Tag Archives: RRSP

What Is an ETF or Exchange Traded Fund?

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It seems like everyone is saying “Buy ETFs.” But what are ETFs? How are they different from mutual funds? Many people don’t know that ETF stands for Exchange Traded Fund. That can make it even more confusing because if someone advises you to buy a “fund” it’s not immediately clear whether they mean a “mutual” fund or an “ET” fund. Here’s some info to help sort through the confusion.

ETFs are a Hybrid of a Mutual Fund and a Stock

Like mutual funds, most ETFs are a pool of money that is invested in shares in a variety of companies or in a portfolio of other investments. One ETF might hold shares in all large companies listed on the TSX that pay dividends. Another ETF might hold physical gold, silver, platinum and other precious metals. A third ETF might hold short term-to-maturity bonds issued by various corporations. Usually ETFs do not hold only shares in one company or only one type of investment.

ETFs Offer Diversity

Like mutual funds, ETFs offer an investor diversity. By pooling money with other investors in an ETF before buying assets an investor can buy a small amount of many different financial assets. For example, for $100, an investor might be able to buy units in a fund that is invested in 100 companies. The investor couldn’t buy a share directly in each of those 100 companies with only $100 to invest.  The same benefit is offered by a bond ETF.

ETFs Are Traded on Stock Exchanges

Unlike mutual funds, ETFs are sold on as discrete units on stock exchanges. Just like you can buy a share in Suncor, you can buy a unit in the BMO Canadian Dividend ETF. You cannot usually buy fractional units, just like you cannot usually buy fractional shares. Like shares, you can buy one unit of an ETF or 100,000.

How Are ETFs Priced

The price per unit for an ETF can jump up or down all day just like it can for anything listed on the stock exchange. Mutual fund orders are filled at the price of a unit of the fund set at the close of the trading day based on the value of the assets held by the fund. You don’t actually know what price you will be buying or selling a mutual fund for when you place your order. You do know what price you will be paying for an ETF, if you set a price limit on your order to buy or sell.

ETFs Purchased and Sold on Stock Exchanges are Commissionable Trades

In general, you will pay a trading commission to buy (or sell) a unit or units of an ETF listed on a stock exchange. For example, if you have a self directed investing account with InvestorLine and if you are eligible for Flat Fee Pricing, you will pay $9.95 for each filled purchase or sale order of an ETF.

At the time this was written, Questrade a discount online brokerage company was offering clients free (no fee) ETF purchases. They only were charging a fee to sell ETFs.

Also at this time, Scotia iTrade, another online brokerage, was offering fee-free purchases and sales of 50 ETFs including some funds offered by iShares, Vanguard, Powershares and Horizons.

QTrade and Virtual Brokers may also offer some commission-free ETFs although not all ETFs are zero commission.

Are There Minimum Purchase Amounts for ETFs

In general, there are no minimum purchase requirements for ETFs purchased through a brokerage account from the stock market. The commission you have to pay to make a purchase, however, may make you think twice about buying an extremely small number of units. For example, if a unit is priced at $28 and you have to pay $9.95 to buy units, you may decide you only want to buy when you can afford several hundred dollars of investment.

Can I Buy ETFs Directly from the Issuer?

Generally speaking, you can’t buy ETFs directly from the issuer. Usually you have to buy them from the stock market directly or indirectly by buying them through a financial advisor.

Do I Have to Hold ETFs for a Minimum Time to Avoid Penalties?

Unlike most mutual funds, you do not have to hold ETFs for a minimum length of time. Many mutual funds charge a penalty if you sell them within 90 days of purchasing. ETFs can be sold as soon as they are purchased. You will usually pay a commission, however, on each purchase or sale of ETFs made through a brokerage.

Aren’t ETFs Index Funds?

Some of the first ETFs were index funds. They owned equities that matched those listed on specific indices. For example, an S&P TSX Composite Index ETF might hold the same companies that comprise the TSX Composite index in the same proportion.

