# Advice for my little brother



## LateStudent (May 28, 2009)

I want to help my little brother get on his feet financially. He's 34, 16 years younger than me. The problem is, I'm just learning myself; I've been in Altamira funds for 20 years, and am planning to switch to ETF's with a reasonable asset allocation and re-balancing. But I'm just learning about this stuff myself! It's like being a teacher who's studying to keep just one step ahead of the student. Anyway, I want bro to have a more solid start than I did. Here's what I plan to tell him initially:

"I suggest you look into TD e-Series mutual funds. These are "index" mutual funds, and have the lowest price of just about any mutual funds available. Index funds just follow established market indexes, and usually beat most other more managed funds most of the time, since it turns out that in a market with a lot of educated players, nobody can make better guesses about market movements than anyone else. Here's a couple of links for the TD funds:
- a listing of them: www.tdcanadatrust.com/mutualfunds/tdeseriesfunds/mer_diff.jsp
- what they are: www.tdcanadatrust.com/mutualfunds/tdeseriesfunds/help_eseriesfunds.jsp
- all the (too much) detail in the "Index Funds" prospectus: www.tdcanadatrust.com/mutualfunds/dprospectuses.jsp

Their main advantages are:
- cheap (very low MERs. Keeping in mind that it is realistic to expect only around 4% return after inflation, so a 2% MER will eat HALF of your expected return. So although a difference in 1/2% annual fee doesn't sound like much, it actually *is*.)
- you can add to them without paying any fees, including automatic monthly purchases if you want
- you can move them around to rebalance your portfolio without paying any fees
- they're a big enough family that you can construct a reasonably diversified portfolio

Later, you should consider even cheaper index ETFs, but hold off on this idea until your portfolio has grown bigger (this is because there is a brokerage fee to buy them, so you generally only want to do it with bigger blocks of money). "



...is this good advice? Is the TD fund family the best choice for now (I've no experience with them personally)? Is there anything else I should be telling him???

If you have comments, Thanks in advance!!!


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## OntFA (May 19, 2009)

While it's not my first choice, TD e funds are a good option if you're looking for a hassle-free and convenient way to start investing. But they're not just for small investors. Their fees are low enough to keep accumulating in those funds for a very long time. Remember that you can reinvest without additional direct or opportunity cost which is usually not the case with ETFs.

Don't get too hung up on the 4% real return calculation. Sounds like you've been doing some reading since that's a common figure that is tossed around. Ultimately, what you can realistically expect will depend on how much risk you're willing to take and, in turn, how you end up dividing your assets between stocks bonds and cash - and more importantly how much you fiddle with the strategy over the years.

Many talk about fees but investor behaviour can easily have a much larger impact on your bottom line returns.


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## ethos1 (Apr 4, 2009)

LateStudent said:


> I want to help my little brother get on his feet financially. The problem is, I'm just learning myself;
> 
> I've been in Altamira funds for 20 years, and am planning to switch to ETF's with a reasonable asset allocation and re-balancing. But I'm just learning about this stuff myself!
> 
> ...


You are recommending this to a relative not knowing fully what you are recommending & saying that you're just learning youself

Well its a tough call, especially brother-to-brother, it needs some further investigation I'd say, especially if your brother follows your recommendation and it goes the wrong way

Although, TD series funds - I suppose are OK, not something I would do 

Good luck


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## AdamW (Apr 22, 2009)

If your brother is just starting off investing and saving then your goal should be to help him create a saving strategy and stick to it. 

Making regular investments to an RRSP, TFSA or other accounts will be much more important to him in the first few years than the individual investments he picks. Looking to go via low cost index mutual funds will help as he can set up regular purchases directly out of his account.

Whether or not, in the end, they will end up being the best investment will depend on how much risk he wants to take and how involved in the process he wants to be. Claymore is now offering purchase plans on a few of their ETFs so he can even skip the step of accumulating in index funds before buying index ETFs in some cases.

I think your guidance should really be towards getting him in the right habbits at first, don't focus too much on the investment decisions and costs. They shouldn't be completely disregarded but to me they aren't your brothers main problem if he is 34 and hasn't started developing good saving habits yet.


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## LateStudent (May 28, 2009)

thanks for the responses!!

OntFA, if not TD efunds, what are good alternatives? I'm thinking of a family of no-fee cheap diverse index mutual funds, but maybe there are other alternatives for a beginning investor to start building a portfolio? hmmmm.... what... ?

ethos1, we've talked and he understands the risk/uncertainty and is comfortable with that, especially given his long horizon. ps, this IS the further investigating, at least the start of it! If you have suggestions, please bring 'em on 

AdamW, I actually don't think he'll have trouble saving. He's frugal & intelligent and has never had debt problems, or anything like that. It's just that he's just recently got a very promising steady income, never had this before having been a bit of a student/free spirit up to now. He's got a pretty good grasp on what it might take to secure his financial future (we set up a spreadsheet to project/track his lifetime progress). At this point, we need a good place to put his current & future savings... know anything good besides what I was thinking of? (I'll see exactly what's available @ Claymore)

thanks again, amazing forum


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## AdamW (Apr 22, 2009)

LateStudent said:


> AdamW, I actually don't think he'll have trouble saving. He's frugal & intelligent and has never had debt problems, or anything like that. It's just that he's just recently got a very promising steady income, never had this before having been a bit of a student/free spirit up to now. He's got a pretty good grasp on what it might take to secure his financial future (we set up a spreadsheet to project/track his lifetime progress). At this point, we need a good place to put his current & future savings... know anything good besides what I was thinking of? (I'll see exactly what's available @ Claymore)
> thanks again, amazing forum


Good to know that he'll be able to do it, lot's of people stumble on that. In terms of individual investments I think that the TD efunds would be fine to start off with. The goal would be to have him invested until he accumulates enough funds to buy an individual ETF so you just want something low cost and easy to set up on the preauthorize purchase plan.

