Welcome to the forum Yarbles.

First off, congrats on paying off your student debt and being able to save $9000! If your here and asking these type of questions at 26 years old, you're definitely starting off in the right direction.

As far as visiting your local Scotia Bank branch, they're most likely not going to be able to help you with what it sounds like you're looking for, DIY investing. What you've described to us is that you're interested in opening up a discount brokerage and doing your on investing within it. If you're only interested in using Scotia Bank, visit: http://www.scotiabank.com/itrade/en/0,,3527,00.html. If not, I strongly suggest you have a read of the comparison of discount brokerages that Million Dollar Journey has posted. You can find that here: http://www.milliondollarjourney.com/review-canadian-discount-brokerages.htm.

An index fund and an ETF are very similar. They both hold a basket of equities and try to match their underlying index as closely as possible. Index funds are mutual funds that trade after day closing. ETFs trade during trading hours on the market, much like stocks. Index funds have slightly higher MERs than ETFs, but there are no trading fees involved in buying/selling index funds. When buying/selling ETFs, you are charged a "trading fee", which is $19.99 at Scotia iTrade. Trading fees eat into your returns, thus it's always a good rules of thumb to try and keep them under .5%. For example, if you purchase 3 ETFs for $3000 each at Scotia iTrade, your trading costs will be $60 (or .66%) just to purchase. Double that cost, as you're most likely going to be selling to rebalance at the end of the year. Now, you have paid 1.32% in trading fee, without even factoring in the MER. Index funds will generally run in the range from .5-1.15% MER, but there are no trading fees. Generally, with accounts like than $50,000, you're better off investing in index funds until your balance earns you reduced trading costs at your brokerage. As you get closer to $50,000, simply do the math and see what's more of an advantage to you.

You are able to purchase index funds from other banks, regardless of who you use for a discount brokerage. For example, I use BMO Investorline and I don't hold a single BMO index fund. Check out the Canadian Couch Potato site and look at the model portfolios here: http://canadiancouchpotato.com/model-portfolios/. The Global Couch Potato is probably all you'll need at this point. Adjust the equity/bond ratio to match your risk tolerance. 60/40 split at 26 years old is extremely conservative, but ensure you can sleep easy if you eliminate bonds/fixed income or adjust the ratio to more equties. Personally, I'm 29 and I have 15% in bonds and 85% in equities. With the time horizon you have, you can invest your fixed income portion with Peoples Trust into their TFSA earning 3%.

This should give you a good starting point and allow you to do a little homework before you begin clicking that "buy" button.

 

Thanks PF_Enthusiast!

I visited the websites you linked and read them all.

Just to confirm - now I'm planning to:

1. Forget Scotiabank, transfer my money to TD, and open up an account with TD Waterhouse in order to access their e-series;

2. Open up a TFSA account with TD, and transfer up to $9000 into it;

3. Put the money into TD Canadian, US and international Index and let it sit,

4. Add money as time goes on.

My rationale for this portfolio is:
-I would rather use TD over Scotiabank for their cheaper index funds.
-I have positive monthly cashflow, a steady job, no plans to buy a house or car (or get married), and enough money on reserve beyond my investment money; so I would rather invest into index equities alone because I won't suffer if I happen to lose the money.

How does that sound to you? It would be a hassle changing banks.. would it cost much in fees to stay with Scotiabank and open a TD brokerage account only?

And what about the option of opening say a Questrade or a Scotiabank I-trade account and investing in Vanguard Index funds? Might that be more fee efficient? That option isn't listed in Canadian Couch Potato and I'm just drawing from the little I know.

Thanks!!

 

Great! Sounds like you've done some homework since your initial post.

1. If you currently bank with Scotiabank, you can still open a discount brokerage account with TD Waterhouse and get access to the e-series funds. The e-series funds have the lowest MERs of index mutual funds.

2. Sounds good! As your income increases, you should look into opening an RRSP as well. Ensure your in a high enough tax bracket to get the best bang for your buck.

3. I never like to select or suggest investments for others, but your 3 funds seem like a very good simple start to your portfolio. You have no mention of bonds or fixed income. You realize that bonds help soften the blow when markets tank, right? I'm not saying having no bonds is bad, especially at age 26, it's just more risky. You're obviously very new to investing and generally new investors overestimate their risk tolerance. You truly don't know your risk tolerance until Mr. Market takes a downward spiral.

