Personal Finance

Couch Potato Portfolio - Switching from eFunds to ETF

  • Last Updated:
  • Jun 14th, 2011 12:23 am
Tags:
None
[OP]
Sr. Member
Jan 20, 2007
742 posts
12 upvotes

Couch Potato Portfolio - Switching from eFunds to ETF

Hey all,

I've been contributing to my couch potato portfolio for 3 years, have accumulated a significant amoung and am now I would like to convert the index funds to ETF in order to benefit from lower MER.

However, the MER of ETFs doesnt seem much lower than eFunds, when I look at the model portfolios from the canadian couch potato,. 0.37% vs 0.42% -- 50$ a year on 100 000$

Am I missing something?

Also, is 10$/ trade at TD Waterhouse reasonnable? This requires 50k$ household assets.

Finally, are better/cheaper ETFs in the pipelines that would justify waiting?

Cheers!
10 replies
Jr. Member
Aug 13, 2007
198 posts
17 upvotes
Montreal
morglum82 wrote:
Jun 10th, 2011 3:09 pm
0.37% vs 0.42% -- 5$ a year on 100 000$

Your math is a bit off, it's 50$ per year for 100 000$ of assets. Apart from that, you're not missing anything. The transaction costs are the reason why it is usually better to stay with the eFunds until you have a significant amount accumulated. Also keep in mind that you will probably want to keep any new contribution in eFunds until you have enough again to justify the costs of switching. It will probably be best to combine new contributions and rebalancing to minimize the number of transactions...
Deal Addict
Oct 4, 2009
1871 posts
664 upvotes
Montreal
morglum82 wrote:
Jun 10th, 2011 3:09 pm
Hey all,

I've been contributing to my couch potato portfolio for 3 years, have accumulated a significant amoung and am now I would like to convert the index funds to ETF in order to benefit from lower MER.

However, the MER of ETFs doesnt seem much lower than eFunds, when I look at the model portfolios from the canadian couch potato,. 0.37% vs 0.42% -- 5$ a year on 100 000$

Am I missing something?

Also, is 10$/ trade at TD Waterhouse reasonnable? This requires 50k$ household assets.

Finally, are better/cheaper ETFs in the pipelines that would justify waiting?

Cheers!

Assuming you have 100k in e-series you are only paying about $420 in MERs per year vs about $2500 if you had the average mix of retail mutual funds. It's hard to make major improvements on something as good as e-series. You should look at Vanguard's ETFs for low fees, exceptional tracking errors(often below their MERs!) and great tax efficiency. You'll need to convert CAD to USD but that need not cost much these days with either Norbert's gambit or using these new Horizon currency ETFs. http://www.canadiancapitalist.com/horiz ... tsx-dlr-u/

Other than for Canadian content, it's best to avoid all Canuck ETFs if you want to save on fees. You should concentrate on comparing each asset class separately rather than just looking at the overall portfolio MERs on that CCP page. Your EAFE e-fund is running you 0.50% vs 0.12% for the corresponding VEA. Your US e-fund costs you 0.34% and only holds 500 stocks vs 0.07% for VTI which holds over 3300. You can also gain access to emerging markets which you couldn't do with e-series, VWO costs just 0.22%.

So basically you've figured out that switching to portfolio #1 from e-series is a massive waste of time($50 a year but likely breakeven or so after commissions). Consider portfolios #2, #4 or a combination of both to save more fees and make the ETF switch worthwhile.

$10 is what most of us who don't want to deal with Questrade pay. You can cut in half if you are willing to deal with problems.
[OP]
Sr. Member
Jan 20, 2007
742 posts
12 upvotes
chuppe wrote:
Jun 10th, 2011 4:33 pm
Your math is a bit off, it's 50$ per year for 100 000$ of assets. Apart from that, you're not missing anything. The transaction costs are the reason why it is usually better to stay with the eFunds until you have a significant amount accumulated. Also keep in mind that you will probably want to keep any new contribution in eFunds until you have enough again to justify the costs of switching. It will probably be best to combine new contributions and rebalancing to minimize the number of transactions...
Oops @Maths. Thanks for pointing this out. It still doesnt seem really worth it though :)

Yes, the plan would be to keep contributing to eFunds and only buy ETFs again in 1, 2 or 3 years depending on my saving rate.
S5 wrote:
Jun 10th, 2011 5:47 pm
Assuming you have 100k in e-series you are only paying about $420 in MERs per year vs about $2500 if you had the average mix of retail mutual funds. It's hard to make major improvements on something as good as e-series. You should look at Vanguard's ETFs for low fees, exceptional tracking errors(often below their MERs!) and great tax efficiency. You'll need to convert CAD to USD but that need not cost much these days with either Norbert's gambit or using these new Horizon currency ETFs. http://www.canadiancapitalist.com/horiz ... tsx-dlr-u/

