Author Topic: Index investing in Canada - switching over current investments?  (Read 5389 times)

Tim

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Index investing in Canada - switching over current investments?
« on: February 16, 2015, 08:41:27 AM »
I've read through Frugal Toque's articles and Canadian Couch Potato (as well as his book), and I'm ready to start index investing. I'm sure my scenario isn't unique but I need some advice on how to proceed. Here's my scenario:

I have about $60k invested in unregistered mutual funds and about $10k invested in RRSP mutual funds. My investments started pre-MMM and naturally, my personal finance adviser harked on the benefits of mutual funds. 

My idea was to basically sell the $60k unregistered and use that to kickstart my index investing. Not sure what to do about the $10k in RRSPs, since I'm sure that will incur fees. I'm also aware that some mutual funds have fees attached if you don't hold them long enough, so I would also consider that. This all sounds a bit too simplistic, so I'm hoping you guys can shed some light.

Also, I pretty much know that my personal finance adviser is going to try to talk me out of it. Should I ditch his ass?


PEIslander

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Re: Index investing in Canada - switching over current investments?
« Reply #1 on: February 16, 2015, 09:11:52 AM »
Before making any changes you need to know what costs you could incur by making any redemptions so you can make informed choices.

I'd suggest your first step is to review the prospectus documents for info on "loads" and "redemptions". If you don't have current printed copies of the prospectus documents you can likely find PDFs of them on-line at the website of the mutual fund company. If what you read seems like a foreign language have the financial advisor give you an accounting of the loads (deferred sales charges & the like) that apply to the funds you hold. (They should have already discussed it with you when you initially purchased the funds but, if you are like most people, it goes in one ear & right out the other).

Can you tell us more about the financial advisor? For instance is he or she with a bank or a company like Investors Group? Also can you identify what mutual funds you now have?

KMMK

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Re: Index investing in Canada - switching over current investments?
« Reply #2 on: February 16, 2015, 09:19:34 AM »
Are you planning to use TD for your index funds? That's what I do and I've been very happy with them.

Once your account is set up, yes, you can just sell the unregistered and transfer them into your TD cash RRSP account. At a branch, or with online banking.
Of course, depending on your income you probably want to put the $60,000 into RRSPs over 2-3 years, to reduce your tax burden for several years, unless you're easily able to max everything every year. But you can do TFSAs with some of it as well, if you haven't been using that room.

For the RRSP you'll want to transfer that. In my experience there's a transfer fee from $50 to $100 depending on the bank. (Can't comment on other fees there may be.) But paying this small amount has been well worth it, as you'll make that money back pretty quickly. You just get a transfer form from TD and they forward it to your mutual fund provider. You just transfer it in cash. So they sell everything, forward it to TD as cash. Then you buy e-series funds with it.

Presumably your financial adviser is commission based and works for one of the mutual fund companies? - Investors Group, Sunlife, etc. Yes, then they will object, and you should ditch him. No reason to pay the high MER on those mutual funds.

Tim

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Re: Index investing in Canada - switching over current investments?
« Reply #3 on: February 16, 2015, 09:45:33 AM »
re: PEIslander - thanks for your response. I can easily identify which mutual funds I have, and I'm reasonably familiar with loads and redemptions. Will have to brush up on it, but I'll take your advice and track down that info first.

My financial advisor works for a credit union (RBC before that) and I'm pretty sure he gets a commission, considering how unhappy he is when you make changes.

re: Kestra - thanks for your response. I will be using TD, as I've heard nothing but good things about them!

Sounds like I was sort-of on the right track, so I'll collect the relevant information, do the math, and see what makes sense for now. I imagine TD will do some hand-holding if I tell them what I want to do.

Heckler

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Re: Index investing in Canada - switching over current investments?
« Reply #4 on: February 16, 2015, 10:01:54 AM »
My first question is why you don't have a TFSA instead of unregistered?!  You are paying unnecessary income tax on those gains (assuming it's gaining). 


Tim

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Re: Index investing in Canada - switching over current investments?
« Reply #5 on: February 16, 2015, 10:03:14 AM »
I believe I do have TFSA's as well... I really need to get my house in order, which is why I'm here :D

Heckler

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Re: Index investing in Canada - switching over current investments?
« Reply #6 on: February 16, 2015, 10:09:05 AM »
I was in n your boat a year ago.  I had saved 4% off my paycheque  to RRSP but really had no idea what I'd invested in or what it was costing me.