4. Yes! Pay yourself first. Have it automatically withdrawn after each pay cheque so you get accustomed to forced saving and you can "dollar cost average".

You're headed in the right direction. It's good to hear you have a reserve for an emergency fund. You wouldn't want to be "all-in" the market and have to sell low because you need the funds.

Personally, I see no need to switch banks. Add TD Waterhouse as a payee in your Scotiabank online banking and deposit funds that way. Keep in mind it'll be 2-3 business days before funds show up.

Lastly, forget everything you wrote in your last paragraph lol Vanguard funds (cheap MERs, cost to buy/sell) are ETFs. TD e-series funds are index mutual funds (cheap MERs, no costs in buying/selling). Once your account is bigger, then I would recommend ETFs such as Vanguard funds. Stick with the e-series funds in a TD Waterhouse account, contribute regularly, rebalance annually and you'll be fine. You're 26...buy and hold; don't sell when the market goes south...it's always bounces back in time.

 

Why not just to stay with Scotia, open an iTrade account and buy the TD e-series funds?

 

purchasing mparkie




You can only buy TD e-series through a TD mutual fund account or TD Waterhouse account. I'm more or less in the same boat as you, and after looking at the process for opening a TD MF account versus the Waterhouse, I went with Waterhouse. Way more options with the latter. No fees with a TFSA as long as you sign up with e-service. There's lots of discussion regarding the process of opening the MF and TDW accounts here, on the Canadian Capitalist forum, the Couch Potato forum, and RedFlagDeals.

An alternative is to set up an account with Questrade - they've finally moved to free ETF trading (purchasing, anyway), so if you're convinced ETF's are the way to go, they're probably the best choice for a smaller portfolio if you're trying to save on the commission.

 

Watch out with iTrade; for accounts less than $10,000 there is a large quarterly inactivity fee ($25 every quarter!). And you will be inactive, because the whole point of indexes is that you'll buy them and then sit back and relax.

I think that TD Waterhouse waives their inactivity fee as long as you sign up for eservices (electronic record delivery). Check into this inactivity fee before you sign up, but I think TDW is the better way to go. You can then use TDW's excellent e-series funds for your index investing. Don't bother with ETFs, the commissions will add up to a lot. Here is a list of the e-series index funds, all of which have low MER.

As PF said above, you can simply add TD Waterhouse as a bill payee and use this mechanism to send money from Scotia to TDW. I do this, and the money often arrives within 2 days.

I would also strongly encourage you to hold some money in GICs, for your fixed income portion. Remember that the index funds could have a negative return, but a GIC will always have a positive return. You can also do this within the TDW account. Under 'fixed income' you can find a list of GICs that they resell, e.g. they have Royal Bank GICs, 3 year term earns 1.9% a year and 4 year term earns 2.15% a year. That means in 4 years this simple fixed income investment will make you 8.9% total - and that's a guaranteed return (backed by CDIC = government), unlike a stock index.

 

-what's the difference between an index fund and an ETF, and which is better for a new investor?

-I saw that the Vanguard funds have a MER much lower than the MER of indexes with popular banks (0.09 versus 0.99 for Scotiabank). Are there inherent disadvantages or hidden fees to using Vanguard versus a bank (and also, why would anyone be dumb enough to take an index fund with a MER of 0.99 versus one with 0.09 if the cheaper one doesn't have hidden disadvantages??)

-Are there index funds beside the bank-advertised ones and Vanguard that are better? I don't know much about what's out there unfortunately.

An index fund is a fund that invests according to a specific index, which is typically a third party formula based list & weighting of stocks, for example the largest 60 or largest 500 companies trading on a stock market. It could be structured as a mutual fund or as an ETF.

An ETF is an exchange traded fund, it trades like a stock with commissions, often (but not always) they are index funds.
Vanguard is a low cost provider, they are very competative.

Different funds have different MERs also ETF and mutual funds are different.
If you have a small portfolio the banks offer mutual fund accounts which have low fees, they also provide a bit of hand holding and in branch help. These services are paid for by those larger MERs.
If you want to make regular small investments buying ETFs will cost a lot in commissions, you might be better off with mutual funds.

Better funds? There are different funds for different needs and purposes, better is just how they line up with your objectives.

 

Congrats on doing some do diligent s. You are asking some very basic ? so I believe you need too spend a lot more time before you make decisions.

