How Canada’s Banks Let Canadian Investors Down: Part 7 of 7

The TD e-Series Index Fund Solution

 

Tyler and Adam Benn are pictured above, emptying their jar of saved coins and bills to invest in TD’s e-Series index funds. 

Seven year old Tyler refers to them as “insect funds” but there’s nothing juvenile about the products he and his nine year old brother are buying.  Their investments will easily outperform the accounts of most Canadian adults, who usually fall for the much more expensive products typically sold by the Canadian banks.

 

What’s Wrong with Canada’s Mutual Funds?

 Canada’s financial institutions, according to the mutual fund research firm, Morningstar, charges Canadians disappointingly high fees.  In a global study of comparative fund costs, Morningstar states that:

 “Investors in Canada and Japan typically pay between 2.00% and 2.50% for equity funds. We encourage fund companies in Canada and Japan to lower their fees and expenses for the benefit of the investors.” (Morningstar)

 Morningstar is the world’s most respected mutual fund data company.  And their study gave Canadian financial institutions a failing grade.

 Similarly, when Ajay Khorana (Georgia Institute of Technology) Henri Servaes (London Business School) and Peter Tufano (Oxford University, National Bureau of Economic research) teamed up to compare mutual fund costs around the world, they also demonstrated that Canada’s costs were easily the highest among the extensive multi-country study.  They reported their findings in the article “Mutual Fund Fees Around the World” which was published in The Review of Financial Studies by Oxford University Press.

 

Why Should You Care About High Investment costs? The Lower the expenses, the higher the returns

Over an investment lifetime, portfolios comprised of  low cost funds are statistically far better performers than portfolios comprised of  high cost funds.  Costs matter, a lot.

 

Assume, for instance, that Tyler invested $50 per month in the average Canadian stock market mutual fund, and assume that the Canadian stock market averaged (including reinvested dividends) 8 percent a year over the next 53 years. Tyler would pay hidden mutual fund fees amounting to roughly 2.4 percent annually.  After deducting the average Canadian mutual fund fee, he would end up making roughly 5.6 percent annually. Here’s what Tyler’s money would grow to:

  • $50 per month compounded at 5.6% per year for 53 years = $191,834.77

 

Assume that his brother, Adam, invested the same $50 per month for 53 years in TD’s e-Series Canadian index.  If the markets averaged the same 8 percent over 53 years, Adam would pay a hidden fund cost of just 0.33 percent, giving him a return of 7.67 percent annually. Here’s how it would look for Adam:

  • $50 per month compounded at 7.67% per year for 53 years = $414,703.98

 

 Small costs add up.  

And the only reliable predictor of future fund performance is the expense ratio of the fund:  the lower the cost (expense ratio) of the fund, the higher the probability of decent future returns.  Don’t be fooled by a salesperson or advisor who recommends an actively managed mutual fund based on its strong historical track record.  After all, you’re interested in the future, not the past, and studies have shown that looking for historically strong performing funds is a silly way to pick funds.

In the Wall Street Journal’s article, Low Fees Outshine Fund Star System, writer Jane J. Kim cited another Morningstar study demonstrating that low costs, and not past performance numbers, are the best indicators of a fund’s future returns. 

Canada’s high mutual fund costs, unfortunately, spell mediocrity (or worse) for Canada’s investors.  But Toronto Dominion Bank offers a silver lining…sort of.

 TD’s e-Series index funds are the cheapest mutual funds in Canada.  They’re the funds that Tyler and Adam Benn recently purchased, with their mother’s help.  But many people believe that the top brass at the TD Bank don’t really want you buying them. 

 

The Conspiracy Theory

The theory behind TD bank’s reluctance to showcase these cheap index funds (while enthusiastically selling its expensive fund alternatives) has many creative heads a spinning.

  • Why, for instance, does TD Bank make e-Series indexes so difficult to purchase? 
  • Why haven’t many of their investment advisors even heard of e-Series indexes?
  • Why are many TD advisors so reluctant to purchase index funds of any kind for their clients?

The word “conspiracy” might be a bit strong.  The word “business” is, perhaps, a better choice.  The banks aren’t interested in playing Mother Theresa, and nor should they be.  If the average Canadian investor willingly pays high mutual fund costs, you can’t blame the banks (entirely) for that.  Nor can we fully blame TD bank for making its lower cost products less accessible, when the bank makes more money selling higher cost products.   

In Rob Carrick’s Globe and Mail article TD’s e-Series Funds, Easy To Love, Hard To Buy, he interviewed Tom Dyck, head of the mutual fund department at Toronto Dominion Bank. Somewhat apologetically, Mr. Dyck suggested:

 

“The reality is, we haven’t made it easy for people to buy them [e-Series indexes],…” (Tom Dyck, TD Bank Mutual Fund Department Head)

 

But if 7 year old Tyler and 9 year old Adam can purchase e-Series indexes (with help) then you might want to follow their lead.

I’d like to tip my hat to a financial advisor at one of TD’s Victoria B.C. branches.  She’s responsible for helping Sally set up e-Series index fund investment accounts for her sons.  I went with Sally, Tyler and Adam when they opened their account, to ensure that the process went according to plan.  Many new investors, after all, get talked into buying expensive mutual funds by advisors.  But I have to admit that the advisor we dealt with, whom I’ll refer to as Jill, was superb.  When I asked her, initially, if I could use her real name in this article, she happily agreed.  She knew my criticisms of the Canadian mutual fund industry and understood my article’s theme.  I was very impressed by Jill’s willingness to help.  But when I emailed my article’s first draft to Jill, she responded:

 

 “I really appreciate how favourably you wrote about me, but for the amount of people that read your blogs I just don’t want to get in trouble from TD.”

