ETF War Offers Opportunity For Canadians

It’s been a few years since we’ve had a good old-fashioned gas-price war at the pumps.

But most of us can still remember the vehicle lineups. Some car owners even filled Jerry cans to squeeze every last ounce of value from the temporarily depressed fuel costs.

A few bucks saved on a couple tanks of gas is one thing; but that’s peanuts compared to what you could save during the price war now raging at an investment brokerage near you.

It’s a marvel what a little competition can do for a marketplace.

Please read the rest of my article at Canadian Business:





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 (Wiley 2011) 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.

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19 Responses

  1. I love seeing falling costs! It looks like Vanguard funds aren’t necessarily the best in Canada in all major categories yet, but hopefully they bring in some more investors and get there soon.

    Vanguard has a great history. It remains to be seen whether the other ETF providers will be able to support investors over several decades. BMO has a few good ETFs but that seems inconsistent with its position as a fee-pumping big bank. (I currently hold BMO and Vanguard ETFs and will be adding iShares soon)

    Another side of this is the price wars at brokerages. Two are now offering commission-free purchases for all ETFs and a few others offer it on a limited list. As we spread the word and get more people on board, the deals will just keep getting better.

  2. Brunnenburg says:

    Great article, Andrew, but I wonder if buying just one global ETF might be more efficient than spreading out among several ETFs. I hope Vanguard Canada eventually opens up a global ETF. For simplicity’s sake I’ve been using iShares MSCI World (XWD). Admittedly, the problem here is the relatively high MER (0.46%), but I find it much easier to rebalance my current TFSA portfolio thus:

    XWD: 40%
    CBO: 40% (eventually I’ll probably switch this to VSB)
    ZCN: 20%

    My overall MER for this is roughtly 0.33%. Not bad, but I once Vanguard is more established I’d jump over in a second. My US$ RRSPs are all with Vanguard (BND, VTI, VEA).

    • You’re right Brunnenburg, a total world index would be great. I think Vanguard’s ETF (VT) has an expense ratio of about 0.35%, but then again, it trades on the New York Exchange.

      As for one on the Toronto exchange, I hope it’s coming. Perhaps we could make noise about it on forums, websites, articles, etc. It’s an idea for a new article, I suppose: a Dear Vanguard piece.

      Hope all is well!

      Cheers,
      Andrew

  3. Rahim says:

    Interesting article, Andrew! I’m a newbie indexer and my portfolio is quite small at the moment so I’m focused on index mutual funds, not ETFs. However, I’m curious to know your thoughts on whether this might have a ripple effect on index fund prices. For example, could I see my index fund portfolio with RBC go down to an average MER of 0.4-0.5% from my current average of 0.7%? (I know the ETF-types reading this must think 0.7% is insane!).

    Mind you, there’s no price war taking place at the current time on the index fund side, but I have the impression that investors are increasingly making the switch from actively managed mutual funds to passively managed index mutual funds. Taking this into consideration, I’m sure the banks that offer index mutual funds (RBC, TD, ING, etc.) will want to grab their fair share of clients through cheaper index fund offerings. (If this happens, hopefully they’ll also expand their index fund line-up too! I’m with RBC and they only offer the 4 main types – Canadian Gov’t Bonds, Canadian Equity, US Equity, and Int’l Equity).

    Thoughts?

    • Vladimir says:

      Hi Andrew, have read your blog. Really interesting and practical thing considering as i have been approached by Friends salesman recently.
      He still cant make any comments to me about articles re Friends Provident in your blog.
      Can you advise me if Russian residing now in Kuwait can benefit from any of investment approaches described by you for Americans, Canadians, Britons, etc? Thanks in advance Vladimir

    • Hi Rahim,

      That would certainly be nice if it happened. But I don’t think it would, unless Vanguard started offering indexed mutual funds in Canada. Now that would rock the boat!

      Have you considered switching to TD’s e-Series indexed mutual funds? They cost nearly half of what you are currently being charged, and you could open a TD Waterhouse account, sell your current funds at no cost (and no tax hit if they’re in a RRSP that you would be rolling over into a TD Waterhouse RRSP) and you would give yourself a boost of about 0.4% each year. It doesn’t sound like much, but it would add up to plenty over time.

      Cheers,
      Andrew

  4. Keith says:

    Hi Andrew – I read Millionaire Teacher and am starting a portfolio based on the principals you outline in it. Congrats on the book – I thought it was excellent, very easy to read and informative. (I read a “Random Walk Down Wall Street” afterwards and it is a LOT harder to understand once you get deeper into it.) I am an Irish citizen living in Vancouver, Canada and plan to be here for another few years but not permanently.

    Are you familiar with the TD e-series mutual funds? I have recently (as in this month) started a portfolio with:
    33% TD CDN Index e** (Code: TDB900)………….MER: 0.33%
    33% TD European Index-e** (Code: TDB906)… .MER: 0.51%
    33% TD CDN Bond Index-e** (Code: TDB909)…MER: 0.50%

    Do you think I should add a US Index fund or emerging market fund to this?

    Are there cheaper alternatives to TD e-series? How do you rate the TD series in general?

    Thanks for any advice you can give!

    Keith

    • Hi Keith,

      My book, Millionaire Teacher, lists a portfolio of e-Series funds that I recommend. If you don’t want to pay purchase commissions and you want your dividends reinvested, and if you have less than a $50,000 portfolio, I definitely recommend these funds. If you want to build a portfolio of low-cost ETFs, you could do so. They have slightly lower costs than the e-Series funds. But you would have to pay commissions to buy them and your dividends wouldn’t get reinvested automatically.

