# Recommendations for a Beginner EFT TFSA investor



## showmethemoney45 (Feb 27, 2015)

So I've learned a lot in the last few weeks and decided its time to jump to a TFSA. No point in investing in non-registered ways until my tax free accounts are maxed. We have only 5k in one that is held in cash only between my husband and I. I would like to put in ETFs through scotiabank (ishare). preferrablly the commision free ETFs and preferrably in something mostly canadian. All these different "funds" seem so confusing. I'm looking for something simple so I actually understand what I'm investing in. Any suggestions for someone just starting out? Is there certain ones to look at if you are planning on holding longer/shorter etc? I thought there would only be a few to choose from but I guess there is more than 50 on the website. eeek!


----------



## Cal (Jun 17, 2009)

You should check out some of the threads regarding the couch potato portfolio. This is a good starting point. Generally in a couch potato portfolio there are 4 holdings, in your case, you can get ishares etfs to fulfill the requirements of the couch potato portfolio.


----------



## showmethemoney45 (Feb 27, 2015)

Cal said:


> You should check out some of the threads regarding the couch potato portfolio. This is a good starting point. Generally in a couch potato portfolio there are 4 holdings, in your case, you can get ishares etfs to fulfill the requirements of the couch potato portfolio.


It says to consider ETFs when my portfolio is 50k or higher....although I hope it to be 50k in the next year I won't be doing this in one lump sum...more like 4-5k at a time. So don't do ETFs? Whats the alternative?


----------



## My Own Advisor (Sep 24, 2012)

I wouldn't worry about the $50k or more threshold for owning ETFs. 
http://www.myownadvisor.ca/reader-question-just-starting-help-needed/

This used to apply, in my book, because some discount brokerages had account minimums. I know when I started investing, there was a yearly administrative fee if my account value was not over $10,000 or $25,000 in my RRSP. TFSAs didn't exist.

Also, commission costs "back in the day" were higher, almost $30 per transaction I recall. If you're buying every few months and adding to the portfolio, $30 per transaction was pricy.

Now the game has changed. I think there are some brokerages that don't have account minimums for TFSAs and the transaction costs are lower. You'd have to check with iTrade to find out all the fine print 

The alternative is to use other products but low cost CDN-listed ETFs, CDN REITs or CDN dividend paying stocks are the best IMO for the TFSA.


----------



## supperfly17 (Apr 18, 2012)

showmethemoney45 said:


> So I've learned a lot in the last few weeks and decided its time to jump to a TFSA. No point in investing in non-registered ways until my tax free accounts are maxed. We have only 5k in one that is held in cash only between my husband and I. I would like to put in ETFs through scotiabank (ishare). preferrablly the commision free ETFs and preferrably in something mostly canadian. All these different "funds" seem so confusing. I'm looking for something simple so I actually understand what I'm investing in. Any suggestions for someone just starting out? Is there certain ones to look at if you are planning on holding longer/shorter etc? I thought there would only be a few to choose from but I guess there is more than 50 on the website. eeek!


Give this book a read, it explains everything.

http://www.valueofsimple.ca/


----------



## OnlyMyOpinion (Sep 1, 2013)

supperfly17 said:


> Give this book a read, it explains everything.
> http://www.valueofsimple.ca/


Even before that, as mentioned above go to the Canadian Couch Potato and poke around there for an extended period. Considered by many DIY etf nvestors as the standard: http://canadiancouchpotato.com/recommended-funds/ and 
http://canadiancouchpotato.com/2015/01/15/couch-potato-model-portfolios-for-2015/


----------



## Potato (Apr 3, 2009)

Thanks supperfly17! I obviously have a vested interest here, but I'd disagree with OnlyMyOpinion -- while browsing around a blog is free, a book that goes from start to finish in a coherent way can be a lot more useful for someone starting from scratch than a blog that hops around depending on the topic of the day. Plus Dan uses the blog to get into some really technical nitty gritty issues that can scare some people away, when many of those issues can be ignored (at a small price sometimes). It _is_ a great resource, don't get me wrong, just not where I would start. 

