Canadian Investing with Mr. Frugal Toque: Part Two

Very annoying to be required to take that extra step. Emily December 14, , 6:

The Globe and Mail

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Price History Describes more index sector components Price Performance. Frugal Toque December 16, , 5: It may not seem reasonable, but getting your money into the market is the best thing to do. All that is accomplished by investing it slowly is a chance for brokers to make more money off of you. As you accumulate more money, however, you will want to invest it as you get, spreading your risk out in time.

Aaron December 16, , Not to mention any dividends that might be earned in that time frame. This Life On Purpose December 16, , 1: As long as you are investing long-term in diversified low-cost index funds, you are better off with the lump sum investment. Money Saving December 17, , 6: Toque pointed out above, you really cannot beat the market.

That being said, some of the weak investment minded myself included like to spread it out a bit over time just because it makes us feel like we have more control over the situation. All good and correct advice given above to you Jake but having recently started off myself in investing I know where you are coming from.

It is quite a daunting thing to just lump 5K into an account all at once if that is all you have got! Jake Poysti December 17, , Thanks for helping out guys! I guess I will be putting it in now instead of dollar-cost averaging.

I think what I will do instead of investing it in in one transaction the money is already in the brokerage account is invest it in chunks within the next month or two.

Wandering Whitehursts August 17, , Four years in and the market is still on a tear. I foolishly am toiling with the same issue. Will it ever come? And if the market does tank the odds of me buying in as it bottoms out are essentially nil. Some sort of irrational fear, I guess. Dustin December 17, , According to research done by Vanguard https: So going by statistics it would be better to invest all of it at once. Your own situation may be different though.

Jake Poysti December 17, , 6: Grump December 15, , 8: If your not careful MMM, Mr. Frugal Toque will be taking over your blog. It really adds perspective to the American way. TorontoDeveloper December 15, , 8: Especially for us do-it-yourself mustachians1.

That does look great. This is the great part about writing Internet articles and also the problem with them: Anthony December 16, , 7: Questrade all the way. They are rated as one of the best managed companies in Canada.

Their purchasing interface has never let me down either. The alternative to Vanguard in Canada is iShares. Richard December 16, , 9: Christine December 16, , And I love Questrade.. Just use their platform to buy or sell whenever you please. Unlike managed funds where you must call your broker to do all that for you.. Neil December 18, , 9: Yes, I love my Questrade. One great tool for this account, is that i set one up for my 2. I have not tried to sell any investments since i opened the account questrade apparently charges commissions on selling until today.

So people who are interested in monthly investments, there are 3 tools out there to use. Marcelina December 15, , 9: Eric December 15, , 9: Apparently you only pay their 4. On a side note, I gave myself a nice face punch today. I had to take three loads through the ice and snow down very icy steps with garbage and compost to take out the garbage for the collection in the morning.

And the bin was frozen into the snow bank. So I was cursing my misfortune. When I realized, what am I complaining about. And the extra effort to get the bin free of the snow bank is really just a no cost trip to the gym to work on deadlifts. The gifts just kept piling up. Most people, however, probably invest in tiny amounts throughout the year regular paycheque deductions anyone?

Patty December 15, , 9: Thank you so much Mr. Frugal Toque for addressing the financial needs of Canadians. I enjoyed part 1 as well. I have to be very honest though in that I find investing information somewhat akin to reading a technical manual!

I have been trying to educate myself and get past the urge to just let someone do it for me and also take more of my money. Even though your post is laying it out in a straightforward manner, I am still feeling less than confident about taking charge of my investments in the way you are describing, in order to avoid the high MERs. Marcelina December 15, , But if ETFs make you nervous, you should know that index-based mutual funds, over the long term, are very widely used as a reliable retirement tool.

Aussie expat December 15, , I know quite a few of them read MMM. We are Americans living in Australia for 5 years and I still find this market confusing! The Watchman December 16, , Also, I wonder if anyone has any thoughts about how global diversification is less applicable to Australians especially on equities, because Australians receive franking credits on dividends paid out of Australian sourced taxed profits ie.

