TD e-Series Funds: Not Just For Beginners
In a recent Carrick Talks Money video series on the Globe and Mail, Rob Carrick discussed the “I’m finally ready to invest” portfolio for young adults. He asked Canadian Couch Potato blogger Dan Bortolotti, and PWL Capital wealth manager Justin Bender to come up with a portfolio of exchange traded funds (ETFs) for the young investor who’s just starting out. They came up with a better and simpler approach using TD e-Series funds:
Related: How index funds compare with equity mutual funds
TD e-Series Funds
You can build a low cost, broadly diversified portfolio with just four index funds from the TD e-Series family. Just use this simple asset allocation:
| Fund type | Fund name | Allocation | Expense Ratio |
| Canadian Equity | TD Canadian Index – e | 25% | 0.33% |
| US Equity | TD US Index – e | 25% | 0.35% |
| International Equity | TD International Index – e | 25% | 0.50% |
| Canadian Bonds | TD Canadian Bond Index – e | 25% | 0.51% |
The strategy is touted as a good option for beginners because it gives investors a simple way to set-up a low-cost, broadly diversified portfolio.
Unfortunately, the “lack of sophistication” with this simple portfolio turns off a lot of investors who may feel the need to spice things up to get better returns, better diversification, or lower costs.
My argument is that TD e-Series funds are not only good for beginners but they can be useful all throughout your investing life.
Related: How not to start investing
“A portfolio of e-Series funds is almost certainly better than what 90 percent of Canadian investors have now,” said Bortolotti.
The main problem, as he sees it, is behavioural. People are surprisingly resistant to simple solutions.
Simple doesn’t mean stupid
The other obstacle is that some people still can’t get past the idea that mutual funds are for chumps and ETFs are for sophisticated investors. It seems like many investors think once you reach $50,000 or so that you must then “graduate” to a more sophisticated portfolio. Clearly that’s not the case.
“I have heard from dozens of investors who have successfully used the e-Series funds for years, but they’re itching to “move up” to ETFs, as though it’s some kind of promotion,” said Bortolotti.
He says mutual funds are actually superior to ETFs in many ways: more user-friendly, no commissions to buy or sell, no bid-ask spreads, ability to set up automatic contributions, and automatic reinvestment of dividends. These advantages tend to be overlooked by investors who zero in on management expense ratios (MERs) as if they are the only factor to consider.
Related: Are mutual funds really that bad?
“We’ve used the e-Series funds for several of our DIY clients, even for portfolios as large as $300,000 or so,” he said.
A couple recently profiled in MoneySense magazine had about $140,000 to invest and wanted to consolidate their current portfolios of individual stocks, actively managed mutual funds, and index funds into one simple and low cost solution.
Dan Hallett was the advisor quoted in the article and he recommended using TD e-Series funds:
“They’re ideal because they’re almost as cheap as ETFs but you don’t need to pay brokerage fees, you can invest to the penny, every cent of distributions can compound through a full reinvestment and they’re ideal for those making regular deposits.”
The Global Couch Potato – which can easily be built with e-Series funds – did almost as well as the more complex portfolios over 10- and 20-year periods.
Why are they so hard to buy?
The biggest knock against TD e-Series funds is how much of a pain it is to get them set up. The funds are called e-Series because you can only buy them online, but you can’t actually open the account online because the bank requires your signature. That means visiting a branch; where there’s a good chance the bank representatives won’t know how to help you set them up. See this recent thread posted in the Canadian Money Forum.
Speaking from personal experience, I didn’t have any trouble buying TD e-Series funds – but that may just be because I’m already a TD customer. You can read more about e-Series funds here, including how to set them up and what type of funds TD offers.
Final thoughts
I use e-Series funds for my kids’ RESP account and contribute $200 to one of the four funds each month. To rebalance the portfolio back into its original asset allocation, I’d simply buy more of the lower valued fund until it got back up to 25 percent.
The bottom line: TD e-Series funds are not just for beginners. If you want a simple, low-cost, broadly diversified portfolio, e-Series funds are definitely worth a look.