Back to the OP, the free iTrade funds are a challenge as they don't have the really low-fee straightforward funds that make the shortlists from Dan or the canonical portfolio or any similar model portfolios. The full list is here. Let's say you want to start with your Canadian equity, and the canonical portfolio is to hold the TSX composite through something like VCN or XIC. Well those aren't there. The next closest options are:
HXT, a swap-based fund tracking the TSX60. Plenty cheap, but not quite as diversified.
CRQ, a fundamental index with a higher MER, and an intermediate number of holdings.

They're decent enough options, so you could just say close enough and go with one of them -- maybe flip a coin to decide. Or you could add in XMD, the TSX completion index, to get something much closer to the oft-recommended VCN/XIC. But XMD has a relatively high MER of 0.6% -- if you're investing large amounts each time and holding for a few years, you may be just as well off paying the commission and getting the composite index funds.

But there I go delving into tiny details that don't really matter -- it'll only be a few dollars either way whether you stick with the commission-free ETFs offered by iTrade or just pay to get the more commonly recommended funds. From the free-to-trade ETF list, some to look at for your four canonical asset classes:
Bonds: XQB; CLF+CBO
Canadian equity: HXT (possibly with some XMD to round it out); CRQ
US Equity: HXS; CLU.C
International Equity: CIE; VEF 

Some people will debate the merits of swap-based funds or fundamental indexes all night long, or the CAD-hedging of VEF, but something in there should be good enough to get you going.

Math: If you were to split it ~30/70 with HXT to mimic the composite index, your average MER would be 0.215% vs 0.05% for the VCN/XIC you have to pay commission on. So for $20 in commission ($10 for the buy and sell side) you'd break even in 5 years with ~$2500 invested.


----------



## lonewolf (Jun 12, 2012)

showmethemoney might want to consider making use of the modern technology & go with a robo adviser such as wealthbar, share owner, nest wealth & wealth simple.


----------



## OnlyMyOpinion (Sep 1, 2013)

Potato - I certainly wasn't suggesting they should not consider the book, just offering some 'even before that', instant gratification. CCP also helps you understand what can otherwise be an overwhelming subject. 

Lonewolf - this is my robo adviser (I grew up with him). The problem is I've never heard him say 'buy will robinson, buy'  https://www.youtube.com/watch?v=REvmhBO99I4


----------



## showmethemoney45 (Feb 27, 2015)

bought the pdf book for $8. I will check it out as well as the other resources listed.
Thanks for the info all!!


----------



## Butters (Apr 20, 2012)

It is crappy picking from a list of only certain ETFs when there are a lot more out there

Ideally you just want to pick up 4-5 ETFs and thats it

You need 1 CAN 1 US 1 International

I liked Potato's list

Bonds: XQB
Canadian equity: HXT
US Equity: HXS
International Equity: CIE, smaller amount in VEF 



However you should ask yourself... 

How much are these ETF transactions going to cost, if say I replaced the above portfolio against the Canadian Couch Potato 3 ETF portfolio... and which one will benefit me more

If you opened up a Questrade account, every single ETF would be free... making couchpotato even better


----------



## showmethemoney45 (Feb 27, 2015)

SheaButters said:


> It is crappy picking from a list of only certain ETFs when there are a lot more out there
> 
> Ideally you just want to pick up 4-5 ETFs and thats it
> 
> ...


So if I open a Questrade account can I buy these under my TFSA?


----------



## cainvest (May 1, 2013)

SheaButters said:


> Bonds: XQB
> Canadian equity: HXT
> US Equity: HXS


Could always start off with these three investing your $5k a month until your fully invested. What are your plans once you've reached that point ... rebalance and add to ETFs each year?


----------



## showmethemoney45 (Feb 27, 2015)

cainvest said:


> Could always start off with these three investing your $5k a month until your fully invested. What are your plans once you've reached that point ... rebalance and add to ETFs each year?


Blow it all on building a cabin...then start all over again


----------



## showmethemoney45 (Feb 27, 2015)

So everytime I deposit money-lets say once per month, that counts as a trade? I would like to purchase 4 ETF's in a TFSA and basically make monthly contributions to the same accounts....I won't be doing any selling and buying of anything else for a year (ish). Who do you think would be the best brokerage to go with considering the small initial payment and the monthly payments there after?


----------



## Potato (Apr 3, 2009)

Depositing money does not count as a trade, only when you take that cash and buy something does it count as a trade (though trades may be free, like for certain funds at iShares or ETF purchases at Questrade). 

