[ernie77]

I wonder if some wizened pros can advise me. I have a basic indexing portfolio consisting of four ETFs (XIU, XSP, XBB, XRB). Quarterly these stocks pay-out the dividends. I use TD Waterhouse, so the money gets stuck in my cash account, which pays no interest.

It's not enough money to merit the commission for reinvesting, but I also don't want to transfer it to a high-interest savings account until enough has accumulated. Is there a good way to store this money without taking a hit on a commission?

I know of the DRIP concept, but I'm not sure how I would buy into one of these via my self-managed account. Any advice?

 

[CanadianCapitalist]

You have a couple of options:

1. Park the money in a money market account. Right now, these accounts don't pay anything but in "normal" conditions, it is an option. Whenever dividend payments are made, you can simply buy more of the MM fund.

2. Enrol in a synthetic DRIP. Not sure which of those ETFs are DRIPpable at TDW. A quick call should provide you with the answers.

Personally, I do #1. Don't forget to redeem the MM fund when you have accumulated enough cash and buy one of the ETFs.

 

[joyever8]

You can buy TD Index funds series E. Their MER are around 0.3%, more expensive than the ETFs (0.17%) but it doesn't cost you any commission to buy and these funds will take care of dividend re-investment for you. In the long run it might not make much difference because

1) The MER is higher, but the compound return over the long run will improve thanks to more frequent dividend re-investments (every quarter) and commission free.

Versus

2) The MER is lower but you have to wait longer to accumulate enough money to make commission worthwhile. So over the long run, your compound interest will slightly slower due to less frequent contribution plus commission.

 

[Sampson]

but I also don't want to transfer it to a high-interest savings account until enough has accumulated.

Any particular reason why you don't want to do this? For non-registered accounts, I do this. For registered accounts, like CC, I find MMFs or in some cases I do have mutual funds with relatively low minimum reinvestment amounts.

 

[furgy]

, but I also don't want to transfer it to a high-interest savings account until enough has accumulated. ?

Why not?

If you have a high interest savings account linked to your trading account , all it takes is the click of a mouse and its in the account earning interest , beats MM funds right now.

If you don't have linked account it is very easy to set one up.

Don't worry about the ammounts accrued , just transfer it in there as it becomes available , it will build faster as well as pay a little interest.

 

[Bullseye]

I buy eFunds with mine. Like a DRIP, but easier, and easy to re-direct or access that money at low cost, if wanted.

 

[stephenheath]

While I agree with everyone's suggestions above, it might also be worth figuring out whether the interest you're losing out on is even worth bothering with.

In my case, it's in my RRSP, I buy when I make a contribution or when dividends build to $1000, and my high interest account is paying 0.75% last I checked... right now that means the most I'm out by just leaving the dividends sitting in the cash account is $7.50. It's not worth the hassle to me to worry about that.

That said, if interest rates started climbing back to 5-6% (and money market returns followed along), I might be tempted, but then again, by the time that happens I will probably be up to $1000/quarter in dividends, so it might be a moot point, as I would just buy every quarter at that point.