 

 Jill’s decision to omit her name might be a wise one.  Would she really get into trouble for helping some clients buy lower cost funds?  I don’t know.  But her fears were somewhat telling.

 

Here’s how Jill helped us to buy the e-Series funds.

  • Step 1

Sally called Jill and set an appointment, suggesting to Jill that she would like to open investment accounts of e-Series index funds for Tyler and Adam. 

Jill prepared the following paperwork for Sally to fill out.  If you want to save time, you could fill the form out yourself, ahead of time, and bring it down to your branch after making your step 1 intentions very clear:  You want to invest with e-Series index funds.

  • Step 2

To invest in TD Bank’s e-Series indexes, you may actually have to buy their more expensive indexes first.  They’re called the Investor Series indexes.  I realize how bizarre this sounds:  you want to buy the low cost e-Series indexes, but you must jump through a hoop and buy the more expensive Investor Series index funds first.

 Don’t worry, you can immediately wander to the back of the shop and exchange them (after some paperwork filing) with the better products in the dark storeroom.  But this is a hoop you’ll have to jump through. 

For a diversified portfolio, you could divide your money in the following Investor Series indexes:

  • TD Canadian Bond Index Fund
  • TD Canadian [stock market] Index Fund
  • TD International Index Fund
  • TD U.S. Index Fund

 

Again, don’t sweat it. 

If all goes according to plan, these expensive Investor Series indexes will be converted to e-Series indexes in less than two weeks, after the additional paperwork is submitted and processed.

If your child is investing through a custodial account (they must be 18 years of age for an account in their name) then they may choose to skip on the bond index until they’re older.  After all, they have plenty of time to recover from market drops, before their retirement.

For older investors, without an upcoming pension fund to look forward to, you may want to have a proportion of your account in the bond index which is roughly equivalent to your age.  For example, as a 41 year old, roughly 40 percent of my portfolio is in a Canadian bond index.  If you have a higher tolerance for risk, you could lower the bond portion slightly.  For example, if you’re 50 years old, with a high risk tolerance, you may want just 30 percent of your portfolio in the bond index.

You can see the Investor Series funds, below, alongside the cheaper e-Series products.  Note that most of the TD Canadian Investor Series index funds are twice as expensive as the e-Series indexes, when comparing their respective expense ratios.

 

TD Mutual Funds

e-Series

Investor Series

Savings1

TD Canadian Bond Index Fund

0.51%

0.83%

0.32%

TD Canadian Index Fund

0.33%

0.88%

0.55%

TD Dow Jones Industrial AverageSM Index Fund

0.33%

0.88%

0.55%

TD European Index Fund

0.51%

1.02%

0.51%

TD International Index Currency Neutral Fund

0.53%

1.01%

0.48%

TD International Index Fund

0.50%

1.38%

0.88%

TD Japanese Index Fund

0.51%

1.04%

0.53%

TD Nasdaq® Index Fund

0.51%

1.02%

0.51%

TD U.S. Index Currency Neutral Fund

0.51%

0.88%

0.37%

TD U.S. Index Fund

0.35%

0.54%

0.19%

 

I’ve wandered into more than a dozen TD banks in Victoria and Greater Vancouver, accompanying friends who want to invest in either the Investor Series indexes or the e-Series funds.  Jill was the only TD advisor I’ve met who didn’t fight the request. 

 

Don’t forget, the bank’s reps will try to sell you their actively managed funds first. 

If you battle a bit, you can generally talk them into getting you the Investor Series indexes. 

From there, with a bit of arm twisting, you can get the e-Series paperwork underway.  It won’t be easy.  Most of the advisor will fight you a bit.

Jill saved us such headaches, allowing us to purchase the expensive indexed products, setting up automatic monthly deposits into them, and then giving us the paperwork to convert the Investor Series indexes into cheaper e-Series indexes.

When Sally, Tyler and Adam left the bank, they were the temporary owners of the Investor Series Indexes.  

But once the paperwork was filed and the transfer from the expensive Investor Series indexes to the e-Series indexes took place, Sally received a phone call from Jill to announce that her sons finally owned the elusive e-Series funds.  They’re exactly the same as the Investor Series indexes but TD charges lower hidden costs for the e-Series funds.  Tyler and Adam’s investment deposits—which were initially allocated towards the Investor Series Indexes–will now be identically allocated to the e-Series index funds instead. 

Jill did make one thing very clear, however:  She wouldn’t be able to give any advice on the e-Series products, once Sally and her boys decided to purchase them.

 

Fortunately for Sally, Tyler and Adam, they won’t need investment advice.  

They’ll contribute to these low cost products and spank the long term returns of the actively managed portfolios offered by Canada’s big five banks.

After all, when the boys empty their piggy banks to make intelligent investments, they don’t want the banks profiting at their expense.

 

For more information on index fund investing, please check out my international bestselling book:  Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School.

 

The Previous Posts: 

1.    How Canada’s Banks Let Canadian Investors Down: Part 6 of 7
2.    How Canada’s Banks Let Canadian Investors Down: Part 5 of 7
3.    How Canada’s Banks Let Canadian Investors Down: Part 4 of 7
4.    How Canada’s Banks Let Canadian Investors Down: Part 3 of 7
5.    How Canada’s Banks Let Canadian Investors Down: Part 2 of 7
6.    How Canada’s Banks Let Canadian Investors Down: Part 1 of 7

 

 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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61 Responses

  1. Kellie says:

    Any idea what these low cost mutual funds are called at coast capital savings? And hi Sally (went to school with her) nice work!

