Investing 101

Investing 101


You know how when you start keeping a food journal, Apps like MyFitnessPal will give you a nutrition template to start from – something that (together with eat less, move more) will get you healthier and closer to any weight loss goal.

Screenshot 2014-11-12 14.30.20

But that (if you are anything like me), left to your own devices, after a month your personal results probably look more like this: 

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And when you finally see this pie-chart (no pun intended), you think something like, “Wow, enough with the bagels, pizza and fettuccini – time to rebalance my food intake back to something that will give me a fighting chance to lose ten 40 pounds.  


Then you know everything you need to know about rebalancing. 

In addition to low fees and diversification, rebalancing is super important to maximizing your investment returns over time (how much time? Think 20 – 40 years).  

Stay tuned and we’ll walk through, step-by-step, the why and the how.

I Want To Talk About Fees

vanguard etf canada

Almost everything in this blog, related to investing, will come down to one of three things: 

  • Fees
  • Diversification
  • Your brain (God love it!) 

I am going to tell you the stories of two women.  

So turn off your iPhone (unless you are reading this on your iPhone, lol), grab a glass of juice or wine, and for sure pull up a chair –  you are going to want to be sitting down for this. 

CAROLINE, a 25 year old Marketing Director at a furniture warehouse company, created and managed a phenomenal campaign highlighting the dangers of sitting (sitting is the new smoking, you heard it hear first!), and the benefits of standing desks. The effort resulted in a 76% annual sales.  Caroline’s COO was so impressed with her work, Caroline received an unexpected, additional $10,000 bonus for 2013.

Shortly after the $10,000 was deposited into Caroline’s bank account, a mutual fund representative from her bank, the Bank of Nova Scotia, called to say that he noticed the significant cash balance in her account, and would she like to consider investing in a mutual fund? After a short conversation confirming her long-term time horizon and her moderate risk tolerance, Caroline agreed to invest the entire $10,000 in the Scotia Global Growth Fund.

She was super happy to hear that there were no fees to purchase the mutual fund and so she readily agreed to a $500 a month auto-payment to the same fund. Less than a week later, Caroline received a slip in the mail confirming her $10,000 investment in BNS974. Ten days after that, she received another slip for her first $500 monthly investment in the same fund, BNS974. Caroline felt huge gratitude toward her bank for taking the time to reach out to her, assisting her in (finally) setting up an investment account.

BEATRICE was a highly-sought after computer programmer, having taught herself HTML5 and CSS3 from CodeAcademy. A new start-up in Montreal was so interested in having Beatrice join their team that they offered her a $10,000 signing bonus. Beatrice was ecstatic and jumped at the opportunity. Her first day on the job, Beatrice sat in a huge industrial loft, in an open-concept layout with six other developers – all working on a new iPhone App to track portfolio returns for Canadian investors.

The subject of the App had several of the developers, all men, comparing their personal investment returns and current holdings. One of the men, the oldest of the group at 35, pulled down his head-phones and said, “Because of Ebola and ISIS, global funds have had a serious pull-back.” Scratching his long, hipster beard, he continued, “But, with the recent announcement of Japan stimulus, it could be good to look at the Vanguard FTSE Developed ex-North America Index ETF (VDU), which also just reduced its MER from 0.28% to 0.20%.” He could have been speaking Greek for all Beatrice knew, but she could not believe how several of the team quickly logged in to their online trading accounts, making quick market purchases of VDU on the TSX.

“Because of Ebola and ISIS, global funds have had a serious pull-back.” Scratching his long, hipster beard, he continued, “But, with the recent announcement of Japan stimulus, it could be good to look at the Vanguard FTSE Developed ex-North America Index ETF (VDU), which also just reduced its MER from 0.28% to 0.20%.”

Beatrice, no stranger to online learning, waited until she got home that evening to do research on both Vanguard ETFs, and discount brokers in Canada. Choosing Questrade for their no-fee ETF option on purchases, Over the next few weeks, Beatrice was easily able to transfer her $10,000 to her new Questrade account, ultimately purchasing $10,000 of VDU. Beatrice was so excited that she also set up a monthly transfer of $500 per month to Questrade, for additional purchases of VDU.