 

yes, congrats, but no, i don't believe Yarbles needs to spend a lot more time each:

what i believe is that he's exceptionally capable & bright & has been working very hard. He's also been greatly assisted by PF & james4 - themselves also fairly young persons - which is why this thread reads so well.

if i may add, i also believe that TD e-series would be a good way to begin. Other brokers & financial institutions don't sell them, so td e-series investors have to go to the big green.

it's so much the better that td waterhouse the discount broker waiives all inactivity or small account fees if a) client maintains e-account(s), or b) account is a registered account, or c) account is greater than $10,000.

yarbles you're in on a) plus b) & soon you'll be over 10k , so there should be no problems.

please check with tdw the broker, though, about the steps to take to open a tfsa account. I believe it might turn out that you'd need to open a regular broker cash account first. I tend to believe that "paying" your tfsa account or even your tdw cash account directly from scotiabank via internet banking will not be possible. I believe it will be necessary to have a tdcanadatrust bank account. Ideally, since you wish to stay at scotia, you'd want to find a td bank account type that has no fees.

PS i can't agree w the GICs, though! we're talking such an infinitesimal amount of money. I think as long as you have emergency cash in some kind of HISA somewhere, then it's fine to spread 9k among canadian, US & international equity.

PPS you'd have to visit a td branch to sign the account application form(s). After that you'd be dealing with the broker by phone, which on balance i think will likely be easier & better than dealing with the branch ...

 

Although I agree with TD as the best choice, I would caution you with regards to returns and growth from index funds. I tried a strategy very similar to yours over the past couple of years and lost a lot of money. The US and int index funds were useless, as were energy and precious metals. I ultimately ended up losing money, and have now switched to cash balance in my TFSA which has no fees and gives about 1.15% interest guaranteed. I've gained a few hundred $ as opposed to losing it to fees and fluctuation. It was better than the 3-4% losses sustained by "investing" in index funds!

 

The US and int index funds were useless

?
US Index e-series fund
Yearly Performance
2012 15.2%
2011 1.6%
2010 14.3%
2009 25.7%

https://www.tdassetmanagement.com/C...ontent/Products/MutualFunds/Funds/p_FundCard.asp?FID=3271&TAB=PRICE&PID=10&SI=4

US markets have performed ridiculously well over the past 3-4 years (post crash). Perhaps you need to look at why you lost money and not necessarily blame the underlying strategy or holding. Were you holding currency hedged funds or US denominated ones? Is your loss in part due to bad timing of you purchase? or possibly currency risk and fluctuations? The CAD:US has gone from as high as 1.05 to 0.95 (easily eliminating any gains from the US stock index market).

 

TDW might be the cheapest way to go but is everyone sure the e-series can't be bought through iTrade?
I was able to bring up TDB902 (US Index) on my iTrade trade screen, obviously I'm not going to try to buy it just to find out.

 

Not to sound like a broken record, but you don't need a brokerage account to purchase the e-series.

You can purchase them through TD Canada Trust EasyWeb, and have your EasyWeb account linked to any bank account for instant same-day online transfers when you purchase or sell through EasyWeb.

Follow the link in Sampson's post above if you want more info.

 

Not to sound like a broken record, but you don't need a brokerage account to purchase the e-series.

Does anyone know if a TFSA account can be converted to TD e-Series account? AFAIK, TD e-Series Mutual Fund accounts can be RRSP, non-reg or RESP. I don't know about TFSA.

 

royal it was kind & brave of you to step up with your recent experience in index funds & i hope you won't mind if i comment.

the strategy would not be intended for a 2-year period. Rather, more like 10 years up to a lifetime. For a good reference, investors can view Canadian Capitalist's sleepy portfolios on his blogspot. There are 2 at least, including a mini-portfolio that is fairly similar to what Yarbles has in mind. The Mini has succeeded reasonably well for 6 or 7 years (yarbles if you want to scoot over there, there's a handy link at the bottom of this screen.)

i wish you hadn't closed your US index, royal, because you probably pulled it just as US markets were recovering. Again, the time frame was too short! but it's clear that you did get yourself to a place where you are happier, so that's a very good thing.

 

I can't believe my eyes but pie, you are coming around to the passive indexing strategy...

It really is effective for people new to investing, simple and can be effective over the long run - whether there are alternative strategies and how they hold up is a discussion best held in another thread

 

sampson i know i am just a poor dumb boring insignificant crust, far beneath your illustrious consideration ...

but i've only posted these exact same suggestions for countless new investors many, many times!