Other than for Canadian content, it's best to avoid all Canuck ETFs if you want to save on fees. You should concentrate on comparing each asset class separately rather than just looking at the overall portfolio MERs on that CCP page. Your EAFE e-fund is running you 0.50% vs 0.12% for the corresponding VEA. Your US e-fund costs you 0.34% and only holds 500 stocks vs 0.07% for VTI which holds over 3300. You can also gain access to emerging markets which you couldn't do with e-series, VWO costs just 0.22%.

So basically you've figured out that switching to portfolio #1 from e-series is a massive waste of time($50 a year but likely breakeven or so after commissions). Consider portfolios #2, #4 or a combination of both to save more fees and make the ETF switch worthwhile.

$10 is what most of us who don't want to deal with Questrade pay. You can cut in half if you are willing to deal with problems.
Thanks for all the good tips! I had dismissed the american funds to quickly, and hadnt thought about switching only certain asset classes...

The more I think about it, the more I believe I'll end up sticking to eFunds since the savings are so marginal.

Other scenarios are to use ETFs to get access to asset classes not present in eFunds, such as VWO, and only switch the asset classes that present significant savings (VEA, VTI)

Cheers!
Sr. Member
Feb 1, 2010
771 posts
102 upvotes
Also consider that US funds held in a US ETF held in a CDN RRSP benefit from no withholding taxes (15% levied on interest and dividends) due to tax treaty. Efunds will pay withholding taxes to US at the fund level as there is no proof they are held in RRSPs.
Deal Addict
User avatar
Oct 14, 2001
1459 posts
256 upvotes
GMA
One downside of ETF that I see is that distributions can't be fully reinvested. In regard to quantifying the impact, I'll let more financial-savvy users do it.
Deal Addict
Jul 23, 2007
3263 posts
1124 upvotes
Thanh wrote:
Jun 11th, 2011 7:35 pm
One downside of ETF that I see is that distributions can't be fully reinvested. In regard to quantifying the impact, I'll let more financial-savvy users do it.

I don't understand. Even with the ETF's, you would still at least keep the minimum amount in the TD e-fund in the portfolio, so that you can re-invest the ETF distributions into there.
Deal Guru
Nov 2, 2003
14910 posts
830 upvotes
Scarborough
To me the biggest benefit to eFunds is dollar cost averaging. It's just not feasible to buy a few hundred $ every week worth of ETFs. The fact that you need to put that money somewhere for half a year or a year before investing in an ETF means you need to end up buying eFunds anyway. Even if the MERs were 0% on the ETFs, I would still buy eFunds.
MOONBOX REPLACEMENT:IPTV Group Buy
Deal Addict
User avatar
Oct 14, 2001
1459 posts
256 upvotes
GMA
Stryker wrote:
Jun 12th, 2011 4:37 am
I don't understand. Even with the ETF's, you would still at least keep the minimum amount in the TD e-fund in the portfolio, so that you can re-invest the ETF distributions into there.
So you'd have both in the same TDW account and you would reinvest distributions from ETF into e-Series? But there's alot of manual work to be done so I still prefer to automatically buy e-Series via PPP where distributions are automatically reinvested.
Deal Addict
Jul 23, 2007
3263 posts
1124 upvotes
Thanh wrote:
Jun 12th, 2011 4:13 pm
So you'd have both in the same TDW account and you would reinvest distributions from ETF into e-Series? But there's alot of manual work to be done so I still prefer to automatically buy e-Series via PPP where distributions are automatically reinvested.
I have both TD e-Funds and ETF's in the same TD Waterhouse account. I don't necessarily add income to the e-Funds whenever I have distributions, but I have the ability to do so. Min. $100 at a time. I'm not anywhere near being a 100% indexer, but I do own them to a small extent in the RSP's.
[OP]
Sr. Member
Jan 20, 2007
742 posts
12 upvotes
I'll wait. Apparently Vanguard is going to release canada-based ETFs. And if it's like what they did in Australia, it'll be good.
The two international ETFs that Vanguard offers in Australia are local versions of the Vanguard Total Stock Market ETF (VTI) and Vanguard FTSE All-World Ex-US ETF (VEU). The Australian versions charge the same fees as VTI and VEU: 0.07% and 0.22% respectively.

Top