In Canada, Investing, Money

Investing Series: How to look for and choose an index fund to invest your money in

This is a part of the Investing Series.

————————————————-

It is no secret that I think everyone should pretty much invest their money in index funds (either as mutual funds or as ETFs) and be done with it.

THEN.. and ONLY THEN…

If you want to play around and have fun on the stock market, then invest in individual stocks.

If you want to build an income stream after you have established a solid understanding of investing in index funds, then take a look at dividend income investing

I’ve written plenty on the subject of index funds here in my Investing Series, but the few questions I may have missed may have been the most obvious (to me), so it didn’t dawn on me to even talk about them until this morning.

HOW DO YOU CHOOSE AND LOOK FOR AN INDEX FUND TO INVEST YOUR MONEY IN?

Simple.

Look for the one with the lowest Management Expense Ratio (MER).

DONE.

Class dismissed.


..OKAY OKAY, LET’S DO A FEW EXAMPLES

As I am Canadian, my favourite examples to trot out are those e-series mutual funds offered by TD Canada Trust, or Vanguard Canada’s ETFs which you can buy using my favourite brokerage in Canada: Questrade.

  • (Use my Questrade code to sign up and get $50 in free trades: o0soehds)

For my Americans out there, this applies to you too, but you should look at your local bank or brokerage (Schwab for instance, even TD Bank) and Vanguard instead of Vanguard Canada.

Same goes for iShares. Instead of iShares Canada, look at iShares.

Read: What is the difference between an index mutual fund and an index ETF? (Hint: None, they’re just traded differently.)

LIST OF INDEX FUNDS I WILL COVER:

  1. TD Canada Trust E-Series (Canada)
  2. Vanguard Canada
  3. iShares Canada

Click on ANY image below to biggify.

———————————————————————————————————————————————–

td-canada-trust-logo

Let’s start with TD Canada Trusts’ E-Series:

HOW CAN YOU TELL WHICH MUTUAL FUND IS AN INDEX FUND?

It will generally say it in the name, but other times it may not be as obvious.

Index Funds, if you aren’t already aware, are funds that track the index or average of the stock market.

For instance, with TD Canada Trust E-Series Funds… they are ALL index funds.. see?

It says so in the name: Index

Here’s the original list of TD Canada Trust E-Series Mutual Funds.

NOW HOW DO YOU CHOOSE WHICH INDEX MUTUAL FUNDS TO BUY?

As I said before, look for the LOWEST Management Expense Ratio (MER), or “fees”.

On each index fund you just need to look for the title: MER

TD-Canada-Trust-E-Series-Bond-Index-Fund

Here’s a chart of each index fund with their MERs, information current as of December 17th 2013:

TD E-Series Mutual Funds (List as of December 17th 2013) MER
TD Canadian Bond Index – e 0.50%
TD Canadian Index – e 0.33%
TD Dow Jones Industrial AverageSM Index – e 0.33%
TD Dow Jones Industrial AverageSM Index ($US) – e 0.33%
TD European Index – e 0.51%
TD International Index 0.51%
TD International Index Currency Neutral 0.54%
TD Japanese Index – e 0.53%
TD Managed Index Aggressive Growth – e 1.34%
TD Managed Index Balanced Growth – e 1.29%
TD Managed Index Income – e 1.19%
TD Managed Index Income & Moderate Growth – e 1.24%
TD Managed Index Maximum Equity Growth – e 1.39%
TD Nasdaq® Index – e 0.51%
TD U.S. Index – e 0.35%
TD U.S. Index ($US) – e 0.35%
TD U.S. Index Currency Neutral – e 0.51%

…..

Now here it is in a prettier list to save:

(I do this because I love my readers so much.)

TD-E-Series-List-with-MER-Management-Expense-Ratios

And because you (like me) can’t mentally sort through the index funds on the fly, I also sorted them to show the LOWEST MERs.