 

a new investor seeking a small e-funds account can indeed apply through TDAM but the route is going to be more difficult. It's impossible to obtain a TFSA directly through online application. New investors are all routinely referred to the bank branch.

& we know who are waiting for them (the new investors) at the branch! the bank mutual fund salespersons are known for not particularly wanting to help the e-funds seeker, instead using the opportunity to try to sell regular mutual funds. Especially with a young person, i for one would be a bit concerned that he or she might get sidetracked.

in addition, the td waterhouse website offers far more research & knowledge resources than tdam's, so imho it's a better environment for a new investor who clearly wants to learn.

lastly, in my experience broker call centre licensed representatives tend to be noticeably more knowledgeable & more helpful than the mutual fund phone reps.

 

Awesome work Yarbles! Sounds like you got a good head on your shoulders.

As a fellow 26 year old recently out of debt, welcome to the club!

 

I do have respect for HP opinion so I re read your post.

Get a little more education. You are asking very basic stuff. You are not inquiring about general market conditions and don't have a good understanding about what is in these e funds/etf.

You have lot's of time keep digging.

 

each: thanks everyone. That helps a lot.

And yea, too many of my friends have gone to banks and now have expensive mutual funds they know nothing about. That's why I was determined to get help from an unbiased source. I was at the library too and it seemed most of the books were written by someone who could have ulterior motives than honest education.. half the battle has been knowing who to trust. So I REALLY appreciate the help and will refer people here if they are willing.

So I think what I'll do now is call TD waterhouse Friday morning, and figure out the best way to access their e-funds in a TFSA, and do what's necessary. See if I can do it within Scotiabank, or if I have to open a new account etc.

And again.. thanks!

edit: and I'll record the process here when I'm done!

 

Update.

Went to TD and set up a Waterhouse account. It was a pretty painless process. I didn't have to switch banks. First, I set up a TFSA with TD; then I registered for Waterhouse with full access to e-series. No fees for starting either accounts.

In order to deposit money into the Waterhouse account, I have to withdraw a money transfer from Scotiabank and manually bring it to TD. I can't transfer the funds electronically because I don't have a standing TD account. This isn't convenient, but since I'm planning to only make sum transfers now and then, it's alright. I may switch to TD eventually though.

The small activity fees are as Humble_Pie noted. They are waived if "a) client maintains e-account(s), or b) account is a registered account, or c) account is greater than $10,000."

I didn't have to invest in any mutual funds or anything to create the account. The account will be online in 1-2 days, and at that point I'll make the money transfers from Scotiabank and use the e-series to invest money.

The adviser started on the subject of mutual funds, and I said "I know a group of really experienced investors and will be consulting with them for investment questions." He didn't pursue mutual funds after that and was actually really helpful in helping me setup exactly the type of account I needed.

In fact, the adviser opened up about his own investment experiences (he's an "investment expert" with certain credentials). He claims that any investing takes a lot of effort and time and consumes hours everyday (which is only true for day trading, not for indexing to the best of my knowledge) and he also admits that he's now broke and has lost a lot of money in the stock market. I'm pretty happy I was armed with knowledge and knew exactly how to approach the brokerage situation.

Also, I read up more about indexing and in 'Millionaire Teacher' Hallam says that many banks actually have a higher-cost, 'managed' index fund that they'll try to sell you instead of their cheapest index fund. I was prepared to hear a pitch about that as well and it never came, but I thought I'd note that here.

 

warbles you're right, indexing doesn't take hours every day. One of its glowing attributes is that nearly everyone can practice this rapidly & painlessly. People have already given you links to excellent websites that are chockful of helpful commentary.

perhaps the representative you met was resigned to the idea of many hours because his own recklessness had failed him so badly?

in reality, financial markets are truly fun things to grow into. Looking after one's savings is just another habit to keep learning for all of one's life, imho. I'm fairly sure - from your posts - that you are a person who is exceptionally well launched!

btw re interbank transfers, i've recently been experimenting with sending $$ transfers from bank accounts *directly* to brokerage accounts ... when the broker belongs to an entirely different bank. In other words, the transfers are crossed between 2 banks, 2 brokers, etc. What i've found out so far is that canadian dollar transfers of this nature do work beautifully, but US dollar transfers don't.

perhaps you could give it a try from scotiabank once your td account is up & running smoothly? try to send over a low amount like $5 or $10 on a trial basis, at first.

wishing you every success.