But if you are eventually going to use ETFs and you like Claymores line up check out they new system (link below):

http://www.claymoreinvestments.ca/etf/investment-services/pacc

The minimum amount seems to be $50 so you might be able to skip TD efund as a middle man to accumulation sufficient amounts.

Hope that helps!
A.


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## msimms (Apr 17, 2009)

LateStudent said:


> I want to help my little brother get on his feet financially. He's 34, 16 years younger than me. The problem is, I'm just learning myself; I've been in Altamira funds for 20 years, and am planning to switch to ETF's with a reasonable asset allocation and re-balancing. But I'm just learning about this stuff myself! It's like being a teacher who's studying to keep just one step ahead of the student. Anyway, I want bro to have a more solid start than I did. Here's what I plan to tell him initially:
> 
> "I suggest you look into TD e-Series mutual funds. These are "index" mutual funds, and have the lowest price of just about any mutual funds available. Index funds just follow established market indexes, and usually beat most other more managed funds most of the time, since it turns out that in a market with a lot of educated players, nobody can make better guesses about market movements than anyone else. Here's a couple of links for the TD funds:
> - a listing of them: www.tdcanadatrust.com/mutualfunds/tdeseriesfunds/mer_diff.jsp
> ...



e-funds are good, they are some of the cheapest index non-etf funds you can find. you can invest in the bond index component, as well as exposure to various equity indices around the world. And re-investment is commision free (and if you invest directly with TD, no commisions to buy the e-series fund). 

Simple and cheap (at least cheap for Canada).


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## OntFA (May 19, 2009)

LateStudent said:


> OntFA, if not TD efunds, what are good alternatives? I'm thinking of a family of no-fee cheap diverse index mutual funds, but maybe there are other alternatives for a beginning investor to start building a portfolio? hmmmm.... what... ?


I almost always recommend that beginning investors start with nothing more than a basic balanced fund. One fund, nicely diversified. Reasonable fees.

If starting with a more modest amount of savings, one of the best options is RBC Monthly Income which you can buy from any branch of RBC Royal Bank. They will try to sell the fund of funds or RBC portfolio funds but best to just stick to the cheap simple stuff.

If he's a bit more daring and has a few more bucks (at least $5k), he can do even better with a fund like Mawer Canadian Balanced RSP fund which can only be had for a $5k minimum if bought through a brokerage account (like TD Waterhouse Discount or Scotia iTrade). Now, it's as easy as that but understand the irony in that it requires a great deal of knowledge and experience to know that this is the best way for a novice to start. And it may well be a good option until his savings reach well into the six figures. I'm not kidding. Lots of people do a lot worse than a good cheap balanced fund.

You don't know me but take this advice seriously.


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## mfd (Apr 3, 2009)

for the guys at work who ask me how to start I generally tell them to put their money into the ING street wise funds. This is simple and straight forward for a beginner. I then tell them once they get $20 to $30k they can think about shifting to the TD e funds and eventually move into etfs. The complexity increases as they get more knowledgeable and have gotten use to the fluctuations in the market


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## ethos1 (Apr 4, 2009)

mfd said:


> for the guys at work who ask me how to start I generally tell them to put their money into the ING street wise funds. This is simple and straight forward for a beginner. I then tell them once they get $20 to $30k they can think about shifting to the TD e funds and eventually move into etfs. The complexity increases and they get more knowledgeable and have gotten use to the fluctuations in the market


I agree with _*mfd*_ that start slow and easy, know the ROR, yield expectations & risks involved, since not everyone has the same tolerance level nor the understanding of the what could turn out to be high risk or even higher MER's

On ETF's I could throw in the _*iShares CDN S&P/TSX 60 Index Fund 'XIU'*_ - buy it then sell covered calls on this ETF at the money long. Then all being well its possible on a one year term to yield better than 10%

Then there are other complex investing methods which are way too much for those starting out


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## geewilickers (May 21, 2009)

This is a good beginners thread. Can we make a stickied beginner thread that links to all other beginner threads?


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## OhGreatGuru (May 24, 2009)

*Focus on the Strategy, not the Tactics*

The discussion with your brother should focus on why, after 20 years of (presumably disappointing) experience with managed funds, you came to the conclusion that index funds are a better strategy. So brush up on those arguments. And give him web or printed references on the subject so he can check it out for himself - he needs to convince himself, not just do it because of your opinion.

