If you are a passive investor who invests mostly in Exchange-Traded Funds, the new year may be an ideal time to check your trading behaviour over the past year. ETFs may charge rock-bottom fees but if you are trading too much, you may find that index mutual funds might be a cheaper way to implement your portfolio.
Take the Sleepy Portfolio, for instance. It costs an investor about 20 basis points in fees charged by the portfolio components. Trading costs are extra. The portfolio saw just one transaction in 2010, which would have cost less than 1 basis point assuming a $10 trading commission.
Investors in their accumulation years would have seen more activity because they are regularly adding their savings to their portfolios. Some brokers such as TD Waterhouse (read my review) make it really easy to check up on your trading activity by including information on year-to-date fees and commissions in the monthly statement. Add up the trading expenses across all your accounts and if you find that you are paying more than 20 basis points, you might be better off with TD e-Series or, for larger accounts, CIBC Index Mutual Funds. There is little point in investing in ETFs primarily for their low cost and then frittering away the savings and then some in trading commissions.
