On Friday I had an appointment at the bank, it last just over an hour – and it will easily result in savings over over $20,000 over the next 10 years (or less).
How is this possible? It’s actually a lot simpler than you would think. All I did was follow through on one of my goals for this year. I finally decided to transfer my high cost RBC mutual funds to my direct investing account.
At the time of transfer I had the following 2 funds:
RBC GLOBAL DIVIDEND GROWTH FUND
RBC CANADIAN EQUITY INCOME FUND
The RBC Global Dividend Growth Fund was my very first Mutual Fund I ever purchased. I’ve owned this fund for over 10 years. This fund has been pretty terrible for me (10 year return of 5.3%) AND has really high fees (2.14%). Truth be told I’ve been unhappy with this fund for years, but just kept putting off doing something about it. Now that I am taking things more seriously, and have this website to hold me accountable I finally did something about it. I plan on replacing this fund with an International/Global ETF. I am currently trying to decide which low cost fund to replace this with. So far I am leaning towards one of the funds below- although I plan to do some more research this week:
VANGUARD FTSE GLOBAL ALL CAP EX CANADA INDEX ETF (0.27% MER)
ISHARES CORE MSCI ALL COUNTRY WORLD EX CANADA INDEX ETF (0.22% MER)
Even if I end up choosing the Vanguard fund with a slightly higher MER – I would be paying 1.87% less per year in fees than I currently am. With my current portfolio amount this would result in yearly savings of $1215.50. This savings amount would continue to increase each year as my portfolio increases – but even if we assume I don’t contribute to this account ever again, and it returns 0% for the next 10 years, that means in 10 years I will have saved $12,155.00. The crazy thing is that this ETF outperformed my high cost mutual fund by close to 4% over the last 3 years as well so not only will I be saving money in fees each year, I should be getting a better return as well.
Truth be told, even with the high MER (1.92%) – I’ve been really happy with the Canadian Equity Income Fund. It has a 10 year annualized return of 10.4%, and currently pays me a monthly dividend of over $200. I did a little bit of research and found out that RBC offers Series “D” funds for people who use direct investing. This is the exact same fund – but with a lower MER. I decided to transfer this fund to a series D fund rather than liquidate my position. This will reduce the MER from 1.92 to 1.04. This is a reduction of 0.88% per year. Based on my current shares this will save me: $572 this year (and even more every following year as my portfolio increases). Even if I never put another cent into this fund – and it returned 0% for the next 10 years – this would result in savings of $5720 over the next 10 years.
While I was at the bank I also finally set up an RESP for my kids and increased my spousal RRSP contributions by $100 every 2 weeks. I normally hate these appointments – but I’d say that was a pretty good use of an hour.
If anyone has any recommendations on any low cost global/international ETF’s I’d love to hear them so I can research them this week. Thanks in advance!