The specific index funds he then chooses are tactical decisions, and secondary. You can tell him you like the TD e-funds for their low MER and they cover the necessary sectors adequately. But there are other choices, such as ING Streetwise funds, and most to the bansk have index fudns now. As someone else mentioned, if he doesn't have much money to invest initially he may be better of to start with a simple balanced fund.

Because of your different ages his asset allocation is likely to be different than yours as well.


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## Howie (May 15, 2009)

AdamW said:


> Good to know that he'll be able to do it, lot's of people stumble on that. In terms of individual investments I think that the TD efunds would be fine to start off with. The goal would be to have him invested until he accumulates enough funds to buy an individual ETF so you just want something low cost and easy to set up on the preauthorize purchase plan.
> 
> But if you are eventually going to use ETFs and you like Claymores line up check out they new system (link below):
> 
> ...


I believe TD-e series funds are a very good way to start... low fees, lots of indices to choose from, low PAC minimum...

I was not aware that you could do this w/ the Claymore ETFs. Has anyone successfully done this w/ their discount brokerage? It says you do need an initial amount though... so you may end up paying some commission to start?


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## LateStudent (May 28, 2009)

Thanks again for the responses. Given the comments, I believe I'll be sticking with the TD E-Funds, as they seem to be the cheapest, simplest, and most diversified fund family around without going to ETF's and their added complexity of brokerages & trading fees. Some suggestions were made to just go with a single balanced fund for now, but (1) I don't see why someone with such a long investment horizon should hold a large fraction of bonds vs. equities, and (2) I want bro to learn the mechanics of setting up a diversified portfolio and maintaining it for the long haul through rebalancing (skills I'm just learning myself!). Some of you have noted that there's other components that need to be learned about general financial management, and I agree; we'll be doing this over coffee, probably many times now and in the future. But at the moment, we need to take some action with the money he's got in his bank account.


Here's a couple of other things I plan to tell him that maybe someone wants to comment on:

- given his 30+ year investment horizon, he should consider investing in 80 - 100% equity vs. bond funds for the next couple of decades. I personally would choose 100%. Maybe:
25% TD Canadian Index 
25% TD U.S. Index (the cheaper vanilla version, not the Currency Neutral one)
25% TD International Index (ditto, the non-Currency Neutral version)
12.5% TD European Index 
12.5% TD Japanese Index 

- initially he should put his investments into his TFSA room with any excess going to an RSP account. The reason for this is that the TFSA will be his emergency fund, since there's no penalty for withdrawing from it (except my wrath if he withdraws for anything but a genuine emergency!). After his emergency fund is built up, he'll preferentially put into RSP, then TFSA, then unsheltered account. (I know there's some risk holding somewhat volatile equities in an emergency fund, but I think we'll accept that risk, given that hopefully he'll never have to use it.) (Just thinking a bit more, maybe there's a case for something a little less volatile for an emergency fund, say one of the balanced funds people have mentioned earlier. But I don't think we want to cripple his potential for growth by going to a savings account or money market fund for this.)

hmmm.... not sure about the mechanics of sheltering TD E-funds in TFSA's (from my previous mutual fund experience, I know it's no prob to have both RSP and non-RSP accounts) Will the TFSA work too? If anyone can comment on this, let me know, thanks, otherwise, we'll be learning as we go...


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## MoneyGal (Apr 24, 2009)

What's your specific question about sheltering e-funds in a TFSA? 

The TFSA is a tax-free container, no matter what you put in it, be it stocks, bonds, money market funds, mutual funds or cash. The tax-free status comes from the kind of account (or "container") the TFSA is, not from anything you put into it. 

My only other comment is that perhaps you might balance your desire to "not cripple" the growth potential in your bro's emergency fund account with a countervailing desire to not cripple his capacity to do things with the funds if he needs 'em because they've gone down in value.


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## Rickson9 (Apr 9, 2009)

I'm not convinced that there is any benefit to investing in half a dozen different index funds. Actually I would avoid doing this.


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## Robillard (Apr 11, 2009)

LateStudent,
I think there is some overlap between the international index fund and the European and Japanese index funds. If you look at the top 10 holdings of the international index fund, it has listed:
Royal Dutch Shell Plc 1.9%
BP PLC 1.8%
BHP Billiton Ltd - Common 1.7%
Nestle SA 1.7%
HSBC Holdings Plc 1.6%
Toyota Motor Corp - Common 1.4%
Total SA - Common 1.4%
Vodafone Group PLC - Common 1.3%
Roche Holding AG - Common 1.2%
Novartis AG - Common 1.2%

Whereas the European index fund has:
Royal Dutch Shell Plc 2.9%
BP PLC 2.7%
HSBC Holdings Plc 2.5%
Nestle SA 2.5%
Total SA - Common 2.2%
Vodafone Group Plc 2.0%
Novartis AG - Common 1.8%
Roche Holding AG - Common 1.8%
Telefonica SA 1.7%
GlaxoSmithKline PLC - Common 1.7%

There is probably no need to hold both the international index fund and the other two in the same portfolio. 

Also, it's my understanding that if you hold international stocks (even funds that hold international stocks), you can't recover the withholding tax on foreign dividends and interest payments on stocks/units held in the TSFA. Basically, this income is not fully tax free. If you hold international stocks in a non-registered account, you get to claim the withholding taxes paid and receive a tax credit for the foreign taxes paid. There is no such benefit for international securities held in the TSFA.

