Author Topic: Still using a mutual fund advisor (face punches accepted) ((first post))  (Read 3810 times)

NorthernDreamer

  • Stubble
  • **
  • Posts: 100
  • Canada
Hello! This is my first post, so I'm basically a MMM newborn. I will accept gentle face punches ;)

My husband and I are 32 and 35, living in Canada.  I've been running the numbers and am hoping we can FIRE in 18 years or less. Our investments are spread out quite a bit - I have two workplace pensions (Ontario teacher's pension plan, but only about $12k in there), my current workplace pension plan (an Ontario university), a TFSA and an RRSP. DH has a TFSA, RRSP, and a workplace RRSP matching program. Our personal TFSAs and RRSPs (and our children's RESP) are held with a major bank, thus we have a mutual fund advisor. I *know* this is not ideal. The total money we hold with him is now is at around $90,000 and growing.

My complainypants excuses:
- life is busy with two little ones under the age of 4, I don't want to spend my precious free time figuring out ETFs (which I have some sort of mental block towards, I find the whole process terribly intimidating)
- holy crap, if I lose money in investments, I can only blame MYSELF
- I'm not losing *that* much money with these higher MERs vs doing it myself (this was my excuse when we only had a few thousand invested)
- I don't know if I want to be responsible for handling the RESPs myself (not sure how the government matching will work, haven't looked into it at all)

Someone please smack some sense into me! I am thinking of writing a case study for fun....

K-ice

  • Pencil Stache
  • ****
  • Posts: 931
  • Location: Canada
Welcome!

What bank are you currently with?

You don't have to say but I think they all have self directed accounts.

CIBC, TD,  & RBC all do for sure.

Last year after I found MMM it gave me the confidence to put my next TFSA chunk in to VXC with a self directed account.

My next RRSP chunk went into VAB. I am not yet "balanced" but I am working on it.

See couch potato for easy portfolio suggestions. 

My old RRSP with the bank advisor is smaller than yours but tied up in GIC's. Once they mature I will take control & move them over.

You could start small & just say nothing new into your old mutual funds (like I did).

Or just pull the plug on your advisor. ASAP. Take a close look at what they are really doing for you. Nothing more than determine your risk (bond to stock %) and then setting it and forgetting about it.

That is exactly what you can do for yourself except you will save $1000-2000 per year on fees.

Check the fees on the self directed investment accounts. You might need $30,000 or something to avoid an annual fee.

I started my kids RESP before MMM so I also haven't moved it. But I might soon.

Welcome again & good luck.



Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
Here's my quick go-to response for anyone in your position. Short and sweet. You ready?

----------------------------------------------------------------
I recommend going with Vanguard. Vanguard is like the Credit Union of investment firms. They are owned by us, the people who invest with them:



As a result, they have become the biggest investment firm in history. Seriously. They have over 3 trillion dollars in assets under management. Why haven't you heard of them? Look at the graphic above again. They operate with just enough profits to cover their costs. In other words, they aren't spending millions of dollars every quarter on fancy advertisements, they aren't buying big billboards in downtown manhattan, and they aren't paying for thousands of sales people in hundreds of offices across the country to create brand awareness. They are legally obligated to operate with our best interests in mind, which is why they are the only company I'd trust with my money.

From there I'd recommend one of two options:

1. "I want Vanguard's experts to do everything for me. I'll just tell them my age and they'll put it in the appropriate Target Retirement Fund"

2. "I want Vanguard's experts to do everything for me. I'll just tell them how much risk I want, and they'll put it in the appropriate LifeStrategy Fund"

Both of these options invest solely in "index funds". This means they aren't trying to bet on what the next "hot stock" will be, they're just buying everything. Here's what the experts have to say about that:

  • A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth. ~Warren Buffet
  • Most investors would be better off in an index fund. ~Peter Lynch
  • Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing. ~Charles Schwab
  • Most investors should simply invest in index funds. ~Robert Rubin, Former Secretary of the Treasury
  • Over the long-term the superiority of indexing is a mathematical certainty. ~Jason Zweig, senior writer for "Money"
    Indexing virtually guarantees you superior performance. ~Bill Bernstein, author, financial adviser
  • The smartest thing people can do if they want money in the equities market is buy an index fund and forget about it. ~Elliot Spitzer, NY Attorney General

