Advice for a beginner Canadian Investor.

[kevc]

Hello all this is my first post here, I`m 29 years old and looking to get started in investing. I am going to invest approximately 20k. I`ve been reading around and am not sure exactly what to follow. I am however going aggressive and doing 100% into equities.

1. I am currently undecided between the VUN or the VSX fund at vanguard. Both look nice and I want exposure to the US market.
2. My second fund I am planning to invest in will probably be the VCN for my Canadian exposure.
3. Would it be better to just have VSX + VCN , VUN + VCN or maybe a combination of all 3?
4. What would be a good % split in these funds. If I am running just two of the funds should I be doing a 70/30 split or is 60/40 better?  Should I be more invested in Canadian funds or US funds, or whatever my preference is?
5. My money will be split between TFSA and RRSP funds but i want to max my TFSA first, does it matter which fund goes where? or will it just be putting the fund I``m buying more of into the TFSA if I`m going to be maxing that out first?

Any suggestions will be greatly appreciated :)

[Goldielocks]

Check out Canadian Couch potato.  http://canadiancouchpotato.com/model-portfolios-2/

Until you have at least $50,000 invested, you are better off with a Tangerine or TD series  mutual funds that have zero trading fees, only the MER's....  and just start putting in as much each month as you can.   

THE KEY IS TO START SAVING AS MUCH AS YOU CAN EACH MONTH, until you have $100k... after that, you can start to worry about MER and investing allocations more.

After $50k, a combination of Vanguard (VUN USA), (VCN Canada),  (VXC World ex canada) will work... or (Total world) as you indicate.  Below that and some brokerage accounts will charge you an annual fee, plus the trading fees.   I recommend buying in Canadian funds (CDN dollar) amounts if that is the currency that you will use for retirement.

Also, decide on your time horizon and risk tolerance to determine how much in bonds or fixed income to carry.   Several studies show that a long term ratio of 0-20% bonds has a minor difference in 10 year and 20 year rates of returns.  (Go figure).

[Acadian]

I agree with Goldielocks. I'm currently doing Tangerine. I've just hit the $50,000 mark but am only investing about $11,000/year (investing set amount every 2 weeks) so will probably wait a while longer before changing to brokerage account due to the trading fees.

Canadian Couch Potato has a good article on why there's more than MERs to consider.

[pumpkinlantern]

Good idea to max out TFSA first, unless you are making very high income and you need the tax deduction for the RRSP.

In terms of what goes where:
- It's always better to have money in TFSA > RRSP (with caveat above) because you won't have to pay taxes when you take money out of a TFSA whereas you will need to pay income taxes when you take money out of RRSP.
- It is always better to have money in TFSA > non-registered account and usually better to have money in RRSP > non-registered account.

- If you are maxing out your tax-free/tax-deferred accounts, then:
--> Put dividend producing US stocks into the RRSP.  Canada and the US have a tax agreement such that for retirement accounts (only RRSP are considered retirement accounts for this agreement), you can have the US withholding taxes waived on your dividends.
--> Put high-dividend, non-Canadian, stocks in a TFSA because you will be taxed on dividends in a non-registered account.  There are tax credits for "eligible" dividends (ie. dividends from most Canadian companies) if you hold them in a non-registered account, so the taxes are less.

For example, you could hold your US stocks in your RRSP, your developed international stocks in your TFSA, and your Canadian stocks in a non-registered account.

Re: mutual funds vs. ETF's.  Agree with above posters that generally speaking for low amounts and for people who want to buy a small amount every month, mutual funds are good and for higher amounts who want to buy in bulk ETF's are good.  I don't think there's a set amount.  If you are expecting to accumulate a lot of money in a short period of time and would like to buy in bulk, there's no reason you shouldn't just a buy an ETF so that you don't have to keep buying/selling and moving your investments around.

[Space Pickle]

Respectfully, I have to disagree with the idea that you should do Tangerine mutual funds. I think the Couch Potato guys should not have written that $50,000 "rule" (although I understand it's not really a rule).

I was in a similar situation four months ago, and just went all in with Questrade.

[Apeshifter]

Respectfully, I have to disagree with the idea that you should do Tangerine mutual funds. I think the Couch Potato guys should not have written that $50,000 "rule" (although I understand it's not really a rule).

I was in a similar situation four months ago, and just went all in with Questrade.

I've also been inspired by the Canadian Couch Potato approach and I'm at the stage where I want to get my Tangerine mutual funds turned into Vanguard ETFs and am thinking of going with Questrade mainly due to their offering of:

Build your portfolio with any North American-listed ETF, including Questrade Smart ETF™ commission-free, the fastest-growing investment product in the markets.

