Vanguard ETFs: It is a pity that Canadians do not have access to mutual funds from index fund giant Vanguard. Vanguard ETFs, however, trade on US stock exchanges and Canadians with self-directed brokerage accounts can invest in the lowest-cost ETFs around. The MER of Vanguard Total Stock Market ETF (VTI), which tracks the entire US stock market, is just 0.09%. In other words, a $100,000 investment in VTI would incur an annual expense of just $90 (plus the commission to buy and sell the ETF). Other ETFs of interest from Vanguard are the Europe Pacific ETF (VEA, MER of 0.16%) and Emerging Market ETF (VWO, MER of 0.27%).
TD e-Series Index Funds: Investors can assemble a diversified portfolio at a very low cost with TD e-Series mutual funds. These funds are perfect for regular contributions — you can start with as little as $25. Note that the funds are only available online through TD Bank or TD Waterhouse.
Low-Cost Fund Families: You can avoid the high fees associated with many mutual funds by seeking out some of the lesser-known names. These money managers typically sell directly to investors and require a high minimum investment. But they provide active management at a much lower cost than the average mutual fund. Phillips, Hager & North, Leith Wheeler, Mawer and Steadyhand are some examples.
Wash Trading: If you sell and buy US stocks within self-directed RRSPs, most discount brokers will ding you with a two-way currency conversion fee: first when selling your US stock and then when buying your US stock. The currency conversion fee could add up to anywhere between 2% to 4% of your trade and could be much greater than the trading commissions. Wash trading, a feature available with some brokers (TD Waterhouse, for example), allows investors to avoid those pesky foreign currency conversion charges in registered accounts.
Dividend Reinvestment Plans (DRIPs): Many blue-chip companies offer shareholders the option of reinvesting their dividend cheques in company stock without any fees. Some companies even offer a discount on the share price for DRIP participants. Discount brokers also offer “synthetic” DRIPs but investors can only purchase whole shares — fractional shares are not allowed.