Vanguard ETFs versus TD e-Series Mutual Funds

Everyone who reads this blog knows that I’m a big fan analyzing the easiest ways to invest cheaply and efficiently; therefore, I thought it might be time to look at Vanguard Exchange Traded Funds compared to the TD e-Series of mutual funds. Both of these of these options provide an excellent way to diversify Canadians’ investment portfolios at a low cost and with relatively low stress.  If you need a crash course in ETF Investing take a look at our FREE eBook.

Editor’s Note: If you are thinking about the best way to make index investing work for you, you might also want to consider Canada's Robo Advisors.  This is a terrible name for a great new product.Please take a look at our Complete Guide to Canada’s Robo Advisors for more information and to decide for yourself how the robo option stacks up against our ETF strategy or the old standby of TD’s e-Series.

TD vs ETFsWhat are TD E-Series Mutual Funds?

As you all know, I am a fan of the TD e-Series of mutual funds. (In fact, they are the only mutual funds that make any sense at all to me). They are great because you are able to dollar cost average and contribute to these in an RRSP on a monthly basis without paying any transaction fees for buying and selling. Even though it is a PITA to get the TD e-series mutual funds all set up, it is well worth the effort and hassle.  The real hurdle is the discussion with customer service representatives from TD bank who don’t know what you’re talking about – so try to avoid that by contacting the online crew directly.  The average TD e-Series MER is about 0.32% – which makes them a very low cost way to invest.

2017 Editor's Note: While TD's main advantage used to be that there were no transaction costs every month like there was when purchasing ETFs, Questrade has made purchasing ETFs free – thus eliminating that large advantage.

What are Vanguard ETFs?

Vanguard ETFs are exchange traded funds composed of primarily the same basket of equities (often called an “index”) as the TD e-series funds except that they have an even lower MER ranging from 0.09% to 0.35% annually.  They are traded through a brokerage (e.g. Questrade).  Questrade allows for free ETF purchases (meaning you won’t have to pay the $4.95 that you normally would to trade an equity) but charges the $4.95 per trade on the sale of ETFs.  Many of these Vanguard ETFs are relatively new to the Toronto Stock Exchange, which means that you can now broad get exposure to U.S. and International markets without having to have a USD account.  If you read our free eBook you know by now that Vanguard ETFs aren’t the only ones in the market, but they have an excellent history of low-cost investing since it was the founder of the company – John Bogle – who essentially invented the whole index investing with ETFs thing.

Related: 2017 Updated Questrade Review

How to Open Up a TD E-series Account

Here’s a step-by-step guide on how to get your hands on the TD e-series mutual funds if you’re seriously thinking about a hassle-free way to invest your money.  It is difficult to set up, but once you set it up, it is a breeze to maintain.  I’m a huge fan (in addition to 99% of the other Canadian personal finance bloggers out there).

Editor’s Note: I’d argue that robo advisors are even easier at this point!

How to Invest in Vanguard Exchange Traded Funds

To get your hands on some Vanguard exchange traded funds, you will need to have access to a brokerage account in order to buy and sell exchange traded funds.  Exchange traded funds are bought and sold much like individual stocks, except that they are far from individual stocks.  Instead they cover the same indexes that the TD e-series does.  For example, an ETF might track the TSX 60 index – aka the 60 biggest publicly-traded companies in Canada.

Should I Invest in the Vanguard ETFs or the TD E-series Mutual Funds?

According to the Canadian Couch Potato (who, if you’re not aware, is Dan Bortolotti, the guru of exchange traded funds and index investing who writes for MoneySense magazine), if you have a relatively large portfolio (meaning lots of cash to invest), using ETFs rather than e-series mutual funds is the way to go, whereas there is some disagreement if you're starting with a smaller portfolio.  The e-series used to have a considerable advantage back when you couldn't purchase ETFs for free, because you could make small monthly purchases without it hurting your not-quite-fat stacks all that much.  However, these days, that advantage is gone.  It really comes down to personal platform preference and if you're willing to do a little extra work to avoid fees.  (As well as what you think of robo advisors.)