TD-E-Series-List-with-MER-Management-Expense-Ratios-Sorted

Some reasons why some funds cost more than others:

  • Anything that is a higher risk, will require more “management”, and therefore will cost more money
  • If they combine index funds to make them fancy (e.g. anything above with “Managed Index” in the name), it costs more money because there is more “management” involved
  • Anything above 0.55% in an MER should make you think twice about buying it
  • If they add things like “Currency Neutral” which requires fund “management” to hedge currencies, it will cost more money
  • Any index funds that are international (not including the U.S. for us Canadians), are more expensive (e.g. European, International)

MY SHORT LIST OF WHAT TD E-SERIES INDEX FUNDS I USED TO BUY

You will notice that I have international index funds in there but that’s because I wanted to be diversified into international stocks as well and not just concentrate on Canada, the U.S. and Bonds.

You’ll notice I pretty much cut it off around the 0.51% MER mark. Frankly, it covers all you need to have a diversified portfolio.

TD-E-Series-List-with-MER-Management-Expense-Ratios-Sorted-Short-List

*You do NOT need to open another account with TD Waterhouse to buy TD Canada Trust E-Series funds.

**Currency-neutral means it takes into account currency exchange fluctuations and takes into account the risk of that currency losing its value (also known as the practice of “hedging”). Generally speaking, the NON-Currency Neutral Mutual Funds are more volatile, and currency-neutral are less volatile.

***When it says ($US) like that, it means it’s held in U.S. dollars. Again, the fund hinges on how the USD fares.

———————————————————————————————————————————————–

vanguard-logo

Now let’s look at Vanguard Canada’s Index Fund ETFS

These are FAR cheaper than the cheapest index fund offered by TD Canada Trust E-Series.

The lowest at TD Canada Trust is 0.33% as an MER.

The lowest at Vanguard Canada? 0.09%.

YOUCH!!!!

0.24% more expensive. Yuck.

HOW CAN YOU TELL WHICH ETF IS AN INDEX ETF / FUND?

Again, it says the word Index, it means it’s an index ETF.

They’re pretty much all Index ETFs.

Vanguard makes it SO EASY and puts the MER right there, front and center in a column right beside the ticker symbol you are supposed to buy to get that index ETF:

Vanguard-Canada-List-of-Index-ETFs-MER-Showing

Here’s the list of Vanguard Canada’s ETFs in a list:

Vanguard Canada Fund Name (List as of December 17th 2013) Stock Ticker Symbol MER
FTSE Canada All Cap Index ETF VCN 0.12%
FTSE Canada Index ETF VCE 0.09%
FTSE Canada All Cap Real Estate (REIT) Capped 25% Index ETF VRE 0.35%
FTSE Canada High Dividend Yield Index ETF VDY 0.30%
FTSE Developed ex North America Index ETF VDU 0.28%
FTSE Developed ex North America Hedged CAD Index ETF VEF 0.28%
FTSE Emerging Index ETF VEE 0.33%
S&P 500 Index ETF VFV 0.15%
S&P 500 Index (CAD-Hedged) ETF VSP 0.15%
NASDAQ US Dividend Appreciation Achievers Select Index ETF VGG 0.28%
NASDAQ US Dividend Appreciation Achievers Select Index (CAD-hedged) ETF VGH 0.28%
U.S. Total Market Index ETF VUN 0.15%
U.S. Total Market Index ETF (CAD-hedged) VUS 0.15%
Canadian Aggregate Bond Index ETF VAB 0.20%
Canadian Short-Term Bond Index ETF VSB 0.15%
Canadian Short-Term Corporate Bond Index ETF VSC 0.15%

……


Now here it is in a prettier list to save:

Vanguard-Canada-List-of-Index-ETFsHere is the same Vanguard Canada list sorted by MER (lowest to highest):
Vanguard-Canada-List-of-Index-ETFs-Sorted-by-MER-Management-Expense-Ratio

As you can see, even if you buy the most expensive REIT Index ETF it is about the price of the most basic index mutual fund offered by TD Canada Trust.