…40 years later: 

Both women enjoyed tremendous personal and professional success, and neither contributed (or withdrew) more-or-less than their original $10,000 and $500/month for forty years. 


Both the Scotia Global Growth Fund and the Vanguard FTSE Developed ex-North America Index ETF (VDU) returned 9.3% annualized returns, before fees, for the forty-year period.  

  • Nancy:  $1,388,305.84
  • Beatrice: $2,597,717.18

Yes, you read that correct.  

Both women contributed the exact same amount, at the exact same time periods, and both funds returned exactly 9.3% before fees over the forty-year period.  

And yet, Beatrice has $1,209,411.34 – or almost twice as much as Nancy.  

How could this happen?  Tune in next week to find out. 

A bit of fine-print on the above post:

Both of these women and their stories are fictitious ( and that was hard to spell!),  Both investments – the mutual fund and the ETF – are real, as is the formula used to calculate the assumed 9.3% rate-of-return on the forty year time period.  For the sake of simplicity, the additional $6,000 annual contributions were calculated as one single contribution made at the beginning of a single, annual compounded period.  Don’t worry about this last point, final returns are not significantly affected.  


Vanguard Canada Comes Out Swinging

Vanguard Lowers Fee In Canada

Vanguard Canada lowered it’s already low fees on it’s offerings of ETF products in Canada. This is good news for investors, as I have previously discussed – fees are the (often silent) enemy to investors.

Vanguard ETF™ TSX ticker symbol New annual management fee1(% of NAV) Old annual management fee (% of NAV)
Vanguard FTSE Canada Index ETF VCE 0.05% 0.09%
Vanguard FTSE Canada All Cap Index ETF VCN 0.05% 0.12%
 Vanguard FTSE Canadian High Dividend Yield Index ETF  VDY  0.20%  0.30%
 Vanguard S&P 500 Index ETF  VFV  0.08%2 0.15%2
Vanguard S&P 500 Index ETF (CAD-hedged)  VSP  0.08%2  0.15%2
 Vanguard FTSE Developed ex North America Index ETF  VDU  0.20%2 0.28%2 
 Vanguard FTSE Developed ex North America Index ETF  (CAD-hedged)  VEF  0.20%2  0.28%2
 Vanguard FTSE Emerging Markets Index ETF  VEE  0.23%2  0.33%2
 Vanguard Canadian Aggregate Bond Index ETF  VAB  0.12%  0.20%
 Vanguard Canadian Short-Term Bond Index ETF  VSB  0.10%  0.15%
Vanguard Canadian Short-Term Corporate Bond Index ETF   VSC  0.10%  0.15%


If you have not yet read my post, I Want To Talk About Fees, I would suggest you do that now.  In regards to low-cost investing, there has never been a better time for Canadian investors.  

A bit of fine-print on the above table:

1The table reflects management fees payable by the Vanguard ETFs to Vanguard Investments Canada Inc. effective as of October 7, 2014, as reported in the amendment to the prospectus of the Vanguard ETFs. New management expense ratios will be calculated at the end of the year.  Vanguard expects that the MERs of the Vanguard ETFs will be substantially similar to their management fees, as it is expected that the only additional fees and expenses that will be borne by the Vanguard ETFs and included in the MER calculation will be any goods and services and/or harmonized sales tax payable by the Vanguard ETFs. Currently, Vanguard Investments Canada Inc. has agreed to reimburse the Vanguard ETFs for the ongoing operating expenses of the Vanguard ETFs’ independent review committee. It may discontinue this practice at any time. MERs for ETFs are generally higher than management fees for ETFs.

2This Vanguard ETF invests primarily in one or more U.S.-domiciled Vanguard funds. To ensure that there is no duplication of management fees chargeable in connection with the Vanguard ETF™ and its investment in the Vanguard fund(s), the management fee payable by the Vanguard ETF to Vanguard Investments Canada Inc. set out above is reduced by the aggregate of the management fee payable by the Vanguard fund(s) to an affiliate of Vanguard Investments Canada Inc. and certain expenses of the Vanguard fund(s) that are paid directly by the Vanguard fund(s) (together, the “Vanguard fund total expense ratio”). The Vanguard fund(s) total expense ratio is embedded in the market value of the Vanguard fund(s) shares in which the Vanguard ETF invests.