Comments on: Switching from Index Mutual Funds to ETFs

By: TheYoungGuy

TheYoungGuy — Wed, 17 Jun 2009 17:47:31 +0000

Thanks for all of your wisdom everyone. I am a young guy just starting out in this whole world of funds and ETFs. I am looking at an initial investment of $5000 with $1000 per month ongoing investment. Any suggestions on where I should direct that money? I am thinking index funds are the way to go. I was thinking starting with 2 or 3 funds such as the TDB909, TDB904, and something international? Any suggestions where a good starting place is?

By: Ed

Ed — Tue, 17 Jun 2008 13:36:00 +0000

For all those looking for a simple equation for how much money is needed to flip from one fund to another (or fund to ETF , etc.) from a higher MER to a lower MER based on covering your commission costs in one year of savings, well here it is:

Minimum amount needed = (Commission charged to sell higher MER($) + commission charged to buy lower MER ($))/(Higher MER% – Lower MER%)

Basically it is the total commssion cost in $ divided by the difference in MER%.

Enjoy,

By: MoneyEnergy

MoneyEnergy — Fri, 30 May 2008 18:21:16 +0000

I was just going through this process a month or so ago.

I noticed that TD’s e-series Index funds seemed to closely match some of the ishares ETFs. Did TD come up with these e-Index funds in order to deal with the competition from the ETFs? Or did TD already have the e-Index funds in place?

For myself it still makes more sense to go with the e-Index funds because I pay no commissions to invest in them, and I still get quarterly returns.

By: PushingThirty

PushingThirty — Fri, 30 May 2008 03:25:15 +0000

Thanks for breaking down the difference between ETF’s and index funds. I have been reading about these for months and have yet to feel confident enough to make a decision. Your post and the comments have me on my way!

http://pushingthirtymydebtdeadline.blogspot.com/

By: Jim Somerville

Jim Somerville — Thu, 29 May 2008 22:00:59 +0000

This is very useful information! Thanks.

By: Canadian Capitalist

Canadian Capitalist — Thu, 29 May 2008 16:44:16 +0000

Jon: That’s funny!

RI: I purposely was vague on “small” or “large” account because it depends on many factors such as how much commissions are paid for each trade, how often the account is rebalanced, how often money is invested etc. For instance, someone with an account with a big bank might be paying $30 per trade compared to another with an account with Questrade paying $5.

The advantage of ETF is lower MER but you pay trading commission to buy. I usually look to make up the commission through MER savings in one year. XIC MER is 0.25% compared to 0.31% for TDB900. If I pay $10 to buy XIC, I can make up the commission when I have $15K in Canadian equities. MER savings are much more for funds like VEA compared to TDB911 (0.12% vs. 0.48%), in which you can save with ETF even with $3,000 in international equities. I would guess that at $25K, an all-ETF portfolio is almost sure to save money.

By: RI

RI — Thu, 29 May 2008 15:35:01 +0000

What kind of amounts would we consider to be “small” or “large”. Is $1000 when you should consider switching from index fund to ETF? $5000? $20,000?
Does it depend on how much you contribute monthly? Should it simply be some multiple, say, 6 months worth of contributions?

By: Jon202

Jon202 — Thu, 29 May 2008 15:13:54 +0000

I’m sorry, but I cannot support an ETF portfolio without some COW in it. Maybe then, you’ll have a CLU how to organize your ETFs.

http://www.claymoreinvestments.ca/ETFs/Public/fund/Overview.aspx?ID=8ee4be52-eac2-4854-9478-9a07011b88c7
http://www.claymoreinvestments.ca/ETFs/Public/fund/Overview.aspx?ID=c0a2adf3-4c30-4a6c-8221-66236e68962d

By: Canadian Capitalist

Canadian Capitalist — Thu, 29 May 2008 14:31:15 +0000

Hi Gail:

Thanks for your comment. I’ll agree with you on adding XRB or real-return bonds directly. Also, personally, I have opted for the short-term bond fund (XSB) instead of XBB.

In my benchmark Sleepy Portfolio, I have a 5% allocation to XRB.

By: Gail Bebee

Gail Bebee — Thu, 29 May 2008 14:24:43 +0000

I would suggest one change to the above ETF portfolio: replace at least part of the TD Canadian bond index fund with the iShares CDN Real Return Bond Index Fund (XRB). This ETF adjusts for inflation. As the inflation rate is likely accelerating due to rising energy costs working their way through the economy, this feature is an important consideration for fixed income investing.
Gail Bebee
Author of No Hype – The Straight Goods on Investing Your Money
All the investing basics for Canadians from a savvy financial industry outsider
Web: http://www.nohypeinvesting.com