# TD e-Series vs ETF



## rheroux (Mar 31, 2014)

Hi, first time poster so I hope this isn't too simple of a question (and I hope I make sense). 

I currently have a self-directed RRSP account with TD Waterhouse. I have my portfolio balanced equally across four e-Series funds:

- Canadian Index
- US Index
- International Index
- Canadian Bond Index

I contribute twice per month (automatically as I get paid) and then split my contributions across those funds and typically rebalance maybe every three months. My total portfolio value is north of $25K but sub $100K.

I know that e-Series are no load so I can freely purchase and re-balance with no costs which is nice. My questions are:


At what portfolio size would you start purchasing traditional lower MER ETF index funds?
Currently I believe Questrade and Virtual Brokers don't charge to buy ETFs just to sell them. So, for someone like me who likes to make the contributions automatic I'd almost have to switch to one of those two when it comes time to "grow up" and purchase standard ETFs as if I stick with TD (or RBC DI, etc.) I'd be paying $9.99 even just to purchase more ETF funds. Am I right about that?
Since the cost to re-balance is quite significant with standard ETFs ($9.99 per each sale assuming I have my portfolio with Questrade or Virtual Brokers) do most people re-balance one per year? Twice per year?

I guess what I'm struggling with the most is my first point. At what portfolio size will the savings on the lower MERs (i.e. a Vanguard ETF) offset the cost to rebalance?

Thanks for reading to this part if you did.


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## Echo (Apr 1, 2011)

Don't feel you need to "graduate" from E-Series funds to ETFs. Your strategy seems to be working for you - why tinker with it?

http://www.boomerandecho.com/td-e-series-funds-just-beginners/


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## Intricated (Dec 14, 2012)

An article and spreadsheet from Canadian Couch Potato on the subject may be useful. You can change the funds/MERs (and Excel formulas if needed) to align to the ETF scenario(s) you are considering to compare to your current e-Series approach.

Without seeing/running all the numbers, I agree with Echo: you seem to be on a good track, I wouldn't worry about 5-20 basis points of MER savings (before trade/account) fees on a sub-100k portfolio, especially if you trade/rebalance often. If you do sell off your e-Series, keep in mind that although there are no loads, there is still a 30 day early redemption fee (which also applies to any reinvested dividends) you may want to time a transition around.


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## rheroux (Mar 31, 2014)

Great, thanks for the feedback. Seems I'll just continue on the e-Series track which is what I thought was the right thing to do!


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## Soon Forget (Mar 25, 2014)

Hi rheroux,

I'm with TDW paying $9.99 per trade and also at the point where I want to switch my e-series to ETFs. The threshold amount I have in mind to make the switch for each component is when the difference in MER's between products will cover the commission cost in ~6-9 months.

The difference in MER's for most is around 15-20 basis points (for example TDB900 0.33% ---> VCN 0.14% or TDB902 0.35% ---> VUN 0.17%). Assuming a difference of 20 basis points, a $10 commission paid to switch $10K would be recovered after 6 months. If switching $5K it would take 1 year to recover that $10 commission.

Once making the switch, I plan to put new money back into e-series until each component reaches the threshold again so I'm only paying a commission on each component likely every few years. Any rebalancing that needs to take place would be done by buying/selling the e-series commission free and letting the ETFs DRIP.

That's the plan for now anyway. If commissions or MERs change, I would revisit.


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## andrewf (Mar 1, 2010)

When comparing costs, it's probably best to look at the most efficient way to implement ETFs. It can be done with perhaps 4 trades a year. Make regular contribution as often as you like to the account, and quarterly buy the ETF that is most underweight. So, $40 a year to implement, which at 30 bps spread in MER would be covered by $13,333 in assets.

You don't really need to rebalance every 3 months. Once per year is plenty, and if you are buying the most underweight asset, you'll be rebalancing each time you buy.


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## richard (Jun 20, 2013)

ETFs do take more work to buy and manage. If you arrange things so you're only buying once a month, then even at a more expensive brokerage that costs you $120/year. You can compare that to the difference in MERs based on your portfolio size. By using those contributions the right way you could wait 1 - 2 years to rebalance.

Aside from the cost advantages and the extra work, ETFs also give you more selection if you want to diversify your portfolio. Still for small portfolios that doesn't make much difference. It's not really an urgent change for you right now.


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## eulogy (Oct 29, 2011)

ETFs are cheaper, but more complicated. I think if you like it super simple, auto pilot, just stick with e-series. For a lot of people that's the end of the equation.

I went from e-series to ETFs last year. I make two to three transactions a year, which makes it cheap. I don't rebalance, unless it got way too far out of line (let it roll strategy).

I think you just need to look at how you are as an investor. If having it setup, easy and automated is what you need, go with e-series. If you're attentive and want to get the cheapest possible costs, you can investigate ETFs and how you'd like to approach them.


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## Siwash (Sep 1, 2013)

I'm in a similar boat… when is it required to switch over? And, can you not just simply stay with e-Series funds indefinitely? Can you not build a considerable retirement fund through the e-Series? thanks


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## Eclectic12 (Oct 20, 2010)

... the downsides to staying eSeries that I can think of are higher costs and smaller selection range.

But compared to other options out there (ex. expensive MER MF or being a bad stock picker), IMO if it works, sticking with it is fine.


Cheers


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## richard (Jun 20, 2013)

e-Series will do better than 90% of investors (if you don't act like 90% of investors). No need to feel bad about that.


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## andrewf (Mar 1, 2010)

There are some inherent tax disadvantages to MFs (large capital gains distributions due to fund flows), but they are more relevant in taxable accounts.


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## Siwash (Sep 1, 2013)

Would you keep e-Series in registered or non-registered accounts?


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## like_to_retire (Oct 9, 2016)

TD Asset Management introduces new ETFs

The new funds include:

TD Income Builder ETF

TD Active Global Real Estate Equity ETF

TD Q Global Multifactor ETF

TD Canadian Long Term Federal Bond ETF

TD U.S. Long Term Treasury Bond ETF

TD Active U.S. High Yield Bond ETF

TD Active Global Income ETF

TD Q Canadian Dividend ETF

TD Q Global Dividend ETF

TD Q U.S. Small-Mid Cap Equity ETF

ltr


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## Eclectic12 (Oct 20, 2010)

Siwash said:


> Would you keep e-Series in registered or non-registered accounts?


I'd go with the TFSA first (no Canadian taxes).

Depending in income levels, it might be the RRSP or it might be a non-registered account.


Cheers


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## Topo (Aug 31, 2019)

Assuming an MER difference of 20 basis points, an asset base of 20,000 will cover 4 trades per year and 60,000 will cover 12 trades per year. In retirement, it is likely you can get by with one or 2 trades per year. Keep in mind the 20 basis points savings could be ongoing as long as you are invested.

One way to reduce your trading costs would be to consider asset allocation ETFs such as VGRO or ZBAL. All you need to do is pick the asset allocation that fits you; the rebalancing is done internally and automatically with minimal cost to you. If TD allows synthetic drips, you can set up a synthetic drip and add just add new moneys quarterly (or monthly). Given you are investing in an RRSP, there is no need to track the adjusted cost basis.

P.S. Rookie mistake! I just realized the OP posted in 2014. The asset allocation ETFs are pertinent to investors today.


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## Topo (Aug 31, 2019)

Siwash said:


> Would you keep e-Series in registered or non-registered accounts?


I would preferably keep them in registered accounts, particularly if using the re-investment options.


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## Eclectic12 (Oct 20, 2010)

Topo said:


> ... P.S. Rookie mistake! I just realized the OP posted in 2014 ...


Apparently we are both rookies!!


Cheers


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## james4beach (Nov 15, 2012)

e-series is perfectly good. I think it would be easier to handle the tax reporting and ACB tracking with e-series in a non registered account, compared to doing the same with an ETF

Another use of the e-series is to take care of residual cash balances including dividends. You can easily buy arbitrary amounts with a mutual fund, so one thing I've done in the past is take stray cash/dividends and put them into e-series Canadian index. Once it becomes a large enough amount, then move it to an ETF.

If this is a TFSA or RRSP, still fine with e-series but once you get near $10,000 I think it makes sense to move the money into an ETF. And inside these shelters you don't have to worry about complicated tax tracking/ACBs


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## humble_pie (Jun 7, 2009)

Topo said:


> I just realized the OP posted in 2014.




the question remains as valid in 2019 as it was in 2014 though. 

at what dollar portfolio size should one transition from index e-funds with their slightly higher MERs to equivalent ETFs with slightly lower MERs but with commissions to buy or sell, goes the question.

however i don't see why an investor would not continue to do both. Use the greater part of the capital to buy-&-hold long-term ETFs according to the chosen allocation. As the year passes, don't buy more. Don't re-balance.

instead, do this: keep the smaller portion of the capital invested in equivalent index funds according to the chosen allocation. This is where the investor will contribute new cash from his paycheque.

many cmffers have mentioned over the years that the easiest form of re-balancing is to commit new money to buy the laggard(s). This is what our investor can do, in his gateway index e-fund account.

once a year, investor can sell a portion of his winner index e-funds & use the proceeds to buy additional ETF shares in his permanent portfolio. Again, buy one or two laggards.

maximum $20 - 30 in commissions, once a year. It doesn't get more frugal than that.


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