  2. Hi Kellie,

    Unfortunately, you can't buy funds through Coast Capital that are as cheap as these TD e-Series products. That's what makes these funds so highly coveted. Please take the time to read each of my posts in this series Kellie. I hope to convince you to wander down to TD when you're done, with a strong purpose in mind.

    Cheers!

    Andrew

  3. Kellie says:

    Thanks Andrew! I will look into this. Remember me? I am a twin. Ask Sal or Sar. They might remind ya! I will look into buying your book too. My partner and I are following a budget for the first time so any tricks and tips would be very helpful.

  4. Rodney says:

    Andrew,

    I purchased E series funds very easily through TD Waterhouse awhile back, or at least I think I did. You have me second guessing myself because I didnt have to jump through hoops. Can you confirm? Comparing the MER they look like the correct ones.

    TDB909 TD Canadian bond index e

    TDB900 TD Canadian Index e

    TDB911 TD International Index e

    TDB902 TD US Index e

    Ive been keeping up with your articles awhile now, and appreciate the information and opinions.

    Rodney

    • Those are the right ones Rodney! Well done! It's pretty easy to buy them once you set up a TD Waterhouse account. But for people who are less experienced, they may want to talk to a real person along the way–even if that person isn't 100% cooperative.

  5. Sarah says:

    Hi Andrew,

    I was thinking of buying the ING Streetwise index funds eventhough it has higher fees just because I've heard it's so much easier to open an account there and make it a TFSA, and that they do automatic rebalancing.

    I'm very new to investing and I'm really interested with the TD e-Series index funds, but I'm hesitant because of the difficulty in opening an account, plus I don't know what rebalancing is, what the additional fees you have to pay for the rebalancing, and if the TD e-Series could be set up as a TFSA account.

    • Hi Sarah,

      You're smart to be considering costs, and it's nice to see ING getting in on the game. They charge an annual 1.07% for their rebalanced index funds.

      TD Bank offers a similar rebalanced index with exposure to Canadian bonds and stocks, as well as some U.S. and International stock flavors as well. It charges 0.89%. Over a long period of time, that will add up to a big difference–certainly thousands of dollars, if not tens of thousands.

      Because TD is a brick and mortar bank, you might find it easier dealing with them directly. And they are cheaper than ING. Again, this isn't a product TD really advertises in the shop window.

      You can automatically reinvest dividends, and you can easily set up a TFSA account at TD, using this one stop shop index.

      It's great to see you weighing up the low cost options Sarah. Nice work!

  6. Matt Matheson says:

    Andrew,

    You mention in your post that the dividends of the non-e series fund are reinvested. Are the dividends automatically reinvested in the e-series funds? I have friends who invest and are all about the great dividends they earn and I was wondering what the e series dividends are, if any, and if they are reinvested. I own a piece of all the companies in the index so I figured I'd get a share of the dividends too, but I'm not sure. Thanks for all your help and info with investing.

  7. Matt says:

    Andrew,

    Are the dividends for the e-series index funds reinvested automatically. I gave recently purchased them and I didn't hear anything about dividends. I thought there should be bc I own all the companies on the index, including the ones that pay dividends. Thanks so much for all your advice and insights. I'm a reacher in Alberta and have really appreciated your thoughts and guidance.

    Matt

  8. Nyana says:

    With a TD Waterhouse Basic RRSP (mutual funds only, no stocks allowed), you can buy efunds, but there is a $25/year charge until your RRSP grows to $25,000 or above.

    With an RRSP of, say, $5,000, that $25 is equivalent to 0.5% off your return.

    For small investors, you would be better off opening a direct account with TD Mutual Funds.

    • Thanks Nyana, I think you're right. And based on the piggy bank deposit my nephews (Tyler and Adam) are making, the regular index fund route–then transferring to the e-Series—makes the most sense.

      • Nyana says:

        Andrew, your nephews can have a direct e-series account with TD Mutual Funds rather than a direct regular account.

        The only advantage of having a TD Waterhouse account is that it allows you to diversify outside the e-series funds.

        About diversification — this low-cost index fund route has a lot going for it, but I do have a few reservations.

        Pretty much all the investment-returns research I've seen comes out of the United States. Their S&P 500 covers a broad selection of economic sectors. However, our TSX Composite contains 75% of its weight in just three sectors (energy, materials, financials). That's worked well in a decade where the banks have done well and oil and metal prices have zoomed up. But what if we have a decade where the banks are unable to grow and commodity prices reach a plateau?

        Now, the TD e-series does contain U.S. and European index funds. You get diversification that way, but you also expose yourself to the risk of falling currencies. You can buy the CAD-hedged versions of the U.S. funds, but that can shave 1% off your returns, the exact amount depending on tracking error.

        Any comments on how Canadians can get diversification with the low-cost approach?