In relation to what Rickson9 said, I think there is benefit from having multiple funds tracking different indices. By diversifying across different markets, you can reduce the overall variance of your portfolio and, in theory, realise a better risk-adjusted return than holding a single index.


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## OntFA (May 19, 2009)

LateStudent said:


> - given his 30+ year investment horizon, he should consider investing in 80 - 100% equity vs. bond funds for the next couple of decades. I personally would choose 100%.


I would never put any client heavier than 70-75% in stocks. Just part of the uncertainty of investing in stocks. Holding just 1/4 in bonds or cash is a good hedge against stock market uncertainty.



LateStudent said:


> Maybe:
> 25% TD Canadian Index
> 25% TD U.S. Index (the cheaper vanilla version, not the Currency Neutral one)
> 25% TD International Index (ditto, the non-Currency Neutral version)
> ...


You've illustrated exactly why I suggested a simple balanced fund. Europe and Japan are already heavily weighted components of the International Index fund so adding to those two just tilts the portfolio much more heavily in favour of overseas stocks. If you are going to ignore the advice to have something in bonds, at least simplify the stock side by simply using the first three funds on your list.

If you want to add a bit of spice to the portfolio, add CIBC Emerging Markets Index Fund since emerging markets are not included in the International Index fund. So, a sample mix would be something like 34% Canada, 33% U.S., 25% International, and 8% Emerging Markets. Just a suggestion but it shouldn't be any more complicated than that.

- initially he should put his investments into his TFSA room with any excess going to an RSP account. The reason for this is that the TFSA will be his emergency fund, since there's no penalty for withdrawing from it (except my wrath if he withdraws for anything but a genuine emergency!). After his emergency fund is built up, he'll preferentially put into RSP, then TFSA, then unsheltered account. (I know there's some risk holding somewhat volatile equities in an emergency fund, but I think we'll accept that risk, given that hopefully he'll never have to use it.) (Just thinking a bit more, maybe there's a case for something a little less volatile for an emergency fund, say one of the balanced funds people have mentioned earlier. But I don't think we want to cripple his potential for growth by going to a savings account or money market fund for this.)

hmmm.... not sure about the mechanics of sheltering TD E-funds in TFSA's (from my previous mutual fund experience, I know it's no prob to have both RSP and non-RSP accounts) Will the TFSA work too? If anyone can comment on this, let me know, thanks, otherwise, we'll be learning as we go...[/QUOTE]


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## Squash500 (May 16, 2009)

Personally I'm not a big fan of balanced mutual funds. Some of the reasons include high mers, lack of transparency etc etc. Also if you are a DIY investor with a discount brokerage account you don't get any discount per say for picking your own mutual funds.

For somebody who is 34 years old IMHO they should have at least 35% fixed income in their portfolio.

What about a basic portfolio such as 35% xiu ---35% xbb---15% xsp and 15% xin?


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## OntFA (May 19, 2009)

Squash500 said:


> Personally I'm not a big fan of balanced mutual funds.


Good, 'cause my advice wasn't for you. 



Squash500 said:


> Some of the reasons include high mers, lack of transparency etc etc. Also if you are a DIY investor with a discount brokerage account you don't get any discount per say for picking your own mutual funds.


You are making generalizations. I did not recommend the "average balanced fund" in this thread. I recommended the brother consider one of two funds depending on the amount of money available to invest. One charges 1% and the other charges 1.2% in fees with no cost to buy and the ability to fully reinvest income distributions without further cost + the ability to do a pre-authorized investment.



Squash500 said:


> For somebody who is 34 years old IMHO they should have at least 35% fixed income in their portfolio.
> 
> What about a basic portfolio such as 35% xiu ---35% xbb---15% xsp and 15% xin?


So, you want to tell a 34 year old who has just started making enough money to invest and has never touched a mutual fund let alone stocks (which is what ETFs are) to just start buying ETFs? You wouldn't suggest this if you had an appreciation for the anxiety people feel in doing this. And this is relevant if they're out there on their own doing this.

People who frequent these forums are not your typical Canadian investor, and certainly not your typical Canadian DIY investor.


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## Squash500 (May 16, 2009)

OntFA said:


> Good, 'cause my advice wasn't for you.
> 
> 
> 
> ...


 IMHO investing in etfs isn't scary at all. As a matter of fact mutual funds are starting to become obsolete. ETFS are the way of the future.

Even BMO just came out with a new series of ETFS today as a matter of fact.

With a lot of these etfs you can get synthetic drips as well. Therefore it might wind up not costing him any extra money in commissions either?

I'm also not suggesting he invest in complicated sector etfs. IMHO xiu, xbb, xsp and xin are basic and popular etfs that are in fact easier to understand then the average balanced fund.


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## OntFA (May 19, 2009)

Squash500 said:


> IMHO investing in etfs isn't scary at all.


For you and most on this forum, no it isn't. And I'm not saying it makes a lot of sense but you're out of touch with the average Canadian investor. It's intimidating and it's foreign territory. It is what it is, whether you choose to believe it or not.



