Lets' say you decided to use 4 TD funds, and you are investing $950.
You could purchase 25% or $237 of each of TDB909 (Canadian bonds), TDB900 (Canadian equities), TDB902 (US equities), and TDB905 (international equities).
That would leave you with $2 cash in your account - it's a rounding error so you can add $2 to any of the funds, for example buy $239 of TDB909.
Our table shows commonly used funds from 2 providers - use it as an example and do your own research.
Index mutual funds are precisely identified by code rather than by name (like TDB909 in the table).
Let's say you want to invest $1,000.
You could purchase $333 worth of each of TDB900, TDB902, and TDB905, for a total of $990. You'd be left with $1 in your account - but you can add it to any of the funds and buy $334 of it.
You can add fixed income to an equity-only mutual fund portfolio by buying one or more GICs - directly from the issuing bank, choosing one that offers a good interest rate.
- At times it makes sense as the interest on the GICs may be higher and come with less risk than a bond mutual fund.
EXAMPLE 2
Asset mix
0% fixed income / 100% equity
- There is no fixed income component.
- The equity component (100%) is divided into 3 equal parts of 33% each (Canadian, US, and international).
- 1% is leftover - it can be added to any category (rounding won't affect your asset mix much). This portfolio has 34% Canadian equity.
You can build your portfolio by mimicking a ready-made portfolio
index mutual fund built by finance professionals.
Other fixed income alternatives
Consider GICs (guaranteed investment certificates) as an alternative to fixed income index mutual funds. They require slightly more effort because you have to set up a separate account / buy GICs / keep up with them - possibly having to deal with another financial institution. GICs often make more money than fixed income mutual fund of comparable risk.
There are several other benefits.
- GICs are simpler, more predictable, and less expensive than fixed income index mutual funds.
- Mutual fund distributions are not known in advance. GICs pay stated interest - you know exactly how much you'll earn.
- GICs have no MER fees.
- When you sell mutual funds, you don't know how much you'll get. It depends on the price other investors are willing to buy at. GICs work differently - you'll know exactly how much you'll get.
- GICs are insured by the federal or provincial government - up to $100,000 per GIC.
build your portfolio
find index mutual funds that fit your asset mix
You'll use equity and fixed income index mutual funds to represent your asset mix.
Use a few equity funds, like "Canadian equity fund", "US equity fund", and/or "International equity fund" (rich countries outside Canada and the US).
Find one fixed income fund. like "Canadian index bond fund".
Make sure the fund is an index fund - the word 'index' should be in the name. If you're not sure, each fund has a "Fund Facts" document. Another clue is the fund's MER - index funds are less expensive than active funds. Worst comes to worst, call a branch and ask - they should know everything about their funds.
we've done some research for you on portfolio funds you can mimic
Here are some real ready-made portfolio index mutual fund offers, representing different asset mixes. Use them for inspiration - but remember, your asset mix is your choice.
- Find your asset mix in the left column and follow that row - you'll find two sample portfolios.
EXAMPLE 1
Asset mix
25% fixed income / 75% equity
- In fixed income (25%) you'll buy a Canadian bond fund.
- The equity component (75%) is divided into 3 equal parts of 25% each (Canadian, US, and international).
What does it cost in dollars? Let's look at Example 1.
The MER for the portfolio is 0.43% if you use the 4 TD funds, and 0.66% if you use the RBC funds.
We calculated it as an average of the MER for the individual funds (which you can find on the providers' websites).
If you have invested $5,000 for one year, in dollars you'd pay $21.13 at TD and $33.13 at RBC.