Author Topic: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)  (Read 2526 times)

NorthernDreamer

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Life Situation:
32 year old female, husband is 35. Living in Southern Ontario, Canada. Two kids (2 and 4). One 5-year-old lab who thinks she is a human.

Gross Income:
Me - $38,000 CAD (working part-time as a program coordinator at a university) + profit from an Etsy business started in Aug 2015 (very new, doing pretty well, so far this year have cleared around $7,000 profit and hoping to make $10,000 profit by the end of the year) + $6800 from new Canadian Child Benefit (based on my income last year, when I was mostly on maternity leave and hadnít made much from my Etsy business, so I expect this amount to drop in 2017)
DH - $80,000 CAD (working full-time as an engineer)

Current Monthly/Yearly Investments:
Me:
$150/$1800 into CIBC RRSP
$200/$2400 into CIBC TFSA
$253/$3036 into workplace pension (8% of my salary, work puts in 7% of my salary, so $221/$2652)

Husband
$385/$4620 into CIBC RRSP
$200/$2400 into CIBC TFSA
$192/$2304 into workplace Manulife RRSP program (3% of salary, work matches contributions up to 3% of salary, so actual amount invested is $4608/year)

Kids:
$250/$3000 into CIBC joint RESP

Current Investment Balances
Me:
CIBC RRSP - $14,177
CIBC TFSA - $12,477
Teacherís Pension Plan - $12,541 (plan calculator quotes that it will pay $980/year at age 60) *Note: not working as a teacher any more, donít plan to return to the profession. Keeping this money in there for now as it is generally a well-managed fund. May need to look into options at some point of moving it.
University job pension - $34,700 current lump sum value (canít tap into it until age 55 at the earliest for a 35% reduced payout, hoping to get the hell outta dodge well before then, extremely good plan that gives you the HIGHER of a defined benefit or defined contribution each year Ė but, donít see it staying like that until I can reap the benefits)

Husband
CIBC RRSP - $49,417
CIBC TFSA - $12,626
Manulife (workplace) RRSP - $22,990

Mortgage
Current balance: $209,000 @ 2.95% fixed; term is finished in April and I'm hoping rates stay low so we can get around 2.45% or so for another five years. Aiming to have it paid off in 10-12 years.

FIRE Plan:
Based on calculations Iíve made, Iím hoping we can FIRE in 15-18 years. I work at a smaller university with a smaller number of programs, but my kids would attend free/cheap depending on if I work full or part-time. Iíd be fine if they went somewhere else, but it sure is a nice perk, one that is only available while I am working here.
It is hard to know right now how much CPP, OAS, and pension money we will get. But Iím working with numbers like once we pay off the Jeep in three years (0% financing, but I know, I know), putting that monthly money to investments. Once the house is paid off, putting that money towards investments.
Based on todayís dollars, I am thinking that $40,000 a year in retirement will be a good amount to live on when we donít have to worry about a mortgage. Which means getting a stash of around $1M at a 4% SWR. Plus CPP, OAS, and pension money. Our paid-off house would have a value of around $400,000 (in today's dollars).

Investment Questions:
1. Where is the best place to move our CIBC RRSPs and TFSAs, given their current balances? TD e-series? ETFs via Questrade? We are with a mutual fund advisor and want to move them so weíre no longer paying MERs upwards of 3.5%. We have been investing monthly through automatic withdrawals (set it and forget it). I am finding I am getting paralysis by analysis.

2. Should DH and I be putting different amounts towards our TFSAs vs RRSPs, given our different income levels? We will have a surplus of $600 starting next month (one kiddo moving on to kindergarten, saving some daycare costs, plus the recently increased Canadian Child Benefit). Iíve already increased their monthly RESP contribution from $200 to $250. Iíve increased both of our TFSA contributions from $100 to $200. Where should the extra $250 a month go? I am tempted to put it into TFSAs, since we will have some bridge years between FIRE and pension/government support becomes available. For some reason, I am worried about our RRSPs growing so big that when we take them out in retirement, they will be taxed higher than we expect, especially since I should get a pension. That is why the TFSAs seem like a great choice.