The best brokerage is arguable, they're all pretty good and will let you meet your goals. Questrade will let you buy any ETF for nearly nothing (no commissions, some ECN fees which are pennies). If you're already with iTrade it really isn't bad, you can buy or sell any of those listed ETFs for free, or pay a small commission to buy any other one (like at most other brokerages). If you want to buy all 4 ETFs every month then Questrade or iTrade is the way to go to save on fees, but in the long run you won't be too far off anywhere if you just buy every third month or so and rotate through the four funds through a year -- that's only $40 in commissions per year then. Momentum and convenience may be fine reasons to stick with iTrade.


----------



## treva84 (Dec 9, 2014)

showmethemoney45 said:


> So everytime I deposit money-lets say once per month, that counts as a trade? I would like to purchase 4 ETF's in a TFSA and basically make monthly contributions to the same accounts....I won't be doing any selling and buying of anything else for a year (ish). Who do you think would be the best brokerage to go with considering the small initial payment and the monthly payments there after?


What we do in my wife's RRSP is:

VCN - All Cap Canada ETF (MER 0.05%)
VXC - All World Ex Canada ETF (MER 0.25%)
VAB - Canada Aggregate Bond ETF (MER 0.12%)

With 2 ETFs we have coverage of all of the stock markets in the world. Some would argue the cost of VXC is high, but the trade off is i) less rebalancing fees as you only have to buy one ETF - this plays a huge impact in a small portfolio and ii) convenience. 

We put money in monthly then we buy to rebalance close to our asset allocation every 6 months. Our broker for this is RBC DI, just because it's linked to her bank account. Trade costs are $10. 

There are discount brokerages where you can buy certain ETFS (I'm not sure if Vanguard ETFs are included or not) for free (VB, Questrade I believe) but they do charge you a fee to sell.


----------



## My Own Advisor (Sep 24, 2012)

Nicely done Treva84.

Owning a VCN, XIC, VCE, XIU, etc. is pretty straightforward in any CDN $$ registered account (TFSA, RRSP, etc.)

The cost of owning a VXC is like you say, more but you are paying for convenience to own the rest of the world. 0.25% MER + 0.45% withholding taxes (based on two foreign fronts US + international) = 0.70% fees.


----------



## treva84 (Dec 9, 2014)

My Own Advisor said:


> Nicely done Treva84.
> 
> Owning a VCN, XIC, VCE, XIU, etc. is pretty straightforward in any CDN $$ registered account (TFSA, RRSP, etc.)
> 
> The cost of owning a VXC is like you say, more but you are paying for convenience to own the rest of the world. 0.25% MER + 0.45% withholding taxes (based on two foreign fronts US + international) = 0.70% fees.


Ah always forget about the withholding taxes in TFSA. Yeah, that is a bummer.


----------



## My Own Advisor (Sep 24, 2012)

VXC is still a great product.


----------



## TheArrow (Jan 13, 2014)

Are ETF's better than e-series index funds? It it cause of lower MER? What's the best ETF equivalent of the TD e-series couch potato 4 funds?


----------



## cainvest (May 1, 2013)

TheArrow said:


> Are ETF's better than e-series index funds? It it cause of lower MER? What's the best ETF equivalent of the TD e-series couch potato 4 funds?


Check out the cdn couch potato site, there are portfolios there with comparisons.


----------



## showmethemoney45 (Feb 27, 2015)

Ok, I read the book and enjoyed it. Might read it twice. So if I have 40k to invest this year and can do so under a TFSA should I put it all in bonds? Or should I do a portfolio split (couch potato ETFS at Questrade) within my TFSA limit? Next year we would be on track to max out the TFSA for my husband and then we can contribute to RRSP but the book also talks about minimizing transactions...I don't really want 2 mini portfolios to manage (one TFSA and one RRSP) but I also don't want to put everything into one class for a whole year. Any suggestions?


----------



## Potato (Apr 3, 2009)

If everything is in the TFSA now, then you might as well seek some balance there (assuming your plan and risk tolerance calls for having some equity in the mix). In a few years when you have more of a split between your TFSAs and RRSPs, then you can rebalance to have them focus on just one or two asset classes.


----------



## My Own Advisor (Sep 24, 2012)

supperfly17 said:


> Give this book a read, it explains everything.
> 
> http://www.valueofsimple.ca/


+1 A good book!


----------

