Tag: Management Expense Ratio

Getting Good Advice

When it comes to your money, you want to get good advice. The problem is that it’s very hard to know if you’re getting good advice, or whether you’re being scammed.

For my part, I’ve built my portfolio by myself and I started when I was a young adult. All told, it took me more than 25 years before I went to see a fee-only financial planner. He took my information – he crunched my numbers – he told me that I could retire 2 years earlier than I’d planned. His fee was worth every penny!

Bank Advisors

Reader of Long Association know that I’m not terribly fond of banks. I hate paying bank fees. For the most part, I think lines of credit are poisonous. Debt is not something I encourage people to have. If you take away debt & fees, banks have precious little to offer their clients. My impression of bank advisors is similarly dim.

Banks offer mutual funds to their clients. However, the bank’s offerings are generally more costly than what can be purchased elsewhere. Advisors from Bank A will sell you mutual funds with management expense ratios of 1%-2%. They will not tell you about nearly identical products that can be purchased for 0.35% or less, i.e. exchange traded funds (ETFs).

The advisors who work for banks are not bad people, necessarily. They’s simply employees. Part of their job is to sell their employers’ products to the bank’s customers. They are trained and are knowledgeable about financial products. However, the terms of their employment are such that they will never advise customers to check out the competition’s investment products. Advisors working for banks will never encourage customers – you – to go and see if the same product can be obtained for a lower price. This is just a simply fact. Advisors at Bank A receive their paycheques from Bank A, not from you. Since you’re not paying them, the advisors’ interests are more aligned with their employer’s than with yours.

I went to a Bank near the start of my investment journey. It was a less than great experience.

Was I getting good advice? No.

Did the bank charge me a high management expense ratio? Yes.

As I learned better, I did better. Time to move on.

Investment Companies

After my experience with buying mutual funds from the Bank in my early twenties, I decided to invest with one particular investment company. They had a slick marketing folder, an office in the mall near my job downtown, and I liked their website. What other criteria could I have possibly needed to choose an investment company?

I have no idea if that company is still around. What I do remember is that they charged atleast 1% for their mutual funds. The management expense ratios (MERs) were the same as, or a touch lower than, the Bank’s.

Was I getting good advice? No… but atleast more of my money was directed into my investments and not being paid out in MERs.

As time passed, I moved my money to a different investment company that had far lower MERs for their products. While this second company did not have an office in the mall, they did have a much better website and a wider array of products. (Throughout my whole investment journey, I never stopped reading about money and investing. As I learned more, I made better choices. Like they say – when you know better, you do better.)

I improved my portfolio mix by moving to the second investment company and I saved money on the MERs I was paying. Further, the second company was easily able to set up an automatic transfer from my chequing account to my investment account. Each time my paycheque landed in my bank account, the investment company would scoop out a portion of it to be added to my investment portfolio. This was a free service! Once I’d set it up, I never had to think about it again. I could go about my daily life knowing that my money was being investing for the Care and Feeding of Future Blue Lobster. All was well… for a time.

Bear in mind that I never stopped learning. I continued to read more books from the library and I delved into online articles about money & investing. That’s how I came to learn about ETFs and index funds, investment products that mirrored mutual funds for a much lower price. In other words, I could re-create the same portfolio by replacing expensive mutual funds with cheaper ETFs and pay even lower MERs. Eventually, I had to accept the fact that my second investment company’s MERs were too high when I could get the nearly-identical portfolio elsewhere for less money. Though I really enjoyed the convenience of my second investment company, that convenience wasn’t worth paying higher MERs. Whatever wasn’t diverted to paying MERs would instead be invested for long-term growth. I realized that I could improve my returns by investing my money into ETFs so that’s why I did.

Self-Directed Learning and Investing

At some point in my investment journey, I had opened a self-directed brokerage. When it was time, I moved my portfolio from my second investment company to my brokerage account. In a few simple keystrokes, I sold the mutual fund products and bought ETFs from BlackRock (aka: iShares). Unlike my last investment company, this one did not make withdrawals from my bank account. I had to set up my own automatic transfer so that I could buy units every month. And since I was using my brokerage account, I had to pay a commission.

Big deal! The money I was saving on my MERs was more than sufficient to cover the monthly commission fee. My twin goals were being met: consistently investing every month and saving money on my MERs.

What could be better?