Squash500 said:


> As a matter of fact mutual funds are starting to become obsolete. ETFS are the way of the future. Even BMO just came out with a new series of ETFS today as a matter of fact.


That's an overdone theme. Mutual funds aren't going anywhere. Their growth may slow but their not going away. And ETFs are a small and growing part of the industry and that's the reason BMO entered the game.



Squash500 said:


> With a lot of these etfs you can get synthetic drips as well. Therefore it might wind up not costing him any extra money in commissions either?


Yes but how will he do monthly purchases in ETFs without it costing him a fortune. And you can't invest an exact amount in an ETF. You have to instead buy some number of shares and you get to invest whatever that costs, which usually leaves some extra cash that has to sit on the sidelines. But even if he does the broker sponsored DRIP, that's another phone call that has to be made in order to set it up and perhaps a form(?).



Squash500 said:


> I'm also not suggesting he invest in complicated sector etfs. IMHO xiu, xbb, xsp and xin are basic and popular etfs that are in fact easier to understand then the average balanced fund.


Really? Ever try to explain the mechanics of creation units to a novice investor? How about how the price you pay for the ETF can be lower or higher than the value of the underlying investments? Can you even tell that the price you pay is above or below NAV at the precise time of the trade?

ETFs are not as simple as you make them out to be. They function very much like mutual funds but there are more moving parts than people realize. The bull/bear ETFs are a case in point. Everybody complains about these things and it seems to be mainly because nobody has read the prospectus.


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## MoneyGal (Apr 24, 2009)

Uh. Why would you have any more struggle in explaining ETF creation units than you would in explaining MF units? 

I don't personally think that ETFs are conceptually more difficult to understand than are MFs and, in fact, I would probably argue that ETFs are intuitively more simple to understand.


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## Howie (May 15, 2009)

LateStudent said:


> Here's a couple of other things I plan to tell him that maybe someone wants to comment on:
> 
> - given his 30+ year investment horizon, he should consider investing in 80 - 100% equity vs. bond funds for the next couple of decades. I personally would choose 100%. Maybe:
> 25% TD Canadian Index
> ...


Another thing you may want to consider is how your brother may feel about market volatility. Even though this portfolio is diverse (in equity), it may still be healthy to have a bit of fixed income (ie: the Canadian Bond Index) just to smooth those bumps along the way. It may make sense to put a large % into equities, but it will be painful if the market declines by +30% and he "panic sells". Try to get a feel for how he takes this and then see if you guys can work on an asset allocation that works for him. You may want to get him to read "The Intelligent Asset Allocator" by William Berstein.

In terms of TFSA/RRSP, it also depends on his situation. If you are planning to setup an emergency fund for him, you may want to get him to put the funds into a Tax Free High Interest Savings account. The reason being is, you never know when you'll actually need the emergency fund, so it makes sense to have the money in something safe. If the funds are down, and he needs money (a real emergency), it still doesn't make sense for him to tap into the account because he'll be redeeming his funds at a loss. Maybe set aside some cash for actual emergencies, and set aside the rest for investing. You guys are well on your way!


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## OntFA (May 19, 2009)

MoneyGal said:


> Uh. Why would you have any more struggle in explaining ETF creation units than you would in explaining MF units?


Uh, it's easy to explain that when a client invests in a mutual fund, the fund issues more units to sell to new investors and buys back units from investors who want some/all of their money back. In all transactions, you always trade at a price equal to the value of the investments held in the fund. Simple and easy to understand.

ETFs don't work this way. I'll give you a test, if you choose to take it. How would you explain, in plain English, how creation units facilitate in and out flows and how arbitrageurs keep the price as close to NAV as possible even though you risk paying more on buys and getting less when selling. And before you chalk this up to a useless nuance this speaks to the risk of trading at a discount or premium - and it can be significant with ETFs investing in less liquid securities.

While reminds me of the other myth with ETFs. Try explaining the liquidity risk with ETFs and how it doesn't matter how many ETF units trade.



MoneyGal said:


> I don't personally think that ETFs are conceptually more difficult to understand than are MFs and, in fact, I would probably argue that ETFs are intuitively more simple to understand.


Conceptually, in broad terms, you're right. But there are issues that clients need to be familiar with if you're going to cover your *** (a reality for those of us with a license and an obligation to not only know your client but know your product). Look, this doesn't make ETFs inferior or anything like that. But let's face it, they are structurally more complex than mutual funds - and that has pros and cons.

But back to the original issue....it's not a matter of who's better but which is most suitable to the beginner investor. You have to admit that it's MUCH easier and convenient to walk into your local RBC bank branch, drop a cheque in front of the account manager, fill out the application, and invest in the RBC Monthly Income fund than it is to buy ETFs.

Somebody mentioned streetwise funds, which is fine but it costs the same as the two funds I suggested early in this discussion. Compare that with the time to set up your DIY brokerage account, get online access, search for symbols, and start trading (and do so without getting sucked into the loser's game of starting to buy penny stocks and the IPOs the broker will advertise and the Agriculture ETF and the double short natural gas ETF and so on), investigate the DRIPs and sign up for those, etc. It's a cake walk for savvier investors but it's a lot of work for beginners, not to mention intimidating.

