Simple Investing 101

danko and ryan as college kids

If you want to start investing, it can be simple.

The cheapest way I’m aware of (and the way I do it) is to get a “self-directed investing account” at TD Canada Trust, with Web Broker enabled. This can be a bitch to set up in person at a branch, but once it’s done it’s done and you can enjoy a lifetime of investing without paying some banker thousands of dollars to click a mouse for you. Because that’s what’s happening if you don’t do this yourself. A banker will charge 1-2% annually whether you make money or not. Bankers get away with this because it doesn’t sound like much and what they’re doing seems mystical.

It’s not magic. And it’s not difficult.

And when your balance is only earning 2% in interest annually, that means you’re losing all of your interest in fees if you have someone manage your account. FUCK that. YOU manage your account and keep those thousands so they can compound.

Once you have the Web Broker enabled TFSA account open, you add your TFSA as a bill payment from whatever other bank you normally bank with, and that’s how you get cash into the account.

Once cash is in there, you can buy whatever you want but I’d argue violently for choosing indexed mutual funds with the lowest Management Expense Ratio (MER) possible. As linked to above, my trio of death include TDB900, TDB905, and TDB902. This covers the entire Canadian, US, and International markets. It’s as diversified as you can get (aka lowest risk), with the lowest management fees, and gets you that juicy 7% average annual return over the long term.

There is no transaction fee when buying or selling mutual funds (as there are with stocks, which is about $10 each time you buy or sell). MER is what you pay the person who manages the entire mutual fund (this is not your local branch banker, this is some superstar way high up the TD foodchain).

As far as I can tell, this MER fee is unavoidable, so the best we can do is to minimize its damage as much as possible. AND THE DAMAGE CAN BE SIGNIFICANT. If you currently own mutual funds, find out what the MER is on the funds. It should be easy to look up online. Lia and I are paying between 0.33% and 0.51% MER rates on the TDB900, TDB905, and TDB902 mutual funds we own.

So if you’re paying 2% or 3% MER, that’s between 5 and 10 times more than you could be paying with TD’s E-Series funds. From what I’ve been able to find online, these are the least expensive indexed mutual funds available.

And they’re the ones David Chilton says you should buy. So there’s that.

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