3. Any glaring mistakes you are seeing? Anything we should be doing differently? I know, I know, the JeepÖ. but it is not going anywhere. If we have any extra money, we put the odd $1-2000 towards the mortgage. I know the investing vs paying off the mortgage faster is quite the debate, but I do quite like the idea of a paid-off house.
« Last Edit: August 09, 2016, 12:26:16 PM by NorthernDreamer »

FrugalFan

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I think you are in great shape, and we share some eerie similarities (kids ages and dog), but are quite a bit older.

Re: your questions. 1. I posted in another post but I can strongly recommend Questrade. I would stay away from the e-series due to higher costs since you don't currently bank with TD anyway. You could do direct investing with them or another bank, but I really like Questrade. Your numbers and planning look good to me and CPP/OAS/pension would provide a nice safety margin if you don't include them in your projections.

2. Someone else probably has better advice than me on this but I think you make a good point that it is possible to have to high an RRSP balance for some people. You can probably calculate different scenarios using estimated numbers. We max out both but our RRSP contributions are capped at a small number due to pension contributions.

3. Always a big debate and one I think about myself. One option you can consider is to put any extra cash in your TFSA instead. If/when your TFSA reaches your mortgage balance, consider using that to pay off your mortgage penalty free. Right now we are using a blended approach by paying off a bit extra on the principal each month to accelerate the time point where our TFSA and mortgage will be equivalent. At that point we can decide what to do.

PharmaStache

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Go with Questrade.  They have a trial account option so you can pretend to trade before committing- that took a lot of the intimidation out of it.  I have used both e-series and Questrade.  E-series was ridiculously hard to set up (mostly caused by an incompetent td advisor).

You should definitely not be putting anything into your RRSP given your low income. 
« Last Edit: August 09, 2016, 07:22:51 PM by PharmaStache »

lostamonkey

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1. I prefer ETFs to mutual funds (even e-series) because they have lower MERs. Even a relatively small difference in MERs can make a huge difference once you have a big portfolio in retirement. If you don't feel comfortable using Questrade to buy ETFs, you can use a discount brokerage from any of the big banks to buy ETFs. These brokerages will be slightly more expensive than Questrade but the difference is very small.

2. If I was you, I would put every cent you had in your husband's RRSP assuming he has sufficient contribution room. The Canada Child Benefit is based on family net income which factors RRSP contributions. This means every dollar you put into your and your husbands RRSP will give you a bigger Canada Child Benefit next year. If you add your husband's ordinary tax rate and the extra Child Benefit you will get next year, the marginal benefit of a RRSP contribution by your husband is likely >50% which is much higher than your and your husband's tax rate in retirement.

3. Given the nature of the Canada Child Benefit, I would focus all extra funds on RRSP contributions instead of mortgage prepayments because your tax savings/additional benefits will be huge at this point in your life.

SandyBoxx

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Hi ND,

You have received some excellent advice so far, and as my DH and I are in a very similar situation, that advice has been very helpful to me as well (thanks other posters!)

I know you are trying to learn as much as you can in short order, and are feeling the pressure to get things "just right" the first time round - your frantic posts sound exactly like my thoughts 2 years ago (when my kids were the same ages as yours.)  I would encourage you to take a little time to breathe, and to not feel pressured to make a decision asap.  Another few weeks of pondering is not going to derail your long term plans!

That said, your first step should be to cancel the monthly withdrawals to your investment accounts.  Many funds have early redemption fees and penalties if they were purchased in the last 30-90 days.  Also, be prepared for a hit to your accounts when you sell your mutual funds, as I assume that most of them have back-end loads.  Find out what this number is (make sure you are seated) then figure out when you will break even based on your new super low-cost MER's vs the high-cost ones.  Pour yourself a glass of wine and congratulate yourself for being one of the few who actually figures this out, and that you have done so early in your accumulation phase!  Having done this exercise will also make it easier to fend off the CIBC advisor if they catch wind that you will be leaving and they try to give you the full song and dance/scare tactics to get you to stay!