Vanguard's Target Retirement Fund is a perfect long-term investment, because it combines the blue line and the orange line, into one package. When you're younger, it adds more of the blue line when you want more risk, and as you get older it adds more of the orange line to keep you safe from crashes:



You can throw money at it for the rest of your life, and you'll be just fine. Why would you want to choose your risk with Vanguard's LifeStrategy fund? Maybe you're saving money for a house downpayment in a 5 years, or your job situation is unstable, and don't want to take on much risk.

You can't go wrong with either choice :)
----------------------------------------------------------------


Now these principals still apply in Canada, but the options are a bit different. The only All-In-One solutions available to you are pretty expensive, so instead the standard recommendation is a 3-fund portfolio. It's essentially the manual version of the options listed above. You buy these three funds:

Canada Stocks - https://www.vanguardcanada.ca/individual/etfs/etfs-detail-overview.htm?portId=9561

World Stocks (excluding Canada) - https://www.vanguardcanada.ca/individual/etfs/etfs-detail-overview.htm?portId=9548

Canadian Bonds - https://www.vanguardcanada.ca/individual/etfs/etfs-detail-overview.htm?portId=9552

Here's a nice chart showing what proportions of each you can buy depending on your risk level:



That's it! If you're worried about rebalancing (or if you've never heard of that term) don't worry about it. Once every 3 years or so, use one of those nifty online rebalancing calculators, and it will tell you how you can adjust your contributions to keep things in balance. This one is pretty easy:



http://optimalrebalancing.tk?ckattempt=1

- holy crap, if I lose money in investments, I can only blame MYSELF

No. Wrong. This is the most important thing you need to learn. Maybe you can blame yourself if you're a day-trader, but not when you're just buying the index. You aren't making your investment decisions based on your personal feelings, or even my personal arguments here in this thread. You and I, we are not the sources of information here. The onus isn't on you. Look at the quotes I listed above from Charles Schwab, Peter Lynch, Warren Buffet...etc. They are your investment advisors now.

Who do you trust more, your personal advisor who works down at the bank (who personally gains by directly charging you a fee based on their recommendations)...or them?

Miss Piggy

  • Handlebar Stache
  • *****
  • Posts: 1325
Here's my quick go-to response for anyone in your position. Short and sweet. You ready?


This was a very helpful post. Thank you.

Dancing Fool

  • 5 O'Clock Shadow
  • *
  • Posts: 33
I can't offer much perspective on Canadian investing, but I would encourage you to invest the effort in developing an investing strategy you and your spouse understand and are comfortable with. Strategy in this case is just a fancy word for what asset classes (bonds, stocks, international of either, etc.) in what allocation (60/40, 50/50, 75/25, 100/0, etc.) and in which type of funds (active vs. passive). It might differ between your retirement accounts and educational accounts for the children because of the different time horizons. Once you have this strategy in place, you'll just keep executing on it every month (or every paycheck, possibly with automated contributions so that it's one less thing to do in a busy household), confident that you've chosen one which has a high probability of success (nothing in life is certain, but don't blame yourself if you make a good decision which leads to a poor outcome - obviously easier said than done).

Long story short, don't be afraid of putting some work in now to need much less work (and probably feel much less stress) in the future.

Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
Fellow Canadian here,

I second the comment about the Canadian couch potato

Also Who you bank with can be helpful, I bank with TD and use their E Series funds.

With the help of the Canadian couch potato i set up my E series accounts pretty quickly (a trip to the bank was also required)

I believe that Vanguard has even lower fees then TD...

However I am somewhat like you and I need simplicity and ease, and seeing as I already banked at TD the E Series just made sense.

Some day when I get some free time I may look at the Vanguard option but for the short future I'm happy with my E Series.  Best of luck!