Time to pull out your "Big Spreadsheet"!  Mine is now 22 sheets in Excel, covering everything from net worth to investments, mortgage and phone costs. The first step is to understand where you're at today.

swiper

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Re: Index investing in Canada - switching over current investments?
« Reply #7 on: February 16, 2015, 10:15:45 AM »
Are you planning to use TD for your index funds? That's what I do and I've been very happy with them.

Once your account is set up, yes, you can just sell the unregistered and transfer them into your TD cash RRSP account. At a branch, or with online banking.
Of course, depending on your income you probably want to put the $60,000 into RRSPs over 2-3 years, to reduce your tax burden for several years, unless you're easily able to max everything every year. But you can do TFSAs with some of it as well, if you haven't been using that room.

For the RRSP you'll want to transfer that. In my experience there's a transfer fee from $50 to $100 depending on the bank. (Can't comment on other fees there may be.) But paying this small amount has been well worth it, as you'll make that money back pretty quickly. You just get a transfer form from TD and they forward it to your mutual fund provider. You just transfer it in cash. So they sell everything, forward it to TD as cash. Then you buy e-series funds with it.

Presumably your financial adviser is commission based and works for one of the mutual fund companies? - Investors Group, Sunlife, etc. Yes, then they will object, and you should ditch him. No reason to pay the high MER on those mutual funds.

When I switched to TD, they re-funded my the closing fee on my sunlife account ($150). I think most places will do this as long as the transfer is large enough (pretty sure $60K is enough). Just tell them you are thinking of consolidating your accounts to them and were wondering if they would cover the closing costs.

 

Retire-Canada

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Re: Index investing in Canada - switching over current investments?
« Reply #8 on: February 16, 2015, 10:18:18 AM »
I've read through Frugal Toque's articles and Canadian Couch Potato (as well as his book), and I'm ready to start index investing. I'm sure my scenario isn't unique but I need some advice on how to proceed. Here's my scenario:

I have about $60k invested in unregistered mutual funds and about $10k invested in RRSP mutual funds. My investments started pre-MMM and naturally, my personal finance adviser harked on the benefits of mutual funds. 

My idea was to basically sell the $60k unregistered and use that to kickstart my index investing. Not sure what to do about the $10k in RRSPs, since I'm sure that will incur fees. I'm also aware that some mutual funds have fees attached if you don't hold them long enough, so I would also consider that. This all sounds a bit too simplistic, so I'm hoping you guys can shed some light.

Also, I pretty much know that my personal finance adviser is going to try to talk me out of it. Should I ditch his ass?

I'm in the same boat. I've got a bunch of RRSP mutual funds that I need to get switched over to ETFs I'll setup through questrade.ca. The hassle is in the fees and I haven't figured out all those details yet. I'm going to meet with my advisor to work out what the fees are for withdrawal. I suspect what I will do is every time I have dividends and other no/low cost opportunities I'll get that money out to a cash RRSP account and invest it in ETFs. That could take some time, but there is no panic. My mutual funds are giving me good returns at the moment and I have decades left to benefit from the lower MERs of ETFs.

Once I get all the withdrawal fees mapped out I'll come up with my plan.

As someone else noted you don't want to buy $60Kof new RRSPs at once unless you are making $140K+/yr. If you have TFSA room put whatever you don't need for this year's RRSPs into that account.

Also don't sweat the mutual funds. Yes there are better ways to invest and you are on that path now, but pat yourself on the back for saving and investing your money. That's more than a lot of people do. It's a marathon not a sprint! ;)

-- Vik

Heckler

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Re: Index investing in Canada - switching over current investments?
« Reply #9 on: February 16, 2015, 10:25:59 AM »
I was paying $1450 per year in BMO Nesbit Burns "Architect fees", plus $1300 per year in hidden MER fees on a flatlining $115,000 portfolio. 

I've switched to a self directed CCP model and now pay $200 in annual MER and $80 in fees to buy the funds. A year later it's grown significantly through MMM inspired contributions (155k when I bought in late last year and now it's up to $166k!

Just some motivation for you to figure out your shit.

Heckler

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Re: Index investing in Canada - switching over current investments?
« Reply #10 on: February 16, 2015, 10:28:42 AM »
And if you are comfortable with online banking, then self directed etf purchases are a breeze.

Heckler

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Re: Index investing in Canada - switching over current investments?
« Reply #11 on: February 22, 2015, 08:35:41 AM »
A big thing for you to consider is that your portfolio is still quite small, and I assume you are contributing small regular amounts. 