        • Hi Nyana,

          I don't worry too much about Canada's financial and commodity bias, long term. Since 1976, there have been many times when the banks and commodities haven't done well. But over the long term, the Canadian index has performed comparably to the U.S. index. Assumed volatility of a single index, based on its weighting towards certain sectors doesn't concern me much. After all, a portfolio is not a single index. You can see the long term results of a Canadian couch potato portfolio rebalanced annually since 1976 right here, with the portfolio split between the U.S. index, the Canadian stock index and a Canadian bond index. The volatility has been very acceptable for the overall portfolio, and the overall growth has been reasonable as well. http://www.moneysense.ca/2006/04/05/classic-couch

        • Hi Nyana,

          As for falling currencies, I don't see that as a risk. I see that as an opportunity. When we rebalance, we take advantage of currency swings by default if we have access to a U.S. index, a Canadian index and an international index. The indexes that hedge currencies will reduce investment returns, and I don't think they're worth the hassle for the long term, dispassionate investor. There were certainly many currency movements from 1976 to 2010. The link here didn't show excessive volatility, despite those currency swing–and in this case, there are only two currencies (U.S. and Canadian): http://www.moneysense.ca/2006/04/05/classic-couch

          The returns of the future are never a certainty, but if we rebalance and keep costs low, we'll still beat the vast majority of professional investors. That's a given, considering that the markets are comprised mostly of professional money (mutual funds, pensions, endowments). And before fees, they return, as a group, what the markets dish out. Undercut them in fees, and you beat the majority.

          • Nyana says:

            You're right, rebalancing would effectively take profits on currencies that have appreciated and plow them into currencies that might be undervalued.

            Another thing that occurs to me is that dollar-cost averaging would affect returns. Most people don't take a lump sum in 1976, leave it invested for 35 years, then withdraw it in a lump sum. Most people gradually make contributions during their earning years then gradually make withdrawals during their retirement.

            I'm with you on the currency-hedging question. All that complexity and fancy financial engineering seems counter to the spirit of simple living.

          • Nyana,

            Do you think that dollar cost averaging would have improved returns or detracted from them? I'm guessing that it would have certainly improved returns from 1976 to roughly 1982, and again from 2000-2012. But it may not have been as effective during big bull runs.

            However, the fascinating (but more disciplined approach) of value averaging would likely have boosted returns during every five year period. http://www.studyfinance.com/jfsd/pdffiles/v13n1/m

            Personally, I invest more like a value averager—not entirely, but close.

          • Nyana says:

            Interesting. I'd never heard of value averaging before. It looks like it would work well in volatile markets, for an investor who has a choice as to how much to invest each period.

            As for your question about dollar-cost averaging and improved returns, I suspect that most people in practice will use something similar, not because of the theory but simply because it's practical, given their circumstances.

            I learned of a new mechanical strategy from the Globe and Mail (page B16) this morning: At the start of each year, put your entire savings into the asset class that did best the year before. Back-tested average returns, 18.6%.

            And there are some other exotic mechanical strategies I've heard about. Buying every stock in the S&P 500 that's making a LOSS is one. By the time a company starts making a loss, so much bad news has come out along the way that the stock has been severely beaten up. Some will go bankrupt, but most will recover. Buy them all at that point, and your returns will be astronomical. Or so I'm told.

            But, yeah, how many people would implement these strategies in practice?

          • I guess we can find all kinds of patterns when we data mine. But once these strategies start getting implemented, the strategies no longer work. History is filled with them. The idea behind value averaging, however, makes plenty of sense. It's counter-intuitive, and somewhat Buffett-esque/Graham-esque in terms of its value orientation.

  9. Peter says:

    Last week I set up e-series mutual fund accounts (RRSP, TFSA, and regular accounts) at a TD in Victoria. The woman was very helpful and offered no resistance. She never even mentioned other funds.

    She put my money in a Canadian money market fund until my account was enabled for e-series (which took about a week.) She explained that this wouldn't cost me anything to move out of the money market funds.

    Once enabled, I switched to the mix of funds you recommended in your book. No problems. It couldn't have been easier. Maybe I was lucky enough to work with "Jill" also. 🙂

    • Thanks for mentioning that Peter. With luck, others will be encouraged by your experience.

      Interestingly (and I know that this is far from scientific) I have received fewer hassles from TD's women advisors than from TD's male advisors, when helping friends set up accounts of e-Series indexes.

      In fact, a woman at a branch in Sydney B.C. was so fascinated by what I was telling her, that she asked me for some book recommendations. I didn't have Millionaire Teacher written, at that time, so I gave her many of the books on this list: https://andrewhallam.com/books/

  10. Matt says:

    Andrew,

    In your book you recommend the currency neutral international index with TD. You think the currency hedging isn't wise now?

    • I have never thought it wise Matt. It costs too much money in the long run. If I listed an index or ETF that hedges in my book, then it would have been a mistake–unless I was just giving the ETFs in the couch potato portfolio and consequently, their historical track record. Actually choosing an index that hedges wouldn't have been something I otherwise meant to do.

  11. Just to clarify, Matt. I think it's slightly more efficient not to hedge. It's not as if it's the difference between an active and passive fund (in terms of expenses) but the difference is real, however slight it might be.

  12. Matt says:

    I just recently opened the e-series accounts with a currency neutral international index. Is it worth it to switch to the regular one? MER difference is 0.03%. Im pretty sure there's a 2% early withdrawal fee which I assume would come into effect if I sell it to buy the other?

  13. William says:

    What is the difference between the TD e-series funds, TDB952 and TDB902? They both are list on TD's website as TD US index. Which one do you recommend. thank you.

  14. madMike says:

    “Investors in Canada and Japan typically pay between 2.00% and 2.50% for equity funds. We encourage fund companies in Canada and Japan to lower their fees and expenses for the benefit of the investors.” (Morningstar)"

    They'll allow us to buy beer in supermarkets in our "nanny" state Canada (outside Quebec) before this ever happens!