SB

NorthernDreamer

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Thanks everyone. You are correct - now that I am  finally realizing the huge waste of high MERs, I do feel a bit frantic to Get Them Out. I do need to stop for a bit. And breathe. I am always a fan of wine, especially with two little boys at home ;) My SO has been reading all I'm sending him and is 100% on board, which I knew he would be.

@SandyBoxx - thanks for the heads-up on the fees for transferring my money out of the CIBC accounts. I will put a hold on the deposits for now (even though we just arranged a $5600 deposit from my husband's work bonus). My advisor is going to think I'm crazy. I am curious what will happen when I email him to ask about the fees when transferring my money. I expect an immediate phone call.

@lostamonkey - for some reason, I didn't think about RRSP deposits helping reduce our net income and getting us a higher CCB. Thanks, Liberals!

SandyBoxx

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 My advisor is going to think I'm crazy. I am curious what will happen when I email him to ask about the fees when transferring my money. I expect an immediate phone call.


If you haven't sent your advisor an email yet, you may be able to get this info elsewhere.  We chose to go with TD Direct Investing, and all I did was send them a statement with a listing of our funds and values, and they did the research and let me know what the fee was for each individual account.

This way, you can make some decisions without your advisor breathing down your neck! ;)

NorthernDreamer

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Well, of course I sent the email to my mutual fund advisor ;)

Some snippets from the resulting email reply:

"...I would like to point out that with the higher MERs you get a second set of eyes overseeing not just your investments but your long term family finances; even Warren Buffet, the most successful investor of all time has a broker to bounce ideas with or in your case have a discussion on how best to allocate an extra $5000 of income.  As you accumulate assets and advance in life the opportunities for more value added advice multiples..."

"...most of the difference in MERs between ETFs and mutual fund is the cost of advice.  I believe my services are worth the added cost.  A 1990ís study showed that individuals who work with an advisor have on average out performed those who go it alone by 20% over 10 years after all fees as measured by portfolio performance, not to mention the total wealth and intangible peace of mind they get from having an individual on their team to be their financial point man, to give advice on all things financial and money related; things like whether to own/rent/lease a new purchase, when to establish a trust, should we upgrade their house or renovate, how to best minimize oneís taxes in any given situation, to name just a few examples that come quickly to mind."

FrugalFan

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Oh, that one study in 1990. Seems like he forgot to mention the numerous other studies that show that active management and mutual funds do on average worse than the market 80% of the time. Besides, index funds were not popular in 1990 and the comparison would probably have been with picking individual stocks, which is not a good idea. In any case, I hope his message didn't cause you to doubt your decisions. If you need financial advice, you can always hire someone on an as needed basis.

PharmaStache

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Oh the email reply from the advisor!  I remember the one I got, LOL.

I agree, just immediately stop any new contributions.  Then ask what type of fees are charged when you move and what the time frame is on them- if you need to keep the money in another 90 days and then there's no fees, well then obviously do that!  If you need to keep the money in for years (like I did) it's probably worth it to suck it up, pay them and move (I paid around $1000 and don't regret the decision).

Don't worry too much about it, there's no big hurry- take the time to figure out the option you are the most comfortable with.

Good luck!

Retire-Canada

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Re: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)
« Reply #10 on: August 10, 2016, 01:31:07 PM »
"...most of the difference in MERs between ETFs and mutual fund is the cost of advice.  I believe my services are worth the added cost. 

Using Google Translate = "Fuck! I was going to buy a new Harley with the kick back I get from the MF company for keeping your money with them. I know I do essentially nothing to earn this money, but I wanted a new Harley. Please let me have a new Harley! Please!"