If all you've ever done is buy GICs and savings bonds, jumping straight to stock trading is too big of a jump unless the person in question has really ramped up on their knowledge. Kind of like moving out of your parents' home. For a lot of people, they should rent for six to twelve months to ease into the responsibilities and financial burden of buying a home.


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## MoneyGal (Apr 24, 2009)

Fair enough. 

The two brokerages I worked in were fully stock and ETF houses; we didn't really deal in conventional MFs at all (except, for the most part, if a client brought them over with DSCs and it didn't make sense to dump them). 

I guess I have often wondered how I would explain MFs. I always thought, does the FA give some version of "the managers worry about all of that"? Are MFs more popular *because* they don't require FAs to explain the structural complexities of ETFs?

I do think your example about comparing the ease of investing in conventional MFs with an advisor at a local branch with setting up an account at a discount brokerage is slightly misleading - only because I do not think the process is less complex with an advisor, _there's just another person there helping you do it. _ 

You could also argue, I think, that investing with an advisor brings its own set of complex, intimidating problems - mainly in determining who to trust and what metrics you should employ to know whether you should trust this person (and his or her advice) or some other person. 

There are really important decisions for both DIY investors and those who invest with an advisor. I just think the decisions are different in the two cases - and, for DIY investors, the decision is much more about their own capacity for self-knowledge and self-education. If you trust that more than you fear sharing responsibility with an advisor, that's probably the way to go for you.


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## Squash500 (May 16, 2009)

OntFA said:


> Uh, it's easy to explain that when a client invests in a mutual fund, the fund issues more units to sell to new investors and buys back units from investors who want some/all of their money back. In all transactions, you always trade at a price equal to the value of the investments held in the fund. Simple and easy to understand.
> 
> ETFs don't work this way. I'll give you a test, if you choose to take it. How would you explain, in plain English, how creation units facilitate in and out flows and how arbitrageurs keep the price as close to NAV as possible even though you risk paying more on buys and getting less when selling. And before you chalk this up to a useless nuance this speaks to the risk of trading at a discount or premium - and it can be significant with ETFs investing in less liquid securities.
> 
> ...


 First of all only 1 in 10 advisors are licensed to sell etfs in the first place. Therefore the majority of diyers who buy etfs do so without an advisor.

IMHO for very liquid etfs such as the xiu the price always trades pretty close to nav.

Personally I used to invest in mutual funds through td canada trust. For the most part these mutual fund reps were useless. all they wanted was your money. They never explained the inner workings of a mutual fund. You were basically paying these bank reps a trailer fee for doing nothing.

You should give diy investors more credit. With the advent of the internet all the information that is available to the advisors is also available to the general public as well.

Just to repeat. Setting up a discount brokerage account is not that difficult. Most investors who just stick to a couch potato etf portfolio should be fine. Of course financial advisors want to create this big mystique around investing so they can get more business.

Personally I have been a diy etf investor for 5 years in a discount brokerage account and have never looked back.


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## ethos1 (Apr 4, 2009)

Squash500 said:


> First of all only 1 in 10 advisors are licensed to sell etfs in the first place. Therefore the majority of diyers who buy etfs do so without an advisor.
> 
> IMHO for very liquid etfs such as the xiu the price always trades pretty close to nav.
> 
> ...


you do know that the majority of bank FA's will tell you that the general public dont know their ar$e$ from their elbows and that is why bank advisors are the best to be trusted thing going

Squash if you have mastered DIY trading especially ETF's well done - you're one of the lucky ones, the rest I guess will lose money DIY or with an advisor

Everyone needs a shoulder to cry on - brokers and advisors are always winners

disclosure: I have not used an investment or financial advisor since 1987


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## OntFA (May 19, 2009)

Folks, we've gone off track. Understand that I'm not trying to create some mystique about it being complicated. For crying out loud I gave out free advice to the poster to buy something I could never make money on so WTF about that is complicated and self serving? Not one part of it.

In the interest of the poster's brother, I simply suggested that buying a mutual fund is simpler and more convenient - and hence more likely to be implemented - as compared to the relatively more involved brokerage/ETF solution. I didn't say the ETF route was bad or inferior - just not suitable for the majority of beginners.

What you all are missing are the practicalities of the situation and choosing a solution that not only has a higher likelihood of getting done, but getting done properly and with minimal maintenance. And it's an option that has a relatively lower chance of luring a novice investor into costly mistakes.

I agree that you'll have to rebuff the bank branch's sales tactics so staying focused on what you want is paramount. But then again, if opening a brokerage account is so easy, RBC Direct Investing will allow anyone with $10k buy the RBC Monthly Income in D series form with annual fees of just 0.84% which makes my argument even more compelling in my opinion.

And once more, if anyone wants to take me up on it, I'll reiterate my challenge from above...



me (from above) said:


> I'll give you a test, if you choose to take it. How would you explain, in plain English, how creation units facilitate in and out flows and how arbitrageurs keep the price as close to NAV as possible even though you risk paying more on buys and getting less when selling. And before you chalk this up to a useless nuance this speaks to the risk of trading at a discount or premium - and it can be significant with ETFs investing in less liquid securities.
> 
> While reminds me of the other myth with ETFs. Try explaining the liquidity risk with ETFs and how it doesn't matter how many ETF units trade.