(THIS is why I love ETFs).

Some reasons why some index ETFs cost more than others:

  • Anything that is a higher risk, will require more “management”, and therefore will cost more money
  • If they combine index funds to make them fancy, it costs more money because there is more “management” involved
  • Anything above 0.15% in an MER should make you think twice about buying it
  • If they add things like “Currency Neutral” which requires fund “management” to hedge currencies, it will cost more money
  • Any index funds that are international (not including the U.S. for us Canadians), are more expensive (e.g. European, International)

MY SHORT LIST OF VANGUARD INDEX FUNDS THAT I DO / WOULD PURCHASE:

This is current as of December 17th 2013.

They are constantly adding new funds, so you can’t go totally by this list. Go check out Vanguard Canada’s ETFs, and consider using the cheapest brokerage I have come across (Questrade) to buy them.. COMMISSION-FREE.

Yep. No $4.95 – $9.95 per trade fee. All ETFs on Questrade are COMMISSION-FREE.

  • PSST! Use my Questrade code to sign up and get $50 in free trades: o0soehds)

Vanguard-Canada-List-of-Index-ETFs-Choice

What I do and do not (tend to purchase) as index fund ETFS:

  • I do not bother with CAD-Hedged ETFs. I just don’t, even though the MERs cost the same.
  • Currently, they do not offer European or International index ETFs, so I go to iShares Canada for that.
  • I hold more than 50% of my portfolio in USD, which means I buy in USD directly, instead of in CAD

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is_NTSC

iSHARES CANADA LIST OF ETFS

Just for completion’s sake, here are the iShares Canada ETFs (valid as of December 17th 2013):

