[In a recent column, Rob Carrick listed his top bargains and asked Million Dollar Journey, Larry MacDonald and I to share ours. Here’s the longer version of my picks for the top investment deals:]

  1. Vanguard ETFs: It is a pity that Canadians do not have access to mutual funds from index fund giant Vanguard. Vanguard ETFs, however, trade on US stock exchanges and Canadians with self-directed brokerage accounts can invest in the lowest-cost ETFs around. The MER of Vanguard Total Stock Market ETF (VTI), which tracks the entire US stock market, is just 0.09%. In other words, a $100,000 investment in VTI would incur an annual expense of just $90 (plus the commission to buy and sell the ETF). Other ETFs of interest from Vanguard are the Europe Pacific ETF (VEA, MER of 0.16%) and Emerging Market ETF (VWO, MER of 0.27%).
  2. TD e-Series Index Funds: Investors can assemble a diversified portfolio at a very low cost with TD e-Series mutual funds. These funds are perfect for regular contributions — you can start with as little as $25. Note that the funds are only available online through TD Bank or TD Waterhouse.
  3. Low-Cost Fund Families: You can avoid the high fees associated with many mutual funds by seeking out some of the lesser-known names. These money managers typically sell directly to investors and require a high minimum investment. But they provide active management at a much lower cost than the average mutual fund. Phillips, Hager & North, Leith Wheeler, Mawer and Steadyhand are some examples.
  4. Wash Trading: If you sell and buy US stocks within self-directed RRSPs, most discount brokers will ding you with a two-way currency conversion fee: first when selling your US stock and then when buying your US stock. The currency conversion fee could add up to anywhere between 2% to 4% of your trade and could be much greater than the trading commissions. Wash trading, a feature available with some brokers (TD Waterhouse, for example), allows investors to avoid those pesky foreign currency conversion charges in registered accounts.
  5. Dividend Reinvestment Plans (DRIPs): Many blue-chip companies offer shareholders the option of reinvesting their dividend cheques in company stock without any fees. Some companies even offer a discount on the share price for DRIP participants. Discount brokers also offer “synthetic” DRIPs but investors can only purchase whole shares — fractional shares are not allowed.

This article has 19 comments

  1. For those that like DRIPs, you may want to check out Share Owner Investments. They work a little different than a regular discount broker in that they are co-op buying, but off free fractional DRIPs on any of the securities they sell.

    • Canadian Capitalist

      Traciatim: Have you purchased shares through Share Owner? It would be interesting to know more about them.

  2. I have . . . only 1 :)

    I opened an account in the winter of 2006-2007 thinking I would start a regular contribution. I opened the account and purchased 1 share of CIBC since it was about the price of my first deposit at the time. I only purchased it because i wanted to see how the whole flow of the account functioned. Just after that some our apartment building for some reason went all to . . . well, it was bad. So we had decided to move, but ended up buying a house instead of moving to another apartment. So my account just sits there with it’s one lonely share.

    It’s not like a regular discount broker with charts and graphs and realtime excitement. Their interface is really more like my ING saving account. Just move money back and forth, you can set up pre-auth purchases or set up one time transfers and purchases too.

    I get an e-mail every once in a while when CIBC pays out their dividends saying it’s been used to purchase more, but since i only have 1 share it’s an extremely tiny amount.

    The ShareOwner structure is great for beginners, people with smaller accounts, people who just want a ‘set it and forget it’ style, and perfect for people doing quarterly/biannual/annual purchases etc . . . It’s not for people who want the flexibility and control of a discount or full service broker.

  3. CC: Do you know if BMO Investorline offers or will offer Wash Trades?

    • Canadian Capitalist

      @Henry: To my knowledge, TDW is the only brokerage to offer full wash trading — in the sense that you can “wash” the proceeds from a USD sale and park it in their money market fund by calling it in. Credential Direct and E*Trade offer limited wash trading capabilities but AFAIK, no other brokerage does (NB: Qtrade also offers wash trades). I have no familiarity with Questrade’s USD RRSP though.

  4. @CC (and Henry): You mentioned Qtrade also offers limited wash trading in your November 19,2007 review.

    http://www.canadiancapitalist.com/qtrade-review/

    I can’t find the details now on how it’s done, but if I recall correctly, one has to call them before doing the buy portion of the wash trade to have them set the exchange rates manually. I believe it costs $10 extra any day when you request wash trades, but as I mentioned, this is just from memory.

    I transfered my RSP to TD recently for their automated trade washing.

    • Canadian Capitalist

      @gene: Thanks for pointing out the error. I remember confirming with a Qtrade CSR that limited wash trading is available.

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  6. I have USD in Questrade RSP right now. You have 3 options, settle trades in USD, CAD, or currency of stock. If CAD is chosen, you pay the conversion. If you choose USD, you pay $5 for any day you do USD trades to avoid currency conversion, UNLESS you converted the funds ahead of time. USD is held as “tradeable units”.

  7. CC, your post on DRIPs and ETFs is very timely. I was planning on posting a few questions for you.

    I opened an RRSP account with TDW last September and have been consolidating my RRSPs since. I recently looked back at my online statements to see how much I have made on DRIPs with my e-Series funds. I was very surprised to see that I had received a significant amount of money through DRIPs. It looks like TDB900 and TDB902 pay out annually in December. TDB909 pays out monthly and TDB911 pays out quarterly.

    I am now thinking seriously about moving in to ETFs and was comparing the dividend payouts for iShares XIC with TDB900. From what I can tell, XIC paid out $0.55 per unit in December 2008 vs. the $0.76 per unit for TDB900. The unit prices were very similar and I was very surprised to see a delta of $0.21 per unit. In December of 2008 both were running at about $13.50 per unit which would mean 1.6% between the two. If I am not missing something, am I not potentially giving up more by trying to save a fraction of one percent on the MER? Was 2008 an anomaly and in most other cases XIC is comparable to TDB900?

    I also wanted to know if DRIPs were factored in to the posted rate of returns for the e-Series and iShares funds….or are the DRIPs above and beyond?

    Lastly, do you have a tool for tracking your average annual rate of return with a discount broker. When I had a full service account with Standard Life I could just run a report. I don’t see any option in the TDW website to get that sort of information. I am assuming I would need to track it in Excel and was wondering if anybody had a robust template.

  8. @Jon202: what do you mean by “UNLESS you converted the funds ahead of time.” I have an Questrade RRSP account holding USD, and it sounds like there might be some aspect that I don’t understand.

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  10. Canadian Capitalist, I have used Canadian Shareowner for about 5 years now. They are okay for beginners but there are some big disadvantages that people should be aware of.

    The first is that Canadian Shareowner has been raising its rates steadily over the past two years. It is now $40 to purchase any number of a basket of stocks. This is a bit pricey if you are trying to implement a couch potateo portfolio with only 4 or 5 ETFs.

    The second disadvantage is that Canadian Shareowner does not offer the best ETFs (ie. only a few Vanguard ETFs can be purchased for Canadian Shareowner).

    The final disadvantage is the currency conversion. Every time you buy a US asset you pay 1.4% as a currency fee. When you see the US asset you pay ather 1.4% currency fee.

    I am waiting to build up my portfolio to $100k at which point I plan to move to TDW.

    Ryan

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