20 Y.O - TD E-series vs ETFs for TFSA?

[phroderick]

Asking because after reading a few posts made year(s) ago, I'm wondering if the MER & Commision changed this year.

TFSA Contriubtion Room : 23,500

Portfolio: 10% index bonds, 90% index funds (split evenly between U.S, CA, International Market)

I plan to rebalance my portfolio once a year. I believe the majoirty uses Questrade as their ETF.

As a person with no prior investing experience, which would be suitable?

I could also do: TD E-series for x year -> Move to TD's ETF.

 

[philtheolus]

@phroderick Why not 50% VGRO and 50% VEQT? A lot simpler and the rebalancing is handled for you.

 

[phroderick]

@philtheolus Thank you! I looked into it and it sounds promising! The MER'S are roughly the same and from a quick glance it looks like there is no commission fee.

However, Questrade seems to be popular choice, is there something I'm missing from Questrade compared to Vanguard?

 

[electropterodactyl]

@phroderick Quest trade is a brokerage where you buy funds, vanguard is a fund provider that makes funds.

 

[phroderick]

@electropterodactyl Thank you for clarifying!

 

[philtheolus]

@phroderick Questrade is a tool to buy ETFs. VGRO and VEQT are ETFs.

You need both, in the same way that you need a hammer and a nail.

 

[phroderick]

@philtheolus makes sense! than you !

 

[shekinah1978]

@phroderick Vanguard does not operate a brokerage in Canada. Only their ETFs are available to buy

 

[phroderick]

@shekinah1978 Thank you for clarifying that up! I got it mixed up!

 

[phroderick]

@philtheolus Oh and a small followup, as my portfolio gets larger in size, is there a situation where I should start making my own individual ETFs such as (and ditch all-in-one ETFs like VGRO):

XIU = Canadian Stock Index

XBB = Canadian Bond Index

XIN = International Stock Index

XSP = U.S. Stock Index

From what I've read,I think individual ETFs yield a lower MER but by not a lot (0.1%).And since we are using Questrade, there's no commission, so we can ignore that.

So I think the only upside of having individual ETFs is that your MER is cheaper, but you pay the inconvenience of rebalancing. And I think I would need my own individual ETFs on a non-registered-account (such as biasing fixed income) to avoid getting taxed too much.

 

[asmodea]

@phroderick

Portfolio: 10% index bonds, 90% index funds (split evenly between U.S, CA, International Market)

I suggest that you read the following pages, pay extra attention to the "your investment experience" section of the second one and then do a risk assessment questionnaire.

https://canadiancouchpotato.com/2010/11/10/ready-willing-and-able-to-take-risk/

https://www.canadianportfoliomanagerblog.com/choosing-your-ideal-vanguard-asset-allocation-etf/

As a person with no prior investing experience, which would be suitable?

If you will be making regular contributions I suggest that you either use TD DI and an e-series/ asset allocation hybrid approach or that you use Questrade and Blackrock’s Pre-authorized Cash Contribution plan to automate purchases of XBAL and/or XGRO.

 

[phroderick]

@asmodea Thank you so much for sharing the resources!! A few followups!

> If you will be making regular contributions

I definitely will; monthly if it makes a difference.

The hybrid approach is interesting and I'll keep it in the back of my mind!

> at you use Questrade and Blackrock’s Pre-authorized Cash Contribution plan to automate purchases of XBAL and/or XGRO.

1. Is there any reason you picked XBAL and XGRO over Vanguard's ETFs like /@wvguy777-Lake-Bass mentioned?
2. I could find reddit posts regarding PACC for iShares, is it also offered for Vanguard ETF's?

 

[philtheolus]

@phroderick I actually personally use XEQT because it has a slightly lower management fee and they are otherwise generally interchangeable. I used VGRO and VEQT in my answer as it doesn't make a big difference and far more people know those ones over the Blackrock ones. So I am not pro Vanguard over Blackrock.

 

[phroderick]

@philtheolus Got it! thank you for everything! appreciate it!

 

[asmodea]

@phroderick There is no PACC plan for Vanguard ETFs and the only asset allocation ETFs on Blackrock's list are XBAL and XGRO.

 

[phroderick]

@asmodea Makes sense, thank you for all your help!!

 

[phroderick]

@asmodea A follow up! do you personally ever suggest having DIY / individual ETFs compared to an all-in-one ETF like XBAL? After reading:

https://www.canadianportfoliomanagerblog.com/vanguards-hip-new-asset-allocation-etfs/

I know they essentially yield the same results! But I also came across this redditor's comment;

DIY ETFs yield a lower MER but by not a lot (give or take 0.1%)

There's no commission in Questrade so we could disregard that.

I can't see a situation where a custom DIY ETF is beneficial unless the 0.1% means a lot? And I think I would need my own individual ETFs on a non-registered-account (such as biasing fixed income) to avoid getting taxed too much.

 

[asmodea]

@phroderick

do you personally ever suggest having DIY / individual ETFs

Sure. For example as explained on this CPM page once you have substantial assets in an RRSP it can be worthwhile using individual ETFs to customize "asset location".

But I've read enough about behavioural finance to be a big fan of reducing the opportunities to screw up a good investment plan. Automated purchases reduces those opportunities. Buying an asset allocation ETF (that makes the investor less aware of how the individual parts of their portfolio are performing) also reduces those opportunities.

There was good illustration of the value of the simpler, more easily automated options in this 2014 G & M article that compared Vanguard mutual fund returns to the returns of people who use Vanguard mutual funds.

• The investors in the institutional funds (eg. pensions, scholarships) fared the best. The average difference between the fund returns and investor returns was +1.03%.
• The investors in the "all in one funds", who just had to remember to keep making contributions, weren't far behind. The average difference between the fund returns and investor returns was -0.43%.
• The investors who built their own portfolio using individual funds didn't fare as well. The difference between the fund returns and investor returns was -1.63%.

So even with relatively few choices - compared to the ETF market - many of the investors who used Vanguard mutual funds to build their own portfolios would have had returns that lagged the fund returns by more than the fee charged by a robo-advisor. As Andrew Hallam says

"Those buying individual indexes require plenty of discipline: discipline most of them don't have. They're like folks who read about nutrition, fill their fridge with organic foods, but stuff themselves with Twinkies. Most index investors begin well - then binge on speculation."

 

[phroderick]

@asmodea Thank you so much for the detailed response!!!

Definitly agree with you, out of sight out of mind ! I'm definitely leaning on all-in-one ETFs for simplicity and the reasons you stated.

Out of curisoity I wanted to figure out how much money I'll "lose" if I were disciplined about individual ETFs.

Since I'm missing out on $10 for every $1000 ( due to the 0.1% MER difference)

Here is how much I'll probably make without all-in-one-ETF + being disciplined (Say ~$5000 more contribution room every year):

https://gyazo.com/111c2f9f2566ad0c3060bd2c34b407bd

Here is how much I'll probably make with all-in-one ETFs (subtracting $10 for every $1000 in the Annual addition):

https://gyazo.com/9c4fa9c3941ad4c6fe0604faa8c00970

Just double checking, it looks like I'm only missing out on ~$200 000 (nominal return) in whole life, would my Math be off or is this simply of how much an impact 0.1% in MER can do?

 

[asmodea]

@phroderick You could use this fee difference calculator to double check your math.

When people do these comparison I urge them to also think about how the extra will affect their retirement lifestyle. For example, if someone ends up with an extra $100k and they use a withdrawal rate of 3.5% they'd have an extra $3500 to spend each year. The extra $67 per week probably won't make a significant difference to their lifestyle.