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.
@Stephanie: It’s true that allocating different asset classes across different accounts (as opposed to using a single asset allocation ETF in all of them) can potentially improve tax efficiency. But there is a significant trade-off here: you will make your investing life much more complicated, and rebalancing across multiple accounts quickly becomes a challenge. In my experience, this defeats many DIY investors at some point. I generally don’t recommend going down this road unless you’re a very experienced investor.
Yes, you will realize some gains if you sell the e-Series funds in your corporate account. But don’t forget that realizing gains in a corporation from time to time is often a good thing, as it allows you to take capital dividends.
The superficial loss rule would not apply to TDB902 and VUN, as these funds track different indexes. And, of course, if the funds have gains, as you’ve suggested, then there is no loss to worry about, superficial or otherwise.
I started looking at ETFs and there are so many choices. For my age and risk, equity ETFs are fine with me. I looked at CDN, US and GLOBAL ETFs. The three I like are XIU, VTI and XAW.
I see that the XIU fee, still very low is higher than VCN/VCE or XIC but 10 year data shows XIU outperforms. Any comments? I was going to purchase this for my three accounts, TFSA, RRSP and non registered. Would you recommend one for all three or a different ETF for each account.
VTI is US listed but wouldn’t keeping it in an RRSP help with the withholding tax issue?
I plan to put the Global in the TFSA
I’m not asking if these individual ETFs are the best because I see many others being equal. Can you recommend 3 or 4 in each category so I can research them and decide which is best for my needs.
Hi, I’ve had the TD efunds for a very long time and would rebalance every year. As you’ve said TD will no longer allow me to rebalance with out moving to a brokerage account. I’m now in the process of moving to quest trade and getting into ETF’s. Would you suggest to just get into one of the ETFs where you would no longer have to balance anymore? I also noticed if you wanted say a 70/30 split and would have to buy 2 separate funds would that not cause you to pay more MER at .2 per fund vs .2 on the ETF with the 60/40 mix. Your advice would be appreciated. Thanks
@Lorenzo: Yes, certainly a single asset allocation ETF is easier to manage than three or four mutual funds that need to be rebalanced manually.
You would not pay more in MER if you hold two ETFs instead of one. MER percentages are not added together: if you hold two (or 30) ETFs and each one has an MER of 0.20%, then your portfolio’s MER is 0.20%:
@Dr. Pat: A good starting place is to look at the underlying ETFs in VEQT, XEQT and ZEQT. These all-equity ETFs include traditional index funds for Canadian, US, international and emerging markets stocks.
Hi Dan! I am currently reading your book. I just completed step 7 and I am a little confused. You mention an example of how to buy the ETF according to my allocation. If my understanding is right about step 7(ZAG example); Suppose if my allocation is 80/20 and I have 100k, I’ll have to buy 20k worth of 100% bond and the balance 80k, I will have to buy 26.66k of ETF (that has 100% US market), 26.66k of ETF(that has 100% Canadian) and 26.66k of ETF( that has 100% International Market). Am I right?
VGRO is 80/20 and has a 38/36/26 of the market split. If I am okay with the market split, I was wondering if I could just buy this ETF instead of buying different ETFs with 100% and balancing according to my risk factor?
@Amalan: As long as you include a good amount of Canadian, Us and international equities in the portfolio, the exact mix does not make much difference. The mix in all of the asset allocation ETFs (such as VGRO) do indeed include more than one-third in US equities, which is fine, especially now that the US makes up about 60% of the global market. So if you plan to use a mix of 20% bonds and 80% equities, it’s definitely better to go with an all-in-one fund rather than using individual ETFs.
In the book I describe the process for building portfolios with multiple ETFs, since I think it’s important to understand what goes into a well-designed portfolio and why. But if you have the opportunity to use a one-fund portfolio, that’s going to be preferable most of the time.
Thanks for the suggestion, Dan. WIth 20% bond allocation in VGRO, it holds 12% Canadian, 4.32% Global, and 3.66% US bonds. Thinking about currency risk, I am open to managing multiple ETFs as I just saw your rebalancing spreadsheet(which cuts my workload short). So do you think it’d be better if I stick to 20% of Canadian bond ETF subdividing that into 70% in Government and the rest in corporate bonds?
