Reader Mike has the following question:
In my various reading adventures over the last year, the overwhelming message is to move to ETF/index funds/passive portfolio management using a self-directed account. The counsel seems to end there. What does one do with the newfound purchase freedom? My prime motive in moving is to lower the expenses for holding investments. In my case, my RSP investments are primarily mutual funds.
I could:
- Sweep through and sell everything single one of them, incurring lots of DSCs, and buy ETFs.
- Wait until I’m clear of the DSC snag before unloading the funds (but then what was the point of transferring my account?)
- Switch to a fund within the same family that possibly has a lower MER, explore some of the cheaper fund classes that are out there.
Option 3 seems best, not knowing exactly the total DSC potential without checking each funds DSC rate, but it’s a daunting task given that there are so many possibilities. The point of this was to make it passive investing. I don’t mind following though on finding equivalent, cheaper funds within each fund family if that’s what it takes. I’m curious to know what other’s experiences are and if there is better approach.
If you substitute stocks for mutual funds, your dilemma is similar to the one I face, except that I do not have to pay a fee for selling a stock early. I would suspect that a similar strategy to the one that I adopt with stocks would work for you:
- Devise your asset allocation targets based on your age, risk tolerance etc.
- Invest new money into index funds so that it brings you closer to your asset allocation target.
- Whenever a stock position is sold, invest the proceeds in index funds according to the target established in (1).
I am afraid that you have no alternative other than analyzing each mutual fund that you currently own and deciding whether to sell or hold. Some funds may have posted such a terrible performance that it may make sense to bite the bullet, take the DSC hit and sell. Others may have a satisfactory performance and you may decide to hold them for now as a proxy for one of the asset classes you want to be invested in. Fortunately, taxes are not a consideration because your holdings are within a RRSP. I welcome readers to share their thoughts on Mike’s question.