iShares Fund Name (List valid as of Dec 17 2013) Stock Ticker Symbol MER
1-10 Year Laddered Corporate Bond Index Fund  CBH 0.25%
1-10 Year Laddered Government Bond Index Fund  CLG 0.15%
1-5 Year Laddered Corporate Bond Index Fund  CBO 0.25%
1-5 Year Laddered Government Bond Index Fund  CLF 0.15%
Advantaged Short Duration High Income ETF  CSD.U 0.55%
Advantaged Short Duration High Income ETF  CSD 0.55%
Advantaged U.S. High Yield Bond Index ETF (CAD-Hedged)  CHB 0.55%
Alternatives Completion Portfolio Builder Fund  XAL 0.70%
Balanced Growth CorePortfolio(TM) Fund  CBN 0.25%
Balanced Income CorePortfolio(TM) Fund  CBD 0.25%
Big Bank Big Oil Split Corp  BBO 0.90%
BRIC Index Fund  CBQ 0.60%
Broad Commodity Index ETF (CAD-Hedged)  CBR 0.80%
Canadian Financial Monthly Income ETF  FIE 0.65%
Canadian Fundamental Index Fund  CRQ 0.65%
China All-Cap Index Fund  CHI 0.70%
China Index Fund  XCH 0.85%
CNX Nifty India Index ETF  XID 0.98%
Conservative Core Portfolio Builder Fund  XCR 0.60%
Convertible Bond Index ETF  CVD 0.45%
DEX All Corporate Bond Index Fund  XCB 0.40%
DEX All Government Bond Index Fund  XGB 0.35%
DEX Floating Rate Note Index Fund  XFR 0.20%
DEX HYBrid Bond Index Fund  XHB 0.45%
DEX Long Term Bond Index Fund  XLB 0.35%
DEX Real Return Bond Index Fund  XRB 0.35%
DEX Short Term Bond Index Fund  XSB 0.25%
DEX Short Term Corporate Universe + Maple Bond Index Fund  XSH 0.25%
DEX Universe Bond Index Fund  XBB 0.30%
Diversified Monthly Income Fund  XTR 0.55%
Dow Jones Canada Select Dividend Index Fund  XDV 0.50%
Dow Jones Canada Select Growth Index Fund  XCG 0.50%
Dow Jones Canada Select Value Index Fund  XCV 0.50%
Equal Weight Banc & Lifeco ETF  CEW 0.55%
Global Agriculture Index Fund  COW 0.65%
Global Completion Portfolio Builder Fund  XGC 0.70%
Global Infrastructure Index Fund  CIF 0.65%
Global Monthly Dividend Index ETF  CYH 0.60%
Global Real Estate Index Fund  CGR 0.65%
Gold Bullion ETF  CGL 0.50%
Gold Bullion ETF  CGL.C 0.50%
Growth Core Portfolio Builder Fund  XGR 0.60%
High Quality Canadian Bond Index ETF  CAB 0.30%
International Fundamental Index Fund  CIE 0.65%
iShares Emerging Markets Fundamental Index ETF  CWO 0.65%
iShares Silver Bullion ETF  SVR.C 0.60%
iShares Silver Bullion ETF  SVR 0.60%
J.P. Morgan USD Emerging Markets Bond Index Fund (CAD-Hedged  XEB 0.72%
Jantzi Social Index Fund  XEN 0.50%
