First timer- ETF's- meeting with bank this week!

[thebomb]

Hi everyone, well I have posted a couple of times now. I am totally a newbie to taking control of my own money (investing). I currently have my RRSP's all in mutual funds. They dont excite me (dont get me wrong- if they generate steady $ then not looking for excitment aside from that). I am young- (early 30'ish) the main breadwinner with a husband that is frugal but not overly interested in 'investing' type conversations- hence my joining this forum! I am particularily skeptical of the bank having any interest in my future and as such want to take greater control of my $. I am too scared to go out and play the stock market, but have read with interest on this site about ETF's. I have a meeting with my bank this week to go over where to allocate my bonus, I cashed out 9k and will be investing 10k. Not sure if I am allowed to post links to my banks info site- I will but go ahead a delete if this is against forum rules. I guess what I am looking for is...in your opinion is this the right way to go? How actively do I need to manage an ETF? I am comfortable with some risk. Is the information posted here a good summary? What else should I be asking or be weary of at the bank meeting?

Thanks in advance

https://www6.royalbank.com/education...ded-funds.html

[Spudd]

You need a brokerage account to buy ETF's. But basically they're very similar to mutual funds, it's just that the annual fees (MER) are usually lower (but there is a commission fee to buy/sell just like there is for stocks).

You don't need to manage them any more actively than a mutual fund as long as you're buying plain index ETF's. There are some crazy ETF's out there but just stick to the basics like Canadian index, US index and you'll be fine.

[Xoron]

If you want low cost, and easy management, then look at the Canadian Couch Potato website for model portfolios:

http://canadiancouchpotato.com/model-portfolios/

Dan (the blogger of the site) gives a few model portfolios, some using ETFs, some using TD E-series funds.

Basicially, the portfolios try and track the major indexes, with the lowest costs possible.

[DanFo]

I'd expect the person at the bank to argue hard for you to buy their mutual funds since they make a lot of money off of them and make only the commisson for the trade off of an etf ...

[MoneyGal]

I'd expect the person at the bank to argue hard for you to buy their mutual funds since they make a lot of money off of them and make only the commisson for the trade off of an etf ...

This doesn't necessarily make ETFs the winner. Say the trading fee is $36/trade, and say we're looking at a holding period of 5 years (these are fairly arbitrary numbers).

DSC commission on $10,000 investment into mutual funds = $10,000 * 5% = $500 at investment; no additional commissions unless new funds are invested

Trading commission on same investment into ETFs = 4 trades x $36/trade x annual re-balancing = 4*$36 = $144 per year * 5 years = $720

You can play with the numbers a million ways; my point is just to show that paying commissions doesn't necessarily mean "paying less in fees" over time.

[the-royal-mail]

It would be my recommendation to CANCEL the meeting with the bank at this time. This is RRSP season and we've seen a few threads lately where young people are being invited into the lion's den and being sold a "balanced" portfolio of high-MER MFs. This is not the right thing for you to do, based on what you've written. If you want to take control of things and learn, it would be my suggestion that you do so right here in CMF, asking questions, reading threads from other situations similar to yours and other such basics. You won't learn anything by meeting at the bank at this point.

I do like index funds as they have low fees but I like GICs, HISA and cash balance TFSAs as their fees are even lower/non-existent. I'm not saying those are the best options for you but I'm saying you need to step back and take a much bigger picture look at this.

And also to consider your overall financial health. Do you have an emergency fund? Are you good at managing money? Because to me, these are the ways to take control of your money and IMO need to be put in order long before you get serious about investing. In other words, learn to walk before you can run.

[financialnoob]

Just a minor thing, but for this amount, you want to consider index funds instead of ETFs.

CanadianCouchPotato.com: Should You Use Index Funds or ETFs?

[DanFo]

It'll be up to you to decide what's better between a low MER fund or an etf..With only 10K your trade commission costs will prob be the decider and a fund could win out. ( I do e-series for my regular contributions into my RSP)

What Royal says is true.... the banks are pushing for investments before the end of the month. I had a msg on my machine Friday after work to call the bank before the end of the month...humm I wonder what that could be for??

[thebomb]

It would be my recommendation to CANCEL the meeting with the bank at this time. This is RRSP season and we've seen a few threads lately where young people are being invited into the lion's den and being sold a "balanced" portfolio of high-MER MFs. This is not the right thing for you to do, based on what you've written. If you want to take control of things and learn, it would be my suggestion that you do so right here in CMF, asking questions, reading threads from other situations similar to yours and other such basics. You won't learn anything by meeting at the bank at this point.

I do like index funds as they have low fees but I like GICs, HISA and cash balance TFSAs as their fees are even lower/non-existent. I'm not saying those are the best options for you but I'm saying you need to step back and take a much bigger picture look at this.

And also to consider your overall financial health. Do you have an emergency fund? Are you good at managing money? Because to me, these are the ways to take control of your money and IMO need to be put in order long before you get serious about investing. In other words, learn to walk before you can run.

Thanks Royal- I have to admit that I am hesitant walking into the bank because they talk to me like an idiot and try to get me roped into what they want- atleast I am cognizant of us, but it is nauseating nonetheless. The 10k is already earmarked for some sort of RRSP. I already made this election at work and the money is on its way to the bank- I need to decide how to allocate it. I cashed out the remaining 9k to pay off the remaining debt that I have- along with some for savings. I will be using the refund for some work to get done on the home. As for your question on the emergency fund- yes I have some cash set aside in a TSFA. As for whether I think I am ok at managing money- I suppose- although I am really hard on myself when it comes to whether I am 'good enough'! I hate to say it, but as the main breadwinner (by a very healthy margin) and as a female (who would like to have kids eventually) I feel like I have no choice but to be good with my money. We have our principal residence which will be paid off by the time I am 40 and we have a solid rental property that we have significant equity in as well and will be paid off when I am 55. Quite frankly...we are frugal. I constantly fight the urge to keep up with the joneses, but they are all in debt up to the wazoo, but drive fancy cars and live in huge mansions....but that's ok, I sleep good at night (sorry- I am veering off track!!!)

So perhaps it might be best to put the money somewhere 'safe' for now?? GIC? Then when I get more informed make a move?

Thanks everyone- I really don't have many people I can talk to about this- as they get an 'oh poor you, dont know what to do with your money' look on their face.

[OptsyEagle]

I am totally a newbie to taking control of my own money (investing). I currently have my RRSP's all in mutual funds. They dont excite me (dont get me wrong- if they generate steady $ then not looking for excitment aside from that).

Just so that you have your eyes wide open for this. ETFs would not have excited you much more over the same time frame since they would not have provided anymore steady $.

Your problem has been the performance of the stock market, not the mutual fund. A savings of 2% or so in MERs can add a considerable amount over a very long time frame, but it would not have done that much over the time that you have given it. When you add to the fact that you will most likely attempt to manage it, I suspect you will lose the 2% advantage quickly as you learn from your mistakes.

Again, I just want you go into this with your eyes wide open. Good luck to you.