Readers, are you using Vanguard ETFs through a discount brokerage like Questrade, still loving the TD eSeries, or have you jumped on board the new Robo Advisor bandwagon?

26 Comments

  1. Cassie on September 26, 2013 at 6:35 pm

    Why choose? I use both 😀



  2. My Own Advisor on September 26, 2013 at 7:14 pm

    Vanguard U.S. products all the way in the RRSP. Some Vanguard Canada products are OK, not a huge fan of VDY and others.

    If less than <$25,000 portfolio, you probably shouldn't have/bother with ETFs for the set-up costs involved:

    www.myownadvisor.ca/2013/…nd-stocks/

    TD e-funds are decent products for those starting out, good recommendation Young.

    Mark



  3. Daniel @ Urban Departures on September 26, 2013 at 10:08 pm

    hey Young!

    I’ve got a two pronged question for you:

    At what threshold does it make more sense to go with the eSeries vs the ETFs?

    Let’s say for all intents and purposes, that this threshold is $50K and it’s not worth funds in ETFs for the reasons you explain above. If a savvy newb investor that has accumulated this threshold amount in their TD eSeries portfolio (say $30k RRSP, $20K TFSA), would it make sense to to switch the funds into an ETF or would it be better to wait until an individual registered account reached the threshold?



  4. BeachBoy on September 27, 2013 at 10:27 am

    I’m a Vanguard fan (and Questrade).. always had a great service on Questrade.



  5. BeachBoy on October 2, 2013 at 12:00 pm

    I have zero opening fees nor trading fees for ETFs with Questraade, what are you talking about?
    I can open an account and fund with $1000 and trade.. that’s much lower than $25k you mention and it’s all free.



  6. […] then bought Vanguard exchange traded funds (check out the Vanguard versus TD e-series post) with the remainder of the […]



  7. Tej on June 8, 2015 at 1:43 pm

    Hey Young,

    Great info on etf and e-series funds. I am a newbie investor in 20s and I have e-series funds in my TFSA. I am wondering if it make sense to hold same funds in my RRSP as well? I would appreciate your input.

    Thanks,



  8. Kyle on June 8, 2015 at 7:54 pm

    Hey Tej, I’ll step in here on Young’s behalf. I would decide first whether you want to save in your TFSA or RRSP. Check out our article on the topic for more information. The short answer is that yes, the TD eSeries would be good in your RRSP as well. I’m a huge fan of both the ETFs and eSeries, just pick one and go to town and you’ll be away ahead of most Canadians!



  9. Tej on June 14, 2015 at 4:40 pm

    Thanks Kyle



  10. Tom Thomas on October 30, 2015 at 1:18 pm

    I think there’s a little confusion here. The Canadian couch potato does recommend index mutual funds if you have less than $50,000. He goes on to explain his logic behind this and it basically boils down to trading commission fees which he assumes are $9.95 per trade.

    While this is certainly true with most brokers, he may be unaware of Questrade. Because Questrade offers commission free purchasing of ETFs, they become a no brainer broker for long term ETF investments, which general offer a higher return than TDs index funds.



  11. Kyle on October 31, 2015 at 7:58 pm

    Agree completely Tom. Thanks for the update!



  12. Martyna on June 28, 2016 at 11:33 am

    Hello,

    My knowledge of investing is limited so I hope to get some honest advice here.

    I would like to invest monies to my newborn future education via TFSA. I have invested in mutual funds before via bank, but would like to now manage my own investment via TD Waterhouse so as to reduce the management fees.

    I have $1,500 at this current time to invest. Would investing into e-series funds be a better option than traditional mutual funds in terms of ROI in the long run?

    Thanks for your advice.



  13. Kyle on June 29, 2016 at 2:28 pm

    Maryna, perhaps it’s worth you checking out a few of our articles around the site about DIY investing. My first question is why not use an RESP for your child’s education?



