Dec 122013
 

Investing can be scary and confusing, especially for beginners. Luckily, there’s a group of low cost mutual funds from TD that allows anyone to invest with ease. ūüėÄ If you’re not yet ready to deal with a discount broker or¬†pick individual stocks, then you should consider investing in some TD e-Series funds.

With as little as $100 to begin, you can buy these mutual funds that will track various stock and bond indexes. Here are some examples of e-Series funds to choose from.

  • The CDN Bond Index e-fund only has a management fee of 0.50%.
  • The CDN Index e-fund which tracks the Canadian stock market index has an MER of 0.33%.
  • The U.S. Index e-fund which tracks the S&P500 index has an MER of 0.35%.
  • Here’s a link to the full list of e-Series funds, and more info about them.

So let’s go over a couple of ways to set up an e-Series mutual fund account.

How to Open a TD e-Series Account

Method A: Opening a trading account with TD Waterhouse/Direct Investing (brokerage level.)
Step 1: Go to your local TD Canada Trust branch and ask to open a TD Waterhouse account.
Step 2: Complete the required application. You may either choose a non-registered account, or a TFSA account, as both are free.

Obviously if you already have a TD Waterhouse account then you are already set-up and can buy e-Series mutual funds any time with no commission. ūüôā

Method B: Opening an e-Series mutual fund account with TD Canada Trust (branch level.)
Step 1: Go to your local TD Canada Trust branch and ask to speak with a licensed mutual fund representative to help you open a non-registered mutual fund account.
Step 2: Fill out the mutual fund account application. Ask the financial representative for help if you get stuck.
Step 3: Tell the representative you want to convert your newly created regular mutual fund account into an e-Series account.
Step 4: He or she should print out a conversion form for you to fill out.
Step 5: Complete the form and hand it back to the representative. You may leave the branch at this point. Your conversion instructions may take 5 to 7 business days for approval.
Step 6:¬†After a week or two you should receive an email from TD confirming that your account has been successfully converted.¬†Log in to Easyweb, TD’s online banking system. You should see an account like “MUTUAL FUND NON-REGISTERED – 2378 #######” The¬†2378¬†means it’s an e-Series account ūüôā You are now ready to buy some e-Series funds with no commission.

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Feb 142012
 

My bank’s checking account has a $3.95 monthly fee. However this fee is dropped if I have at least $1,500 in that account for the entire month. Typical right? Just about every bank does this. Keep a minimum balance in your account, and the account fee is waived! I used to maintain the minimum balance to avoid paying fees. But I wasn’t too happy about it because I was essentially lending the bank my money, interest free.

But recently I have removed the minimum balance out¬†of my account and started to actually pay $3.95 every month.¬†But¬†why would I choose to pay more fees when I don’t have to?¬† Answer: *Opportunity Cost (^_^)
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It’s true that by keeping a minimum balance of $1,500, I save $47.40 a year on checking account fees. But if I can make more than $47.40 a year by investing $1,500 then I would be better off investing that money instead of keeping it tied up in the bank right? So that’s why I transferred the money from my checking account into my brokerage account, and used all that money to buy my bank’s own common shares. ¬†In other words, I purchased $1,500 worth of TD Bank stocks.¬†That’s because the stock’s dividend was more than enough to cover my checking account fees. Even today, according to google finance,¬†TD Bank currently has a dividend yield of 3.46%. This means if you invest $1,500 into TD shares today, TD will pay you $51.90 every year in dividends. If you live in BC and make between $43K and $74K of income per year like me, then you will only have to pay a *few dollars of tax on that amount and pocket $48.38. Not too shabby¬†(^o^)
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To review, I am now paying¬†the bank $47.40 in fees every year. Meanwhile the bank pays me¬†$48.38 (after tax) for being a shareholder. Basically this means I¬†get to use the bank’s chequing account service for free, AND make a tiny profit to boot. But it gets better! TD has grown it’s dividends 11 times in the last 12 years Ôľą Ôĺü–īÔĺüÔľČSo this year I¬†may receive $48.38¬†like we’ve calculated, but next year, I wouldn’t be surprised if TD pays me¬†$50 or more¬†because those dividends keep going up.¬†But it gets even better! The *payout ratio for TD is under 50%! ¬†This strategy also protects me¬†from higher banking fees in the future because once I became¬†a shareholder, every dollar of profit the bank makes from charging their customers higher fees will only add value to my¬†stocks.

 

Of course not everyone banks with TD. But this strategy is transferable. Here’s some basic information on a few other banks below.

BMO Practical Plan Chq Acct: Fee = $4.00/month. Waived with $1,000. BMO’s stock dividend yields 4.80%¬†
CIBC Everday Chq Acct: Fee = $3.90/month. Waived with $1,000. CIBC yields 4.69%
Scotiabank Powerchequing Acct: Fee = $3.95/month. Waived with $1,000. Bank of Nova Scotia yields 3.96%

But I can see why this may not be a good idea for some people. This strategy does come with risks after all. You risk the banks cutting their dividends in the future, even though they all have a solid history of growing them. You also risk losing some of your initial investment if their share prices drop and never recover, even though banks are the oldest and largest companies in Canada and the backbone to our whole economy. For short term investors and those who want to play it safe, keep your balance in the bank to save yourself some money. But if you want to live on the edge like me, then don’t let your bank hold your money to only benefit their own interests. Buy a piece of your bank instead and profit with them, and by the time you retire maybe you’ll be a little¬†wealthier¬†than if you hadn’t. (^_~)

*Opportunity Cost РLosing the opportunity to profit from a choice, because another choice was taken. Go ask an economist for a better explanation (>_<)
*few dollars of taxThe dividend tax credit makes dividend income very tax friendly. Depending on your location and other income, you may not have to pay any taxes on dividends at all.
*payout ratioTo be explained in a future post.