# Noobie, TFSA, BMO Investorline, Mutual Funds vs ETFs



## joboman (Mar 16, 2015)

I'm a 23 year old, just getting started with this kinda stuff. Have a TFSA opened with Investorline (because I bank with BMO). My take home pay is around 40k and I'm trying to have half of every paycheck put away.

I currently have around 10k in a handful of mutual funds, most of them with MERs around 2%. I understand that over time, I should be moving these to index mutual funds or ETFs to reduce the fees. I would like to get into trading ETFs but there is a $10 trading commission and since I'm contributing to the TFSA on a monthly basis, I don't have that much to trade at a time.

Although I fully understand the benefits of the couch potato method, ideally, I would like to be more active in trading than just dumping my money in a balanced portfolio of index funds and looking the other way. For at least a portion of my portfolio, I would like to be able to pick which sectors and markets I would like to invest in which makes me believe I should be trading ETFs.

To cause me more grief and confusion, a bunch of ETFs that I am interested in are US-traded which brings me a whole 'nother dilemma that I don't fully understand. I figured if I'm going to mess this up, better sooner than later.

So in summary, I guess these are my questions:

1) Should I be using Investorline? Are there other options more suitable for me?
2) If I want more control and to cherry pick my investments, should I be buying mutual funds or ETFs?
3) Should I buy US or Canadian traded ETFs? Does it matter?
4) If I wanted to invest in an ETF such as QQQ, how should I do it considering my circumstances?


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## Potato (Apr 3, 2009)

Investorline is fine -- all the brokerages are pretty comparable. Questrade will be cheaper as you can buy ETFs for free (or nearly so -- very small ECN fees may apply) and the commission to sell will be lower, but it's not going to make or break your long-term plans. 

For #2 I can't see why mutual funds unless you're placing a bet on the manager, so ETFs (and I'll take it as a given that you can't be talked out of trying to do whatever active thing you're going to try to do).

For #3 you will save on currency conversion costs if you stick with Canadian ETFs, but for some things you just have to go to the US. Some US ETFs have slightly lower MERs than their Canadian equivalents, but it may take a long time to make back the conversion costs. 

For #4, I believe iShares Canada has XQQ to cover you.


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## Flash (Nov 25, 2014)

Potato said:


> For #3 you will save on currency conversion costs if you stick with Canadian ETFs, but for some things you just have to go to the US. Some US ETFs have slightly lower MERs than their Canadian equivalents, but it may take a long time to make back the conversion costs.


From what I understood, as long as the ETF has US securities, buying it in CAD or USD makes no difference (as the CAD price will reflect the USD). Think Vanguard VFV vs whatever the american version is from Vanguard US. the US version does usually sometimes have lower MER, so I don't think there's any advantage going for the Canadian version

Regarding brokers, IB is a good pick if you are doing several trades a year (15 trades / year on avg) unless you have 100k to not pay the admin fee. From the big bank brokers, CIBC only costs 6.95 vs all other 9.95, but since the other banks haven't felt the requirement to follow suit, I guess CIBC trading platform isn't very great?

I wasn't trading back then but from what I understood the cost was 29.95 at some point and it dropped to 9.95, but I assume most banks followed suit quite soon to match?


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## Eclectic12 (Oct 20, 2010)

^^^^

For the US listed or Canadian listed ETF that holds US securities, the difference will be in an RRSP. The Canadian ETF will have the US 15% dividend withholding tax sliced off but as the RRSP has no tax implications until withdrawal, the foreign tax credit (FTC) can't be claimed to recover some or all of what the IRS has taken. Note that where one holds the US stock in one's RRSP directly, the 15% dividend tax is waived by the US-Canada tax treaty.

In a taxable account, one would receive a tax slip reporting the the US taxes paid and the FTC can be claimed.

http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/


It sounds like the OP does not have a lot of money at this point .... so an index based MF that does not have buy/sell fees, has a low MER and allows small purchases on a regular basis might be the better bet until there is enough money to make the buy/sell commissions less expensive.


As for number 2) ... the particular investments might influence the decision. Some here on CMF noticed that the Canadian REIT index only has a few players so once their REIT allocation grew to be enough to buy the REITs directly, they sold the REIT index to buy the REIT directly. This way, there is no MER. 

The OP should make sure they are familiar with the tax reporting requirements for each type of investment, especially before buying in a taxable account. As well, since the TFSA is mentioned, the OP should be aware that US stocks paying dividends in a TFSA have the IRS 15% withholding tax applied to it but unlike the RRSP, this is not waived.


