Each of Canada’s ETF companies have many similar products, with very small differences.
One of the easiest examples is with S&P 500 ETFs. Since each ETF would track the same index, the only difference would be whether the ETF is hedged to Canadian dollars and the management fee.
The Vanguard S&P 500 ETF (TSX:VSP) and the iShares S&P 500 ETF (TSX:XSP) are virtually identical. They both follow the S&P 500 and both hedge currency risk. The only real difference is the Vanguard fund has a management expense ratio of 0.08%, while the iShares ETF is slightly more expensive, charging investors 0.11%.
If an investor is just starting out, it makes sense to go with the Vanguard ETF to save fees. They may not seem like much to someone just putting away a few thousand dollars, but they add up over time. On a $5,000 investment, the difference in fees adds up to $1.50 per year. On a $500,000 investment, the difference is $150 per year.
This is when things get a little tricky. The Vanguard ETF will cost less over time, assuming all things stay equal. But there’s no guarantee that’ll happen. Which means that investors probably shouldn’t switch ETF providers just to save a few basis points a year. Especially those with four or five-figure account balances.
When the difference works out to little more than a cup of coffee, the solution is simple. Just stay put and don’t sweat the small stuff.