Japan Fundamental Index Fund (CAD-Hedged)  CJP 0.65%
Managed Futures Index ETF  CMF:CN 0.95%
MSCI All Country World Minimum Volatility Index Fund  XMW 0.45%
MSCI Brazil Index Fund  XBZ 0.75%
MSCI Canada Minimum Volatility Index Fund  XMV 0.30%
MSCI EAFE IMI Index ETF  XEF 0.30%
MSCI EAFE Index Fund (CAD-Hedged)  XIN 0.50%
MSCI EAFE Minimum Volatility Index Fund  XMI 0.45%
MSCI Emerging Markets IMI ETF  XEC 0.35%
MSCI Emerging Markets Index Fund  XEM 0.82%
MSCI Emerging Markets Minimum Volatility Index Fund  XMM 0.79%
MSCI USA Minimum Volatility Index Fund  XMU 0.30%
MSCI World Index Fund  XWD 0.44%
NASDAQ 100 Index Fund (CAD-Hedged)  XQQ 0.35%
Oil Sands Index Fund  CLO 0.60%
Premium Money Market ETF  CMR 0.25%
Russell 2000 Index Fund (CAD-Hedged)  XSU 0.35%
S&P/TSX 60 Index Fund  XIU 0.17%
S&P/TSX Canadian Dividend Aristocrats Index Fund  CDZ 0.60%
S&P/TSX Canadian Preferred Share Index Fund  CPD 0.45%
S&P/TSX Capped Composite Index Fund  XIC 0.25%
S&P/TSX Capped Consumer Staples Index Fund  XST 0.55%
S&P/TSX Capped Energy Index Fund  XEG 0.55%
S&P/TSX Capped Financials Index Fund  XFN 0.55%
S&P/TSX Capped Information Technology Index Fund  XIT 0.55%
S&P/TSX Capped Materials Index Fund  XMA 0.55%
S&P/TSX Capped REIT Index Fund  XRE 0.55%
S&P/TSX Capped Utilities Index Fund  XUT 0.55%
S&P/TSX Completion Index Fund  XMD 0.55%
S&P/TSX Equity Income Index Fund  XEI 0.55%
S&P/TSX Global Base Metals Index Fund  XBM 0.55%
S&P/TSX Global Gold Index Fund  XGD 0.55%
S&P/TSX Global Mining Index Fund  CMW 0.55%
S&P/TSX North American Preferred Stock Index Fund (CAD-Hedge  XPF 0.45%
S&P/TSX SmallCap Index Fund  XCS 0.55%
S&P/TSX Venture Index Fund  XVX 0.79%
S&P 500 Index ETF  XUS 0.14%
S&P 500 Index Fund (CAD-Hedged)  XSP 0.22%
S&P Global Consumer Discretionary Index Fund (CAD-Hedged)  XCD 0.63%
S&P Global Healthcare Index Fund (CAD-Hedged)  XHC 0.63%
S&P Global Industrials Index Fund (CAD-Hedged)  XGI 0.63%
S&P Global Water Index Fund  CWW 0.60%
S&P Latin America 40 Index Fund  XLA 0.65%
S&P US Dividend Growers Index Fund (CAD-Hedged)  CUD 0.60%
U.S. High Dividend Equity Index Fund (CAD-Hedged)  XHD 0.30%
U.S. High Yield Bond Index Fund (CAD-Hedged)  XHY 0.60%
U.S. IG Corporate Bond Index Fund (CAD-Hedged)  XIG 0.30%
US Fundamental Index Fund  CLU.C 0.65%
US Fundamental Index Fund  CLU 0.65%