    Great article Andrew. I was overseas, not quite as far as Singapore! I've been waiting for Part 7 – finally caught up today. I have read the couch potato's articles and the comments from readers about the hassles they've received over their TD e-series purchases.

    Funny, I switched to the I-series index funds at TD about 5 years ago, then to e-series a couple years later as my knowledge "matured" with many thanks to you and the CCP, but I don't remember personally having a hard time buying the e-series funds. I simply wouldn't entertain a mutual fund salesperson's trying to talk me out of the e-series. And when I rebalance annually, I put them into lower cost ETFs. But don't sell before the 90 day holding period….early redemption fees!

    Just wanted to mention that I gave a copy of Millionaire Teacher to my brother and sister-in-law (both teachers) for their childrens' future RESPs and investment careers. Doing my part spreading the word on smart investing around southern Ontario.

  15. BadCaleb says:

    Andrew, I talked enough about passive investing to my brother-in-law to finally get him interested. He wanted to start with TD eSeries and I gave him the whole rundown of how they will try to sell him the more expensive, actively managed funds (or say they had never heard of eSeries) and how they will will fight him on putting everything in money market fund while the transfer takes place from a regular mutual fund account to a eSeries account. He comes back amazed, telling me that it went exactly how I had explained it would. The TD rep even told him he had to sign something (or maybe just mark a checkbox )to the effect that he was refusing the advice and putting everything in a money market fund.

  16. Matt, the currency neutral ETF is the one that hedges. Here's a great piece at Canadian Capitalist, about not buying the hedging ETF: http://www.canadiancapitalist.com/performance-of-

  17. I think so Matt. Here's a cool piece at Canadian Capitalist that explains why: http://www.canadiancapitalist.com/performance-of-

  18. William,

    Choose the one that doesn't list itself as currency neutral. Here's a helpful link as to why: http://www.canadiancapitalist.com/performance-of-

  19. Here's the one you want William:

  20. Hey MadMike,

    It's great to see that you have a great investment plan. And I'm thrilled that you're helping me to teach people about this stuff!

    Thanks!

    Andrew

  21. Hey BadCaleb!

    Yeah, those stories are pretty consistent. I would love to hear what goes on (in terms of conversations) between some TD managers and their reps, behind closed doors. The aversion to indexes is so strangely ignorant. It's sad. Boomer and Echo did a great post, recently, comparing each of the Canadian bank's Cdn stock actively managed funds to their comparative bank offered index funds. They weren't even cheap index funds that were being compared. But the results were still predictable: http://www.boomerandecho.com/how-index-funds-comp

  22. Matt says:

    Thanks for the link Andrew. I think I'll start buying the fund with currency exposure after looking at the article. I also took a look at your book to see if the TD Iinternational index listed was currency neutral and it is (TDB905). A small thing to change in future additions as I'm confident this book will be popular for years to come!

  23. Daniel says:

    I moved my RRSP into TD banks e-series from Royal Bank Mutual Funds. . . Unfortunately I lost money in selling the funds (sold them at a low point). . and the money was in limbo for an uncomfortably long time before it finally arrived at TD bank. . . However once the funds transferred I did not receive any resistance or question by the TD bank rep, when I purchased the mutual funds. . Just had to get an online account to purchase them myself from a money market RRSP account through TD banks online banking website. Did not have to buy any non-eseries index funds first.

    Easy peasy! And I've almost made my selling losses back already.

    Now I'm also planning to buy Canada's new Vanguard ETF index funds for my TFSA. .which I manage through Questrade. . But I'm not sure which bond fund ETF I should buy. . short term or regular ??

    • Hi Daniel,

      I prefer short term bonds myself. Doing so ensures that I'll always beat inflation. If you get stuck with longer term bonds, you never know. A longer term bond index in 1978 would have spelled bad news, in after-inflation profits, when inflation soared between 1979 and 1982. The two ETFs (XBB and XSB) are mid term and short term, respectively. Over the past five years or so, XBB has been the better performer. But I own XSB for the short term element. It might (or might not) outperform XBB over the next 20 years. But it will, for certain, beat inflation.

  24. Mark says:

    Hi Andrew,

    Could you please explain how I go about setting up a custodial account at TD to invest my 12 and 10 year old children's money.

    Also, are there tax implication for me? In other words, is it deemed to be my money according to the CRA?

    Thanks,

    Mark

  25. Daniel says:

    On the subject of whether to buy currency hedged indexes or not: I've been looking at Vanguard Canada's ETF's I've noticed that the VANGUARD MSCI EAFE INDEX ETF CAD-HEDGED (TSE:VEF) has a dividend of 2.53% (in the latest payout) with a MER of

    0.37% and the regular Canadian Index (TSE:VCE) has a MER of only 0.09% but the dividend is very low at: 0.37% in the payout last month.

    I'm not good at calculating this stuff. . but would that much bigger dividend yield on the Hedged fund make it worthwhile? It's a bit odd to buy a Canadian ETF hedged fund when I am Canadian.. I guess it is hedging on drops in the Canadian currency.

    Unfortunately Vanguard Canada only offers a Canadian currency hedged US market ETF. (TSE:VUS) with no "un-hedged" option. Though I don't feel so bad as I think US currency has a very tenuous hold on still being the worlds preferred trade currency.

    You can see all the ETF info here: .

  26. Davey says:

    TD E-SERIES costs MORE than "TD investor Serries"??