How to you plan to contribute?   Using a self directed ETF approach will cost you ~$10 per transaction, but get lowest fees long term.  However, "ten bucks on a hund" is a huge loss!  There are slightly higher MER options available that don't have transaction fees.  CCP has details.

I suggest you read everything on CCP before talking to your FPA again.

Heckler

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Re: Index investing in Canada - switching over current investments?
« Reply #12 on: February 22, 2015, 08:58:48 AM »
Oh, I see you're planning to go TD funds.  That looks like the right plan (at a quick glance).  I would figure out how dividends are reinvested (does TD provide partial Units of dividend reinvestment, or must it be a complete Unit?)  A small holding Vanguard is not reinvesting dividends for me now, so I need to buy another $2500 worth for DRIP to work.  (yes, you need to learn what DRIP means)

subbs

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Re: Index investing in Canada - switching over current investments?
« Reply #13 on: February 22, 2015, 10:28:24 PM »
1. Go to http://www.reddit.com/r/PersonalFinanceCanada/  Read through the glorious amounts of threads on the subject.
2. Review Canadian Couch Potato Portfolios.  Find what appeals to you
   -  http://canadiancouchpotato.com/model-portfolios-2/
   -  http://www.moneysense.ca/invest/etfs/couch-potato-portfolio-returns-for-2014
   -  http://canadiancouchpotato.com/recommended-funds/
   -  http://www.canadianportfoliomanagerblog.com/model-etf-portfolios/

3. Open a Questrade account.  Follow MoneyGeeks video on it on youtube.  He also has a few other great videos for questrade.

4. Transfer your current accounts over to questrade. Transfer in-kind, then liquidate them yourself if you so choose. It's ezpz.

5.  Ill never look back.

Kaspian

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Re: Index investing in Canada - switching over current investments?
« Reply #14 on: February 23, 2015, 01:00:12 PM »

Also, I pretty much know that my personal finance adviser is going to try to talk me out of it. Should I ditch his ass?

You don't have to!  You can have another place fire him for you.  Just setup a mutual fund account at the place you want, bring in your details about the old place and they'll transfer your money along with a "Dear John" letter.  :)

I did this.  Setup an RRSP at TD with an advisor there, they sucked all the money from the old place (thinking they had a win in me), I then filled in the proper PDF forms, mailed them in to have the new RRSP account converted to a low cost self-directed e-Series account with index funds only.  Let's just my TD advisor wasn't exactly happy, but she was nevertheless suitably impressed.

Kaspian

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Re: Index investing in Canada - switching over current investments?
« Reply #15 on: February 23, 2015, 01:09:29 PM »

Unlike with the US retirement accounts, you don't need to deduct RRSP contributions in the same year you make them. You can deduct them in any future year instead. So if you contribute $60,000 to an RRSP in 2015, you can spread that $60,000 deduction over as many future years as you want. There is no minimum that you have to deduct each year, so you can even wait until you have higher income so that you get more benefit from the deduction (i.e. offsetting more taxes at a higher tax bracket).

Whoa, whoa... No, you can't do that.  You can't overcontribute and then use it later.  You can not contribute and then use the space later in later years, or use space up if you have some from previous years (hopefully what you're talking about?), but you cannot put $60K into an RRSP and then use the deduction over several years.  The contribution limit for the 2014 tax year is $24,930.

http://business.financialpost.com/2012/01/11/did-you-over-contribute/

Quote
If you over-contribute by more than $2,000, you are subject to a one per cent penalty tax for each month you are in excess of that.

 If you discover that you have over-contributed, you should try and withdraw the excess amount as soon as possible.

« Last Edit: February 23, 2015, 01:11:35 PM by Kaspian »

Trinitysmom

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Re: Index investing in Canada - switching over current investments?
« Reply #16 on: February 23, 2015, 01:30:05 PM »
You can put 18% of your earnings each year into an RRSP upto a maximum amount any space you don't use is rolled over to the next year so if you had $60000 in RRSP contribution unused from previous years you could put that into RRSP. You then fill out your taxes saying you put that $60000 into your RRSP but you don't need to claim the tax break on it that year. Most programs that do your taxes will suggest how much to claim. So you might claim $15000 a year over 4 years to bring you into a lower tax bracket. The benefit of this is your investment grows in a tax deferred account right away but you can maximize your tax break by splitting up when you claim the RRSP amounts on your taxes. But this only works if you have the RRSP room. You can find this information on the last page of your tax return from last year.

