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I am in my mid 20's and my number one goal right now is to get my student and consumer debt to 0. However I recently took a look at the group investment plan offered through my company that is managed by Manulife. I was originally under the impression that the company only matched 3% of what I invested and no index funds were available. It turns out I was wrong and the company will match dollar for dollar up to 3% of my annual salary and 5 index funds are available.

The CDN Bond, CDN Large Cap Equities and one US Large Cap Equities index all have an MER of 1.075%. While another US Large Cap equity index has an MER of 1.250% and the International Equity index fund has an MER of 1.325%.

From what I have read and learned so far I realize these MER's are high compared to what else is out there however with the dollar for dollar match from my employer I believe it to be much less of a nuisance compared to if it were just my money. I'm wondering if I'm right in thinking this way since I am getting a 100% return on what I invest minus the fees?

Also when it comes time to rebalance every year I'm curious as to what my best options are. I think I remember reading somewhere it is better to rebalance only through purchasing as opposed to selling and then buying. Since my employer caps out at 3% and I've already contributed that throughout the year am I better off opening lets say a TD e-Funds and buying into that. The idea being my overall portfolio between the two accounts would balance and the extra money i contribute over 3% would be in funds with much lower MER's?

This is my first week actually researching and learning about investing so I've done a lot of reading in the past 5 days if something like this has already been addressed my apologies I must of missed it in the numerous searches I've been doing. I would also like to give a quick thank you to all of you who post to this forum and the blogs you maintain. All of you have supplied ample resources and information for a newb like me to learn from.
 

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I am in a similar position as you, employer matches % of annual salary and group plan is managed by an equally large insurance company.
They have index funds as well with very high MERs similar to yours.
I decided that the MERs are too high to invest through them.
You will never make money on bond funds and large cap broad based equity index funds like international index with that kind of MER drag.
Therefore I decided to invest all the employer matched contributions in a money market fund.
My plan allows once a year withdrawal and towards the end of every year I transfer everything into a self-directed plan at a discount brokerage and invest the way I want.
The reason for keeping everything in money market is for ease of transfer and not worrying about running losses at the time of withdrawal.
 

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If your plan allows you to transfer out periodically as HaroldCrump does, that woudl be best solution. If not, contribute 3% to it (in index funds) to take advantage of the employer's matching contributions, and establish a plan elsewhere for the balance of your RRSP room. (also check to see if there are administrative fees for doing this every time.)
You could create a spreadsheet to see what those high MERs are costing you, but I think the matching contributions will outweigh the cost for a long time. But one problem is if you leave this employer and the funds are "locked in" until retirement at these same high MERs.

PS. Although the MERs are high for index funds, they are still a lot lower than for any managed funds.
 

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The math is not simple for determining whether higher MERs are 'worth it' if you cannot transfer money out later. Since the company matches your contribution equally, the MERs must be more than double the norm before they become an issue. In this case they ARE more than double, but not by much.

But you still get the benefit from the returns earned 'after fees' on that free $$. Your %returns will be lower than what you would earn with normal-fee ETFs but it is still a MUCH higher $return that what you would earn on $0.00 .

Agree with above - only contribute the $$ that gets matched. Open your own account elsewhere for the rest of your savings.
 

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While there may be a lock in provision associated with this plan should the OP terminate his employment he should be able to transfer the funds in the account into a LIRA. Depending on the type of LIRA account he sets up with a bank or brokerage he should be able to invest the funds in lower MER ETF's or stocks/bonds. OP should probably talk to HR person to confirm this.

Agree that he should take advantage of free money.
 

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You should ask 2 ?.

Whats the max. 3%

How long does it stay with Manuel Life.

Then follow the advice above.

Those mer's you quote are tiny compared to some mutual funds, if you are interested managing your own money great, if not just leave it.
 

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Discussion Starter #7
Thanks everyone. I'll ask abouts the costs involved in moving the funds out into an external account once a year.
 

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Also when it comes time to rebalance every year I'm curious as to what my best options are. I think I remember reading somewhere it is better to rebalance only through purchasing as opposed to selling and then buying.
Rebalancing through purchase makes sense when the adjustments are minor. Others contend for significant amounts, you should sell and buy. This forces you to experience the "buy low and sell high" paradigm.
 

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When I used to work for a brokerage, I think they charged $125 plus GST to do a transfer to another institution. I think that this rate is pretty typical for brokerages, though sometimes the receiving institution may be willing to refund the fee. Also, transfers are a big hassle with some probability of funds not being transferred in a timely manner.

This may be a bit off topic, but I used to work in a brokerage back office. Believe me. The transfers department is, by far, the least prestigious (if any part of brokerage administration can be considered to be this) and possibly the most boring job in the back office. It is repetitive and also has a relatively high probability of error (both on the sending and receiving end). Where I worked, most of the transfers people were employed on temporary contracts and the turnover was high.

So, in general, I would avoid having to transfer funds unless it was worth the headaches. While I agree that the MERs (though they could only be the management fees levied) charged in the OP's group plan are pretty high for index funds, I'm not sure if the MER differential between them and the alternatives would be enough to induce me to transfer my funds if I was in the OP's situation.
 
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