    Andrew, I've been loving your book and has put me on a pretty steep learning curve, long overdue. I've finally got going on investing beyond my ing rrsp and tfsa gic's and the rest just sitting in savings.

    Got myself into my local TD and the advisor is being very helpful, albeit green on e-series and needed to make a couple calls while we were getting started. But I digress….

    When I read above:

    "To invest in TD Bank’s e-Series indexes, you may actually have to buy their more expensive indexes first. They’re called the Investor Series indexes."

    "… these expensive Investor Series indexes will be converted to e-Series indexes in less than two weeks, after the additional paperwork is submitted and processed."

    I was interested because my advisor and I were going about it another way – like someone above, I'll first be dealing with a single money moarket fund that won't cost me, and will be converter to E-Series. So next visit (there's been 3 so far, but no biggy – I'm good with that) I asked about the other method – of first buying Invstor Series funds and then just transfering to their IDENTICAL e-series counterparts, when I learned that the E-SERIES VERSIONS are more expensive/unit – why hasn't anyone talked about this (that I've read, anyhow).

    Here's an example using TD Canadian Index and my naive basic math and concern – comments please!!

    E-SERIES

    CAN INDEX

    TDB900

    MER: 0.33%

    PRICE: $18.67

    1000 UNITS = $18,670

    $18,670 X 0.0033 = $61.611 cost/year w no change in unit value

    1000 UNITS/YR COSTS $18,670 + $61.611 = $18,731.611

    I-SERIES

    CAN INDEX

    TDB216

    MER: 0.88%

    PRICE: $17.75

    1000 UNITS = $17,750

    $17,750 X 0.0088 = $156.20 cost/year w no change in unit value

    1000 UNITS/YR COSTS 17750 + 156.2 = $17,906.2

    $18,731.611

    $17,906.2 –

    = $825.411

    FOR 1000 UNITS OF EXPOSURE FOR ONE YEAR TO THE CAN INDEX (W/ NO CHANGE IN VALUE) IT COSTS $825.411 MORE FOR THE E-SERIES VERSION

    Thanks!

    • Hi Davey,

      Unit prices are always irrelevant when looking at stock market investments. The only number to concern yourself with is the expense ratio.

      For example, stocks trading at $50 per share can be cheaper than stocks trading at $2 per share. It depends on relative earnings and the number of available shares.

      With these indexes, comparative prices are irrelevant. It's a matter, purely, of how many pieces the overall pie has been cut into.

      At some point, you might find that the investors series trade for $10 a unit while the e-Series trade at $100 per unit. Or vice versa. Again, that's completely irrelevant. Ten $10 dollar bills isn't worth less than one $100 bill.

      Remember, Davey, that whether you look at stock prices, fund prices or index unit prices, the listed price itself (in isolation) measures nothing.

      Cheers,

      Andrew

      • Davey says:

        Andrew,

        Thank you so much for your prompt reply and I'm sorry I've really needed this long to get back to you – I'm now set up to purchase my e-series funds and it's both my first time investing or dealing with such amounts of cash.

        First of all, the info in your reply makes me more relieved than has me understanding – relieved in that I feel the TD e-series route is the best one for me at this point, yet not fully understanding why it doesn't matter that the unit prices are different for the same funds depending on which "series" from which they are purchased. However, since I'm confident in my decision to go with e-series index funds, I'll leave this topic just to add that it seems deceptive/misleading, especially when the e-series and investor series are put side by side to show how the e-series is less expensive, such as in it's comparative chart of MER's on their site here:
        http://www.tdcanadatrust.com/products-services/in

        FAR MORE of my concern now, Andrew, now that I am all set up and ready to make my e-series fund purchases, is on fund allocation, and even more so on portfolio allocation – if these questions are best fielded in another forum area, please let me know or move as needed.

        a bit about me:

        – 47 yrs of age (single, no kids)

        – 4 yrs in contributing gov't employee superannuation/ pension fund

        – approx. 20 yrs to retirement

        – gross annual salary approx $52.000

        – current assets approx $74,000 (cash, RRSP, TFSA):

        ING savings (currently 1.35%):

        $31,500

        TD MUTUAL FUND ACCOUNTS:

        TFSA $20,500 (maxed to 2013)

        RRSP $22,500 ($4,200 contribution room available for 2012)

        – rent $720/mo. (utilities, cable included) – not much interest in buying

        – phones (landline & cel) $40/mo total

        – 94 VW Golf (may upgrade to 2001 Golf for $5000 – major purchase!)

        – no debt

        – "renewed" credit (new TD basic ccard – will carry no ballance)

        – frugal lifestyle

        – can/willing to invest approx. $800-$1000/mo.

        INVESTMENT GOALS

        – retirement security (travel, maybe a snowbird retirement pad…)

        INITIALLY FUND ALLOCATION CONSIDERATIONS:

        – given work pension / superannuation, considered higher risk such as 75/25 stock to bond indexes (bank survey approved)

        – however, lately considering less risky split, like maybe 65/35 (Can 25, us/Int 40, Can bond 35)

        PORTFOLIO ALLOCATION CONSIDERATIONS:

        (RRSP, TFS, Non-Registered)

        – MY GOAL: Tax efficiency

        Holy smokes, Andrew, are there a lot of opinions and considerations being presented online on this one! I have the means and the desire to use all 3 of my new TD mutual fund accounts, I'm now trying to figure out the most tax efficient way of using them. I'm reading cases for Can Index in non-reg to access the "dividend tax credit", but the US and Int indexes in either RRSP or TFS…others are saying that investments in equities in general should be kept non-reg…bonds held inside RRSP….and of course it all started when I read the 2009 article quite:

        "The power of portfolio allocation kicks in when the RRSP or TFSA is maxed out. How do you allocate your diversified portfolio so that you reduce your taxes payable?"
        http://www.milliondollarjourney.com/portfolio-all

        And goes on to break it down with recommendations such as:

        RRSP:

        Fixed Income/Bonds/GIC’s

        Foreign Equities

        Income Trusts

        REITs

        TFSA

        Fixed Income/Bonds/GIC’s

        Income Trusts

        REITs

        Non-Registered:

        Canadian equities

        Andrew, 'd sure appreciate your insights here – I"m anxious to make my purchases, but as mentioned, a tad gun shy just yet!

