would not expect that.
@Karim: There are no significant differences between the e-Series funds an asset allocation ETF in either the accumulation stage or the drawdown stage. The biggest difference will be bookkeeping. My suggestion would be to stick to a single asset allocation ETF in the taxable account to keep things as easy as possible:
https://www.canadianportfoliomanagerblog.com/tracking-the-acb-of-your-asset-allocation-etf/
Hi Dan,
Thank you so much for your website! My first foray into the Couch Potato strategy was 3 years ago with RBC Direct Investing and TD e-Series funds. I’m stuck with RBC for my GRSP, so that seemed to be the best way to go.
Today I have about $20,000 invested in 70% bonds/30% stocks at RBC. With the introduction of commissions, I’m not sure it makes sense to pursue this route. RBC still charges $9.95 for ETF trades, and with an influx of only $125 every 2 weeks, a one-fund solution doesn’t seem like a good option either.
I’m curious to know what you’d recommend in a case like mine. Maybe a GIC would make more sense? Or maybe I should let my deposits accumulate and bite the bullet for a couple of ETF trades a year? Thanks in advance!
@Steve: I don’t think GICs are appropriate in the situation you’ve presented. In most cases, GICs carry a minimum purchase amount, and you don’t want to clutter up your portfolio with lots of small GICs. I think the only thing that makes sense is to let your contributions accumulate until you have enough to make a single trade. But even then, at $9.95 per trade you will want to have at least several thousand dollars. Remember that if RBC charges 1% on mutual fund trades, then a $1,000 trade would cost $10, so unless you’re making larger trades than that, the ETF option is no cheaper.
Thank you Dan! So maybe the 1% on mutual funds is the better option in my case (stuck with RBC). At least my biweekly contributions will be invested, instead of waiting a year for them to accumulate and getting no return.
@Steve: Yes, that sounds reasonable. You’re still losing 1% per contribution, but as you note, this will likely be outweighed by the benefit of regular investing. It would be worth seeing whether the 1% commission is waived if you set up a pre-authorized contribution (PAC).
I am loving the book and appreciate the blog, thank you! I have a non registered account with computer share from receiving US stocks at a company I’m no longer with. Should I move these over in kind to my RRSP or TFSA? I have plenty of room. I just can’t understand if it’s worth paying capital gains tax and currency exchange to move it over. Thank you again, I love this site
@Angele: Thanks for the comment, and glad you enjoyed the book. If you have investments in a taxable account, room in your RRSP or TFSA, and a long time horizon, it usually makes sense to transfer them to the tax-sheltered account. In the case of the RRSP, the tax deduction would likely more than cover the capital gains tax. In the case of a TFSA, you would pay some tax on the capital gains, but all future growth in the investments would be tax-free.
Hi – I’m an e-series investor within a TD mutual fund account. You said above that “TD no longer allows you to access the e-Series through a TD Mutual Funds account”. I also thought that was the case last month when I suddenly couldn’t purchase funds. I was initially told by the local Branch that I could no longer buy them in a mutual fund account (and to move to TD Direct), but a call to the general investment line told me I just needed to update my investment profile and could still purchase the e-series funds as normal. After that, another local Branch rep confirmed that yes, people can still do this (that their were changes to mutual fund accounts but they didn’t affect e-series).
So it seems like there is a lot of confusion, but I can attest that I successfully purchased e-series funds in my TD mutual fund account on January 20.
Hi Dan,
I was wondering if TD dividend Income D series with MER1.20 is a good investment or not?
Hi Dan,
What do you think TD Q Canadian Dividend ETF (TQCD) is it good investment? is it similar to TD dividend income D series?
Thanks,
Grace
And, can now attest that another transaction to purchase e-series in my TD mutual fund account this week went through just fine. So I’m not sure what happened that there has been so much confusion and misinformation, other than that the branches don’t seem to have accurate information and are misguiding people.
Hi Dan
Thank you for the information about the 1% Commission at RBC – I might have missed it. I was using the TD e-series funds for bi-weekly contributions to my TFSA. Once a year, I sold the funds and purchased an ETF. This allowed me to regularly invest without fees, and then make a larger ETF purchase. Regretfully, my plan will no longer work with the new commission on mutual funds. If I allow the funds to accumulate, at what point is the cost benefit worthwhile on the $9.95 ETF fee? $5000 ? $10,000? or higher? Thank you for all your great advice on your blog!
