A Strategy with Vanguard ETFs
Vanguard's entry into the Canadian ETF market with very low management fees has many ETF investors considering making a switch. However, it costs commissions and spreads to switch over to Vanguard ETFs. This leaves investors weighing the costs to decide whether to change or not. However, there is a middle ground.
The most interesting of Vanguard's new ETFs to me is VCE which tracks the MSCI Canada stock index. This is a potential replacement for iShare's XIU which tracks the S&P/TSX 60. The management fees are 0.09% for VCE and 0.15% for XIU. These figures are not the complete MER, but we can assume that the difference in MERs will be close to 0.06%.
So, an investor with $20,000 in XIU could save $12 per year by switching to VCE. This isn't exactly a huge savings. It's hard to justify the trading commissions and spreads to make the change. But, there is a simple compromise: just buy VCE whenever you're adding new money or rebalancing toward stocks and sell XIU when you're withdrawing money or rebalancing away from stocks.
Personally, I'll be waiting a while with VCE to avoid the "bleeding edge", but I expect to be using this compromise strategy to avoid unnecessary costs.
The most interesting of Vanguard's new ETFs to me is VCE which tracks the MSCI Canada stock index. This is a potential replacement for iShare's XIU which tracks the S&P/TSX 60. The management fees are 0.09% for VCE and 0.15% for XIU. These figures are not the complete MER, but we can assume that the difference in MERs will be close to 0.06%.
So, an investor with $20,000 in XIU could save $12 per year by switching to VCE. This isn't exactly a huge savings. It's hard to justify the trading commissions and spreads to make the change. But, there is a simple compromise: just buy VCE whenever you're adding new money or rebalancing toward stocks and sell XIU when you're withdrawing money or rebalancing away from stocks.
Personally, I'll be waiting a while with VCE to avoid the "bleeding edge", but I expect to be using this compromise strategy to avoid unnecessary costs.
I like that idea Michael, adding new $$ to Vanguard products. I've done that with other products.
ReplyDeleteI won't be making a wholesale switch anytime soon, I can't justify selling hundreds of units of XIU for such a small difference in fees.
I have some XIU in a taxable account that has an unrealized capital loss. Seems like I could lock in that loss by selling now and help justify the switch? I suppose that would just be offset by the (hopefully) larger vanguard gain when that was sold down the road. So perhaps not?
ReplyDelete@Mark: It sounds like we're on the same page.
ReplyDelete@Kevin: Be careful of the superficial loss tax rules. I don't know if it would apply between XIU and VCE, but it's worth checking out before making any moves for purely tax reasons.