I am new to this site so don't be too critical of me if I ask questions that seem fairly obvious to most people!
I stumbled upon a website earlier in the week letting me know that the mutual funds that I have could be devouring my savings. My investment consultant has always assured me that I've made the best decisions when it came to my funds. But now I'm beginning to realize that the profits that he makes from my investments are more important to him than my long term successes. I'm not saying that he purposely directed me into bad investments but instead, has directed me into investments that have very high fees.
I have three different types of investing with my bank; a TFSA account, an RRSP account and non-registered account. My TFSA account is tied to one mutual fund, my RSP account is tied to five mutual funds and my non-registered account is tied to four mutual funds.
For my TFSA (which consists of 30% of my total investments) is tied to a single mutual fund account that has a MER of 1.44% with a trailing commission of 1% but has no TER.
For my RRSP (which consists of 30% of my total investments) is tied to five mutual funds:
Mutual fund A (which has 20% of my holdings) has a MER of 1.98% with a trailing commission of 1% but has no TER.
Mutual fund B (which has 18% of my holdings) has a MER of 2.80% with a trailing commission of 1% and has a TER of 0.25%.
Mutual fund C (which has 19% of my holdings) has a MER of 1.46% with a trailing commission of 0.5% but has no TER.
Mutual fund D (which has 20% of my holdings) has a MER of 2.48% with a trailing commission of 1% and has a TER of 0.06%.
Mutual fund E (which has 23% of my holdings) has a MER of 2.75% with a trailing commission of 1% and has a TER of 0.06%.
For my non-registered accounts (which consists of 40% of my total investments) is tied to four mutual funds:
Mutual fund A (which has 24% of my holdings) has a MER of 1.08% with a trailing commission of 0.5% but has no TER.
Mutual fund B (which has 20% of my holdings) has a MER of 2.75% with a trailing commission of 1% and has a TER of 0.25%.
Mutual fund C (which has 25% of my holdings) has a MER of 2.75% with a trailing commission of 1% and has a TER of 0.07%.
Mutual fund D (which has 31% of my holdings) has a MER of 1.98% with a trailing commission of 1% and has a TER of 0.02%.
All of the mutual funds that I've mentioned above were all available on a no-load basis. I've been trying to find information about the DSC of these funds but I could not find any. I should also note that my investment firm may charge me a 2% switch fee if I decide to move onto different mutual funds. Over the last two years, I think I've switched around my funds at least 5 times so I'm sure I've been charged fees many times. My advisor has said, "Don't worry about fees...because you will never see them."
For all of these mutual funds, I currently have pre-authorized purchase plans that puts money into these accounts on a weekly basis. For my TFSA mutual fund, I currently send $96 to this fund on a weekly basis (this reaches $5000 by the end of the year). For my RSP accounts, I send $25 to each of my five funds on a weekly basis (I top it off at the end of the year to reach my RSP contribution limit). For my non-registered accounts, I send $75 to each of my four accounts on a weekly basis. My investment advisor says it's a good idea to be making these frequent purchases on all of these accounts because I am getting the best value doing it that way. I never questioned him because he is the investment advisor but now after reading up on this, I don't think it's such a good idea. According to an article on Squawkfox, selling or buying funds at a rapid pace will cost someone dearly in commissions. With all of these pre-authorized purchase plans that I do, buying into these funds with a small amount of cash will cost me a hefty commission with a humble investment to show for it. Am I understanding this correctly?
When selecting mutual funds, I've always looked at long-term performance. Generally, I would come to my advisor with a list of mutual funds that interested me and we would go over them and see which ones best fit my risk tolerance. Since I'm still young, I've always told him that my focus is long term growth so he suggested that maybe I should go into funds that had a moderate to high risk tolerance. He assured me that putting money into equity, for example, will have a better potential for growth than putting it into bonds. With that said, I do have a pretty diversified portfolio (with 10 mutual funds, I would hope so!) but for the most part, the funds haven't performed as exceptional as I've wanted to. Four of my ten funds are sector funds and I have found them to be the most volatile of them all (they happen to be the ones with the highest MER). Speaking of MER, when selecting funds a while back, I asked what MER meant and my advisor told that these funds are better managed funds and how that should be one of the more important factors when selecting funds. Also, I asked about index funds and he told me right away that I do not want these funds. Since he brushed them off so quickly, I didn't really think of asking more about it.