@Amalan: There is no currency risk in the fixed income holdings of VGRO and related ETFs: the currency on the Us and global bonda are all hedged. My suggestion is not to overcomplicate things: if your target is 20% bonds and 80% stocks, an all-in-one ETF will make your life much easier.
@Amalan: I was at your stage 10 years ago. I can see that you have actually gone through 95% of your intellectual revelation, and I understand the huge relief that you now feel compared to the uncertainty before of not understanding how to Beat the Market or, more importantly, not understanding that one should not plan to try to Beat the Market. That remaining 5% you haven’t fully got yet is likely tied up with the minutiae of understanding exactly how and when to balance to keep the equation square, or at least square enough to maintain your optimum position. You actually don’t need to fully understand that last 5% to make your critical step forward.
I get it. It was something like this uncertainty that held me back for way too long before I finally committed. In the end I assembled a rather large portfolio that in retrospect had too many moving parts, for fear that at the scale I was at, too simple would result in lost opportunity for some savings. Over the years I was able to simplify somewhat, and tidy up some of my more overcomplicated excesses. But the Single All-In-One ETF’s were not available then, otherwise something like that then could have been a good choice. It would cost me too much of a Capital Gains Tax hit in my non-Registered account now to sell everything and repurchase a Single All-In-One ETF, so I’m leaving things as they are (except in my TFSA which I have converted to a single XGRO holding, without having to take a tax hit.)
This is a long-winded way of saying that I understand that from where you are, the All-In-One ETF may seem like an inefficient way of managing your finances. But Dan is right (not surprisingly!!), and the pragmatic solution of a single holding of VGRO or XGRO will certainly make your life easier; it may indeed also turn out to be more efficient, or at least not less efficient money-wise.
My group RRSP is through RBC Direct Investing. I am using TD’s eSeries Funds in the account due to them still charging for ETF trades, and being able to make my purchases directly when funds were deposited biweekly.
It looks like the better strategy will now be to let funds accumulate in the accounts (employer and employee contribution accounts) before making ETF purchases. So purchasing a single VGRO or XGRO every 8 weeks (four deposits to clear the $1,000 threshold, where the $9.95 flat commission is less than 1% of the Buy order as opposed to making my eSeries purchases every other week.
Direct Investing is charging a $150 fee to transfer funds out, so there’s no advantage to transfer the funds to another brokerage that has a more modern fee structure.
Thank you for your feedback Dan and Oldie! I have one last clarification. What happens when a bond in a bond ETF matures? Will it be replaced by a similar one or will the ETF company pays us our share in the bond?
My 6 figure TFSA has held only TDB900 and TDB902 , in equal measure, for at least 15 years. I’m a happy camper.
Do you think it’s worth learning how to do options/puts/calls, combined with a couch potato portfolio? Or is that something that will likely lead to below average performance?
After finding out that the e series are coming to a close with TD and they would ‘reassign’ my holdings,
I bit the bullet, sold my funds and transferred the cash to Easy Trade where I invested in the underlying ETF’s.
I was wondering if you could include these four in your portfolio reviews as they represent the series and Easy Trade being a great starting out platform for beginners?
IHi Dan! I just finished reading your book. My investment horizon is about 40 years and I thought of starting with 100% equities and then rebalancing it after testing out my tolerance level. Instead of buying VEQT, I am thinking of buying individual ETFs. I am currently planning to hold 34% of US, 34% of Canadian, and 32% of foreign equity which will hold 24% in developed and 8% in emerging markets (three-quarter rule of thumb mentioned in your book). Do you think it’ll be a good idea if I just hold VFV instead of VUN for US equities?
@noob: Noooooo! The whole point and beauty of the Couch Potato Theory is that you are hitching your fortunes absolutely to the Index (or indexes if you have split up your portfolio among sensibly diversified indexes). No standard deviation, no uncertainty, no dreaming, no longing for the unrealistic, the promised, the pot of gold. That’s as good as you’re gonna get, no more, but no less; and it’s pretty damn good. Once you have grasped that principle, why would you go backwards and risk your serenity and security by introducing an extraneous component with high volatility and unpredictability, requiring sophisticated knowledge and skill (my ironic choice of words, more accurately rather “fortune telling ability.”).