I thought about including one of those easier portfolios, but I'm not convinced that 4 funds at double the expense ratio (yearly fee), is simpler than 3 ETFs. And if it is simpler, does that justify the extra fee? NorthernDreamer and NorthernDreamer's husband are in their 30's and could live another 60 years:



Is a 4 fund portfolio THAT much easier than a 3 ETF portfolio?

NorthernDreamer

  • Stubble
  • **
  • Posts: 100
  • Canada
Well. That was nicer than any face punches ;) Thank you SO MUCH for all the info. This is incredibly helpful.

Our mutual fund advisor is with CIBC, but we do our daily banking with PC (yay for no fee bank accounts!). So we are going to have to take the extra step to set up something outside our daily banking accounts regardless of where we choose. Our MERs are around 2-3.5% (GROSS). I am going to send my husband this thread and I think we are finally motivated to figure it out together. It sounds like Vanguard is our best bet. If we're setting it up, we will go the extra step to pull all our money from CIBC (except the RESPs, need to look into those) and throw it at Vanguard.

I feel like I'm finally putting on my Big Girl Panties. Ew, except "panties" sounds terrible. Big Girl Galoshes?

cheapass

  • Pencil Stache
  • ****
  • Posts: 507
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Well. That was nicer than any face punches ;) Thank you SO MUCH for all the info. This is incredibly helpful.

Our mutual fund advisor is with CIBC, but we do our daily banking with PC (yay for no fee bank accounts!). So we are going to have to take the extra step to set up something outside our daily banking accounts regardless of where we choose. Our MERs are around 2-3.5% (GROSS). I am going to send my husband this thread and I think we are finally motivated to figure it out together. It sounds like Vanguard is our best bet. If we're setting it up, we will go the extra step to pull all our money from CIBC (except the RESPs, need to look into those) and throw it at Vanguard.

I feel like I'm finally putting on my Big Girl Panties. Ew, except "panties" sounds terrible. Big Girl Galoshes?

There was a study done on management fees and how they affect a portfolio's long-term growth. Due to the nature of compounding and the lost investment opportunity of that cash that goes to fees instead of invested, a 1% fee eroded ~60% of the gains from a portfolio over 30 years. Something to think about...

GreatLaker

  • Stubble
  • **
  • Posts: 139
  • Location: Canada
Is your CIBC advisor actually giving you good financial advice? Like a full financial plan, saving and net worth projections for your expected life, how to invest tax efficiently, how to balance contributions among non-registered, RRSP and TFSA, and regular meetings to update the plan, and stopping you from making mistakes? If yes there is some value in that (but unlikely to be 2-3% of value per year). Or is he really a mutual fund sales rep, selling what his bank wants you buy, that makes the bank the most money and slowly turns YOUR retirement savings into HIS retirement savings?

Look at it this way: 2% does not sound like much, but if the market goes up 8% on average a year, the MER is taking fully 25% of your gains! To overcome the handicap of the MER, if the market goes up by 8%, the bank funds need to go up by 10% just to break even - i.e. they need to beat the market by 2 percentage points, or 25%. And your fear of investing on your own is probably created, at least partly, by the advisor, so you will be afraid to go it alone.

Step 1 - read this: https://www.etf.com/docs/IfYouCan.pdf If You Can - How Millennials Can Get Rich Slowly. It's a free ebook, only 16 pages and the author says more about markets and investing than most authors say in hundreds. It is American, but the concepts apply as well in Canada.

Step 2 - Read Millionaire Teacher by Andrew Hallam. It's a great story about frugal living and low-cost investing, written by a Canadian with a global perspective. https://www.amazon.ca/Millionaire-Teacher-Wealth-Should-Learned/dp/0470830069

Step 3 - pick a portfolio from Canadian Couch Potato http://canadiancouchpotato.com/model-portfolios-2/

If you still want more information on portfolio design go here:
Finiki:The Canadian Financial Wiki
http://www.finiki.org/
http://www.finiki.org/wiki/Portfolio_design_and_construction
http://www.finiki.org/wiki/Simple_index_portfolios
http://www.finiki.org/wiki/Simple_index_portfolios#Three_fund_portfolios

Now put on your big-girl boxing gloves and give the advisor some face punches!



Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
And your fear of investing on your own is probably created, at least partly, by the advisor, so you will be afraid to go it alone.

Great one! I wish more people realized this.

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #10 on: August 04, 2016, 12:44:10 AM »
try reading the millionaire teacher, and the bogleheads guide to investing.  they answer a lot of questions and go over a lot of good information for anyone wanting to learn about investing.

I'm working on a couch potato portfolio now myself

Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #11 on: August 05, 2016, 02:09:15 PM »
Well. That was nicer than any face punches ;) Thank you SO MUCH for all the info. This is incredibly helpful.

Our mutual fund advisor is with CIBC, but we do our daily banking with PC (yay for no fee bank accounts!). So we are going to have to take the extra step to set up something outside our daily banking accounts regardless of where we choose. Our MERs are around 2-3.5% (GROSS). I am going to send my husband this thread and I think we are finally motivated to figure it out together. It sounds like Vanguard is our best bet. If we're setting it up, we will go the extra step to pull all our money from CIBC (except the RESPs, need to look into those) and throw it at Vanguard.

I feel like I'm finally putting on my Big Girl Panties. Ew, except "panties" sounds terrible. Big Girl Galoshes?

Great! I just realized I skipped the brokerage part! To buy those recommended ETFs you need a brokerage account. The popular ones seem to be:

Questrade - http://www.questrade.com
Qtrade - https://www.qtrade.ca/investor/
TD Direct Investing - https://www.td.com/ca/products-services/investing/td-direct-investing/

I'd probably go with TD Direct Investing, but they are all priced pretty competitively.

Good luck!

NorthernDreamer

  • Stubble
  • **
  • Posts: 100
  • Canada
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #12 on: August 09, 2016, 08:56:35 AM »
Yeah, I don't think we are getting the "value" out of our MF advisor. I haven't sat down with him lately to seriously talk about things. But a few years ago I mentioned wanting to retire at 55 (this was even before finding MMM) and he laughed at me. Said I'd need $80k/year in retirement. Said I'd be working until 65. So I don't think our values quite line up, to put it mildly.

I am not sure if TD e-series or ETFs are better for us right now. I am going to read through all the recommended links, and go from there. We are used to automated monthly payments, and our accounts we would move are spread out - three at around $13k and one at around $50k. It seems ETFs are for when you're over $50k? Maybe a mini case study is in order...

Thanks again everyone!

Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #13 on: August 09, 2016, 09:04:38 AM »
Yeah, I don't think we are getting the "value" out of our MF advisor. I haven't sat down with him lately to seriously talk about things. But a few years ago I mentioned wanting to retire at 55 (this was even before finding MMM) and he laughed at me. Said I'd need $80k/year in retirement. Said I'd be working until 65. So I don't think our values quite line up, to put it mildly.

I am not sure if TD e-series or ETFs are better for us right now. I am going to read through all the recommended links, and go from there. We are used to automated monthly payments, and our accounts we would move are spread out - three at around $13k and one at around $50k. It seems ETFs are for when you're over $50k? Maybe a mini case study is in order...

Thanks again everyone!

ETFs have no minimum, as long as you have enough to buy one unit (about $100 or so). The reason people are recommending ETFs for Canadians with over $50k, is because that's when the fees really start to become apparent, and ETFs have the lowest fees.

Good luck with your decision!

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #14 on: August 09, 2016, 09:43:37 AM »
thank you so much for that expense ratio tool IC i have been trying to find a good way to show my friends (who mostly are engineers) how bad those can really be.  its incredible

Interest Compound

  • Pencil Stache
  • ****
  • Posts: 658
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #15 on: August 09, 2016, 11:46:51 AM »
thank you so much for that expense ratio tool IC i have been trying to find a good way to show my friends (who mostly are engineers) how bad those can really be.  its incredible

No problem! Here's another fun one:



https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

NorthernDreamer

  • Stubble
  • **
  • Posts: 100
  • Canada
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #16 on: August 09, 2016, 12:08:38 PM »
Gah. No wonder my advisor told me I'd have to work until I'm 65! With MERs like that, I would!