PEIslander

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Re: Index investing in Canada - switching over current investments?
« Reply #17 on: February 23, 2015, 02:22:32 PM »

Unlike with the US retirement accounts, you don't need to deduct RRSP contributions in the same year you make them. You can deduct them in any future year instead. So if you contribute $60,000 to an RRSP in 2015, you can spread that $60,000 deduction over as many future years as you want. There is no minimum that you have to deduct each year, so you can even wait until you have higher income so that you get more benefit from the deduction (i.e. offsetting more taxes at a higher tax bracket).

Whoa, whoa... No, you can't do that.  You can't overcontribute and then use it later.  You can not contribute and then use the space later in later years, or use space up if you have some from previous years (hopefully what you're talking about?), but you cannot put $60K into an RRSP and then use the deduction over several years.  The contribution limit for the 2014 tax year is $24,930.

http://business.financialpost.com/2012/01/11/did-you-over-contribute/

Quote
If you over-contribute by more than $2,000, you are subject to a one per cent penalty tax for each month you are in excess of that.

 If you discover that you have over-contributed, you should try and withdraw the excess amount as soon as possible.


I'm pretty sure Cathy was not suggesting anyone should overcontribute. If you have the contribution room available (by not having maximized contributions in prior years) you can do as Cathy notes and make a contribution now and then take the deduction in later years. If you have no carried forward contribution room you can still make your current max contribution but then save the deduction for a later year when it might be more beneficial to you.

Edit - After my posting I noticed Trinitysmom had already made a similar posting. Sorry Trinitysmom!
« Last Edit: February 23, 2015, 02:26:06 PM by PEIslander »

SK Joyous

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Re: Index investing in Canada - switching over current investments?
« Reply #18 on: February 23, 2015, 03:05:50 PM »
A big thing for you to consider is that your portfolio is still quite small, and I assume you are contributing small regular amounts. 

How to you plan to contribute?   Using a self directed ETF approach will cost you ~$10 per transaction, but get lowest fees long term.  However, "ten bucks on a hund" is a huge loss!  There are slightly higher MER options available that don't have transaction fees.  CCP has details.

I suggest you read everything on CCP before talking to your FPA again.

Agreed, unless you are opening your RRSP in a brokerage that allows free purchase of ETFs (like Questrade) - then no cost for however many purchase transactions you make (also, Questrade covered my transfer fee of $150 from my old brokerage; as someone mentioned above, it is worth looking into getting the fees covered)

Kaspian

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Re: Index investing in Canada - switching over current investments?
« Reply #19 on: February 24, 2015, 11:22:08 AM »

I'm pretty sure Cathy was not suggesting anyone should overcontribute. If you have the contribution room available (by not having maximized contributions in prior years) you can do as Cathy notes and make a contribution now and then take the deduction in later years. If you have no carried forward contribution room you can still make your current max contribution but then save the deduction for a later year when it might be more beneficial to you.

Edit - After my posting I noticed Trinitysmom had already made a similar posting. Sorry Trinitysmom!

Yes, indeed you can!  :)  I was just worried that somebody would think their contribution room was simply a suggestion as to how much they could deduct and had nothing to do with how much they could put in an account on a given year.  There's also been a few stories on the news where people think, "Great--the rules say I can overcontribute by $2000 and not get penalized."  They do that a few years in a row and then find themselves in some serious hot water. 

I overcontributed $200 a few years ago and it almost sent me into a panic attack.  But it's worked out OK.  ...And cooly my UFile tax program knew to carry this excess forward into the next year's return and limit what I can deduct there.

hamildub

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Re: Index investing in Canada - switching over current investments?
« Reply #20 on: February 24, 2015, 11:27:13 AM »
I have an index portfolio in TFSA that I've used the TD index mut funds (Canada 26%, US 26%, International 26%, CDN Bonds 20%), they have low MERs and if you subscribe to the DRIP it'll buy partial units. It's a great way to go if you don't have a ton invested yet.

I used to work at TD Waterhouse and can confirm that they will pay account closing fees at your other institution (there's some limits, give them a call to find out). The only bummer with TD is they charge $125 on RRSP accounts unless you have $25k in that account.

Be careful about over-allocating to your RRSP, especially if you're going for FIRE. You might as well max out your TFSA at this point rather than it sitting in an unregistered account, it's far less restrictive when it comes to withdrawals.

You should also consider filling out from T213 (reduce tax deductions from employer) and doing regular RRSP contributions through the year- rather than giving the govt an interest free loan you can actually earn something!
« Last Edit: February 25, 2015, 02:23:41 PM by hamildub »