@Ajay: Thanks for reading the book! I’m not sure there is any advantage to buying the underlying ETFs instead of just holding VEQT. But if you decide to do that, the proportions you suggest seem fine. As for VFV versus VUN, the latter is less heavily weighted to large-cap stocks and should provide a little more diversification.
@Steven: I don’t spend much time reviewing specific platforms, as there are just so many available now. But it does seem that using TD’s ETF lineup via the commission-free Easy Trade platform is a potentially good option. However, it sounds like you will still need to rebalance the portfolio manually, so using a single asset allocation ETF is likely to be a better choice. These should still be available via the Easy Trade platform.
@Amalan: Most funds do not hold bonds until maturity. They usually sell them when they are one year from maturity and then reinvest the proceeds in new bonds. If the bonds are sold with capital gains (which can happen during a period of falling interest rates) then you may receive some capital gains as part of your distribution.
I have a follow up question to your above response “If the bonds are sold with capital gains (which can happen during a period of falling interest rates) then you may receive some capital gains as part of your distribution.” So if this happens, and the bond ETF was held in a taxable account, will this affect the adjust cost base (as in I’d have to calculate it myself)?
@Lee: If the capital gain is reinvested and paid to you as a “non-cash distribution,” then yes, the cost base should be increased so you don’t end up paying tax twice on the same gain. The good news is that most brokerages do this for you now. But this is not always the case, so it’s best to check with your brokerage to verify that they make these adjustments.
I’ve had efunds for years and just transferred them into TD Direct Investing. However, I’ve just gotten a huge surprise (that the person at TD who opened the account didn’t know) and found out it’s no longer possible to contribute to a spousal RRSP from another bank account, even though we were doing this for years with TD Easy Web. I assumed the spousal RRSP had just transferred to TD Direct Investing from EasyWeb, but then I after I contributed, I got the income tax receipt instead of my husband! Apparently we would need to open up TD bank accounts in order to specify if the contribution is spousal or not. So now I’m looking at Questrade, which does allow spousal RRSP contributions from other banks. I don’t want the extra step of contributing to cash and then investing it though, so am looking at the the Questwealth portfolios. It looks like the MER is still lower than TD efunds. My main question is how actively managed are these funds?
@Lafongo: Questrade describes them as follows: “Your portfolio is actively managed by experts who watch the market and adjust your portfolio when needed. Using research, the portfolio managers aim to limit losses and are always looking for opportunities to improve your returns.”
You may want to consider using an index-based asset allocation ETF if you’re looking for a passive portfolio. All you would need to do is long in a couple of times a year to make a trade.
I just spoke with someone at TD Direct Investing and they said that these funds dont have trailing commissions and will not be affected:
TDB900, TDB902, TDB911, TDB909
The person had an internal list of which ones will be affected and confirmed that the ones I listed above have no impact. So we can technically buy and sell like we usually do with no commissions.
For mutual funds that are affected, they would be considered sell only at TD Direct Investing and then you would have to find a brokerage that allows you to rebalance. So I guess for those who are investing in different mutual funds other than the ones listed in this specific TD e-series, there will be an impact.
Am I getting something wrong here? I dont quite understand why TD e-series isnt an attractive option anymore.
Could you please elaborate on this:
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.
I have been following CCP strategy for years. My time horizon is about 8 years and due to gloomy forecast for bonds, fI’m thinking of instead of having all my RRSP VCNS, i change my portfolio to 20% VEQT and for the fixed income I invest in ( longer term) GIC Just wanted to know your thoughts.
@Connie: The e-Series funds are still a good option as long as you are a client of TD Direct. If you buy them through other brokerages, you may be required to pay trading commissions, which removes what used to be their primary advantage.
TD Direct is the bank’s brokerage arm: you can use these accounts to buy mutual funds, stocks, ETFs, GICs and so on. TD also has a service called TD Mutual Funds, which can only be used to buy mutual funds and not the other types of investments. This used to be a user-friendly option for people who wanted to use e-Series funds but were not comfortable with placing orders at a brokerage.