Which to me is sounding like all kinds of win since I get a lower MER through holding Vanguard ETFs plus will avoid brokerage commissions (since all I care about is buying and holding ETFs anyways) am I missing anything there?

Anyone have anything bad to say about Questrade?

I guess the only thing that's a bit more daunting is dealing with the brokerage interface.. but well.. been fiddling with my Questrade practice account and allocating 1 million in simulated money to my desired ETFs was a no brainer.

(FYI Getting a practice account did trigger Questrade reps calling and e-mailing me to setup a real account, but well, I'm thinking I'm going to want to do that anyways, so told em "call me later in january")

[Acadian]

This was the article that I was referring to: http://canadiancouchpotato.com/2013/02/19/why-index-mutual-funds-still-have-a-place/

[Apeshifter]

This was the article that I was referring to: http://canadiancouchpotato.com/2013/02/19/why-index-mutual-funds-still-have-a-place/

Thanks for that! I had not read that particular CCP article and it raises a few good points in favor of the mutual funds and also solidifies an approach I was thinking of taking (though couldn't rationalize why)

In my case while my Tangerine RRSP (which I dutifully worked on maxing out before considering Mustachianism and F.I.R.E. without giving the TFSA much thought) is at the CCP "threshold for brokerage account value of ~50K" my TFSA is still comparatively modest and I was thinking if there was a reason for keeping it with Tangerine until it grows to a value where flipping it to Questrade can at least occur with some mitigation of transfer fees, or just be a more substantial amount. The last two points in that article now give me a rationale, that applies for my circumstances, for what I was just considering a "gut feeling" Reinvestment of dividends and interest and Lower transaction costs

[GreatLaker]

A basic position to set up equities is 1/3 each Canada, US and international. You can do approximately that with 1/3 VCN and 2/3 VXC. Or the comparable ETFs from iShares are XIC and XAW. It's also the allocation of Tangering's Equity growth fund. This overweights Canada relative to its global market cap, but there are reasons to do it including less foreign currency exposure and lower taxation on Canadian dividends (in non-registered accounts).

Are you sure you want 100% equities? That will most probably grow faster than a portfolio with some bond exposure, but it will be more volatile. In 2008 it would have dropped about 30%. In the 2000 dotcom crash it would have dropped about the same amount, except the recovery took longer and the agony was drawn out over 3 years. All equity portfolios can be good for the right investor, but not if you get spooked in a bear market and sell at the wrong time.

I also think ETFs can be cost effective at $20k. I remember the $50k threshold from years ago when a lot of online brokers charged $30 per trade unless you had $50k in your account, plus ETF MERs have dropped significantly while mutual fund MERs have not. Tangerine's 1.07% MER will add up to $214/yr. VCN + VXC in the ratio I suggested above has a blended MER of 0.184, which results in savings of about $175/yr vs Tangerine. Many brokers now have a $15k minimum to waive maintenance fees, and trades for a basic index portfolio would not cost near $175/yr.

Having said that, time is money, and ETFs have some drawbacks and complexity as others have noted, so index mutual funds are not a bad choice. Here is a good comparison:
http://www.finiki.org/wiki/Index_fund#Comparison_of_index_mutual_funds_and_ETFs

One issue with ETFs is how to make monthly contributions without incurring trading fees. One way as someone else noted is to use Questrade for free ETF purchases. I make monthly purchases of a low-fee balanced fund (in my case TD Balanced Index Fund TDB965) then once a year or so sell the MF and purchase ETFs while rebalancing.

www.Finiki.org is a Canading investing site that has some good pages:
http://www.finiki.org/wiki/Portfolio_design_and_construction
http://www.finiki.org/wiki/Simple_index_portfolios#Three_fund_portfolios

There are a lot of different investing choices, but among the most important things are low cost and a consistent approach to staying invested through good and bad markets. Sounds like you are headed in the right direction.

[AllTheLights]

What are people's thoughts on the TD ETFs that came out earlier this year?

https://www.tdassetmanagement.com/etfProfile.form?productGroupName=TD%20Passive%20ETFs&dirName=solutions/etf/passive&lang=en

[daverobev]

IMHO Tangerine should only be for people who are overwhelmed/would otherwise do nothing.

TD eSeries is sooo much cheaper. Questrade is even cheaper and more flexible, BUT if you are just doing three funds the automatic withdrawal and investing of eSeries could well be a clincher. I kind've wish I'd set my wife up with TD rather than Questrade.

For anyone that can spare the time to click, click, click, click during market open hours, Questrade is the cheapest. For unreg, I do not think they track your ACB though; if your portfolio is large and low turnover, it may be better to go with a better brokerage (one of the banks... eg CIBC is only $7 a trade, and if you're only adding money a couple of times a year it's ok).