For temporary Australians e. Although they could also significantly increase the value as well, this is risk that you are not being rewarded for e. Neo December 17, , 5: Vanguard VAS has a lower fee of 0. The Watchman December 17, , 5: Thanks for the red pill, Neo.

AdrianM December 17, , 8: They both track very similar https: Aussie Expat December 20, , 3: This might sound like a silly question but do you have any recommendations for super funds? Companies and actual choices within the funds? We are 32 and will likely be in Australia for at least the next 5 years but who knows- we might just stay forever. Thank you again- I really appreciate that you took the time to comment on this. Are there any Australian blogs like this that you follow that you would recommend?

Instead you choose one of 4 risk categories, and buy just that fund. On the other extreme, Questrade opens up some interesting options for ETFs.

It it one of the cheapest brokers for buying ETFs — in fact it is generally free to buy them. U to do the conversion. So depending on how you use it Questrade can either give you the most expensive or the cheapest currency conversion.

For someone who is uncertain about starting to invest, ING has a lot of advantages. All of those are common mistakes among the type of people who will learn something from this post, and they are all eliminated by choosing the Streetwise funds.

And on a small portfolio the absolute cost of that fee is not very much. Frugal Toque December 16, , 9: Are you saying that instead of paying TD 0. There are plenty of reliable index funds with low MERs. Richard December 16, , Most people can grow to the next level in time but even the few who never do are doing better than they were before.

An investor who starts with ING is most likely going to be behaving in the right way from day 1. When they switch to lower-cost options later it is more likely that they will continue with the right behavior. Ah, I see what you mean. Emily December 14, , 6: I openly admit I have no idea about this investing stuff and recently let a RBC advisor do it all for me. Would transferring the money to TD be a bad move at this point? Would that be the MER they charged!?

Panic attack happening over here. Any input would be great! Money Mustache December 14, , 8: Hi Emily — yes, the sooner you switch over from that ripoff high-fee account, the better. The book shares much of Mr. Richard December 16, , 8: Just reading and following that book will put anyone ahead of the majority of the country.

HealthyWealthyExpat December 16, , 8: Yes, the Millionaire Teacher is an excellent book for those starting out in index investing, and not just for Canadians. The author, Andrew Hallam, lives in Singapore and has a lot of info on his website about expat investing using index funds. In fact, I believe he is currently writing a book on it. Mrs EconoWiser December 15, , Great post Mr Frugal Toque!

There are a lot of similarities to be found in your article for us European investors. However, there are two things I am struggling with and I was wondering whether those would apply to Canadian investors as well. I would love to know your view on these.

Do you invest with American Vanguard funds in Canadian dollars or American? Dividends paid by American Vanguard funds are taxed in the U. How to you go about this withholding tax? Do you fill in a W-8BEN form and reclaim the dividend withholding tax so that you have eliminated double taxation?

These are the two topics that I am struggling with right now. Canadian taxes may have to be paid when the money is eventually withdrawn from the RRSP. The dividends would be taxed as regular income in Canada, but the tax withheld by the US can be claimed as a tax credit in Canada. It gets more complicated when funds hold shares in companies based in other countries, as the tax withheld by those countries may not be recoverable. Can someone explain exactly what the W-8BEN form does?

The actual currency risk tends to average out given two conditions: In that case there is very little currency risk and it actually gives you more diversification to protect you. Personally I think the US market is the highest-quality one but Europe is not far behind. HealthyWealthyExpat December 16, , 9: As you mentioned, you are probably going to retire in Europe, so best to keep your funds in Euros.

In addition, if you change your money into USD, you will lose on the exchange rate going both ways, effectively making your MER much higher. We currently live overseas, but invest in Canadian dollars, as that is the most likely place we will spend at least 6 months of the year when we take early retirement in a few years.