….

Now here it is in a prettier list to save of all the ETFs:

iShares-Canada-List-of-ETFs

ISHARES CANADA INDEX FUNDS ONLY & SORTED BY THE LOWEST MER

I eliminated anything that was not an index fund and kept it sorted by lowest MER:

This is a BIG.. BIG.. list.

List of iShares Fund Names Stock Ticker Symbol MER
S&P 500 Index ETF  XUS 0.14%
1-10 Year Laddered Government Bond Index Fund  CLG 0.15%
1-5 Year Laddered Government Bond Index Fund  CLF 0.15%
S&P/TSX 60 Index Fund  XIU 0.17%
DEX Floating Rate Note Index Fund  XFR 0.20%
S&P 500 Index Fund (CAD-Hedged)  XSP 0.22%
1-10 Year Laddered Corporate Bond Index Fund  CBH 0.25%
1-5 Year Laddered Corporate Bond Index Fund  CBO 0.25%
DEX Short Term Bond Index Fund  XSB 0.25%
DEX Short Term Corporate Universe + Maple Bond Index Fund  XSH 0.25%
S&P/TSX Capped Composite Index Fund  XIC 0.25%
DEX Universe Bond Index Fund  XBB 0.30%
High Quality Canadian Bond Index ETF  CAB 0.30%
MSCI Canada Minimum Volatility Index Fund  XMV 0.30%
MSCI EAFE IMI Index ETF  XEF 0.30%
MSCI USA Minimum Volatility Index Fund  XMU 0.30%
U.S. High Dividend Equity Index Fund (CAD-Hedged)  XHD 0.30%
U.S. IG Corporate Bond Index Fund (CAD-Hedged)  XIG 0.30%
DEX All Government Bond Index Fund  XGB 0.35%
DEX Long Term Bond Index Fund  XLB 0.35%
DEX Real Return Bond Index Fund  XRB 0.35%
NASDAQ 100 Index Fund (CAD-Hedged)  XQQ 0.35%
Russell 2000 Index Fund (CAD-Hedged)  XSU 0.35%
DEX All Corporate Bond Index Fund  XCB 0.40%
MSCI World Index Fund  XWD 0.44%
Convertible Bond Index ETF  CVD 0.45%
DEX HYBrid Bond Index Fund  XHB 0.45%
MSCI All Country World Minimum Volatility Index Fund  XMW 0.45%
MSCI EAFE Minimum Volatility Index Fund  XMI 0.45%
S&P/TSX Canadian Preferred Share Index Fund  CPD 0.45%
S&P/TSX North American Preferred Stock Index Fund (CAD-Hedge  XPF 0.45%
Dow Jones Canada Select Dividend Index Fund  XDV 0.50%
Dow Jones Canada Select Growth Index Fund  XCG 0.50%
Dow Jones Canada Select Value Index Fund  XCV 0.50%
Jantzi Social Index Fund  XEN 0.50%
MSCI EAFE Index Fund (CAD-Hedged)  XIN 0.50%
Advantaged U.S. High Yield Bond Index ETF (CAD-Hedged)  CHB 0.55%
S&P/TSX Capped Consumer Staples Index Fund  XST 0.55%
S&P/TSX Capped Energy Index Fund  XEG 0.55%
S&P/TSX Capped Financials Index Fund  XFN 0.55%
S&P/TSX Capped Information Technology Index Fund  XIT 0.55%
S&P/TSX Capped Materials Index Fund  XMA 0.55%
S&P/TSX Capped REIT Index Fund  XRE 0.55%
S&P/TSX Capped Utilities Index Fund  XUT 0.55%
S&P/TSX Completion Index Fund  XMD 0.55%
S&P/TSX Equity Income Index Fund  XEI 0.55%
S&P/TSX Global Base Metals Index Fund  XBM 0.55%
S&P/TSX Global Gold Index Fund  XGD 0.55%
S&P/TSX Global Mining Index Fund  CMW 0.55%
S&P/TSX SmallCap Index Fund  XCS 0.55%
BRIC Index Fund  CBQ 0.60%
Global Monthly Dividend Index ETF  CYH 0.60%
Oil Sands Index Fund  CLO 0.60%
S&P/TSX Canadian Dividend Aristocrats Index Fund  CDZ 0.60%
S&P Global Water Index Fund  CWW 0.60%
S&P US Dividend Growers Index Fund (CAD-Hedged)  CUD 0.60%
U.S. High Yield Bond Index Fund (CAD-Hedged)  XHY 0.60%
S&P Global Consumer Discretionary Index Fund (CAD-Hedged)  XCD 0.63%
S&P Global Healthcare Index Fund (CAD-Hedged)  XHC 0.63%
S&P Global Industrials Index Fund (CAD-Hedged)  XGI 0.63%
Canadian Fundamental Index Fund  CRQ 0.65%
Global Agriculture Index Fund  COW 0.65%
Global Infrastructure Index Fund  CIF 0.65%
Global Real Estate Index Fund  CGR 0.65%
International Fundamental Index Fund  CIE 0.65%
iShares Emerging Markets Fundamental Index ETF  CWO 0.65%
Japan Fundamental Index Fund (CAD-Hedged)  CJP 0.65%
S&P Latin America 40 Index Fund  XLA 0.65%
US Fundamental Index Fund  CLU.C 0.65%
US Fundamental Index Fund  CLU 0.65%
China All-Cap Index Fund  CHI 0.70%
J.P. Morgan USD Emerging Markets Bond Index Fund (CAD-Hedged  XEB 0.72%
MSCI Brazil Index Fund  XBZ 0.75%
MSCI Emerging Markets Minimum Volatility Index Fund  XMM 0.79%
S&P/TSX Venture Index Fund  XVX 0.79%
Broad Commodity Index ETF (CAD-Hedged)  CBR 0.80%
MSCI Emerging Markets Index Fund  XEM 0.82%
China Index Fund  XCH 0.85%
Managed Futures Index ETF  CMF:CN 0.95%
CNX Nifty India Index ETF  XID 0.98%

…..

Here’s the pretty list:

iShares-Canada-List-of-ETFs-Index-Funds-Only-Sorted-by-MER

Depending on how you want to build your portfolio taking into account diversifying it across Canada, the U.S., bonds and the world, you have to basically go through it again and sort it out and look for words like:

  • S&P 500 — U.S. index fund
  • TSX — Canada’s index fund
  • Bonds
  • BRIC — this refers to Brazil, Russia, India, China or the 4 “hottest” emerging markets (very risky)
  • EAFE –this refers to Europe, Australasia, & the Far East

..and then you also have industries of each index fund such as Real Estate or Utilities.

HERE’S MY SHORT LIST OF iSHARES FUNDS I’D CONSIDER

For MER’s, I’d stop around 0.30% – 0.35%….which would also cover any international index funds (read: EAFE).

