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I'm a novice investor - I have been leaning lately towards dividend paying stock (Cdn companies) and am getting fairly comfortable with that. Before I knew anything about investing I invested a small amount (around 8 or 9K) into mutual funds ("Ethical Funds"). The company for some reason didn't have my address so they were sending the reports to my credit union who in turn didn't bother phoning me or forwarding them, so I'm a little ticked about that. So I am waiting for a current report to find out if I've made any $ on the mutual funds (I suspect not) before deciding if I should pull that money out and put into ETFs.

Since I know little about ETF's I want to do some reading up on them. Are there any good basic books or online articles members here have found really explained Canadian ETF's well? I would consider non-Cdn ETF's but have a preference for Cdn for some reason.

Also, are there any things I should be looking for specifically when deciding to pull my mutual funds and transferring them to ETF's? This is within an RSP portfolio so I'm expecting there may be some tax implications of this but I am not positive yet.
 

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hello Addy, i believe it will be a great deal easier to manage your investments than to remove the concrete beds from your garden !

the etf fund companies all offer tutorials & resource materials on their websites. There's ishares (ca.ishares for the canadian ones, and ishares.com for the more numerous US-traded ones); and the new group of bmo etfs; and the vanguard and claymore families. Vanguard, as i recall, has a particularly good teaching website. Strictly in the US there are many more etf families, but you've mentioned, quite wisely, that you intend to begin with canadian etfs.

you also mentioned an interest in ethical investing, so perhaps i could point out that ishares offers the jantzi SRI index fund. I glanced at its recent profile, its performance has been acceptable and it's heavy in banks, as are many of the ethical funds.

i'd start with the etf websites. One thing to caution, if i may, is that exceptionally exotic etfs not only carry significantly higher MERs but often the "index" they are allegedly based on is not a recognized or functioning index but is, in fact, a construct of the particular etf management company. In other words, such an etf comes to resemble a traditional managed mutual fund both in cost and in terms of active portfolio management. One could avoid these considerations, at least in the early stages, by sticking to basic etfs that are based on widely-recognized indices.

with respect to exchanging existing mutual fundings for etfs within a rrsp, these transactions would be redemption of the fund or funds followed by purchase of the selected etf or etfs. Because it's an rsp there should be no tax implications whatsoever. There is a related tax aspect, which is that if you would have a capital loss upon redemption of the mutual funds, this can't be claimed in a registered plan. But it appears that you won't know if you have a gain or a loss until you recover the statements.

for persons making regular purchases of an etf, for example via monthly contributions to a rrsp, and if such persons have a relatively small account, a frequent topic here on this forum is whether to buy zero-commission td index funds through an e-account (no fee for a rrsp) or whether to buy periodic small amounts of etfs and pay the necessary broker's commissions.

index funds do have slightly higher MERs. So the dilemma boils down to:
- buy td index funds with higher mers but zero commish OR buy etfs with lower mers but pay the broker's commish.

the consensus on this forum seemed to be that the threshold was $50,000. In other words, accounts whose overall size was less than 50k would be best served by first taking the td index funds e-trade route; whereas accounts larger than 50k could think about starting an online brokerage account, with as low commissions as possible, in order to buy etfs.

if the latter - that is, an account with more than 50k that will be going the etf route - it would be a good idea to shop the discount brokers carefully in order to find one that will 1) charge either no fee for a rrsp or else a low fee such as $25, and 2) offer 9.95 commission per trade even for a 50,000k account.

wishing you the very best with your endeavours,
hum
 

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As Humble correctly points out, there are no tax consequences if you sell funds within an RRSP.

However, there may be what are called deferred sales charges payable if you sell a mutual fund holding before a certain period, usually five years but sometimes as much as seven years, is up.

Once you have your MF statements in hand, you can see exactly what your holdings are. Check for the letters "DSC" next to your fund holdings. If that is there (and potentially even if it is not), you will need to phone the fund company to ask if there are any deferred sales commissions you will need to pay if you want to sell the fund.

If yes, you are going to have to do a break-even calculation to see when to sell the funds - you will be calculating the break-even point between the savings from moving to lower-cost products and the fee you will need to pay to sell your current holdings.
 

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It's also worth noting that some ETFs actually have higher MERs than some index funds. I think it's fair to say that, as a general rule, ETFs have lower MERs than funds, but as with every general rule there are exceptions. There are quite a few ETFs whose MERs are higher than TD's eFunds, for example.

Not all ETF companies disclose their fees the same ways, and it's worth reading Canadian Couch Potato's excellent series on this: I'm linking to the last article in the series below, because it has links to the others.

http://canadiancouchpotato.com/2010/02/25/unpacking-etf-fees-part-4-ishares/

The other thing to remember about ETFs as that, (as humble pie points out above) while the MER may be lower, you're charged a fee for each trade. So this may not be the best solution if you get paid every two weeks and want to contribute to your RRSP automatically out of each paycheque....those fees will add up and in some cases (depending on how much $ you have in your portfolio) could negate the benefit you get from the lower MER. Some people pile up their RRSP contributions in a "holding tank" (such as a high-interest savings account or TD eFunds) and then buy their ETFs semi-annually from that pool to avoid this problem.
 

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This book is a good starting point for Canadians.

Also, here are some google results from searching for "etf keep it simple" because that's really what successful index/ETF investing calls for. I searched for other things but the same old list of articles pops up.

Then, you can advance your education by visiting www.indexuniverse.com which has quite a lot of news and educational articles and research on ETFs.
 
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