My concern with the couch potato approach is that it doesn’t specifically target dividend stocks. The record of these stocks beats the market as a whole. Further, these stocks pay you to wait and produce tax-efficient income. This is a solid, super simple plan for new investors. I think the claim that it “scales up” beyond 50k, 100k, etc., however, isn’t true. Even if you wanted to stick with the couch potato method, you can of course do free ETF trades on Questrade and enjoy lower MERs than e-Series — a worthwhile reduction if you have a ton of money in the markets.
Just to clarify, ETF purchases at Questrade are free, but ETF sales are not. So if you are adding new money to the account and can re-balance by buying more of whatever is doing poorly, it would work. But if you need to sell to re-balance, you will have to pay fees.
PS Glad to see you’re still alive!
Ditto 🙂
Hey Joe! At 0.42% MER, the e-Series portfolio is super cheap and it scales pretty well. Sure, Vanguard ETFs can shave a quarter percent off of that, but I would argue that ETFs are an added complication for many investors.
Same goes for dividend stocks – you’ll get no argument from me on the benefits, but it takes more time to manage and research your portfolio.
I agree with what Dan says – A portfolio of e-Series funds is likely better than what 90% of Canadian investors have.
A bag of dog #### is better than what the majority of Canadian investors have lol. When people reach a certain point with their portfolios, e.g. 100k and beyond, I think the little bit of effort to buy lower cost products is worth it (because a quarter percent is two hundred and fifty bucks on a 100k). But certainly if everybody were at least doing this, the country would be a lot less screwed.
I think this type of simple approach could be good for scaling down in later years also. Even though I have enjoyed buying my own securities, I can see where eventually I will want a balanced yet mindless conservative method of handling my assets when keeping abreast of numerous securities is no longer my desire.
@Robert – That’s a great point. A simple, stress-free portfolio may help you sleep better at night.
Hello
Might I put forward and ask for everyone’s perspective on another investment option that is even simpler while still low cost?
BlackRock’s Portfolio Series of balanced mutual funds (Series F) built with iShares ETF’s.
Thanks,
Shawn
Disclosure: I am a Group Retirement Plan Advisor hired by CFO’s and HR Directors to support the management, oversight, governance and negotiation of company sponsored retirement programs (Group RRSP’s, DC, DB, DPSP plans)
I think the concern with Blackrock’s Strategic Portfolio Series for the DIY investor would be defined asset allocation in each strategy. I think DIY investors are accustomed to choosing their own allocation.
I would hope financial advisors could utilize these more but in reality most advisors are tied to selling in-house products.
Shawn, what is your experience with these in the group setting?
– Kathy
Hi Kathy,
I put forward the BlackRock (single fund, multi-ETF constructed) portfolio approach to address the scenario as I understood it:
– simple
– low cost
– younger investor, starting out
– broadly diversified
Am I missing something? Versus TD e-series funds, the BlkRock portfolios seem to offer:
– comparable cost
– even more simplicity (1 fund, no need to time and calculate buys/sells to re-balance)
– wider level of diversification than proposed 25-25-25-25 approach above
If cost, simplicity and diversification truly are the criteria, how is buying basket of TD e-funds superior?
Or are people gravitating to what they know, fit with their biases?
1. “I think the concern with Blackrock’s Strategic Portfolio Series for the DIY investor would be defined asset allocation in each strategy.”
Agreed, the DIY investor is probably inclined (for better or IMHO for worse) to want to complicate things and chase performance, fads, headlines, current buzz.
But … wasn’t the central premise a “simple, low-cost, broadly diversified portfolio” ?
2. “I would hope financial advisors could utilize these more but in reality most advisors are tied to selling in-house products.”
Definitely agree, I also believe advisors are also inclined to recommend investments and strategies so that they can ensure they have an ongoing “job” and role/importance in eyes of their client (AND revenue stream).
Too simple and they are not needed.
Warren Buffet said it best:
” … most professionals and academics talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?
Shawn
“Shawn, what is your experience with these in the group setting?”
There are a number of different BlackRock products that are available for Plan Sponsors to add to the fund line-ups they make available to their employees. BlackRock Target Date and Target Risk investments are two examples, plus many platforms also make available individual BlkRock funds to gain exposure to many different markets, asset classes.
