RDSP – Investment Changes

My go-to investment for my son’s Registered Disability Savings Plan (RDSP) has been a mix of TD e-funds. They provided excellent diversification, low cost, and a solid long term track record.

I still believe that the TD e-funds are a great product, but now that the RDSP has grown to a respectable size, it is time for a better product.

VBAL (Vanguard Balanced ETF Portfolio) is a one fund solution that offers:

  • Low cost
  • Outstanding diversification
  • Automatic re-balancing
  • No investment decisions required and
  • The ability to beat 90% of the managed funds over time

No doubt some financial advisors will claim that they can choose better products. RDSP’s generally have a longer investment time span than other accounts. The higher cost of managed accounts has been shown to underperform a low-cost product like VBAL.  Managed funds generally cost the client about 1% in fees to the advisor in addition to very high expenses for the mutual funds.

If you are unsure of how much your fees are really costing you over the long term, check out Larry Bates’s T-Rex Score. It is an easy way to visualize the true costs of your fees. If you haven’t started with a financial advisor yet, assume 1% for his fees and 2% MER for the funds for a total of 3%. Compare this against VBAL with a 0.24% MER. Use a 40-50 year timeframe for the RDSP to see the true impact of the fees.

VBAL is a 60/40 (60% equity, 40% bond) portfolio automatically re-balances when the asset mix shifts. It is an ETF that is bought like a stock, so you will need to have an account at TD Direct Investing. TD allows you to purchase a variety of investment products unlike some institutions that lock you into their in-house, high cost products (I’m looking at you BMO!).

Are you worried about today’s investment climate? Consider this a great time to buy as everything is on sale. My suggestion is to buy VBAL every year with your contributions and the government grants and bonds.

For more information about VBAL read the Canadian Couch Potato’s Model Portfolios.

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