Vanguard Canada was better. By the time Vanguard came to Canada, my self-directed investment education had already led me to its US counterpart. I was ready for their Canadian arrival. Now, I didn’t sell anything from my BlackRock holdings. For the most part, I’m a buy-and-hold investor. The exceptions I can remember were moving from the Bank to the investment company, between my investment companies, and then from my last investment company to my brokerage account.

Instead of selling investments, I simply re-directed future investment dollars to Vanguard’s products instead of BlackRock’s. Again, Vanguard’s offerings were nearly identical to BlackRock’s and Vanguard’s cost less. There was no good reason to pay more money for the same damn thing.

My Fee-Only Advisor

Despite the pride I felt in building my investment portfolio, I wanted an objective review of what I had done. My goal was to retire early on a certain income. Despite my years of self-tutelage, I’d never discovered the formula that could give me a straight answer. Could I retire when I wanted? Or was I looking at another 15 years of work?

So after 25+ years of investing on my own, I went to a fee-only financial planner to get the answers to my questions…. The news was good. It was better good – it was great! He told me that I was on track and that I could retire two years earlier than I’d planned. Woohoo!

For the first time in my investing life, I was getting good advice. The financial planner pointed out a few weaknesses in my investment strategy. He offered me a tentative, new plan and explained how it could improve my returns going forward. However, he also assured me that I had done a very good job by myself and that my goals would be met whether I followed his suggestions or not.

When it comes to getting good advice, I’m a fan of fee-only financial planners. They work for the customer, who is you. They make recommendations, but they don’t sell investment products. That means that they don’t get a commission from someone else for making certain recommendations or pushing the investment-product-of-the-month. You’ll pay a fee for them to analyze your current situation and to create a plan whereby you will meet your financial goals. They will give you advice and it’s up to you whether to follow it.

Have I made mistakes? Yes – many mistakes. I didn’t get great advice to start. The only rule that I’ve always followed was to live below my means. (Even when I was stupid in 2008/2009 and stopped investing when the market crashed, I just piled up money in my savings account until it was “safe” to start investing again.) I saved and invested and switched my investments and kept learning-learning-learning … then more than 25 years later, I finally went to a professional advisor.

Getting good advice is worth the effort. It allows you to reach your goals faster and more efficiently. Though I am self-taught, I have benefitted from many resources over the years. I’m confident that I have the knowledge to separate the good advice from the bad as I continue to fulfill my financial goals. You can do it too. Start today. Save – invest – learn – repeat. When you know better, you’ll do better. I promise.

Find Serenity in What You Can Control

Sometimes, I think that people procrastinate about starting their investment portfolios because they don’t understand every element of how various investment products work. They’re afraid to invest and to lose their money. I can understand that fear completely. Believe me when I say that I share that fear too!

However, it’s a fear that can be tamed if you can find serenity in what you can control.

Here’s the thing. No one can control the stock market. Contrary to what you see from the Talking Heads of Financial Media, there really isn’t any way to control what happens in the future. People can predict – they can approximate – they can calculate likelihoods. These are fancy way of saying that the chinwag is simply a guess. It might even be an educated one, but it’s a guess all the same. Allow me to assure you that there is not a single one among us who always knows which stock will soar like Facebook or tank like Enron, ascend like Tesla or plunge like Bre-X.

You can’t control the vagaries of the stock market nor their impact on your investment portfolio. Only God knows what’s going to happen with any particular stock in the future.

That said… there are three areas where you do have control. Your choices in these areas will have a significant impact on the growth of your investment portfolio. Think of these areas as levers that can be manipulated to increase the odds of you amassing great big buckets of cash. If you manipulate all three levers, then you can vastly improve your portfolio’s return.

Amount and Frequency

You control the size of the contributions to your investment portfolio. How much you save is the single most important factor influencing the amount of money you ultimately accumulate. The more you save and invest, the faster your money will compound and grow. The best returns in the world will not get you to your goal if you don’t actually contribute money to your investment account.

Play around with this compound interest calculator if you don’t believe me. At a steady rate of return, a higher contribution grows faster than a lower contribution. In other words, a $500 contribution will compound faster than a $100 contribution.

The second most important factor, in my humble opinion, is the frequency of the contributions. I’m paid every two weeks, so I contribute to my investments every two weeks. Personally, I think it’s best to contribute when you have the money to do so. You should always pay yourself first when you get paid. That means taking some portion of your income and investing it for growth. If you haven’t read it yet, get your hands on a copy of The Automatic Millionaire by David Bach. It’s great!