        Thanks again,

        Davey

      • Davey says:

        Hi Andrew,

        QUOTE:
        May 25, 2012 at 5:00 pm
        Hi Davey,
        …The only number to concern yourself with is the expense ratio.
        END QUOTE

        Man, catching you on local BC news over 5 years ago has changed my life, Andrew! Since then, my portfolio has grown pretty well…I think some suggest it would have been in my best interest to have converted to ETFs some time ago, but I’m not ready yet to take on a whole new learning curve. I suppose the transition would be easiest if I just convert my TD e-series to whatever Waterhouse is now – apparently I could just keep my e-series in there, as well as buy TD’s comparable and lower MER ETF’s…I’ll get there! haha

        Anyhow, speaking of lower MER’s, Andrew, HERE’s a hypothetical: Am I correct thinking that if an index fund MER is lowered one day, that index fund price/NAV would rise (all other price influences being equal)? And if so, would that influence be immediate, like the opposite effect the interest rate increase here apparently had (at least on bond index)?

        Thanks again for all, Andrew…so much!
        Cheers,
        Davey

  27. Davey says:

    Andrew,

    Just quick follow up, to be complete and in case this is of use to anyone else in a situation near my own.

    Re my last post, I have since initiated my index investing having made purchases identical to Rodney above:

    TDB909 TD Canadian bond index e

    TDB900 TD Canadian Index e

    TDB911 TD International Index e

    TDB902 TD US Index emade my purchases

    In terms of tax efficiency and portfolio allocation, my research has led me to the following:

    – Bond: TFS as they are the most heavily taxed relatively

    – US and International: next heavily taxed, and more efficient here rather than TFS

    – Can Index: Non-REG as is relatively most tax efficient of the lot

    As turns out, maxing bonds in tfs and maxing us/intern (even split) in rrsp, as well as Can index in non-reg gave me pretty close to the 65/35 allocation I was shooting for, fortunately.

    I will be able to balance within my reg accounts from time to time, but won't be able to add to them and do a full rebalance maybe until 2013 when I can introduce another approx $3500 rrsp and of course $5000 tfs.. For now, I'll balance best I can w/o buying outside of this framework, which means I may be just adding regularly to my Can Index in non-reg and fix up the %'s later on.

    Oh, a last note – I suppose an etf route might be the way for me to go for much or all of my portfolio pretty soon, given the minimal trading in my rsp and tfs – perhaps next year, but first things first!

    Thanks again,

    Davey

  28. Garry says:

    I am really glad I looked at this blog info on hedging. I read and followed your suggestions on page 114 of the "Millionaire Teacher". You indicated that if I want to buy like Keith, ie: with ETFs, I will need to purchase the following indexes, XIU, XBB, XIN and XSP. I should have read your info on Hedged Funds upside and down side a little more carefully on page 153. My question is, should I sell the XIN and XSP, to buy something else? Keep up the good work, and I love what the readers of your blob are contributing as well. Thanks again.

  29. A. E. N. says:

    Hi Andrew, I just bought and read your book. I was so relieved that you gave a step-by-step about Canadians buying eSeries funds at TD.

    Unfortunately, as a Canadian working as an overseas teacher in Madrid, I am not allowed to buy these. Were do I go now?

    Surely, people with money that don't live in Canada buy Indexes there anytime they want:(

    • A.E.N.

      To keep your non residency status safe, it's best that you keep your money out of Canadian banks/brokerages. Find a local brokerage offering you access to the New York stock exchange. After doing so, you can buy ETFs (global ones) to build a couch potato portfolio. How about your local Citibank, for starters?

      If you have to pay capital gains taxes in Spain, then consider opening an online account in Singapore (there are no capital gains taxes). Read my post about Canadians investing in Singapore. Check out the thread and you'll see what you could do. Then you could wire money there.

  30. Mags says:

    Hi Andrew,

    I just finished reading your awesome book. Thank you so much for writing it. I have no head for investing, although now I am starting to develop one thanks to you.

    I have not purchased any RRSPs or investments to speak of until this year for the following reasons:
    a) no head for investing
    b) the belief that the stock market is a roulette table
    c) my belief that if the banks like RRSPs and the government likes them, I probably shouldn’t
    d) I have a good pension fund at work
    e) we always intended to (and now have) a rental property to partially fund our retirement.

    As such we focused our early lives on becoming debt and mortgage free as our form of “investing”.

    What changed this year is the desire to fund our upcoming schooling (massive career change) thru Canada’s Life Long Learning Plan that allows us to take out RRSPs penalty free and pay them back penalty free. Having not come across your book yet, my husband and I invested some money in RRSPs. Thankfully I read your book before we invested more.