NorthernDreamer

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Re: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)
« Reply #11 on: August 10, 2016, 02:06:16 PM »
^^^ I came thisclose to actually spitting out my tea onto my laptop at work, so thank you for that!

I actually ended up chatting on the phone with him. There was no hard sell on his end. I told him we are not making any hasty decisions and are looking into all options right now.

Turns out none of the funds we are invested in are back-loaded, so the only fees for transferring our money is $125/account. But if we switch to the CIBC discount broker account (Investor's Edge), then there would be no fees since we'd be staying with CIBC. But it sounds similar to TD e-series; I think we'll end up with Questrade.

I did sign up for the free trial month through Questrade, where I get a cool $1M of imaginary loonies to invest. Now I'm just learning to navigate the dashboard and figure out my buying options (and using an "assertive" Couch Potato portfolio of 25% VAB, 25% VCN, and 50% VXC).

GreatLaker

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Re: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)
« Reply #12 on: August 10, 2016, 03:16:27 PM »
"...most of the difference in MERs between ETFs and mutual fund is the cost of advice.  I believe my services are worth the added cost. 

Using Google Translate = "Fuck! I was going to buy a new Harley with the kick back I get from the MF company for keeping your money with them. I know I do essentially nothing to earn this money, but I wanted a new Harley. Please let me have a new Harley! Please!"

Unless the advisor has university age kids. Then he will try and sell variable annuities to pay for their tuition and residence.

Heckler

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Re: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)
« Reply #13 on: August 14, 2016, 09:56:43 AM »
we are in similar income levels.  Heres a bit of advice your advisor should have told you since theyre so valuable.


With RSPs, as a long term committed couple, your goal is to equalize RSPs at time of using them as income.  This way, a 50k annual family income from RSP can be split in half - 25k each.  Guess what that does to the income tax?!   Your current path has hubby taking 40k per year and you 10k per year income from RSP. 

The way to do this is a spousal RSP.  He contibutes to your spousal account, and he gets major tax breaks now.  Later on, you both withdraw an equal smaller amount to be taxed on. 


http://www.finiki.org/wiki/Registered_Retirement_Savings_Plan. : see Spousal section

Heckler

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Re: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)
« Reply #14 on: August 14, 2016, 09:59:51 AM »
Another tip - with my BMO investorline account through which I self direct, I also had a BMO financial planner approach me and offer to put together a financial plan for free.  Granted, I gave him my plan and asked him to critique it, but it was appreciated and not a mutual fund sales pitch.

Wherever you decide to move, ask the question.


Buying ETFs through CIBC is also an option.  At $6.95 per trade, I dont recommend investing hundreds monthly into ETFs though.

https://m.onlinebrokerage.cibc.com/#/home/en/ie#searchBox
« Last Edit: August 14, 2016, 10:06:44 AM by Heckler »

Freedomin5

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Re: Case Study: paralysis by analysis regarding e-series vs ETFs (in Canada)
« Reply #15 on: August 20, 2016, 06:37:46 AM »
Another tip - with my BMO investorline account through which I self direct, I also had a BMO financial planner approach me and offer to put together a financial plan for free.  Granted, I gave him my plan and asked him to critique it, but it was appreciated and not a mutual fund sales pitch.

Wherever you decide to move, ask the question.

This. I have a TD Direct Investing account, which has a $9.99 per trade fee, and was really easy to set up. The gal who set it up for me was not so friendly or helpful, but I then set up an appointment with one of their advisors at a smaller TD branch and had a nice one hour chat with him. He was extremely helpful. And for someone who is a total newbie at investing, it's...comforting...to be able to bounce ideas off of a CFP.

I don't think the financial advisors at the banks are all money sucking monsters. For a lot of people who don't spend all their free time reading MMM and jlcollins, they may actually benefit from having an advisor.

Good luck on your investment adventure!