  14. Martyna on June 29, 2016 at 3:24 pm

    Hi Kyle,

    I have a hard time committing to accounts that are restrictive / have rules how I can use my money (i.e., RESP, RRSP). I prefer using the TFSA because it’s tax-free and offers more flexibility overall.

    In regards to Canada’s RESP specifically, contribution per child is $50,000 and government will match up to a maximum of $7,200 (as of 2016). Some of the limitations with RESP account” Should my child decide not to go to school, governments contributions plus interest is taken away. Should my child decide to use RESP for school, she will be taxed.

    I prefer to use TFSA to purchase mutual funds, e-series funds, etc. to make money, and not be taxed on it upon withdrawal.



  15. Kyle on July 3, 2016 at 1:22 pm

    These are good reasons to use a TFSA Martna, but along with those restrictions, comes some really cool features in the TFSA/RRSP. For example, with that RESP you mentioned, you’re getting an automatic 20% return on your money the second you put it into the account (up to the maximum). In today’s day and age, it’s unlikely a child will require no post-secondary schooling of any kind. RESPs are super flexible in what they deem to be qualified post-secondary education. Have you ran the numbers to determine the possible returns you’re sacrificing in the name of flexibility?



  16. Harry on September 24, 2016 at 12:19 am

    Which brokerage you will recommend in Canada for self directed RESP .My plan is to buy dividend stocks along with ETF in this account



  17. Kyle on September 24, 2016 at 9:03 am

    Hi Harry, Check out our free investing eBook to see which brokerage I’d recommend. Cheers.



  18. Cody on October 4, 2016 at 7:26 pm

    I have recently invested in a range of TD eseries funds from following the couch potato guidelines. My question; as I watch my funds grow, should I be buying and selling these as I watch the values go up or am I supposed to just hold tight on them .

    Question from a mega newbie!!



  19. Kyle on October 5, 2016 at 10:40 am

    Hi Cody, congrats on taking control of your financial future! For the most part just hold on tight. Your next step should be to read up on re-balancing either on this site or the Canada Couch Potato’s website. When you’re just starting it’s basically as simple as adding the right amount to each of your asset allocations each month or quarter.



  20. FindingValue on November 24, 2016 at 11:48 am

    One thing I noticed in these comments is that nobody mentioning commission free ETFs available through Scotia iTrade. One can, not only dollar cost average and flexibility to buy everyday (every hour) without incurring any transaction cost at all. As well, it has 50 ETFs to select from, to diversify across all major asset classes like Bonds, Commodities, Stocks and across geographies for US, Canada, Europe and emerging markets.



  21. Zehra on December 3, 2016 at 11:34 pm

    What would be recommended within the Vanguard ETFs that can be held as RRSPs, with the idea that you will withdraw in 2 years for a first time home buyers program? Ideally, something that is conservative, as this would not be a long term hold. Any suggestions?



  22. Kyle on December 4, 2016 at 7:49 pm

    I’d honestly just go with a vanilla bond ETF Zehra – any of them will do similar things.



  23. Remi on March 19, 2017 at 5:50 pm

    I highly recommend the RESP Book “the Simple Guide to Registered Education Savings Plans for Canadians” by Mike Holman for anyone considering RESP to know and understand more about rules ect. Anyone investing for a child’s education should have an RESP rather then an TFSA and not use groups/pooled plans because THEY have very restrictive rules. Otherwise, the rules for RESP alone aren’t very severe at all, even most part time study will allow you to cash out the money with no penalty. That 20% (up to $7200 per child) really adds up!! its free money you would never get otherwise.



  24. Kyle on March 20, 2017 at 9:41 am

    Agreed! Great suggestion Remi.



  25. Joanne on May 18, 2017 at 11:07 pm

    I am confused. If I put my money into a Vanguard ETF why do I have to rebalance? Do I not just leave it there and it grows?



  26. Kyle on May 24, 2017 at 9:49 pm

    You do leave it there Joanne – but do you want all of your money in a the Canadian or American stock markets? Maybe you want a portion in bonds? Maybe a portion in emerging markets?



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