Well after sitting on just over $100,000 cash in our RRSP accounts for months now I finished my research in various Exchange Traded Funds (EFTs) and came to agree with the model portfolio option #4 over at the Canadian Couch Potato.
In case you are too lazy to click the link, the portfolio is made up of four major ETFs:
- VCN – Vanguard FTSE Canada All Cap
- VUN – Vanguard US Total Market
- XEF – Ishares MSCI – International
- VAB – Vanguard Canada Bond
I laughed because I had predetermined that I would break up our portfolios into 60% equity and 40% bond before I started the research and that is ironically the exact break down recommended by Dan (author of the Couch Potato blog).
So you might wonder what the hell the advantage of going to ETFs are? Well in a word: fees. The MER on this portfolio is a rock bottom 0.192%, given we were previously in an index mutual funds with fees of 0.7%, that means we are saving just over $500 per year in fees, which more than offsets the $80 in trades it took to deploy the cash into these portfolios today.
Also you have to consider compared to the average mutual fund fees is around 2% or higher. So on $100,000 portfolio switching to these exchanged traded funds like this will save you $1808 per year in fees. Yes you can earn almost an extra $2000 per year in gains just by keeping your fees lower…isn’t that just a little mind blowing? Especially when you consider that compounding of that over a decade.
In case you were wondering…if you invest $100,000 at 6.5% return, after fees of 2% you end up with $157,000 in 10 years. If you lower you fees to 0.192% your final balance jumps to $187,0000…and that assumes you haven’t added a dime into those accounts.
So that is today’s point….keep your fees low. It will help you in the long run. So do you know what your MER fees are for your investments? If so, how low/high are you?