Easy Index Mutual Fund Portfolios with the Big Banks

Over the years while helping readers, friends, and co-workers with investing, I’ve come to the conclusion that convenience is of the highest priority, even if it means paying higher fees.  Most people simply want to stick with their current banking institution and have no interest in opening a discount brokerage of their own.

Having said that, if they “must” stay loyal to their bank and their mutual funds, I usually recommend that they pick their bank’s index funds as they will likely have the lowest fees of the mutual funds offered.

A new graduate at work recently asked me about investing and told me about the mutual funds that he is invested in.  While it’s great that he is investing at a young age, he is currently invested in mutual funds that average 2.5% MER.  My calculations show that a 1.7% reduction in MER results in a 60% portfolio size after 30 years….  60%!  I believe in corporate profits as much as the next capitalist, but excessive MERs simply do not add value to investors.

So what do we do about  my young friend with expensive mutual funds?  The path of least resistance is to switch to the bank’s index funds which would drop the portfolio MER from 2.5% to approximately 1%.

To help clarify which funds they should pick, here are the index funds offered by each of the big banks and their associated fees.  What I am aiming for is a portfolio that includes:

  • Canadian equity index;
  • US equity index (non-hedged);
  • International equity index; and,
  • Canadian bond index.

CIBC

  • CIBC Canadian Index Fund (MER 1.14%);
  • CIBC US Index Fund (MER 1.18%);
  • CIBC International Index Fund (MER 1.24%); and,
  • CIBC Canadian Bond Index Fund (MER 1.17%).

Royal Bank of Canada

  • RBC Canadian Index Fund (MER 0.72%);
  • RBC US Index Fund (MER 0.72%);
  • RBC International Index Fund (MER 0.71%); and,
  • RBC Canadian Government Bond Index Fund (MER 0.67%).

Toronto Dominion Bank

  • TD Canadian Index Fund-I (MER 0.88%);
  • TD US Index Fund-I (MER 0.55%);
  • TD International Index Fund-I (MER 1.00%); and,
  • TD Canadian Bond Index Fund-I (MER 0.83%).

TD also offers an e-series of mutual funds with extremely low MERs.  Among my favorite mutual funds out there and I use them for our family RESP.

  • TD Canadian Index Fund-e (MER 0.33%);
  • TD US Index Fund-e (MER 0.35%);
  • TD International Index Fund-e (MER 0.51%); and,
  • TD Canadian Bond Index Fund-e (MER 0.50%).

Scotia Bank

  • Scotia Canadian Index Fund (MER 0.98%);
  • Scotia US Index Fund (MER 1.02%);
  • Scotia International Index Fund (MER 1.14%); and,
  • Scotia Canadian Bond Index Fund (MER 0.86%).

Bank of Montreal

  • BMO Canadian Index Fund (MER 1.05%);
  • BMO US Index Fund (MER 1.17%);
  • BMO International Index Fund (MER 1.15%); and,
  • BMO Core Bond Fund (MER 0.95%).

While the majority offer index funds in the 1% range, the RBC and TD e-series funds stand out from the pack.  However, as previously mentioned, switching from your bank’s expensive under-performing active mutual funds to your bank’s index mutual funds will likely result in a much bigger retirement nest egg for you.

Alternatives with Smaller Banks

EQ Bank’s Saving Account Offers Close to 2% Annually. It is Canada’s best saving account.

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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John Thenganatt
7 months ago

I was wondering what your thoughts were regarding VASGX as a USD Mutual Fund to be held in a RRSP?

Francois
1 year ago

Hello.

Does Desjardins offer these as well?

Thanks

Francois

FrugalDiva
2 years ago

Hi,
I’m a not so recent graduate in her late 20’s and I just got into financial planning and savings. I currently have a take home of $3,200 per month with the hopes of getting a better job after sitting for a certification exam. I have approximately $30k in savings (all in my TFSA account and not invested). I bank with TD and would like to stay with them

Where would be a great way to stay building financial wealth – something with low risk?

Frugal diva
2 years ago
Reply to  FT

Hi,
I was informed that to invest in index mutual funds with Td, I would need to open a direct investing account. How easy is this for someone with no investment knowledge?

Is there a minimum I can invest with to get a better understanding of how this works?

marc
3 years ago

can you explain why scotia international index is not 100% equities at this time? it looks like 50% Canadian fixed income. does this have something to do with being related to futures contracts?

James
3 years ago

I’m a graduate student who just got into financial planning. I didn’t know any better and have just been putting money into a CIBC mutual fund. I guess my question is that should I just ask to switch my CIBC mutual fund to the CIBC Canadian Index Fund?

Randy
3 years ago

Just found your website and was reading through this article. I am currently 53 years old and not planning to retire till my late 60’s. I have aGroup Retirement Savings Plan through my work and RBC. I have approximately $100,000 in it solely invested in mutual funds. I am thinking of transferring these to the RBC index funds after reading a few of your articles. I dont like to be too conservative. Which of the index funds would you recommend and which asset allocation would you recommend or suggest based on my age. Thank you

Charles Page
3 years ago

Hi this is my very first question. I have to convert to an annuity by end of the year. I have mutual funds with RBC, mostly Canadian equity, and precious metals. Should I convert all to index funds?Can I do this after end of 2017?

Thanks

VirginInvestor60
5 years ago

I have mutual funds and etf’s with a full service broker. I just opened a Questrade account. If I transfer those funds to QT (where the identical fund fees are significantly lower) will the fees instantly be reduced?

Duke
5 years ago

Forgive my ignorance but when it comes to the MER, if i currently have my RRSP investments tied up in a mutual fund that carries an MER of 2.5% and i wanted to switch to index mutual funds, wouldnt the MER be about the same?

Ex, for the BMO index funds listed above:
BMO Canadian Index Fund (MER 1.05%);
BMO US Index Fund (MER 1.17%);
BMO International Index Fund (MER 1.15%); and,
BMO Core Bond Fund (MER 0.95%).

If you add up the MER you get 4.32%. I assume you have to average them out to get the realistic MER you are being charged? So if I had 100% of my RRSP spread out in 20% Canadian Index, 20% US Index, 20% International and 40% Bonds, my actual MER would be somewhere around 1.1% instead of 2.5%?

Thanks in advance

The Underground Woman
5 years ago

I tried recently to help a relative switch from having all her registered account holdings invested in a single high-MER balanced fund to being invested in the appropriate asset allocation but using the bank’s index funds. The push-back was beyond belief and only be escalating the issue to the bank manager were we able to make the change desired. This took place at Scotiabank.