      I’m glad you liked the book.

      Cheers,
      Andrew

      Cheers,
      Andrew

  5. Nick says:

    Hi Andrew! I really loved your book. Quick question on buy and hold versus a trend-following, 200 day moving average strategy:
    See this link from these quant guys in the states. I’ve done a lot of research thru academic papers and trend following seems to havev some proof. What are your thoughts? http://blog.alphaarchitect.com/2015/11/09/the-worlds-longest-trend-following-backtest/#gs.l0Yq=0c

    As well, I am a young Canadian and investing in the markets. My allocation will be 25% Cdn short term bonds, 20% XEC-emerging market equity, 20% XEF-developed market equity, 35% US equity. Any thoughts on that? I am curious why advisors and yourself so heavily recommend such a large Canadian allocation. I’m not sure where I’ll end up retiring and plan on drawing down money over time and maybe exploring the world. Is it the worst not to have Cdn exposure? I just don’t think its required. But who am I to know…

    Thanks for any help!

    • Nick says:

      Any comments would be appreciated!

    • Hi Nick,

      Your portfolio allocation looks fine as long as you stick to it.
      My portfolio models for Canadians (choosing to retire in Canada) have high Canadian allocation to reduce currency risk, considering that such Canadians would be spending loonies in their retirement.

      As for Canadian bond market prices, it’s best that you don’t even know what they are doing, week to week or month to month. I could never tell you what my bond prices are doing. It’s somewhat irrelevant, until my annual rebalancing date is due.

      As for lump sum investing versus dollar cost averaging, it’s statistically best to invest all of your money as soon as you have it.

      https://assetbuilder.com/knowledge-center/articles/-invest-a-lump-sum-or-dollar-cost-average-just-ask-a-rat

      Cheers,
      Andrew

      • Nick says:

        Thanks Andrew. I guess my worry is if I’m dumping 100k into the markets, I wouldn’t want to do it at a market peak? If that makes sense…, but I see in the cases described in your article it made sense for those people.

        I’m sure you’re going to say “stick to a buy and hold”, but any thoughts on trends and trend following to avoid big market drawdowns. When I imagine my holdings dropping 50%, that’s scare to me!

        As well, any other resources or podcasts for a young person looking to become more fluent on the topic and quickly compound their wealth that you enjoy? I’ve been leaving it in the mattress, so to speak, for years and would like to finally have my money work for me.

        • Hi Nick,

          I think you might be best hiring a robo advisor (like WealthBar) to invest your money.
          Don’t take this the wrong way. I don’t think everyone can “learn” to enjoy market drops. If, for example, the markets cut my portfolio by half tomorrow, I would be dancing in the streets.
          That’s the kind of thinking that’s required to do well. Ask yourself an honest question. Could you think this way too? If not, hiring the roboadvisor might be the most profitable solution for you.

          Cheers,
          Andrew

          • Nick says:

            I appprecate your thoughts, though I don’t necessarily agree about the roboadvisor route. I am just a young person curious to learn as much as I can and manage my money in the most prudent way possible. I kind of understand what you mean when you say that you’d be happy if the market fell half, if you had continuous income coming to buy cheap stocks and could reaalocate the money already invested in bond funds to equities. But if you had just put in 100k and had no income coming in, you’d still feel the same glee? I’m a very logical and numbers kind of thinker, so I’m just trying to understand this through the facts and numbers. If I can see that numerically this is a proftable strategy it would make sense, but intuitively it sounds off.

            Maybe I’m just beating a dead horse, but I appreciate any thoughts.

          • Hi Nick,

            I have answered your question the best way that I know how.

            Cheers,
            Andrew

  6. Nick says:

    Thanks Andrew. I guess my worry is if I’m dumping 100k into the markets, I wouldn’t want to do it at a market peak? If that makes sense…, but I see in the cases described in your article it made sense for those people.

    I’m sure you’re going to say “stick to a buy and hold”, but any thoughts on trends and trend following to avoid big market drawdowns. When I imagine my holdings dropping 50%, that’s scare to me!

    As well, any other resources or podcasts for a young person looking to become more fluent on the topic and quickly compound their wealth that you enjoy? I’ve been leaving it in the mattress, so to speak, for years and would like to finally have my money work for me.

    • Hi Nick,

      Going back to your previous posts, I saw that you are a young man. My goodness. You have plenty of time to grow your money and recover from any market drops that come your way because (presumably) you will be working for many years to come. I don’t suggest that you ever speculate. And besides that, global stock markets aren’t at a peak. The U.S. might be expensive (and I wouldn’t even speculate about that) but international stocks are pretty cheap. I wrote this story recently. https://assetbuilder.com/knowledge-center/articles/why-smart-investors-sold-some-us-stocks-this-year

      And no, this isn’t a suggestion NOT to buy U.S. stocks. Just buy a global index and a Canadian index (assuming you are Canadian) and include a Canadian government bond index.

      Cheers,
      Andrew

      • Nick says:

        I appreciate your help Andrew! Yes, mid 20s 🙂 I’ve started a DCA drip into my holdings and will just stick to my allocation and looking forward to see how this adventure unfolds. I appreciate your help and all you do 🙂

        PS. Im also bullish on International stocks and emerging markets, maybe because I lived in Thailand for the last year, Go Thai! haha. Again, really appreciate everything.

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