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## OntFA (May 19, 2009)

Squash500 said:


> First of all only 1 in 10 advisors are licensed to sell etfs in the first place. Therefore the majority of diyers who buy etfs do so without an advisor.


Where'd you get that stat? Any stock broker can sell an ETF. I would have thought that stock brokers make up more than 1 in 10 advisors.



Squash500 said:


> IMHO for very liquid etfs such as the xiu the price always trades pretty close to nav.


Yes, and the majority of XIU investors are institutions. But ETFs with a higher retail base like CPD and XCB have real liquidity risks and higher likely mispricings.



Squash500 said:


> You should give diy investors more credit. With the advent of the internet all the information that is available to the advisors is also available to the general public as well.


More information does not make for a more informed investor or provide greater insight. More information, one could argue, adds to confusion because of information overload.



Squash500 said:


> Just to repeat. Setting up a discount brokerage account is not that difficult. Most investors who just stick to a couch potato etf portfolio should be fine.


How many people do you know, squash, that actually use ETFs the way they were originally intended - eg with just a handful of funds covering the major asset classes a la couch potato? I haven't met one person yet. I haven't met anyone who could not resist the Ag ETF or the China ETF or the short ETF or whatever else is drawing attention and sounds real sexy. And that stuff destroys returns more than an extra 1% fee ever will.


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## canadianbanks (Jun 5, 2009)

I believe that the markets are due for a big fall anytime now, and I wouldn't invest a single cent at the moment.


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## MoneyGal (Apr 24, 2009)

I am an ETF-only DIY investor and have been since I could access ETFs in Canada. I hold four ETFs in the classic couch potato portfolio.


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## ThickenMyWallet (May 20, 2009)

I am jumping into this discussion late but, assuming that little brother has little to no investing knowledge, wouldn't the better approach be to discuss strategies, risk tolerance and concepts (i.e. build a knowledge base) before leaping right into product?

If big brother himself has a modest amount of knowledge, isn't the better exercise to learn the concepts together rather than say "buy this product or that product"? 

Product is product, in a few years, we'll be arguing about why XYZ is better than an ETF which is better than a mutual fund which is better than a hedge fund which is better than purchasing individual stocks which is better than burying your money in the ground etc etc.

Perhaps the better advice to give is none at all but to listen first on what little brother wants in life, his risk tolerance, his personality type (for example, in the abstract, someone with a long investment horizon should be in heavier in equities but do you discount the weighting if the investor is a constant worrier and could not tolerate the roller coaster of the market). 

I noticed you are "telling him" what to buy and not giving him options and telling him the pros and cons (as a younger sibling myself, you seem to be coming from a good place but it can come off badly if you are telling him to do something).

Then work on a statement of investment principles then find product that fits within that context.

I don't think your analysis is incorrect and you seemed to put a lot of thought into it. However, if your brother hasn't gone through the same thought process, you are, to mangle the old saying, not teaching him to fish but giving him the fish.


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## Squash500 (May 16, 2009)

OntFA said:


> Where'd you get that stat? Any stock broker can sell an ETF. I would have thought that stock brokers make up more than 1 in 10 advisors.
> 
> 
> 
> ...


 According to Preet's website 75% of financial advisors cannot sell etfs. http://www.wheredoesallmymoneygo.com/should-mfda-advisors-be-allowed-to-sell-etfs/

Jon Chevreau wrote an article in the National post over a year ago which was reproduced on the Barclay's ishare website that claimed only 10% of advisors can sell etfs. I can't find that article at the moment.

IMHO a lot of retail investors invest in the xiu as well. The xiu has almost $9 billion in total assets.

Personally I read an article on the moneysense website talking about the etf couch potato portfolio. I'm sure I'm not the only investor who follows this investing mantra.

I don't mean to be rude but these are just my opinions.

Here's a link to the 1 in 10 advisors are licensed to sell etfs article. http://www.financialpost.com/scripts/story.html?id=0df05eb9-0296-45e3-8732-e2b474ddd5b5&k=40753


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## ethos1 (Apr 4, 2009)

OntFA said:


> More information does not make for a more informed investor or provide greater insight. More information, one could argue, adds to confusion because of information overload.
> 
> 
> How many people do you know, squash, that actually use ETFs the way they were originally intended - eg with just a handful of funds covering the major asset classes a la couch potato? I haven't met one person yet. I haven't met anyone who could not resist the Ag ETF or the China ETF or the short ETF or whatever else is drawing attention and sounds real sexy. And that stuff destroys returns more than an extra 1% fee ever will.


The OP big brother as well as little brother if they are reading this thread now must be totally confused

ONTFA, you made a comment _*"How many people do you know, squash, that actually use ETFs the way they were originally intended - eg with just a handful of funds covering the major asset classes a la couch potato? "*_

would you care to expand or elaborate on that specific to "use" and "intended to"?