This article that I read from Squawkfox led me to the website Couch Potato, which promotes a passive investing approach that has a focus on index mutual funds and exchange traded funds with very small fees. I'm beginning to understand that the less I pay in fees, the more that's left for my funds to grow. This is the approach that want to start trying but I'm feel that I might have to dig myself out of a hole first with all of these funds that I have.
It turns that TD (the bank that I am with) offers a series of index mutual funds that have been recommended by Couch Potato. Today, I was tempted to go to the bank and just switch all of my current funds to index funds but then I thought that it would be best to not panic and instead, gather as much knowledge/information first and then make the necessary changes. In addition, I eventually will want to get ETFs so doing this quick change might not benefit me long term. It appears that it would make most sense to open up an Discount Brokerage account with TD Waterhouse because then I will be able to do a lot more with my money. Also, if I choose to stay with TD, perhaps they wouldn't give me a hard time transferring my money from TD Mutual Funds to TD Waterhouse. Would TD give me a hard time and charge me egregious fees if I wanted to move all of my investing to another company like Questrade?
For fun, let's say if I stayed with TD and opened a Discount Brokerage account with TD Waterhouse. Let's imagine that I transferred my entire RRSP into a new account with TD Waterhouse, would that count as a new contribution into my retirement plan or is it merely a switch? Same question goes to my TFSA as well. As for my current non-registered accounts with TD Mutual Funds (where I have most of my investing), it seems like the only place I would be able to put this money would be into a Direct Trading account. Would I still be able to hold non-registered mutual funds accounts with a Discount Brokerage account or would I have to put this money into exchange-traded funds? I read from Couch Potato that it's smart to invest into ETFs if your portfolio is greater than $50,000. My non-registered accounts alone are not greater than 50K. If it's not smart to put that money into ETFs and if I can't set up non-registered mutual funds with a discount brokerage, should I either: A) Leave the money alone in in my current TD Mutual funds accounts with high fees or B) sell the funds and move them into a saving accounts? Both options that I've provided don't seem like good solutions. If I made some statements in this paragraph that doesn't make the most sense, could someone provide some clarify for me?
On the Couch Potato website, model portfolios have been provided for those who want to adapt their strategy. Option 2 in the Global Couch Potato section seems like a simple starters portfolio that I would be able to obtain. They're the TD e-series index funds that have a 40% focus in Canadian Bonds, a 20% focus on Canadian Equity, 20% focus on US equity and 20% focus on International Equity. Let's pretend that I only switch over my TD Mutual Funds TFSA and RRSP accounts over to TD Waterhouse Discount Brokerage accounts. Should I adapt this strategy for both my TFSA and my RSP accounts? That would be a total of 8 mutual funds. It looks like according to Couch Potato, the weighted MER of the portfolio would be divided through all of my accounts, not individually. I wonder if this also works for my current accounts with TD Mutual funds. For example, my five RSP mutual funds have the following MERs: 1.98%, 2.80%, 1.46%, 2.48% and 2.75%. Does that mean that because they're in the same portfolio, all of the MERs will be averaged out for my fees? Or am I still paying individual MERs for each fund? These details from Couch Potato have confused me here.
All in all, considering all of the information that I have provided, should I consider switching over my current mutual funds to index funds and start working my way into becoming a coach potato? Yes, I know I still have a lot of learning and reading to do but I just want to be pushed into the right direction. I know I wrote quite a bit here but if someone can be gracious enough to provide me some unbiased financial advise, it would be greatly appreciated. If necessary, I can try to provide more information if need be.
I want to be as wise as possible with my money and don't want to be doing things that might be jeopardizing my future.
thank you very much in advance.