@Reza: There is nothing wrong with adding some GICs to your portfolio as an alternative to bonds, as long as you do not need the liquidity (i.e. GICs must be held to maturity). However, if you use VEQT for equities and put all the fixed income in GICs you will not be able to rebalance by selling fixed income. If you are using VCNS, then I assume your target is 60% fixed income and 40% equities. To give yourself some flexibility you might consider something like 20% bonds, 40% GICs, 40% equities.
Hello, this is a great web site, thanks for all the info.
I just want to say that I have had TD e series since 2019 and have continued contributing weekly since. The bank has never contacted me about any changes or discontinuing this investment strategy.
Can you tell me why they don’t want to continue this. If TD bank created this and want to dis continue it, why is it a big secret to us who are invested with them?
I really don’t understand? Please, let us know what’s going on, our financial institutions won’t tell us.
@Max: As long as you are investing in a TD Direct Investing account you should be fine. There are have been no changes in that environment. If you were holding the funds at another brokerage, then commissions may now apply. If that was the case, then you would have received a notice regarding the changes.
Hi Dan, Thank you for your informative blog. I started investing in the TD E-series about a year ago, and am with TD Direct Investing, so plan on staying with the plan for now since I seem to be able to avoid the trailing commissions through TDDI. I’m currently invested in 75% stocks/25% bonds with an approximately 10-15 year time horizon. With bonds not doing very well, and with some people saying that the forecast for bonds doesn’t look very promising, what is your opinion? Do you think it’s a good idea to keep contributing to bonds monthly and maintaining the 25% bond ratio with a 10-15 year timeline?
@Christina: Thanks for your comment. I certainly understand that it has been a very difficult period for bonds. There will always be investors who bail on an asset class after a period of poor performance, but I think you can appreciate that “sell low” is not a good long-term strategy. Would you do the same if Canadian, US or international stocks fells by 10%?
Along those same lines, consider the following:
– In the past you made the decision to hold 25% in bonds because you did not feel comfortable holding 100% stocks. Have you become more risk-tolerant over time, and now you feel that a 100%-equity portfolio is appropriate? If not, then you still need bonds.
– You were adding money to your bond fund when its yield to maturity was less than 2% (which was not so long ago). Today a broad-market bond fund has a yield of well over 3%. Does it make sense to buy bonds when their yields were low and then stop when they are higher? Would you stop buying dividend stocks when their yields went up?
I understand that the near-term outlook for bonds is discouraging, but with a 10- to 15-year time frame (and unless you’re in your 70s, I’m guessing your investing horizon is actually much longer) a long-term focus is essential.
I can relate to Christina’s bond concerns. For me, it’s within my children’s RESPs as there is a shorter time horizon. Further to that, since it’s a more conservative portfolio, it’s heavily weighted with bonds, which are currently dragging the portfolio down. If I had a 20 year horizon I wouldn’t worry, but with a 7 and 10 year horizon, it’s certainly unsettling.
@Shayne: It’s definitely a struggle. But don’t forget that a bond fund with a duration of 7 or 8 years (which is currently the number for broad-market bond funds) cannot realistically lose value over any period longer than that. In practice, a recovery is likely to take much less time than that. I would be concerned if the time horizon was two or three years, but even then, the problem is not solved by selling bonds now.
As your kids get closer to needing their RESP funds, consider using a GIC ladder and/or cash holdings to make sure there is no risk of loss at that point. Bond ETFs are definitely mot appropriate for money you know you will need in the short term.
@CCP: In this unusual time when Bond ETFs are temporarily undervalued, could this be an instance in a RRIF portfolio (i.e. in a drawing down phase) where it might be advantageous to have components separated into Equity ETFs and Bond ETFs (i.e. not in a One Fund ETF), so that it might be easier to select the non-Bond component to sell from (to provide cash for RRIF disbursements), at least until the temporary bond pricing anomaly has passed. I guess my question could include the converse scenario when Equities have taken a dive in value, and then one has a huge segregated reserve of VAB/ZAG/XBB etc. Bond ETF to sell from.
Or does this violate the Couch Potato “No-Clairvoyance” rule in that temporary under- or over-pricings of ETFs are only really apparent after a year or so has passed when one has the benefit of retrospective analysis?
