Indexed Mutual Funds Vs. Indexed ETFs

Indexed products have seen tremendous growth over the past few years.  More and more intelligent financial people are recommending it as individuals primary form of investing over actively managed funds.  The concept is to reduce the fees you pay, resulting in a higher return, which over the course of your investment lifetime, will result in substantially more money for the investor.  Both of these products track the same indexes and offer similar returns, so that begs the question which should you invest in?  To answer that first let’s define the two options and discuss the key differences.

Money Mangement

What are Index Mutual Funds and Indexed ETFs?


Both indexed mutual funds and indexed EFTs are both really similar in that their goal is to offer the same return as whatever index they are tracking.  The main difference is the makeup of their fee structure.  With a mutual fund, there will be a higher MER (management expense ratio), however there should be no fee when you purchase the fund.

On the flip side, an EFT has a much lower MER but is treated as a stock, where you pay commissions when you buy and sell it.

Which Should You Purchase?


Based on the above analysis you can create a simple breakeven equation to determine which is the optimal to buy.  The MER acts as the x variable (output is determined by the input amount) where the commission costs (buying commission plus the discounted selling commission) acts as the y variable.  You can then determine your breakeven point where you will be indifferent on a mutual fund or ETF.

Generally speaking, the average person will want to be invested in both.  Most people should be set up with an automatic purchase plan where a percentage of their pay will come off and be invested.  At this point a mutual fund will make more sense.  It isn’t going to be a large amount so the commissions are going to be much higher than any savings from a lower MER.  Then once the fund reaches your breakeven point you should switch over to EFTs (assuming you have held the investment long enough that you do not pay backend fees.  If so then wait until this time period has expired).

Using this strategy will result in the least amount of fees paid, maximizing your savings!


Something to Note


EFTs are technically a stock and have stock principles.  The main one of note here is supply and demand principles.  There is a case to be made that when you are closing in on retirement that switching back to mutual fund is worth the small amount of money you will give up due to the higher MER.  The case would be that in the event of a market crash, it might be tough to cash in the ETFs or you will have to do so under market value (large supply no demand lowers price than the value of the underlying asset if investors are concerned about market tanking).  In a mutual fund the value of the share will always be the value of the underlying assets.





Start Saving Young

save your money

One of the most power financial tools at a person’s disposal is compounding interest.  In order to gain the full power of this tool, you need to start saving as soon as possible!  Here’s an example to show the power:

If you start saving $500/year at the age of 25, by the time you retire at the age 65 it will be worth (assuming a 6% average ROI) just over $77, 000.  If you were to start just 5 years later, it will be worth just under $56,000.

That’s a crazy difference! The difference in the money the individual invests is $2,500 yet the total difference is $21,000.  Who wouldn’t want this!

This shows the power of compound interest and why you need to start saving as soon as possible.  The later you start, the more of your own money that you have to work hard for needs to be contributed.

Now, why do people start so late saving?  One reason is that there is this weird paradox when it comes to saving.  It is that when it is most important for you to be saving, you earn the least and therefore the most difficult for you to give up a portion of your income to savings.

Then there becomes the issue of people thinking that the small portion of their income that they can do without isn’t significant and therefore and so they figure why bother.  But that thinking is wrong!

Even if a person contributes $10 a paycheck to something earning 6% return a year starting when they are 20, it will amount to over $55,000.  That is not insignificant.

So what are some tips that people can use to help with their savings?  First, I would recommend, no surprise, start as young as possible.  Contribute whatever you can – no amount is insignificant.

Secondly, once you get to a point where you have financial stability start deducting a regular amount from your paycheck and contributed that.  At least 10% of your pay should be going to this but the more you can contribute, the more you will make your money work for you!

Lastly, if your company offers any sort of defined contribution retirement plan, take advantage of this to the fullest.  You are guaranteeing yourself a 100% return (if they match your investment.  If they only pay a percentage then you get percent return guaranteed).  In the first example above, that $500 investment amounts to almost $150,000 if there is a 100% defined benefit!

The power of compounding interest is THE best pay to make your money work for you.  Use it!

