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.
What 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?