My POV the way that I see it is that an ETF is just another equity of sort to buy, hold, collect dividends (roll them over to buy more stock if you dont need the income) and then maybe one day exit with a nice profit or have enough dividends to supplement your living costs (couch potato style)

Of course the more experienced investors may trade in/out, even sell CC options on the ETF's and role the option money with the dividends to buy more ETF's (dont go there)


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## FeeOnly.ca (Jun 4, 2009)

Inexpensive TD Managed Index-e portfolio's are also readily available.

http://www.tdcanadatrust.com/mutualfunds/prices_MAP.jsp 

*TD MAP e-Series* 
TD Managed Index Aggressive Growth -e
TD Managed Index Balanced Growth -e 
TD Managed Index Income -e 
TD Managed Index Income & Moderate Growth -e 
TD Managed Index Maximum Equity Growth -e 

More detail below on one of the TD Managed e-Series Index Fund portfolios from their web site. 

*TD Managed Index Balanced Growth -e * 

Investment Objective

The fundamental investment objective is to generate long-term capital growth while also providing the opportunity to earn some interest and dividend income. The Portfolio invests primarily in units of TD Index Mutual Funds, with an emphasis on mutual funds which focus on equities for greater potential capital growth. The Portfolio may also invest directly in guaranteed investment certificates, bonds issued by the Canadian or provincial governments and Strip Bonds. The fundamental investment objective may only be changed with the approval of a majority of unitholders at a meeting called for that purpose. 

Benchmark Statement
40% DEX Universe Bond Index; 17% S&P/TSX Composite Index; 43% Morgan Stanley Capital International World Index (C$). 

Recommended For
The Portfolio may be suitable for investors who: are seeking an increased exposure to international markets; prefer to have professional managers determine the selection and composition of their investments, as well as provide ongoing monitoring services; want long term growth of capital, and income; are willing to accept a low to moderate degree of risk; have a medium to long term investment time horizon. 

Why Invest
Constructed using a blend of equities and fixed income, the TD Managed Index Balanced Growth Portfolio provides a balance between long-term capital appreciation and the opportunity for income. 

The TD Managed Assets Program is a professionally constructed, managed and monitored solution, designed to moderate the effect of market volatility through multi-facet diversification. 

Portfolio Update
Overall, Canadian bonds gained in value in March. Corporate bonds outperformed government bonds during the month and the first quarter of 2009, as corporate credit spreads came in. Canadian corporate credit spreads narrowed thanks to a more positive tone in the market so far this year, with trading activity and liquidity improving slightly. Canadian stocks rallied last month, ending a six-month losing streak, on optimism action by policy makers may help revive global credit markets and restore confidence in the financial system. The S&P/TSX Composite Index rose, with seven of ten sectors advancing, led by financials, energy and information technology. South of the border, the S&P 500 Index posted its best monthly performance since October 2002 with all ten sectors advancing. Meanwhile, European stock markets enjoyed their first monthly gain since last August, as aggressive quantitative easing by major central banks provided a positive backdrop for equities. Japanese shares also rose sharply in March, amid optimism the government was expected to announce further stimulus measures to help lift the economy out of recession. 

(March 31, 2009) 

General Description
Fund Codes: TDB852 
Minimum non-RSP Investment: $ 2000.00 
Minimum RSP Investment: $ 2000.00 
Minimum Subsequent Investment: $ 100.00 
Early Redemption: Up to 2.00% of purchase cost if redeemed within 90 days of purchase. 
MER: 1.27% as of June 30, 2008. 
Sector Class: Global Neutral Balanced 
Inception Date: Nov. 26, 1999 
Assets: $ 40.55 million as of May 31, 2009. 
Minimum PPP Amount: $25.00


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## OntFA (May 19, 2009)

Squash500 said:


> According to Preet's website 75% of financial advisors cannot sell etfs. http://www.wheredoesallmymoneygo.com/should-mfda-advisors-be-allowed-to-sell-etfs/
> 
> Jon Chevreau wrote an article in the National post over a year ago which was reproduced on the Barclay's ishare website that claimed only 10% of advisors can sell etfs. I can't find that article at the moment.


Okay, I'm clearly wrong on this one but the definition of advisor is clearly quite broad as it includes everybody licensed to sell some type of investment. But fair enough on the 10%-25% of advisors can sell ETFs.



Squash500 said:


> IMHO a lot of retail investors invest in the xiu as well. The xiu has almost $9 billion in total assets.


But when something is a matter of fact, opinion doesn't matter. And it is a fact that the majority of assets in XIU belong to institutions, which came as a result of the take over of the old TSE index participation units funds (i.e. ETFs).



Squash500 said:


> Personally I read an article on the moneysense website talking about the etf couch potato portfolio. I'm sure I'm not the only investor who follows this investing mantra.


If you and MoneyGal truly invest like this and in nothing else, you are truly unique. I'm shocked that you don't buy bank stocks, other dividend paying stocks/trusts, no sector ETFs, no long/short ETFs, and nothing other than broad based funds. I am genuinely shocked if this is the case.



FeeOnly.ca said:


> Inexpensive TD Managed Index-e portfolio's are also readily available.
> 
> [snip]
> 
> ...


That's a good suggestion FeeOnly. I'd think that the ING Streetwise funds are even more convenient to purchase, however, and they have a slightly lower fee of 1% - as do my two suggestions for that matter.


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