If you’re paid bi-weekly, then contribute bi-weekly. Paid monthly? Invest monthly. Go back to the calculator and compare the difference in future value between investing monthly and investing annually. The difference is attributable to the effect of compounding.

My advice to you is to invest as much as you can as early as you can. Start harnessing the power of compounding interest immediately.

Control Your Fees

A second very powerful lever within your control is the management expense ratio (MER) of your investment product. The MER is the fee that you pay to the purveyor of the investment you buy. In short, it’s a skim from every dollar you invest and that money is spent to pay salaries & overhead to make the investment available to you.

You control the impact of these fees on your portfolio by choosing investment products that have lower MER fees while delivering equivalent results. You are the person who is choosing the products where your money will be invested. (Or maybe you’ll go with an investment advisor. I don’t have an investment advisor.)

Mutual funds are more expensive than exchange-traded funds and index funds. However, they both allow you to invest in equity products and bond products. My opinion is that it does not make sense to pay more for an investment when an equally good one is available at a lower price. However, if you want to pay a 2% MER (or higher!) on your investments, instead of a 0.25% MER for the same investments, then you are free to do so. You are an adult and, after all, it’s your money. You earned it and you get to decide what to do with it.

However, please make an informed decision. Take a look at this investment fee calculator to see the impact that fees have on your portfolio’s overall performance. If you’d rather have less money at the end of your investment horizon, then go with the higher MER. However, if you’re interested in maximizing your cash cushion, then choose investments with low MERs.

In the interests of transparency, I can state that none of the MERs I pay are higher than 0.25%. That means for every $1000 that I invest, I pay my investment company $2.50. If I had to pay an MER of 2%, then I would be paying $20.

Imagine having a nice 6-figure nest egg of $750,000. Would you rather pay $1,875 per year in MERs of 0.25%? or $15,000 per year in MERs at 2%?

Duration of Systematic Contributions

This is just a fancy way of saying that you are in charge of how long you make contributions to your investment portfolio. How long are you willing to commit to investing for your future?

I’ve always been a nerd about money, and I’ve been contributing to my investment portfolio for 2.5 decades. Let’s just say that I’m old enough to remember the Freedom 55 commercials and they struck a chord with me. I’ve been gunning for early retirement ever since!

I won’t lie to you. Without a lottery win, inheritance, or sizeable payout from somewhere, it’s going to take a good amount of time to build an investment portfolio that’s capable of replacing your income. If you’re living on 50% of your take-home pay, you can get it done in less than 17 years. Don’t believe me? Check out this handy-dandy little calculator if you want to play around with your own numbers.

For most of us, it’s going to take many years of steady investing to build a nest egg. You are in charge of whether you start now or tomorrow. In other words, you’re the person who controls whether to procrastinate on such a long-term endeavour. Once you do get started, you’re also the person who’s in charge of whether to continue investing.

Investment Portfolios Don’t Fund Themselves

Now that you know what you can control, put that knowledge to good use. Set aside a chunk of every paycheque and use an automatic transfer to make sure it’s re-directed to your investment account. Pick investments that are diversified and geared toward long-term growth. Make sure your investments have MERs under 0.5%. Keep investing and ignore the Talking Heads. Over the long-term, the stock market goes up. Day to day gyrations should not guide your investment choices. You’re in this for the long-term.

Never stop learning! Read books and blogs. Ask questions. Remind yourself that when you know better, you do better. It’s best to make mistakes with small amounts money than with large amounts of money. So when you make a mistake, forgive yourself and learn from it then move on. Find serenity in what you can control.

The time will pass anyway. Why not start today?

A Consideration of a New Investment

Every so often, I take a quick gander at the new investment products that come onto the market. For one thing, it’s important to never stop learning about investing. There’s no pressure to change my investment path just because I’m reading & learning about something new. The worst thing that can happen is that I’ll know more than I did before I started reading.

Over the Christmas holidays, I engaged in a consideration of new investment portfolios from Tangerine. Overall, I wasn’t horribly impressed. Let me tell you why.

But first – read the following two paragraphs very carefully and commit them to memory.

Disclaimer

I am not in any way qualified, certified, designated or otherwise authorized to give advice to anyone about how they should invest their money.

If you need or want professional investment advice, then you should hire a certified financial planner who is paid by you and not by investment companies. Do not base your investment choices on blogs that you read on the internet without careful consideration of all the factors impacting your personal situation.