Any higher and you might as well buy from TD Canada Trust’s E-Series.

iShares-Canada-List-of-ETFs-Short-List

Personally I’d just stick to Vanguard Canada for your major markets (Canada, U.S.A., Bonds), and go to iShares Canada for index funds that cover international and emerging markets.

..at least until Vanguard Canada comes up with their list.

Again, in Canada to buy index fund ETFs you need to go with a brokerage like Questrade.

  • PSST! Use my Questrade code to sign up and get $50 in free trades: o0soehds)

Enjoy!

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Sherry of Save. Spend. Splurge.

Am my own Sugar Daddy. Am a millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. I have worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I have 11 side incomes that are on track in 2020 to make me $50K - $75K. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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9 Comments

  1. Rockinon

    I believe there is more to investing than finding the lowest MER. The TD Monthly Income fund does not have the lowest MER yet it outperforms many of the e-funds that you, and many others, suggest are a better bet. If I’d put $500 thousand in both TDB622 (MER 1.47%) and in TDB854 (TD Managed Index Maximum Equity Growth Portfolio – e) and then taken $20,000 out every December to live in retirement, today I’d have removed a total of $140,000.00 by now. With the TD Monthly Income I’d still have $778,704.18 in my account. If I’d followed your advice, I’d only have $759,177.39 in my account. The Monthly Income fund beats the e-fund by $19,526.79. And in a down market, TDB622 is probably not going to fall as far as the e-fund. The TDB622 has a lot of exposure to bonds to lessen volatility. I tried this with another e-fund you suggested and the spread was brutal. The spread was more than a hundred thousand in the Monthly Income fund’s favour. p.s. Today there is a D-series fund, TDB3085, that I believe is simply TDB622 with a lower D-series MER. This means this new D-series fund has a lower MER than the e-fund I used in my example above. Cheers! (I did like your post, by the way, but I believe you may have overstated the argument in for e-funds.)

    Reply
    1. sherry@savespendsplurge.com

      Do what you think is best. I am just suggesting a general approach, and if people are interested, they can research into it further.

      Reply
  2. Tracy

    Thanks for this post! Just in the nick of time! I just wrote a post about how I’m paying super high MERS without having realized it and am going to switch to TD investments.

    Do you invest in USD to reduce currency exchange risk? How do you do this? I understand that it’s more optimal than buying all shares in Canadian, but not quite sure how you would perform these transactions. Do you just switch CAD to USD and then invest the USD?

    Reply
    1. save. spend. splurge.

      Make sure you go with TD Canada Trust, sign up for their mutual funds and then ask for their e-series.

      Here’s the process on how to sign up for TD Canada Trust E-Series Funds.

      I did not invest in USD to hedge any kind of currency risk. It was just a fluke that I moved to the U.S. in 2012, came back with over $100,000 in USD and never switched it to CAD because I was not excited by the exchange rate.

      I just started investing in USD (I put the money into Questrade), bought US stocks and never exchanged it….

      If you do not already have USD then you need to take your CAD, convert it into USD and then invest in it.

      I have a USD chequing account with TD Canada Trust, the one that only gives you 5 free transactions a month and makes you pay fees for certain things.

      I used to just use the money in my USD account and invest in the TD e-series US$ funds directly when I had everything at TD Canada Trust…

      Now I just transfer the USD money directly from that US dollar chequing account in TD Canada Trust to Questrade (I use Bill Pay for this) where I hold 99% of my portfolio because I buy index fund ETFS which are cheaper (Vanguard, iShares) and not those e-series index fund mutual funds from TD Canada Trust), and trade on Questrade.

      Let me know if you have more questions 🙂

      P.S. The CAD is really low right now. I wouldn’t convert anything from CAD to USD at the moment. Just buy those TD Canada Trust e-series index funds in CAD$ rather than USD$.