@Janice: I think a minimum of $5,000 or so makes sense: that works out to a commission of 0.2% ($9.95 / $5,000).
What’s the point in buying bonds if they more or less stay close to constant over the years? I’m at a 25B/75S right now, but will probably go for 10B/90S soon… Seems like the bonds are just taking up my TFSA contribution room.
@nick, what are you basing this statement on? The last 1 year of returns? Bonds have been facing headwinds recently because BoC rake hikes have been priced in. It won’t always be like that, and I’d argue that now is a good time to buy. If you look at total return charts of bond funds (including interest payments, not just the price movement), you’ll see a steady climb up, with a few plateaus like we’re going through right now.
Hi Dan,
I finished your book last night – found the detail for the asset allocation funds was pretty cool, and also the information on what you do as a portfolio manager (help reduce fees, tax efficiency, etc).
I am curious when you would recommend someone to pay for a financial plan? I’m just a student in university with no complications, and also not much money to save anyway. But do you think someone is fine until they don’t know what to do, or would you suggest someone get a financial plan once they are able to start saving a reasonable amount per month?
Thank you!
Hi Dan,
I’ve been using TD e-series funds for several years (60K invested) and I also have an RESP in a TD balanced index fund, which I’ve learned is no longer available for purchase. I’ve been happy with the e-series funds, but I’ve never particularly enjoyed the annual rebalancing. I also don’t invest regularly, so I know I’m not taking advantage of their most appealing factor. In this case, does it make sense to transfer both of these accounts to asset allocation ETFs, and as a TD customer, does it make sense to do this by opening a TD Direct Investing account or should I consider another option like Questrade? Thank you for all the great info!
The TD eseries funds still have the advantage of smaller monthly automatic contributions without incurring the $6.95 commission at CIBC Investors Edge. I checked with Investors Edge and the $6.95 commission does not apply to regular investment plans or with switches. So, in the above scenario they are still a good way to invest smaller amounts on a regular basis.
@Stacey: From what you have described, as asset allocation would likely be a better choice than individual e-Series funds. And if you bank at TD and are comfortable on their platform (which is very good) I don’t think there’s a burning need to switch your RESP to another brokerage to save a couple of $9.95 commissions.
@Vince: Thanks for the comment, and glad you enjoyed the book. I’d say it makes sense to consider a financial plan when you reach a point where you need to make some important financial decisions and you don’t feel equipped to make them without help. That might mean you’re having some difficulties (like overspending, or trying to getting out of debt), or perhaps you’re getting married and want to sort out some money issues with your partner. But I doubt it makes sense if your questions are largely about whether to use an RRSP or a TFSA, and so on. If you’re saving regularly and investing in a low-cost diversified portfolio, you’ve got that part looked after.
Following on one of the above points, even though I’m “all in” on the couch potato ETF strategy, I still use TD e-Series throughout the year to convert my monthly cash contributions into something useful until I do my yearly rebalance – but only becasue I can still do so for free within TD Direct. If that changes I’ll probably just have my monthlies sit in cash
@charles Totally a rookie, but I was looking at the bond mentioned in the guide and saw it had a ~10% growth over the past 20 years, while the CDN + U.S. Index Stocks had close to a 200% climb over 20 years.
Hi Dan,
I started my investing journey with TD e-series a few years ago but over the last 1.5 years became comfortable with ETFs, started purchasing them and now I am trying to phase out the e-series. Although the all in one ETFs are attractive, with advice from my accountant, I am holding individual ETFs with allocations across TFSA, RRSP and CCPC to minimize tax drag. As I look to purchase more in ETFs, I wanted to ask if it is better to keep the e-series that I have and going forward purchase all ETFs and just dilute the e-series (current funds in e-series are 100k in TFSA and 47K in CCPC) ? Or should I sell the all the e-series and purchase the comparable ETFs with the money (CDN,US, Dev markets, bonds)?
Also, if I sell the e-series in the CCPC, I assume that will trigger capital gains so I’m not sure if that’s a good idea and lastly does the superficial loss rule apply if I buy the comparable ETFs in the CCPC (ex. TD902 and VUN)?
Thank you!
Another great article. Thank you, Dan
This information is so helpful. Thank you, Dan!