Blue Lobster’s Personal Review***

*** Not to be confused with a professional recommendation that has been tailored for your life’s goal, income, ambitions, and risk tolerance.

a) Management Expense Ratios

In my view, the Core Portfolios are all too expensive. The MERs range from 1.05%-1.06%. For a similar product, you could buy an exchange traded fund at Vanguard Canada or iShares and pay considerably less in MERs. Personally, I don’t see any reason to pay MERs any higher than 0.35%-0.55% for investment products that are similar if not identical to the Core Portfolios.

Here’s a link to Vanguard Canada’s index funds/ETFs. You’ll see that their MERs are way cheaper than Tangerine’s.
https://www.vanguardcanada.ca/individual/indv/en/product.html#/productType=etf&managementStyle=index

The MERs for Tangerine’s Global ETF Portfolios are all 0.65%. I still think that this is too much to pay for these products. As per the prospectus and despite their names, these products are mutual funds . The last time I look at this statistic, the average MER charged for Canadian mutual funds is 1%-2%. 

b) Composition of the Portfolios

The Core Portfolios invest directly in various companies and in exchange traded funds. As I understand the prospectus, the Core Portfolios are mutual funds. I don’t invest in mutual funds anymore because I prefer to buy the ETF equivalent, which always has a lower MER. Why pay more for the same thing?

The Global ETF Portfolios are mutual funds created out of ETFs. Each portfolio is comprised of a subset of ETFs, held in varying proportions. 

Given their newness, none of these funds holds over $7Million in assets. Again, I’m no expert but this tells me that they are much smaller in size than comparable mutual funds and ETFs. 

c) Age of the Portfolios

The Core Portfolios haven’t been around that long. The oldest was started in 2008, and the newest was started in 2016. 

To be transparent, I transferred my holdings to Vanguard Canada when the parent company – Vanguard – came to Canada a few years ago. I invest in VDY, which is a dividend-focused ETF with an inception date of 2012. In other words, they haven’t been in Canada all that long. Vanguard has been big in the USA for a much longer period of time and I’ve been a fan of John C. Bogle for a long time. If I hadn’t been aware of Vanguard’s history in the USA, I likely would not have invested in them since they hadn’t been in Canada long enough to give me comfort.

The Global ETF portfolios were all started in November of 2020… less than 2 months ago. As such, they do not have any kind of track record that is worthy of note.

d) Overall Impression

In my opinion, investors in these funds are paying more money to own a mutual fund where the ETFs held inside the mutual fund cost less, on an individual basis, than the cost of the mutual fund itself. 

It would be far cheaper to buy an equity ETF and a bond ETF from Vanguard Canada, achieve the same performance results, and pay a lower overall MER. By purchasing equity and bond ETFs directly via an online brokerage, investors are coming out ahead because the brokerage fee, if any, for purchasing those units would be lower than the 0.65% MER that would have to be paid on the Global ETF Portfolios. 

My brokerage charges me $9.95 on my monthly purchases. $9.95 x 12 = $119.40 in annual fees. Once your portfolio is more than $18,369.23 (=$119.40 / 0.65%), then you’re paying less in fees if you buy units directly instead of buying units in Tangerine’s Global ETF Portfolios.

In the interests of transparency, I have the following products with Vanguard Canada and iShares. 

  • VDY – dividend ETF with an MER of 0.22% (VC)
  • VXC – equity ETF with an MER of 0.26% (VC)
  • VSB – bond ETF with an MER of 0.10% (VC)
  • XDV – dividend ETF with an MER of 0.55% (iShares)

Buying my ETFs through my brokerage account (BMO Investorline) saves me money on my MERs, and those savings are more than enough to cover my annual $119.40 purchasing costs.

e) Conclusion

I’d love to see you open a brokerage account and buy units in ETFs that best-match your investment goals. And that goal, in case you’re wondering, is to not outlive your money. Never forget that ETFs are cheaper than mutual funds.

Brokerage accounts are easy to open. You buy units in the cheaper ETFs of your choice, then you forget about them and let them do their thing over a long period of time.

However, if you’re uninterested in opening a brokerage account, then I suppose that Tangerine’s Core Portfolio options aren’t a horrible choice. If you can set up an automatic transfer from your account to one of the Core Portfolios, then I think this is probably a not-bad way for you to invest in your future dollars. My comments apply to the money going into your registered accounts – RRSP & TFSA – and your non-registered accounts. Your emergency funds will stay in cash, since you shouldn’t be forced to sell investments just to pay for an emergency.

A consideration of a new investment won’t harm you. There’s no requirement that you chase every investment rabbit that enters your field of vision. That said, it’s always a good idea to know and understand the options for your money. Get professional investment advice as needed, but always be learning about new stuff.

MER – Cheaper is Better

The management expense ratio (MER) is the percentage of your portfolio that you pay to the company that sells you the index fund, exchange traded fund (ETF) or mutual fund that you hold in your portfolio. The fees for these products must be disclosed to potential buyers. Thanks to the wonder that is the internet, you can easily do an online search of any mutual fund, index fund or ETF and find its MER.

Generally speaking, mutual funds are more expensive than both index funds and ETFs. I’m not entirely sure why other than to say that mutual funds are actively managed. This means that there are a whole lot of people who are researching and analyzing data before doing a whole bunch of buying and selling of various stocks for inclusion in the mutual fund. All of those people need to be paid. There’s a lot of overhead that must be covered by fees from clients in order to ensure that all of that activity is performed.

In sharp contrast, index funds and ETFs are passive investments. They simply buy into the top companies that meet their investment objective and then it’s done.

You’ll have to do your own research before you in invest. You can also speak to a fee-only certified financial planner. However, my general advice to most people is the following. If you have the choice of buying a mutual fund or an index fund/ETF, go for the lower cost product so long as you can still achieve your investment goals. It will be cheaper for you in the long run and you’ll wind up with more money in your kitty.

Take a look at the following MER calculator. It allows you to do a side-by-side comparison of the impact of paying a higher MER on your portfolio. You can control so many variables: your investment horizon, the MER, your starting balance, the assumed rate of return, and your contribution amount.

See for yourself…

Start with an investment of $1000 in both Fund A and Fund B. Assume that they are both identical and both of them will help you achieve your long-term financial goals. Commit to contributing $50 per week into your portfolio, which is $2600 per year.

Enter an annual average return of 7% for both funds. And assume that you’re going to be investing this money for 30 years. The average life expectancy is roughly 80 years for humans. Believe me when I tell you that 30 years is not an unreasonably long investment horizon.

Here’s where the steak starts to sizzle. Fund A is a mutual fund charging a measly 1.5% per year. In other words, Fund A skims off 1.5% of the value of whatever’s in your portfolio. Fund B is an index fund, or an ETF, which is charging a minuscule 0.05%. Go ahead – plug those numbers into the formula.

Now, hit the calculate button. What do you see?

Fund A – with the higher MER – is going to cost you $37,330.78 in fees. On the other hand, Fund B – with the much lower MER – is going to cost you $1,244.36.

That’s a difference of $36,086.42 in fees. This is money that is not staying in your investment portfolio since it’s being paid to someone else. Why would you want to pay this amount if you didn’t have to?

Play with this calculator – change the variables – see the impact of higher MERs over a longer period of time. I think you’ll agree with me that when it comes to paying for investment products, the MER matters – cheaper is better.

Hold up, hold up, hold up!

Blue Lobster, are there really investment products that pay 0.05% in MER?

Yes, Gentle Reader, there are. At the time of this post, the website for VanguardCanada is showing two equity products – VCN and VCE – with MERs of 0.05%.

*** To be clear, I am not being paid by Vanguard Canada for mentioning these investment products. I do own units in VCN.

All else being equal, cheaper is better. For simple comparison, the Big Six banks in Canada sell mutual funds that are equivalent to VCN and VCE. At the time of this post, the MERs on their products are much higher than 0.05%.

I have to amend my earlier statement. At the time of this post, the links for CIBC and HSBC do not disclose the MERs for their equity products. To find the MERs for their products, you will have to do a bit more hunting-and-clicking but you’ll get there. The other 4 banks disclose this information on their website with one-click. This tells me that atleast 4 of the 6 big banks are willing to ensure that their customers can easily find the right information to make an informed choice.

Now you know better.

Paying a higher MER means less money in your pocket at the end of the day.

As a general rule, cheaper is better when it comes to assessing the MER of equivalent investment products. I want to be clear that you shouldn’t base your entire investment decision on the MER. It is a significant factor, but it’s not the only one.

You still have to determine your investment horizon. Is this money for a short-term goal or a long-term goal? If long-term, MER should be given more weight in your decision-making.