Cheers

*PS*

Here are some links for some of the tax info, particularly BMO Index Funds:
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm
http://canadiancouchpotato.com/2014/04/07/tax-tips-for-bmo-etf-investors/


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## OnlyMyOpinion (Sep 1, 2013)

joboman said:


> I'm a 23 year old, just getting started with this kinda stuff... My take home pay is around 40k and I'm trying to have half of every paycheck put away... Although I fully understand the benefits of the couch potato method, ideally, I would like to be more active in trading than just dumping my money in a balanced portfolio of index funds and looking the other way. For at least a portion of my portfolio, I would like to be able to pick which sectors and markets I would like to invest in which makes me believe I should be trading ETFs...


Well, if you feel the need to bet on sectors and specialty etfs now is the time to do it - you are young and don't have a lot of money at stake. As you suggest, it would be prudent to use just a portion of your portfolio. There are a lot of factors, from company fundamentals through to overall market sentiment. Call it 'trial by fire'.


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## My Own Advisor (Sep 24, 2012)

I echo a number of things Potato said, here is my take:

So in summary, I guess these are my questions:

1) Should I be using Investorline? Are there other options more suitable for me?

All brokerages are quite comparable...stay with BMO Investorline - you can always switch later.

2) If I want more control and to cherry pick my investments, should I be buying mutual funds or ETFs?

Personally I would go with ETFs, the lower the cost, the more diversified, the better.

3) Should I buy US or Canadian traded ETFs? Does it matter?

It does matter, because of withholding taxes and currency costs.... That said, in the short-term as you get your feet wet I would stick with CDN-listed ETFs. Avoid currency costs this way as well. Longer-term, in a few years once you get the ropes, you can always sell your CDN-listed ETFs for US-listed ETFs. There is no urgency on this. The key is to keep your investment costs low but maximize your savings rate. Your savings rate will determine financial freedom much faster than which ETF should I own...

4) If I wanted to invest in an ETF such as QQQ, how should I do it considering my circumstances?

Like Potato....there are alternatives but I think there are better products than PowerShares QQQ™, more broad-based ETFs (are better): i.e., VTI, VXC, VXUS, etc.

Jut my $0.02!

Updated...lost part of my train of thought! 😁


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## Spudd (Oct 11, 2011)

My Own Advisor said:


> 3) Should I buy US or Canadian traded ETFs? Does it matter?
> 
> It does matter, since non-CDN hedged products long-term perform better than hedged. That said, in the short-term as you get your feet wet I would stick with CDN-listed ETFs. Avoid currency costs this way as well. Longer-term, in a few years once you get the ropes, you can always sell your CDN-listed ETFs for US-listed ETFs. There is no urgency on this. The key is to keep your investment costs low but maximize your savings rate. Your savings rate will determine financial freedom much faster than which ETF should I own...


I just want to clarify this one. Canadian-hedged and Canadian-listed are two different concepts. Canadian-hedged means they perform currency hedging to try and make foreign currency fluctuations not affect the price of the fund. Canadian-listed just means it's listed on the Canadian stock exchange, and may or may not be hedged. The name of the fund will inform you if it is hedged. I personally go mostly for Canadian-listed but unhedged ETF's. This saves me the effort of having to convert to USD before buying.


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## fatcat (Nov 11, 2009)

joboman said:


> I'm a 23 year old, just getting started with this kinda stuff. Have a TFSA opened with Investorline (because I bank with BMO). My take home pay is around 40k and I'm trying to have half of every paycheck put away.
> 
> I currently have around 10k in a handful of mutual funds, most of them with MERs around 2%. I understand that over time, I should be moving these to index mutual funds or ETFs to reduce the fees. I would like to get into trading ETFs but there is a $10 trading commission and since I'm contributing to the TFSA on a monthly basis, I don't have that much to trade at a time.
> 
> ...


open an account at a good discount brokerage which will have a usd dollar subcomponent, liquidate your mf's and begin to buy a mix of us and canadian equities across at least 7 or 8 sectors (sector diversification is critical in my opinion) ... avoid etf's and only use them to fill in where advantageous like in reits, maybe ZMB to get the banks and i personally love QQQ to get tech, healthcare and consumer discretionary which we don't have in canada

try to "trade" as little as possible, pick good companies that you can hold comfortably for years at a time for the most part and add to your portfolio whenever you buildup some cash

good luck and you are smart at 23 to be thinking this way


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## My Own Advisor (Sep 24, 2012)

You're right Spudd and I updated my comments! 
I like your call on unhedged ETFs.

Added: 23 and thinking about this stuff is impressive!


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## joboman (Mar 16, 2015)

Thanks a lot guys, some really helpful information here - you guys are GREAT. Looks like I'll be saving up chunks of cash and putting them in equities or ETFs, I've got plenty of time to research which ones I want. Next step, maxing out my TFSA!


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## My Own Advisor (Sep 24, 2012)

joboman said:


> Next step, maxing out my TFSA!


+1


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