Mrs EconoWiser December 16, , Hi HealthyWealthyExpat, and congratulations on all three bits of your name, cool! It covers the U. The fund is valuated in euros and dividends are paid out in euros as well. The FTSE index algorithms will be doing that for us. This has been addressed on jcollinish but at lot of times, a company administered plan may not even have appropriately low MER fund vailable. I have a separate TD account for e series and intend to gradually transfer from the.

Very annoying to be required to take that extra step. I agree that there is nothing tricky about the TD e-series funds, once you have the account set up. Getting the account opened tends to be a PITA though. When the form has been processed, you can finally buy the funds online. The e-series funds can also be purchased in a TD Waterhouse brokerage account. There is less hassle to open that account, but administration fees may apply depending on the type and size of the account.

And if you open up the TD Waterhouse account, you may as well buy the Vanguard funds and save even more! LL December 16, , 3: Mike December 16, , 6: There are plenty of research sites with free analysis out there, and if an actively managed fund has consistently beaten the market over 1 month, 3 months, 6 months, 1 year, 3 years, 5 years, or even 10 years, sometimes by a factor of tens or even hundreds of percentage points, surely these are financially a much better bet than saving fees of say one percentage point on the index fund?

I use the word bet — nothing is certain, of course. A fund manager with a much better track record than his peers over years and years is worth paying the extra MER for if he repays his fees many time over, surely? There are many dud funds, sure, but you can tell that from the free research. This is just one investment sector — there are dozens of funds in each of all the major investment sectors that seem to consistently out-perform their index, and which therefore seem financially worth investing with and paying the MER.

Although on principle I would like to shun firms charging large fees, as they make me more money than the alternative then I continue to pay. Money Mustache December 16, , 8: When we look at past overperformance, we tend to attribute it to managerial ability and assume it will continue. However, with the benefit of hindsight, the history of this trend has been thoroughly investigated.

It turns out that past performance is no indication of future performance in a mutual fund, and managers all revert to the norm. James December 17, , 2: Is it really simply a misconception and everybody invested in high MERs is a sucker down to the last? Is it that cut and dry when you look at the stats?

Jimmie Jo December 17, , 9: The aggregate performance of all investors is, by definition, the same as the market. I only use index funds, but I do believe active managers can outperform. There are two issues with pursuing that. First you need to work for it.

But you still need to research managers. I think there are more managers than stocks. After choosing one you need to follow them to make sure they are still doing the right things, and find another manager if they leave the fund. In a lot of cases that research is simply low-paid work. The second problem is that there is more risk. The index has hundreds of stocks covering most of the market, so the only way an active manager can get a different result is to have a much smaller number of stocks that is less diversified.

I work hard and take a lot of risks to maximize the amount I can put in my portfolio so the last thing I want is for a manager to make a mistake that jeopardizes it.

I just want steady and reasonable returns. If you have a lot of free time, no way to earn more or reduce your spending, and a strong interest in finance then you might feel differently.

The way indexes behave is different from most investments. Indexes are more likely than other investments to recover their losses, given enough time. Walt December 16, , 9: Those that outperform in one decade underperform in the next. Nothing beats low expense ratio index funds.

Kevin December 16, , 2: Additionally, you have to be careful with the funds that appear to have consistently beaten the market over those periods because: Then at the end of 10 years, when you only have the best performing stock remaining, pretending that all of the money you initially invested was in that stock.

Because in hindsight 7 years gave them the best advantage over the index. Check out JL Collins stock series at: Anyone who tells you different has been sold by someone to their detriment or is trying to sell you to your detriment. RAR December 16, , 7: Alex December 16, , 8: If nothing else, check out their Model Portfolios. All the benefits of extensive research, and none of the work! Potato December 16, , 7: TD e-series are great, especially for smaller investors where it may not make sense to pay commissions for ETFs and also for the added simplicity.

