# ETFs for RRSP



## wuinvestor (Mar 23, 2014)

Hi everyone,

About 2 years ago I decided to convert my mutual funds in my RRSP to ETFs instead. I went with the assertive portfolio from Canadian Couch Potato: 25% ZAG, 25% VCN, 50% XAW. This seemed like a good idea to me in that it's a long term investment for which I don't have to pay very close attention, because it will generally go up over time. 

I can contribute about $300 / month (sometimes more) given my expenses, only choosing to buy once I've built up at least $1000 to offset the $9 transaction fee per buy.

I usually buy in such a way as to main the 25/25/50 weighting so I don't need to re-balance (I think that makes sense).

My question is, do you think it's a good idea to _only_ go with ETFs in my RRSP?

Thanks,

- Ryan


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## james4beach (Nov 15, 2012)

Those are small purchases, so you may consider "buffering" the money in mutual funds as a temporary placeholder in between ETF purchases. Are you using a discount brokerage? These generally offer cheap access to mutual funds.

You could send the incremental contributions into index mutual funds or even a good generic balanced mutual fund (link to thread), so any new cash (or distributions from funds) is immediately deployed -- this avoids cash drag and _keeps all money invested_. Once you reach a few thousand $ and are past the 'early redemption' penalty period for the mutual funds, you'd sell the mutual fund and buy the ETF.

The ETFs would continue to be your primary investment, with the mutual funds just as a helper for managing small amounts of money and avoiding cash drag. If you can share which brokerage you're using, I'm sure people can point you to some good mutual fund/index fund options.


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## wuinvestor (Mar 23, 2014)

Thank You. I use RBC Direct Investing for my RRSP /ETFs. 

Can you explain more what you mean by "cash drag"?


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## james4beach (Nov 15, 2012)

wuinvestor said:


> Thank You. I use RBC Direct Investing for my RRSP /ETFs.
> 
> Can you explain more what you mean by "cash drag"?


The couch potato approach (asset allocation) assumes that all the money is continuously invested in the targeted assets. Cash drag is the performance drag or performance loss caused by having uninvested cash. It's not horrible, it's just a performance loss. If you use a mutual fund as a tool to immediately deploy any available cash, you should get a higher performance overall -- even if the mutual fund has a high MER compared to your ETFs.

Or to put it another way: cash performs worst, mutual fund performs better, ETF performs best.

Does anyone know if RBCDI has any low-fee index mutual funds that have no trade costs and small $ minimum investments?


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## james4beach (Nov 15, 2012)

I think your best bet will be GGF31704 - BMO Growth ETF Portfolio D. The MER is 0.90%. It holds 20% bonds, 25% Canadian stocks, 55% US+International stocks which is almost identical to your allocations. It has a $500 minimum initial investment and $50 for subsequent additions.

This is available at RBC DI, and should let you stay fully invested at your target allocations even if you just add $50 to your account. For the ETF purchases, you'd probably want to wait for the mutual fund to accumulate to over $5000 before you start paying the ETF commissions as you have to buy 3 of them at $10 each.


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## wuinvestor (Mar 23, 2014)

Thanks a lot James . I'm going to look into that ETF as a "holder" account until my the money grows to the right amount.


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## wuinvestor (Mar 23, 2014)

So just to clarify, it would make sense for me to own the GGF31704 - BMO Growth ETF Portfolio D mutual fund as part of my RRSP funds. I would contribute to this fund until it hit a certain mark, say 5k. Once it hits this certain mark, I could take the funds from this mutual fund and buy my couch potato ETFs in the correct ratios. This way my money is always growing in some way rather than sitting in cash. 

Correct?


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## james4beach (Nov 15, 2012)

wuinvestor said:


> So just to clarify, it would make sense for me to own the GGF31704 - BMO Growth ETF Portfolio D mutual fund as part of my RRSP funds. I would contribute to this fund until it hit a certain mark, say 5k. Once it hits this certain mark, I could take the funds from this mutual fund and buy my couch potato ETFs in the correct ratios. This way my money is always growing in some way rather than sitting in cash.
> 
> Correct?


I think that's right, but do your own research. You'll want to double check that the allocations of that mutual fund match your own ETF allocations.

I'm also hoping someone else can weigh in on this thread so you're not just getting my opinion. Maybe someone will come along and add something, or a different suggestion


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## gardner (Feb 13, 2014)

My instinct is that using a bank mutual fund as a temporary holding area for investments before periodic rebalancing into lower-cost ETFs is a sound strategy. It is resistant to neglect also; this is the main thing that I have trouble with -- leaving an investment originally intended as a temporary one, to rot for years. By using a good balanced fund you avoid having money sit in something like a money-market fund.

Two things about this fund I would look into:

The minimum amount to buy is $50, which is likely not a problem, but something to be aware of.
There are fees if you sell or "switch" funds within 30 days of buying, so you'd want to avoid buying units in the weeks leading up to your re-balance plans.

I would have a think about the trading logistics a bit. On rebalance day you're going to have to plan your ETF buys, sell the appropriate MF amount (plus a little extra) to cash, then wait overnight or two days for the trade to complete. Then do all the intended ETF buys, possibly adjusting the number of units a bit if the prices moved, and finally put the surplus odd cash back into the MF -- if its >= $50.


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## james4beach (Nov 15, 2012)

I agree, watch out for those minimum holding period penalties and the steps to transfer $ into the ETFs, when that time comes.


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