Thursday, December 11, 2014

Index portfolios have done well this year


Read on your blog on some experiments with ETFs. Was looking for your thoughts on TD Canadian Index fund (e-Series) with a MER of 0.33%. Have you ever tried this?


The TD e-Funds are excellent. The MER for the TD Canadian Index Fund-e (TDB900) is not unreasonable, a little higher than some ETFs but on the plus side there are no trading fees. If you are adding to your portfolio regularly, this can add up to a big savings.

One warning, I believe there is an early redemption fee of 2% if an e-fund is redeemed within 90 days of purchase. Also, one must have a TD Waterhouse account to be able to buy TD e-Funds.

At the beginning of this year I set up a number of test portfolios using software offered by TD Waterhouse. My test e-fund portfolio was up about 6.5% today. I used approximately the following mix:
  • 40% TD Canadian Bond Index e-Fund
  • 32.5% TD Canadian Index e-Fund
  • 7.5% TD International Idx Currency Neutral e-Fund
  • 15% TD US Index Currency Neutral e-Fund
  •  5.0% TD Investment Savings Account (TDB8150)
A second portfolio composed of about 15% TD US Index Currency Neutral e-Fund combined with the TD Monthly Income Fund performed even better than the above. Adding the U.S. exposure kicked up growth by a full two percent. No surprise here considering how well the U.S. market has performed this year.

Out of ten test portfolios, the best performer for the year thus far was the Compete Couch Potato portfolio. It pumped up the returns by almost another half a percent over the twin mix above. I must hang my head in shame. This couch potato portfolio demolished me. I own far too much oil and have too much exposure to financials. My portfolio got kicked to the curb this year. I strayed from my plan allocation at my peril.

On the plus side I've got room to spare when it comes to those much needed dividends. As a retired fellow, I need income and my portfolio delivers it in spades. Even a fair shrinkage in my dividend stream will not endanger my retirement lifestyle. I am not going to be forced to sell at fire-sale prices in order to get through 2015. In fact, I see the present softness in the Canadian market as a future buying opportunity. Buy low and all that, you know.

My advice: check out the Canadian Couch Potato blog. Another good blog to check out, especially if you are interested in index investing is My Own Advisor.

Oh well, next year may be better. When oil finds a floor, my portfolio will have a chance to start its recovery. I've learned when oil takes a dive, it takes a lot of other stuff down with it. For instance, REITs with a lot of property in Calgary and Edmonton are being hit. The Canadian banks with lots of loans to Albertans and lots money tied up in the oil patch are also dropping.

This is the year I should have gone the index route.

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