      Reply
      1. Tracy

        @save. spend. splurge.:

        Thanks for your advice! I opened an account with TD today and will purchase some index funds once I get my $$$ transferred over.

        The financial advisor told me she doesn’t recommend e-series funds and made me sign a disclosure saying she had warned me. YIKES. They sure don’t want you to buy their cheapest financial products …

        I was thinking of investing 30% of my financial assets into TD Canadian Index Fund – e-series, 20% into Canadian Bond Index Fund – e-series, 25% into U.S. Index Fund – e-series, and 25% in Global Index Fund – e-series. What do you think of this asset allocation? This is the first time I’m going to be actively keeping my portfolio balanced .. kind of nervous!

        Reply
        1. save. spend. splurge.

          Remember to change them to TD E-series. Can’t stress that enough. You can’t buy TD e-series with a regular TD mutual fund account 🙂

          OH GOD.. I knew they would say that “don’t buy e-series, you won’t get investment advice from us, bla bla bla”

          Well if they don’t bloody recommend that you buy TD E-series then why the hell do they sell / offer it?

          The allocation you have is very sound and good… but best for someone who is 40 or 50, nearing retirement! You aren’t 40! 🙂

          The younger you are, the more you should have on the stock market, so I’d personally recommend that you lower your bond allocation.

          Something like this would be pretty conservative for your age and a good “set it and forget it” kind of allocation:

          15% Bonds
          30% Canada
          30% U.S.
          25% Global

          Then if you want to consider the climate of the world (e.g. is Canada on its way to a slowing down economy, and will I miss out on bigger returns as the U.S. climbs out of the recession? .. or should I put more money in the Global index fund because I think Europe will recover this year?… you might want to adjust the allocations to weight less in Canada, and more in the U.S. / Global, etc.. But this is all up to you in terms of personal preference.)

          AS you get older you will want to allocate less to Canada / U.S. / Global and more into bonds as you near retirement.. but something like 25% when you hit 40 for instance, or 45 is what I am planning on doing for myself. By the time I reach 60, I want to have at least 60% of my portfolio in bonds, maybe more. It kind of depends on the next few decades 🙂

          Of course take all the above advice with a grain of salt, I’m not a financial advisor nor do I play one on TV but this is how I’ve allocated my money (more in stocks, less in bonds).

          Reply
          1. Tracy

            @save. spend. splurge.: I thought my bond allocation was a bit high too! But I followed the model portfolio on canadiancouchpotatoe -> http://canadiancouchpotato.com/model-portfolios/ and they have 40%!!!! Someone in the comments said you should have as much in bonds as your age, and I’m 23.

            I will lower it to 15% as per your recommendation!

            Also … TD e-series requires you to convert your existing TD mutual fund account to an e-Series fund account. They sure make it difficult to purchase these little fellas.

            Did you ever write a post on how to re-balance your portfolio and how often you should do it? I’d like to learn how! Does “Set it and forget it” work when you’re buying index funds? For example, what if U.S. does super good and all of a sudden the value rises to say 50% of your portfolio instead of the 30% you wanted. Should you then transfer some funds over to Canadian or a struggling index?

            Thank you for your helpful advice as always Mochimac.

          2. save. spend. splurge.

            @Tracy: See below for answer. (Had to start a new thread).

    2. save. spend. splurge.

      @Tracy: (Had to start a new thread, the other one was getting really long)

      @Tracy:

      1. 15% is what I am currently doing and I am almost a decade older than you.. mostly because there was a nasty recession before and things are on the mend.

      23% wouldn’t be bad in bonds but it sounds high to me considering what we have just come out of.. but it’s up to you to follow that 🙂

      2. You set it and forget it except for 4 times a year (or less..)

      Post: How to rebalance a portfolio

      Yes, you do need to convert existing TD mutual fund accounts into an e-series before buying them. They don’t make it easy so that you don’t sign up for them. 🙂

      You’re welcome! Good luck.

      Reply

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