We have also experienced a slowly growing awareness and interest by plan members and plan sponsors in:
– importance of fees
– use of passive (index) investments
– availability of ETF solutions
– simpler investment solutions
The challenge is providing sufficient investment choice in a DC or Group RRSP plan that:
a) permits a plan member inclined to construct their own portfolio an appropriate number, breadth of investment options
b) does not create a fund line-up with too many investment options that will overwhelm and paralyze less sophisticated, less engaged employees
c) takes into account the fiduciary duty of plan sponsor, administrator to manage and oversee the investment options made available to their members on an ongoing basis
Good timing to read this. Met last week with a client who has reached 150k in TD Eseries and feels she should ETF based on all she reads. She loves the no trading fees for monthly savings. We also made a spreadsheet looking at the tracking error since 2005 compared to the index and ishares equivalent. A few years ago TD was way off the index , it has got better in the last 4 but as an example in the US index fund it could have cost her $1360 a year per $100k. She decided to upgrade to their more expensive account , use ETFs for her existing balance and buy monthly in the E Series , transferring it over when she rebalances. The real issue with TD is your chances of actually opening an account.Once past the mutual fund sales person at the branch pretending not to know what you want, good luck actually transferring existing RRSPs etc in. I have seen 4 people try in the last year. One gave up after too many branch visits , complaints and 4 months , another took 6 months to move a $60k RRSP. It doesn’t seem to help if you already bank with them either. Call centre staff are all very helpful but if something doesn’t get moved you cant find out why. Its impossible to get back to the same person , even if you have a name , agent number direct line or fax they work shifts. Ask to be put through and you get their voicemail as they are often on other incoming calls. I found one very helpful lady and have her email. Its the only way we got anything done.
I can share her contact details if you need them. 🙂
@Kathy – that hasn’t been my experience at all with e-Series funds but I have heard mixed reviews when it comes to setting up the account.
I have heard horror stories about the service at most discount brokers (Questrade in particular), but I suspect it’s the people who have the biggest problems who are the most vocal about their experience.
That hasn’t been my experience either. I’ve transferred 3 accounts easily–my RRSP, my TFSA, and my non-registered account all to TD e-series. All I did was fill in a form and mail it in. The change to each account took less than a month. Once converted, your account will still contain whatever funds you had in there only now you have the option to buy the e-series or transfer other mutual funds into them. The form is available at: http://www.tdcanadatrust.com/document/PDF/mutualfunds/tdeseriesfunds/tdct-mutualfunds-tdeseriesfunds-convertaccount.pdf
Just a quick question. How often do you rebalance this account?
@Joy – the total amount invested is still pretty small so I’ll look to re-balance every two years unless something is really out to lunch after one year.
It’s a bit odd that the recommended Couch Potato allocation from Dan here is 25% across the board. I’ve been following the Global Couch Potato strategy of his which contains 40% bonds. It’s also that way in all of the “model portfolios” on Canadian Couch Potato. (And what Bogle often mentions as a decent split.) Is the 25% allocation because the article is geared towards younger investors? Anyway, yeah–been doing e-Series for a few years and love the simplicity of it. (And the low cost!)
E-series is great for small amounts but for the true frugal DIY out there, Questrade is hands down the way to go. Buying ETFs is FREE meaning you can access lower MER and much broader range of funds.
On $100,000 an eseries fund with MER 0.2% higher than equivalent ETF costs $200/yr.
Also the US eseries is domiciled in Canada meaning in an RRSP all dividends are hit with 15% unrecoverable US withholding tax. This is avoidable with Questrade by buying a US domiciled S&P etf.
In general, are e-series or ETF’s the better way to go with a small amount to invest ($5000 or less)?
The Canadian Capitalist published an article back in 2008 that stated the equivalent ETFs to the e-series funds that you mention here. So, from what I understand, an account with these ETF’s would be pretty simple to maintain, with lower MER’s.
Just do the math. Eseries you are paying $10-30/transaction with TD so for 4 etfs let’s call that $80 annual transaction fees if you purchase every 6 months.
Say the avg MER difference is 0.3% higher for eseries than comparable etfs (just a guess). Well on $5k, you’d save $15/yr – so it would take holding the etfs about 4 yrs before they become a better deal than eseries.
