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Investing Series: Should you sign up with TD Canada Trust E-Series Funds or go with Questrade and Vanguard or iShares ETFs?

This is a part of the Investing Series.

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Really, these are the only two options available in Canada in my opinion.

Either you go with TD Canada Trust’s E-Series Mutual Funds, or you sign up with Questrade and buy Vanguard Canada ETFs.

Long story short, index mutual funds and index ETFs are pretty much the same thing, it’s just that they’re traded differently — either with TD Canada Trust where it’s locked-in and handled by someone, or by yourself with Questrade where you basically buy or sell it like a stock.

To be fair, let me make the case for both as much as I can (I am heavily biased of course):

WHY YOU SHOULD GO WITH TD CANADA TRUST E-SERIES

If you are unsure and/or lazy (this is not a bad thing!), you will not want to deal with the hassle of having to buy and sell Vanguard Canada ETFs on the stock market via Questrade.

Therefore, you will be more than happy to pay a slightly higher Management Expense Ratio (MER) to TD Canada Trust, who has assigned a guy to manage the fund and kind of deal with all that for you.

All you have to do is just stick your money in the e-series index mutual fund you want at Canada Trust and be done with it.

NO MUSS. NO FUSS!

Sounds great right?

Read:

WHY YOU SHOULD GO WITH QUESTRADE AND BUY ETFS FROM VANGUARD OR ISHARES

If you want to penny pinch as much as possible and HATE PAYING FEES (keeping in mind that over the long-term, even a penny can become a thousand bucks), then you will want to minimize your fees as much as possible, which include …yes.. wait for it …… Management Expense Ratios (MERs)!!

If you hate paying bank fees, and hate paying fees in general for NO value added, then ETFs are the way to go. It just takes a little work, getting used to trading on Questrade, and a little adjustment, but then you’re set FOR LIFE.

Oh and the cherry on top? It’s FREE.

Buying ETFs with Questrade = $0 … FREE as of February 2013.

It is even CHEAPER now, you can do the trades with index fund ETFs COMMISSION-FREE with Questrade.

That means that if you buy ETFs with Questrade, you won’t pay their $4.95 – $9.99 commission fee (other fees may still apply, applicable by the government).

  1. You’ll pay the ETF commission at the time of purchase, but we’ll rebate you in two business days
  2. There are no minimum number of shares you have to buy. Hold them for as long as you’d like
  3. Buying ETFs for free is only available if you’re trading on one of the Questrade IQ platforms
  4. ECN fees or any other incidentals charged by the markets are your responsibility
  5. Your standard commissions will apply when you sell an ETF

So basically, if you sell your ETFs, you WILL pay a fee or if there are ECN fees and so on, but you can use your $50 in free Trades because of my referral ID.

However, you can avoid fees altogether, if you buy ETFs every 3 months (or once a year), and rebalance your portfolio at the same time.

ReadWhat does rebalancing a portfolio mean?

I AM OBVIOUSLY BIASED TOWARDS ETFS

Obviously I am team ETF and I hold almost all of my index funds in Vanguard Canada index fund ETFs with Questrade.

I put my money where my mouth is because…

The only outstanding account I have as a TD Canada Trust e-series mutual fund is because it is a locked-in RRSP (retirement) account that I couldn’t move.

TEAM ETF!!!

COMPARING TWO IDENTICAL FUNDS

TD E-Series versus Vanguard ETF .. THE SHOWDOWN!

One is an index e-series mutual fund that is basically tracking the S&P 500 index with TD Canada Trust, and the second is the Vanguard Canada ETF that tracks the same S&P 500 index.

So here’s the TD one:

MER = 0.35%, tracks the S&P 500

 TD-Canada-Trust-Management-Expense-Ratio-Index-E-Series-Funds

And here is the Vanguard Canada equivalent:

MER = 0.15% (a good 0.20% lower), and tracks the EXACT SAME FUND!
Vanguard-Canada-SP-500-ETF

MORAL OF THE STORY?

You are losing 0.20% of your portfolio each year in fees…….

….FOR NOTHING.. as in NO. VALUE. ADDED!

You are paying 0.20% more each year to hold your money in an MER for the exact same fund.

To put it another way, you are LOSING 0.20% more each year due to rather useless management fees to hold your money in the exact same fund.

If that doesn’t convince you, I don’t know what will.

Oh wait.

Maybe this post that goes into a portfolio over time will… comparing TD Canada Trust E-Series to Vanguard Canada (traded on Questrade).

Basically on a $120,000 portfolio, you are losing $260.40 each year in fees. I don’t know about you, but that’s pretty silly to pay $260.40 a year (and more, as you save more money), when it’s just a matter of switching to a different bank.

If you could save $260.40 EACH AND EVERY year by doing a little work and calling your cable, internet and/or telephone company to switch to another one, you’d do it right?

So why not do it with stuff like investing?

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