These Index Fund ETFs were often offered for sale with very low management fees. For investors who don’t believe you can beat the market, these original index fund ETFs offered a simple way to buy virtually the entire market in one transaction with a low annual maintenance fee.

Most ETFs are not index funds anymore. And even if the name of the fund suggests it matches an index, you still need to review the fund in detail to see how it works. Names can be misleading. Nor are low fees guaranteed. You need to check the fees carefully and not just assume that they will be low.

Are ETFs Always Low Fee?

No. Many ETFs have very low management fees. However, each fund sets its own fee. Always check the details before you buy an ETF.

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Do you own ETFs? Do you prefer index ETFs or do you use them to invest in specific sectors or asset classes? Please share your experiences with a comment.

How to Set Up Automatic Transfers to an ING Direct Account

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Many people find the faster they move their pay out of sight the less of it they spend. You can automatically transfer money every day, week, or month to an Tangerine [formerly called ING Direct]  bank account from another institution to help you save. You can also transfer money within your Tangerine accounts. For example you can transfer from a chequing account to a savings account or to a TFSA or RSP account. It’s extremely easy and quick to set up automatic transfers with Tangerine. They call it their Automatic Savings Program although you don’t have to be saving to use the transfer process.

And you can cancel your automatic transfers at almost any time. (You can’t send a cancel order on the same day as the transfer is supposed to occur. You could try to phone Tangerine though and see if there’s still time to stop it.) It’s also a quick online process to cancel contributions.

How to Set Up a Regular Automatic Account Transfer for a Tangerine ING Direct Account

Log in to your Tangerine account online.

  1. From the list on the left hand side, click on Start an ASP.
  2. In the Amount ($) field, type the number of dollars you want to transfer each time to your account.
  3. From the Frequency: drop-down list, select how often you want to make an automatic contribution. The choices include
    • Daily
    • Weekly
    • Bi-weekly
    • Monthly

    Bi-weekly means once every two weeks. It does not mean twice a week.

  4. From the From: drop-down list, select the account from which you want to take the money.
    For example, if you want to transfer $45 per week from your TD chequing account, look on the list for it. The TD account number will be listed but not the current balance because Tangerine does not have access to your account information at another bank.
  5. From the To: drop-down list, select the account to which you want to make the deposit.
    For example, if you want to deposit the money in your Savings Account, look on the list for it. The Tangerine account number will be listed and the current balance will be shown.
  6. In the Start Date: field, type the date you want to start the contributions.
    It appears that the earliest date you can select is 2 business days after today’s date.
  7. In the End Date (optional): field, type the date you want to stop the contributions.
    If you want to contribute indefinitely, just leave that field blank.
    For information on how to stop automatic contributions, please see How to Cancel a Tangerine Automatic Savings Program (ASP).
  8. Click on the Next button.
    You may receive an error message if the amount per contribution you selected is too low. For example, I tried to set an automatic contribution of $5 (just to test the procedure) and was warned that the minimum for the types of accounts I had selected was $10.
  9. If all goes well, you will receive a review screen. It will list where the money will come from, how much, and where it will be deposited. It includes the start date and the frequency.
    If all of the details are correct, click on the Confirm button.
    To cancel the transaction, click on the Cancel button.
    To correct your selections, click on the Change button.

If you’re finished using Tangerine click on the Log Me Out button. For increased security, clear your browser cache and close your browser session.

To Check Your Regular Contribution Instructions for a Tangerine ING Account

  1. Log in to your Tangerine account.
  2. To check your settings at any time, click on the View My Accounts tab.
  3. Click on the account that will receive the transfer.
    (Or if you are automatically sending money away from a Tangerine account, click on the account that will be making the transfer.)
  4. From the list on the left side of the screen, click on View Pending Transactions.
    The effective date of the next transfer will be shown, along with a transaction description, type, frequency and amount.
  5. When you’re finished click on the Log Me Out button. For increased security, clear your browser cache and close your browser session.

You’re done!

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Do you find it convenient to set up automated transfers to or from your Tangerine accounts? Did you do it just to get the sign-up bonus or was there another benefit for you? Please share your experiences with a comment.
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