    I still feel a bit like deer in headlights, but I’m starting to blink. Our investments are with Mackenzie, a high performing fund, but also one with horrible MERs. If we are planning on withdrawing them sooner than later is it best to just leave them for now and re-invest then into TD e-series indexes when we repay the RRSPs?

    We are now in the process of mortgaging the rental property at 3% for 5 years and are considering taking out more money than we need to invest in some TFSAs and maybe RRSPs (TD e-series).

    My husband has no real pension to speak of and since our new careers won’t have pension funds I feel we need to do a bit of “catch up” with investing.

    Does financing our investing with the rental mortgage sound nutty or wise? We are 37 and 46 years old.

    Also, do you know of any resources on finding financial advisors that specialize in indexes?

    Thanks,
    Mags

    • Hi Mags,

      Make sure that whatever you do, you’re comfortable doing it. If taking out a bit more money to invest in your RRSP is what you’re interested in doing will make you comfortable, then go for it. However, I’m a bit confused, as you appear to be saying two different things: you’re removing some RRSP to fund your education, but you’re also considering adding to the RRSP (much later?) via mortgage refinancing.

      When will you be taking the money from Mackenzie? You may want to just leave it if you’re needing the money within the next year. But for kicks, find out how “high performing” that fund is. See whether it’s a U.S. stock fund, Canadian stock fund etc, and compare its performance to a benchmark index (either U.S. or Canadian) depending on the sector it’s most heavily invested in. You will likely find yourself surprised at its performance, and not in the way you imagine. The U.S. market, for instance, is up about 22% over the past 12 months. Your fund, if in U.S. stocks, is likely up about 19.5% (ish) after the 2.5% in management expense ratios.

      • Mags says:

        Hi Andew,

        Thanks for you prompt reply.

        To clarify, the RRSPs are short term savings for the purpose of funding ourselves while in school full-time. The main motivators in that decision were/are tax savings and the Life Long Learning Plan. So it is short term savings that eventually will become long term savings when they are paid back.

        I’ll try and figure out the comparison you suggested if I can figure out the mountain of confusing paperwork from Mackenzie!

        The other prong of my 2-prong approach is long term savings for retirement . We plan to give ourselves a jump start by maxing out our TFSAs via the rental mortgage, followed by monthly contributions to the TFSA or RRSPs from this point on, now that I know what I’m doing :). I’m comfortable doing this b/c we are still managing to get positive cash flow from the rental despite the larger mortgage (and the mortgage is tax deductible).

        It means we will be mortgaged on the rental longer (still not into retirement though) but it also means we start to invest much sooner and since we locked in on such a cheap mortgage rate I figure this is the smarter option.

        I would do the e-series except they only offer one bond option and it appears to be long vs short term bonds. Since we would quality for the flat $9.99 trading fee with TD Waterhouse brokerage, would it be better to go that route? You’ve written about not stressing too much over which indexes to buy but you also suggest buying short term bonds.

        BTW, I am opening e-series investment accounts with my niece and nephew this week. Having immigrated from communist Poland in the 1980s no one in my family has or had a head for financial matters beyond the ability to live on a tight budget. As such I’m taking the lead on changing that scenario.

        Thanks Andrew!!

  31. Mike says:

    Hi Andrew,

    This is a great site, I’m really doing my best to dive into this and become more educated about my investment options. My wife and I just had our first child, and I’m wondering if you have any comments on investing in e-series TD funds as part of an RESP?

    thanks,
    Mike

  32. GVK says:

    Hi Andrew, Great work!!
    I just completed your book and as a first timer I am looking for options in Canada.

    I have some questions for you: Sorry if I am asking too many questions.

    From your experience, have you enjoyed the returns from the investments all these years or to make it millions you had to sacrifice everything by reinvesting into it.

    How did you manage buying a house and paying the mortgages without taking the returns for downpayment?

    With the Vanguard coming to Canada, Do you think its better than the TD e-series for the index funds portfolio.

    Any suggestion would be appreciated.

    Thanks,
    GVK.

  33. Rajesh says:

    Hi Andrew,

    I am really inspired after reading your “Millionaire Teacher” book and these blog posts. Very informative! Following your lead I have decided to invest in 3 equity ETF’s and 1 bond ETF. None of them are e-series from TD. I live in Calgary, Canada. The biggest challenge I am facing right now is selecting the right platform (commission free) to buy these ETF’s every month. Is it true that at this point none of the Canadian banks/organizations offer commission free trades of ETF’s. I have seen 6 banks/organizations offer it in US. My funds are VTI (mer 0.05), VXUS (mer 0.14), XIC (mer 0.05) and VSC (mer 0.17). Please help!

  34. Jeremy Ellis says:

    On page 111 of the book Millionaire Teacher you mention TD banks TDB905 International Stock Index. You gave a link that now does not work (You get redirected). The following link gets to the TDB905 index

    https://www.tdassetmanagement.com/fundDetails.form?fundId=3266&prodGroupId=1&lang=en&site=TDCT

    but it is now called “TD International Index Fund Currency Neutral – e”

    Is that still a good choice for an International Stock Index? I think the Currency Neutral is some kind of Hedging which later in your book you warned against Hedging. Any opinions here?

    Thanks in advance. Great book.

    • mid says:

      Hey Jeremy
      TDB905 International Stock Index still exists. I have it. It is an e-series fund.
      TD makes the e-series really hard to find. You have to really dig around their website.
      Did you do a simple google search for td e-series? Then go from there.

      You should find both.

      –Mid

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