The Globe and Mail in its Friday edition advises index ETF investors to avoid the big banks. The Globe's Rob Carrick writes that by simply buying the exchange-traded fund through an on-line broker your management-expense ratio (MER) can be as low as 0.06 per cent for funds that track the S&P/TSX Composite Index. The CIBC Canadian Index Fund Class A boasts a MER of 1.14 per cent. The CIBC Canadian Index has about $567-million in assets, while RBC Canadian Index Series A has $718-million and the various versions of TD Canadian Index have $1.4-billion. The Scotia Canadian Index Fund has $250-million and the BMO Canadian Equity ETF Fund is around $320-million. All of these funds offer a few strong advantages over ETFs. You can buy and sell them at no cost, you can open an account with as little as $100, but the fees make the difference. Assuming the S&P/TSX delivers an annualized total return over 10 years of 7 per cent. An ETF with a fee of 0.06 per cent would ideally deliver a net gain of 6.94 per cent, while an index fund with an MER of, say, 0.9 per cent, would give you 6.1 per cent. After 10 years, on an initial investment of $1,000, the index fund would give you $1,808 and the ETF would give you $1,956.
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