Hi all, first time poster, reader for a year or so.
I live in Canada and have been reading
Mr. Frugal Toque's post on Canadian investing. For those not yet comfortable with open markets and ETFs, he recommends TD e-series funds, which AFAIK are the lowest-MER index funds available without a broker account.
Here's my question though. His entire post works on the assumption that, as long as you have broad market exposure, MER should be your number of primary concern. Lower MER = earlier FI. But if a fund has a 10 year or longer track record (especially having gone through 2008), shouldn't you just look at the average annual compounded return (which seems to always be given
after deducting expenses) and ignore the MER?
For instance,
TD's e-series US index fund (pdf), which tracks the S&P 500, states:
"As of May 31, 2017, the annual compounded return of e-Series securities of the fund was 6.3% over the past 10 years. If you had invested $1,000 in e-Series securities of the fund 10 years ago, your investment would now be worth $1,834."RBC's US index fund (pdf) also tracks the S&P 500, and states:
"A person who invested $1,000 in the fund ten years ago would have $2,220 as at May 31, 2017. This works out to an annual compound return of 8.3%."Both documents state, in the same section:
"Returns are after expenses have been deducted. These expenses reduce the fund's returns."This would mean those percentages in bold are
after subtracting MER, right? So then it doesn't actually matter that the TD fund charges 0.35% MER and the RBC fund 0.72% -- in fact, the RBC fund's higher returns are worth it.
Is this correct or am I missing something?
Also, sub-question... if both funds just track the S&P 500, how can their 10-year performance be so different?
Thanks for your thoughts. Hopefully this hasn't been asked before; it was a hard thing to search for!