Kenoryn December 16, , 8: Pretty sure that is done by Jantzi Research. RBC likely has to pay Jantzi Research to use that particular portfolio. Michael James December 16, , 8: The MER is charged every year on the same pot of money. A savings of 1. It is this confusion that makes so many people insensitive to the devastating effect of high MERs. Neo December 17, , 6: Josie December 16, , 8: I see a lot of references here to the couch potato plan if you are a Canadian who is investing.

Surely in my 30s this is anti-mustachian? And MMM has stated previously that america is the place to invest in. This is where my confusion originates, what to buy. And since nobody else has mentioned it, Virtual Brokers was the company I picked. They came recommended and were the lowest fees in the business. Money Mustache December 16, , 9: But I would say that buying into only a single smaller-capitalization market like Canada might not be the best strategy.

Research in Motion now Blackberry had a similar rise and retreat. LeBarbu December 16, , A good way to achieve diversification for Canadians where the stock market is quite small and, concentrated in Financials 5 large Banks and Resourses is to include REIT.

The average MER of this is about 0. The home bias sometime make more sense than trying to grab some return elsewhere. Kevin Kane December 17, , LeBarbu December 16, , 9: They have differents approaches but finish with quite similar way to invest with low cost and diversified portfolio wich include Bonds, REIT, Canadian, US, International stock. Aaron Hall December 16, , 9: For people contemplating how to deal with ETF buying commisions excluding questtrade when making regular contributions I might suggest the following system.

Have your regular contributions go toward the purchase of TD eseries funds. When your eseries portfolio reaches a certain value threshold when the MER exceeds the cost to purchase equivalent index tracking ETFs you rebalance by liquidating your position and repurchasing the appropriate ETFs. One is for short term purchasing — to stay in the market and avoid commisions, the other is for long-term sweet glorious compounding. I would also suggest this approach in the initial stash accumulation phase.

If this is all too overwhelming initially. A good partial solution may be to look at ING streetwise funds which are about as simple as you can get in terms of complexity — but at the cost of a slightly higher MER. I know a good many people who simply divert part of their paycheque to the purchase of Canada Savings Bonds… ING streetwise funds might be a good babystep to consider.

Matt December 16, , 9: Great to see more about Canadian investing. I had also come up with the very same conclusion about buying a different ETF every few months.

Would love to see some more basic investing tips like this as I a am a complete beginner. Thanks for the Questrade link… I am following that up so far it is exactly what I am looking for!!! Matt C December 16, , 9: Hi, I just wanted to mention that it is critical to take tax considerations into account when holding non-Canadian market ETFs.

Money Mustache December 16, , Greg December 16, , My colleague was told the precise opposite by his financial advisor i. Greg December 16, , 1: Bond interest is fully taxable as income and therefore bonds should never go into an unregistered account. A very important point to remember, though, is that these tax considerations often amount to 0. So reducing spending, increasing monthly investments, and getting a low MER are the most important things.

The points listed above are only for those people that are determined to optimize every dollar of investment. My Own Advisor December 17, , 7: Dunny December 25, , TFSA — Canadian growth and dividend stocks in attempt to have the highest gains in this account as none of it is ever taxable.

Taxable account — Canadian growth stocks tax is only payable on gains — plus you can net against losses from previous years — when you sell the stock thus avoiding aforementioned OA and age credit clawbacks , some Canadian dividend stocks not ideal as the tax is payable immediately and the dividend gross-up affects OA and age credits.

Mrs EconoWiser December 16, , 1: I Netherlands looked into this as well. You need to fill in a W-8BEN form http: It also depends whether your country has a tax treaty with, in this case, the U. The Netherlands and the U. So dividend taxes are reclaimed back and forth.

I am still investigating this matter. You should know that foreign dividends are taxed at your marginal rate. The other key point is that Canada has tax treaties with the US and many other countries that have agreed to waive withholding taxes on U. Read more at http: