Q&A With Gordon Pape: Cashing in Mutual Funds for ETFs

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Financial expert Gordon Pape advises a reader who’s thinking about cashing in his mutual funds to buy ETFs.

Q – I have a few mutual funds in my RRSP portfolio with a total accrued value of $37,000. I have owned them for the last 15 years The MER for these funds range from 1.71 per cent – 2.71 per cent. The average for the five funds is 2.32 per cent. These funds have good returns.

Given the high MERs associated with these funds, I am considering cashing in and purchasing ETFs within my RRSP portfolio. Do you think this would a good move?

Also, I am 64 years and retired. What type of ETFs would you recommend? I do not have a company pension plan.

Your advice is highly appreciated. – Chet P.

A – You are proposing to sell funds with good returns to buy cheaper ETFs. This could be a case of penny-wise, pound-foolish. You don’t say what the returns are, but you need to put them in context with what you are paying. You could end up with ETFs that cost less but don’t perform as well. I suggest you look at the returns of ETFs that may interest you and compare their returns over the long term to those of your mutual funds.

As for which ETFs to buy, if you go that route, look for those at the lower end of the risk scale. Since you have no pension plan, your RRSP may be the main source of your retirement income, so you don’t want to unnecessary chances with it. – G.P.

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