The Importance Of Knowing When To Save And Spend

Many people believe that in order to become rich, you’ve got to save, save and save.  However, this is not the case and often not true.  Even the opposite might be true.  A wealthy person always knows when to spend and when to save.  That’s how they become wealthy.  One effective way to become wealthy is to understand and know how to read the market.  You might want to read up more on that and do some research.  However, in this post, we will talk about when to spend and save on your everyday sort of products and services.

When to spend:

Spend, spend, spend on things like your home, car, and other resources you use every day.  When you’re looking to purchase a new home, don’t hold back on your funds.  Obviously, set certain boundaries for how much you want to spend on your new house, but don’t buy a house just because it’s cheap.  A house will last you a long time, especially if it’s built properly.  You might as well get everything you want done in your house so that in the future, you won’t have to think about it.  Other things attached with the house that you may want to spend on is house issues and fixing up.  You never want to try to fix your plumbing or air conditioner and end up breaking it more.  You can find the best heating and air conditioning company locally, so check out your local pages for more info.


When to save:

You want to save on items that are good quality but not branded so they cost less.  For example, if you’re installing custom closets, instead of having someone come and install them, perhaps you’ll be able to do it yourself.  There are even stores out there with custom closets already made that you can just buy and install very easily.  Look for different options when shopping for products like these.  For sink and shower taps, don’t get the branded option.  The no-name options are just as good and at a fraction of the price.  The key is understanding what you need and knowing the quality of these different items.  Always look for good quality but not branding.  It makes much of a difference in cost.

So in terms of when to save and when to spend, there are several different factors that come into play.  You want to spend on things you use often.  Things like a bed, car, air conditioning.  These are all items that you want to have good quality.  You want to focus on which items influence your lives the most.  For example, let’s say your air conditioning system broke, and you need to get your air conditioning ready for summer.  Don’t hold back on these expenses and hire a professional to fix this.  Air conditioning in the summer is important for your health and safety.  Don’t try to swing back on costs like these because if it doesn’t work properly or if you try to fix it, it might break more and could even cause damage to other air systems in your house.  Knowing when to spend and save is an important factor in all aspects of life, and we hope these tips help!

Tips To Save Money

Here are some easy tips for you to save money so that you’re able to have daily cash for life.


  1. Time your shower so you save on your bills.
  2. Hang your clothes to dry instead of using the dryer.
  3. Always carry a snack on your bag, so you’re not spending extra cash on food when you get hungry.
  4. Bring a lunch instead of buying lunch.  It saves you A LOT of money.
  5. Don’t have a cellphone and a landline.  Choose one or the other so you’re not spending on extra phone bills that you don’t use.
  6. Pay off your credit card as soon as you get the bill so you’re not stuck with paying the interest rate.
  7. Better yet, don’t use a credit card.
  8. If you do use a credit card, get one that gives you a percentage back of what you spend.
  9. Walk or take public transit instead of driving or taking a cab.  If you buy transit passes in bulk, there’s a good chance there will be a discount.
  10. Look for the discounted items in the grocery store.  There should be a section where if it’s close to the expiry date, items will be 50% off.
  11. Don’t take out cash if you don’t immediately need it.  Cash is a sure way to spend without even noticing how much you’re spending.
  12. Wait until clothes go on sale.  If it’s meant to be, it will still be there.
  13. Turn off the water when doing dishes.
  14. Instead of going to fitness classes, watch them on TV and do the steps at home.
  15. Don’t use the AC in the summer – open the windows instead and use a fan.
  16. Turn your heat on low in the winter – layer up on clothes and blankets, and stay cozy with a buddy.
  17. Cancel your cable.  Instead, use Netflix or another type of streaming account.
  18. Have a potluck.  This way you don’t have to provide all the food, and you can still have a party.
  19. Exchange books or movies with friends instead of buying new ones.
  20. Shop after holidays seasons.  Most of the items will be on sale and they will be good sales.

So that’s it for our first blog post.  Make sure to check back.  We will be posting more on how to save your money so that you can be rich every day.