FrugalFan

  • Pencil Stache
  • ****
  • Posts: 910
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #17 on: August 09, 2016, 12:17:12 PM »
Fellow Canadian here. Yeah, most people don't realize that even a small difference in expense ratios (e.g. even TD e-series vs Vanguard can make a big difference as shown above, but most Canadian mutual funds have much larger expense ratios (ours were all >2.5%)). As another poster mentioned above, after a reasonable time frame of 20-30 years we'd be giving up more than 60% of earnings. Crazy. I've been reading MMM for just over a year and we moved all of our investments including RESP away from our advisor (~200k at the time). I couldn't be happier. I followed much of the advice above mostly to gain the confidence to do this. I read MMM forums and asked questions, read Millionaire Teacher as well as "The MoneySense Guide to the Perfect Portfolio". We are currently invested in a three fund couch Potato vanguard portfolio of VAB, VCN, and VXC and we use Questrade, which I love. I love having all our money in the same place and being able to buy funds monthly and whenever we have extra cash lying around being lazy.

I also agree that if you invest in index fund and the market goes south, it is not really "you" losing money and you would have been losing money anyway. It's important to realize that.

NorthernDreamer

  • Stubble
  • **
  • Posts: 100
  • Canada
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #18 on: August 09, 2016, 12:23:39 PM »
Very true. I just posted a case study (it feels sort of like skinny dipping at the beach when everyone else is still wearing clothes). I think I am overthinking the different fees, commissions, etc. and just need to make the move to SOMETHING!

Also not sure if we should be changing the ratios of how much we invest in RRSPs vs TFSAs.

I can be a perfectionist. I like to get things right the first time. I think that is hindering me in making the move.

GreatLaker

  • Stubble
  • **
  • Posts: 139
  • Location: Canada
Re: Still using a mutual fund advisor (face punches accepted) ((first post))
« Reply #19 on: August 09, 2016, 01:19:01 PM »
Very true. I just posted a case study (it feels sort of like skinny dipping at the beach when everyone else is still wearing clothes). I think I am overthinking the different fees, commissions, etc. and just need to make the move to SOMETHING!

Also not sure if we should be changing the ratios of how much we invest in RRSPs vs TFSAs.

I can be a perfectionist. I like to get things right the first time. I think that is hindering me in making the move.

The perfect plan is the enemy of a good plan.

TFSA vs RRSP comes down to whether you expect your tax rate to be higher or lower when retired than when you make the contributions. If you expect your income to be less when you are retired than when you are making contributions, then RRSP is better. Based on your skinny dipping case study, your income now seems like your income when retired will be less, so RRSP contributions are more effective. Fill up your RRSPs first, then contribute to TFSA, then if/when you run out of TFSA room, start contributing to a non-registered account.
***Edit: on a re-read, it might make sense for you to max your TFSA first then RRSP, if you think you will work full time and your income will be higher in the future

If you are reluctant to move all of your funds to self-directed at once, you could start with just one account, to see how you like it. That's what I did.

Cautions on moving registered funds. In RRSPs you must get the receiving bank or broker to do a registered transfer from your current broker. The new broker will complete that paperwork and send it to the current broker. With TFSAs you can do a registered transfer, or you can withdraw the funds as cash, but if you withdraw cash you do not get that contribution room back until Jan 1 the following year. Also you can transfer in-kind (i.e. move the existing investments) or in cash (i.e. sell all the existing investments and reinvest in the new accounts). Since you don't like the existing investments, transfer in cash. Also your existing broker will likely charge a fee of around $130 per account for registered transfers. If you move all your funds, ask if the new broker will refund some or all of that charge.

Maybe you know this but eFunds can only be purchased from TD, either in a TD Bank eFund mutual fund account or a TD Direct Investing  brokerage account.

You seem to have an urgency to move to something different. In the course of 15 years to retirement, plus 30-40 years of retirement, taking 3-6 months to read, learn and create your plan is not gonna make much of a difference.
« Last Edit: August 09, 2016, 02:27:54 PM by GreatLaker »