Definitely go with eseries I’d say. You have the added benefit of being able to dollar cost average monthly if you want since no transaction fees.
I agree with R. When you start getting into bigger bucks ($300K+) you might think about moving the bulk of the portfolio out of a mutual fund and into a TD Waterhouse account. The trick is that you want to do very little buying and trading/rebalancing with ETFs when you have a small egg. The e-Series mutual funds is currently the way to go because there aren’t the associated transaction fees.
Awesome. Thanks for the advice guys. Much appreciated.
Hi Echo, would you recommend TDB908 (Nasdaq)? I have the usual 4 (TDB900, TDB902, TDB909 and TDB911) with 25% for each. Thank you so much!
Hi joanne, I’d personally stick with the four core funds (Cdn, U.S., International, Cdn Bonds), but I’m not a big fan of the tech stocks.
Thank you Echo for your response.
I am comparing TDB902 to TDB952, both US Index funds, but in the trend as of April 23, 2014 with an investment of 10K, TDB902 has a value of $11978.40 while TDB952 has $16217.15…seems like TDB952 is better. What do you think? I don’t know if I understand it correctly. Again thanks for your time.
Dan at Couch Potato explains why currency hedging the TD US Index Fund by using the US$ version of the fund isn’t necessary (or a great idea) here:
http://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/
(Check the comments section about 4 down from the top.)
I don’t understand much of the article, but I do know its author is a much smarter man than I am. …I’m willing to go with whatever he says.
Thank you Edward! Now I have a better understanding.
I have become interested in investing some money in etf and today I almost opened an account with Questrade. I am beginner who doesn’t know much about ETF, Mutual funds. After reading this article I have realized that I still have to learn a lot prior investing any money. I do not even know what Eseries are. I would honestly appreciate if somebody would explain to me how can I buy them and is that the best option for me to go with due to small amount that i am able to invest, only 5K and since I am absolute beginner. Maybe somebody can advise me to do something else.
Thank you in advance.
@Jozo – Get this book, it’ll explain everything you need to know – https://boomerandecho.com/goValueofSimple
Echo thank you very much for your recommendation i am definitely going to read this book. But I do not want to wait with my money just sitting on my account i’d like to invest it. After reading this article and many more I have discovered that e Series are great starting point and even I do not know much I can feel safe investing my money there and eventually at one point when I get more knowledge and more money to invest I can get more involved and start trading with ETFs.
Echo I would like to hear your opinion about this.
Thank you in advance!
I wouldn’t be in a hurry. Warren Buffett’s two rules of investing.
Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.
Hi
I have been investing in in TD eseries index funds in both RRSP and TFSA. Now that I maxed out in these accounts, I am looking to understand whether I can invest in non registered accounts with eseries funds? what would be the tax implication? Thank you.
RRSPs and TFSAs are just ‘bins’ for investments with special rules. Pretty much anything you can invest in those accounts you can invest outside them, including these funds. You just need to set up a non-registered account with TD and you’ll use the same system to make fund purchases. Make sure any auto-purchases are going to the right place because the bank won’t track if you’ve maxed your registered accounts.
As for taxation, it’s complicated. Here’s a good overview:
http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/understanding-tax/Pages/Investors-and-tax.aspx
This tax calculator won’t give you perfect information, but gives a good idea of how much you’d expect to pay on $1000 of investment income from a given source:
http://www.theglobeandmail.com/globe-investor/personal-finance/investing-calculators/taxes-and-investment-income/article651834/
Thank you for the information. I like the simplicity of buying e-series funds online. Glad you confirmed that I can continue doing the same in non-registered accounts as well. Appreciate the reply.
Okay Echo, it’s 2017 and I’m wondering how your e-series has been doing. Love this column btw!
I have a question about the percentages (25*4). How were these numbers calculated? They seem oddly equal. How do you know it shouldn’t be 24, 24,26,26. Or 40, 20,20 20? Or 91,4,3,2? Or anything else? Where is the math/research to support the even split in those 4 categories?
Disclosure: I am 5 years into retirement and mostly in S&P and TSX60 stocks. I am dabbling in the e-series for foreign and bond exposure, but they are still among my smaller holdings – probably I will go there more over time.