I’ve been a dedicated indexer for quite some time in my own personal accounts. I have been following this investing methodology since learning about it years ago from my MoneySense subscription.
The question I have for you today is regarding my children’s RESPs. I am struggling with knowing how best to move forward with an indexing strategy as the time horizon for when my children will need to draw on their RESPs gets closer. I recently moved a good portion of my children’s RESP funds into a mutual fund, which I think may have been a poor choice.
I had been indexing their RESPs since the start by using TD e-series funds (a mixture of Canadian, US, International, and bonds). My children are about 3 and 7 years away from needing their RESP funds respectively. Due to this relatively short timeline, I wanted to dial back the risk. So in January and February of this year I moved most of the funds I had accumulated through TD e series funds into the RBC 2025 (RBF 5731) and 2030 (RBF 5732) Target Date Education Funds respectively. I felt like the large fixed income exposure (mainly bonds) was a “safe” move. I see that they weren’t “safe” at all. It has not been a good year for these funds and I am down over $2,000 since investing just a few months ago due to the decrease in bond values (and I’m sure partially due to the small portion of equity exposure too).
I realize, that putting money into these mutual funds was a move away from indexing and am now realizing it may have been a mistake. If only, I could turn back time. The thing I struggle with at this point is the fact that my children are relatively close to needing the funds from their RESPs for their postsecondary education and a longer term bear market is the concern, specifically for the child who will be in post secondary school 3 years from now.
As an index investor, I don’t really know how to continue to invest in this manner for the relatively short time horizon they have. Is there an indexing strategy that would work as the children get closer to the age when they will need to draw on those RESP funds? As a general rule, you become more heavily invested in bonds the closer you get to the time when you need to draw on funds (whether that be retirement or a child’s RESP funds). I’m hesitant to increase my exposure to bonds with rising interest rates.
One thing I do need to keep in mind from listening to episode 7 of your podcast “Making Sense of Bonds”, you had mentioned that the losses in bond values don’t account for the distributions that you will receive in these funds. The distributions for these funds happen in late December. I don’t know if I can assume these distributions will make up for the reduction in the bond prices as rates increase. The BOC has strongly suggested that interest rates will continue to rise steeply and I worry that the heavy bond exposure in these funds will result in the continued fall in these funds.
I am considering taking the loss on these funds and getting out of them altogether, which would mean I forgo the annual distributions in December. I’m not averse to losses and holding on, but I can only see these funds losing their value much more quickly in the rising interest rate environment. In reading your blog and listening to your podcast, I believe you recommend using a laddered GIC approach sometimes in these situations.
I was wondering if you have any insight into my idea about moving out of these RBC mutual funds (based upon my children requiring the money in 3 to 7 years) and absorbing the losses year to date. Is there an indexing strategy that I can implement in place of these mutual funds with the relatively short time horizon I have for my children. Is a laddered GIC my only real option at this point in time? I have to remember that even if I accept the losses on these RBC funds, I will still be up overall when taking into consideration the growth I’ve had over the past few years in the TD e Series funds and the CESG grant money.
Any thoughts you can provide would be greatly appreciated.
Hi Dan, newbie here questioning timing. I want to get in and begin but the ETF market is not so great so far this year (not sure why – inflation, oil, Russia?). Downward trends are predicted ongoing for the next while. I am not yet in the game (not losing currently). Should I wait and if so what will be my indicator for when to get in? Thanks.
@Chris: Thanks for the comment, and apologies for the slow response. There are a lot of questions to unpack here. and I can’t give you a comprehensive response or specific advice. But I will say that the idea that bonds are certain to lose even more value because of the BOC’s policy is not that simple. The BOC does not directly control bond yields: it only controls the overnight rate, which is the shortest of short-term rates. A lot of the losses we have seen in the bond market are a result of investors anticipating future rate hikes. In other words, they have already been priced in.
I had a look at the RBC 2025 Target Education Fund. About 58% is in short-term bonds (less than 5 years) and the average duration of the bonds is 4.9 years. If you will not need any funds from the RESP for at least three years, you should expect these bonds to recover their value within that time frame. (This is not a forecast, it’s just math: a bond fund cannot lose value over any period longer than its duration.) For the child with the 7-year horizon I don’t think you have anything to worry about.
