A retired couple I know recently asked me to look at their finances and make any recommendations that I might have. I anticipated that this might be my first opportunity to share some of the great wisdom I gained by reading Larry Bates’s Beat the Bank (if you don’t have that book you should get it!).
Turns out I was correct. They had about $20,000 invested in a TD Comfort Balanced Portfolio (DON’T CLICK THAT LINK!).
What a name! Comfortable. Balanced. The TD Marketing department was working overtime with that name. Turns out this fund is actually a “portfolio comprised of high-quality TD Mutual Funds” with “Professional portfolio management” or perhaps put slightly more bluntly. A fund of funds that is charging an outrageous MER of 1.91%!!
I wanted to show them that they could do better than paying almost $400 per year in fees. Assuming a conservative 5% rate of return, those fees would have resulted in their investment being roughly $16,600 less after 20 years!
I had a look at the breakdown (55% Bonds, 22.5% Canadian Equities and 22.5% World equities) and found that the fund is made up of 10 TD O-Series Funds. The couple could have invested in the 10 O-Series Funds and only paid an average MER of about 1.7 percent – Still outrageous! Meaning that TD is screwing people more at the individual fund level than at the Comfort Fund level (it’s a markup of only 0.2 percent, less of a markup than I expected). Still, if they owned the O-series funds they would return about $40 per year more and have about $1,600 more after 20 years – not much, but not nothing.
The TD e-series of funds is offered only through TD’s online brokerage (TD Direct Investing) and they offer TD’s lowest fee mutual funds TDB 851 & TDB 852 which are similar to the TD Comfort Balanced Portfolio fund, but with MERs of 1.24 and 1.27, respectively. Of course, the names of these funds are not nearly as sexy, or – comfortable. But, if a person is willing to open an online account and invest in one of these funds they would save about $130 per year on a $20,000 investment compared to the TD Comfort Balanced Portfolio Fund. After 20 years the value of their investment would be about $5,000 higher!
I know we can do better still…what if they were willing to buy 4 TD e-series funds:
22.5 percent of TDB900 (MER of 0.33) S&P/TSX Composite Total Return Index.
11.25 percent TDB911 (MER of 0.50) International Index – Excluding USA.
11.25 percent TDB902 (MER 0.35) US Index.
55 percent TDB909 (MER 0.5) Canadian Bonds.
The MER of this portfolio is about 0.45% That equates to savings of about $300 per year and a portfolio that is about $12,000 larger after 20 years than if they were to leave their money in the TD Comfort Balanced Portfolio fund.
Furthermore, Vanguard offers a series of asset allocation ETFs to Canadians. They offer VBAL which holds about 40% of assets in bonds and VCNS which holds about 60% of assets in bonds. Both of these ETFs have an MER of 0.25%. Again assuming a 5% return on investments a person who invests $20,000 in VBAL or VCNS would have about $14,000 more in 20 years than a person who invested the same $20,000 in the TD Comfort Balanced Portfolio fund!
So how comfortable are TD comfort funds? Well, I’m not comfortable with anyone that I know investing in them, that’s for sure!