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I am 23 years old and have been in industry for a couple years and my savings have grown to an amount whereby GIC's are no longer good enough.

Since I bank with TD Canada Trust, there seems to be a consensus that TD e-Series funds are a good investment option.

Two examples of e-Series funds are the Canadian Index Fund and the Canadian Bond Index Fund. I like these because return expectations are decent and management fees are 0.33% and 0.5% respectively.

I think I have a good grip on things.

However, I can't help but notice that many articles about the topic seem to suggest something along the lines of:

The strategy is touted as a good option for beginners because it gives investors a simple way to set-up a low-cost, broadly diversified portfolio.

I'm trying to understand why these funds aren't a great option for all investors- why just beginners?

The idea is that these are indexed funds and with low fees- unless someone wants to pick individual stocks and take on that level of risk, why isn't this a great option even if I had a million dollars to invest?

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A suitable mix of index funds IS a great option if you don't want to spend a lot of time and effort micromanaging your money.

If you find amusement in pushing numbers around, you may be able to do better. Notice: MAY.

If you have multiple millions, you can hire someone of that sort to push the numbers around for you. They may do better for you. Notice: MAY. And remember that part of your additional gains have to go to pay them, which means they have to do better just to be worth having on staff in the first place.

If you have more than that, there are some options available which smaller investors really can't get involved in. As one example: If you have enough money that you can lose $100K without especially noticing, you can get involved in venture capital and the like which require a large commitment AND are higher-risk but can yield higher returns.

Anyone who's dismissing index funds as "only for beginners" is being foolish. But recommending them to beginners in particular is a good thing since they let you get into the market with fairly predictable risk/benefits without needing a massive investment in education and time.

  • I've also read that 99% of full time fund managers cannot outperform the index/market and so why not use low cost mutual funds and ETF's even if you have millions to invest? – karancan Nov 8 '14 at 17:54
  • Everyone dreams of outperforming the market. By definition, half of those in market will underperform the average. If you're somewhere near the peak of the bell curve, you're actually doing pretty darned respectably... – keshlam Nov 8 '14 at 18:25
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I am a firm believer in TD's e-series funds. No other bank in Canada has index funds with such low management fees. Index funds offer the flexibility to re-balance your portfolio every month without the need to pay commission fees. Currently I allocate 10% of my paycheck to be diversified between Canadian, US, and International e-series index funds.

In terms of just being for beginners, this opinion is most likely based on the fact that an e-series portfolio is very easy to manage. But this doesn't mean that it is only for beginners. Sometimes the easiest solution is the best one! :)

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The simple answer is that whatever strategy is implemented with e-series, could be implemented at a lower cost with ETFs.

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    Provided that trading commissions for the ETF approach don't exceed the management fee cost savings. So, depends on the frequency and amounts invested. – Chris W. Rea Nov 3 '14 at 12:56
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Most articles on investing recommend that investors that are just starting out to invest in index stock or bonds funds. This is the easiest way to get rolling and limit risk by investing in bonds and stocks, and not either one of the asset classes alone.

When you start to look deeper into investing there are so many options: Small Cap, Large Cap, technical analysis, fundamental analysis, option strategies, and on and on. This can end up being a full time job or chewing into a lot of personal time. It is a great challenge to learn various investment strategies frankly for the average person that works full time it is a huge effort.

I would recommend also reading "The Intelligent Asset Allocator" to get a wider perspective on how asset allocation can help grow a portfolio and reduce risk. This book covers a simple process.

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