One of the ways that you are likely to lose out in terms of real returns is through fees. When you pay high fees, you end up seeing lower returns. These lower returns are then compounded by the fact that the money you pay in fees not only directly reduces what you receive, but over time that money that could have been invested instead isn't earning compound interest.
While you can't completely eliminate fees, it is possible for you to reduce what you pay. One way to do this is through funds that come with low expense ratios. You can also look for brokers with lower fees, and that offer commission-free options. One such broker is TD Canada Trust.
Using TD e-Series Funds to Invest
TD e-Series Funds may be the simplest way for someone to invest in a diversified portfolio with low Management Expense Ratios (MERs). Not only that, but these funds come with no additional setup fees, or even with commissions. You can reduce what you are paying in fees, and see a better real return over time.
Using funds is also a great way to gain instant diversity in your portfolio. Worrying about whether or not you are picking the right stock can be stressful, and market volatility can make it even more stressful over time. Funds, especially those tied to an index, can help you have peace of mind knowing that you are linked to the overall performance of that index. Over time, you are likely to build wealth. You don't have to worry as much about day to day market volatility.
If you are looking to build a diverse portfolio that will build wealth for the future, you can do it entirely with TD e-Series funds. Below are the four funds that you can use to build a rather complete portfolio and would work well for regular contributions into an RRSP, RESP or TFSA.
TD Canadian Bond Index tracks the performance of the DEX Universe Bond Index. The Universe Index is comprised of Canadian investment-grade bonds which mature in more than one year. It has a MER of 0.50%.
TD Canadian Index tracks the performance of the S&P/TSX Composite Total Return Index. The S&P/TSX Composite Index is comprised of Canadian issuers traded on the Toronto Stock Exchange. It has a MER of 0.33%.
TD U.S. Index tracks the performance of The Standard & Poor’s 500 Total Return Index. The S&P 500 Index is comprised of 500 widely-held U.S. issuers. It has a MER of 0.35%.
TD International Index tracks the Morgan Stanley Capital International Europe, Australasia and Far East Index. The MSCI EAFE Index is a broadly diversified index consisting of equity securities of companies domiciled in developed markets outside the U.S. and Canada. It has a MER of 0.51%.
As you can see, you get wide diversity with this portfolio setup, including exposure to international markets, as well as the safety of bonds.
Not only do these four funds invest you in the entire index, their MERs are about 2% lower than the average mutual fund. This 2% advantage can go along way when investing over a long term, especially when you consider the compounding savings as well as the direct savings.
Another article I wrote details some of the advantages that the TD e-Series Funds have over other mutual funds and shows you how to open a TD e-Series account.