If you are concerned about the amount of funds you will have available in three years, you could sell a portion of the fund and build a GIC ladder, as you mentioned. (The timing of the distribution in December is irrelevant. The interest from the bonds are being paid into the fund and reinvested on an ongoing basis.) This might feel like “selling low,” but selling bonds and buying GICs is really just a shift from one type of fixed income to another. You will be buying GICs with rates higher than we have seen in many years, and these will be guaranteed not to lose value between now and when you need the money.
@Rock: If you’re investing for the long term (and especially if you plan on contributing to your portfolio regularly over many years) I encourage you to avoid trying to time the market. It is virtually guaranteed to lead to disappointment.
Consider this: if you are reluctant to get in now because markets have fallen recently, what is your plan? Maybe it’s to wait until they have fallen even further so you can get in more cheaply? But if you’re nervous now, do you really think you will be more confident after things have gotten worse? Or do you plan to wait until markets have recovered? In that case, you’re making a conscious decision to buy in at higher prices. You can see that the decision quickly becomes impossible.
A little late to the party but I revisited CCP to see the latest after being told I am no longer able to purchase the TD e-Series from the model portfolio. For many years I have been using these because I like to contribute smaller investments more frequently (every pay day). I am a customer of TD Direct Investing and do everything through WebBroker. I am no longer allowed to purchase these funds and after speaking to a representative they’ve informed my my funds will be changing to equivalents:
TDB909 to TDB966
TDB911 to TDB964
TDB902 to TDB661
TDB900 to TDB216
AT first glance I what stands outs is the MER is 0.20-0.30% more for each fund. At this point I’m wondering if the MER increase puts it over the edge and now it makes more sense to pull out of TD Funds all together and make the switch to ETFs
Hey Dan! I’m a HUGE fan. I like the e-series because of the low MERs and the ability to buy fractions which you can’t do with ETFs. What would you suggest if I wanted to stick to being able to buy fractions of funds? Should I stick with index funds?
Also what index funds would you suggest other than the e-series for the S & P 500 or the Dow Jones?
@Paul: Depending on what brokerage you use, the options for index mutual funds in Canada are now quite grim. RBC has some decent index funds, but most brokerages are charging commissions to buy them now. Unfortunately, I don’t see a lot of benefit in using index mutual funds in the current landscape: using ETFs at a commission-free brokerage is likely to be a better choice for most people.
@Kyle: Assuming you are comfortable buying and selling ETFs (which takes a little practice if you have never done it), then yes, it may well make sense to consider the transition. Switching to an asset allocation ETF would not only lower your fees dramatically, but would also save you from ever having to rebalance your portfolio.
Hi Dan, I am a bit confused. If I read it right, there were no changes made for TD Direct customers. It was just TD Mutual and other Brokerages that were affected right? I am trying to understand Kyle’s comments about not being able to access certain e-Series and having them switched over to higher mers equivalents.
@Curtis: I’m confused, too, because I also thought that the e-Series funds were still available through TD Direct Investing, but I don’t have any insider information. I’m just taking Kyle’s comments at face value. Clearly someone at TD told him differently.
I have only been investing in the TD E-Series Funds for a little over a year, and have accumulated a portfolio of around 40K with 75% in stocks and 25% in bonds. I am with RBC Direct Investing. Do you recommend going liquid and re-investing in an ETF based portfolio? I have 25 years to retirement, and am still very early and new to investing, which makes me think it would be an appropriate time to make the switch, but any major change still seems daunting to me. Appreciated any insight/advice.
Dan thank you for your valuable and straight to the point information. Really appreciate it.
I have one question as someone sticking with the eseries, what % break down do you recommend for equities? I usually run 50% US, 25%Cdn and 25%Int.
@Curtis: Traditionally I have recommended equal allocations of Canadian, US and international stocks. The asset allocation ETFs from the big providers use a higher allocation to the US, usually something like 30% Canadian, 40% US and 30% international. Somewhere in that range is probably ideal: 50% US is a little on the high side if the goal is keep volatility to a minimum.