Are you comparing equivalent products? An index fund that invests in short-term bonds should not be compared to a mutual fund that specializes in gold and diamonds. The risk profiles of the two products are vastly different. It is reasonable that they would have different MERs so this factor should be given less weight at decision-time.

It is a serious money mistake to pay a higher MER. If you want to really blow your mind, go back and change your starting balance to $10,000 and your annual contribution to $5,200. The disparity in MER cost grows to $83,130.29! And if you extend your investment horizon out to 50 years, then you’re saving yourself $442,979.28! Wouldn’t you rather have that extra money in your portfolio in 30 years? I know I would!

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Weekly Tip: Track all your expenses so you know where you spend every dollar. Despite my constant admonitions to save-and-invest, I know that most people enjoy spending money. However, I want you to be 100% confident that you’re spending your money on things that make your life better. Tracking your expenses is one way to do this. If you see that you’re spending money on things that don’t bring your joy or that make your life worse, stop buying those things. Easy peasy – lemon squeezy!

Is the higher MER worth it?

Cherished Readers, I have come to an uneasy decision and I’m not sure if I’m right.

I used to buy units in the XDV exchange traded fund (ETF) issued by iShares. When Vanguard came to Canada, I stopped buying units in XDV and started buying units in VDY. Why did I make the switch? Both ETFs satisfied my desire to build my army of money soldiers by making regular monthly purchases through my brokerage account. However, the MER for VDY was 0.22% while the MER for XDV was 0.55%. I listened to the wisdom of the Internet and decided that I should only pay the lower MER for essentially the same product.

Except….

It’s been two years since I started buying units in VDY. The monthly dividend payment per unit varies wildly, and I haven’t been able to figure out why. Both the VDY and the XDV are Canadian-based dividend products, which means that there is a great deal of overlap between their holdings. Yet, my XDV dividend payment is relatively consistent from one month to the next. The VDY dividend payment varies wildly – one month, it’s $0.13/unit and the next month it’s $0.05/unit. On the flip side, the XDV dividend payment is relatively consistent from month to month. It may be $0.087/unit for three months, then fall to $0.078/unit for a few months, before going back up again. There are never wild gyrations from one month to the next, so my monthly dividend cheque stays roughly the same or increases a little bit due to the acquisition of new units via my dividend re-investment plan (DRIP).

Given that one of my goals is to be able to live off my dividend payments, I prefer some reliability in the amount of money that I’ll be getting from one month to the next.

So my uneasy decision is this. Starting with my next contribution, I will go back to buying units in XDV even though it will mean paying an extra 0.33% in MERs to do so. I spent a little time with my calculator on a recent trip out of town and I figured out that if I had stuck to buying units in XDV over the past two years, instead of switching to VDY, I would be earning an extra $300 per month in dividends on top of what I’m earning now. That’s not enough to live on, but it certainly would be enough to buy a month’s worth of groceries for this Singleton.

So my question remains – is the higher MER worth it? The more dividends I earn each month, the faster they can compound through my DRIP, and the sooner I can reach my target of earning atleast $2000/month in dividends by the time I retire.

Is it really so bad to spend an extra 0.33% in MERs if doing so allows me to meet my goals on the timeline that I’ve set for myself?

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Cherished Readers, I have changed my mind. This is allowed because a wrong decision should be corrected as soon as possible in order to mitigate any negative consequences. I will continue to buy my VDY units at Vanguard even though the monthly dividend payment will most likely continue to fluctuate wildly. I calculated the average monthly dividend payment per unit of both investment products and realized that the average VDY payment per unit is higher. It’s the best of both worlds – a lower MER and a higher average monthly dividend payment per unit.

There’s nothing I can do about the fluctuations – that’s utterly out of my control. However, I can continue to purchase units in VDY each month. Eventually, I will have just as many units in VDY as I do in XDV. At that point, my regularly anticipated amount of monthly dividends will be higher – barring any dividend cuts from the underlying companies – and the fluctuations won’t have as much impact on my monthly budget.

For all of my reading and learning about personal finance and financial products over the years, I’ve yet to find a single article that explains the ins-and-outs of how funds distribute their money. I can appreciate that payments are going to be different where the underlying assets comprising the ETFs (or index funds and mutual funds) are quite diverse. In my case, the underlying assets comprising my two ETFs – VDY and XDV – are almost identical. So how come their monthly dividend payments vary so damn much?