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January-24-17

How to Build an ETF Portfolio at Questrade

Investing in ETFs through a big bank discount brokerage is one of the cheapest ways to build a diversified portfolio – that is, until you factor in the cost of their trading commissions.  If your accounts and monthly contributions are modest in size, you may want to consider going with Questrade instead, a discount brokerage that offers commission-free ETF purchases.

 

Taking the ECN way out

Although Questrade does not charge traditional trading commissions, they do charge something called electronic communication network fees, or “ECN fees”, on most trades that take liquidity away from the market.  Examples of these types of trades include market orders or “marketable limit orders”, which is a limit order that is expected to be filled immediately (Marketable limit orders are the type of order that I recommend placing for all ETF trades).  For purchases of Canadian-listed ETFs, the ECN fees charged are $0.0035 per share.

In the example from my tutorial, I place five ETF purchases at Questrade and rack up only 60 cents in ECN fees (compared to about $50 of trading commissions at the big bank discount brokerages for a similar portfolio).  You can see why Questrade has become the choice for cost-conscious ETF investors.

Example:  ECN fees charged on a $5,000 ETF portfolio implementation

Exchange-Traded Fund # of Shares Purchased ECN Rate ECN Fees
Vanguard FTSE Canada All-Cap Index ETF (VCN) 32 $0.0035/share $0.1120
Vanguard U.S. Total Market Index ETF (VUN) 23 $0.0035/share $0.0805
iShares Core MSCI EAFE IMI Index ETF (XEF) 30 $0.0035/share $0.1050
iShares Core MSCI Emerging Markets IMI Index ETF (XEC) 8 $0.0035/share $0.0280
Vanguard Canadian Aggregate Bond Index ETF (VAB) 80 $0.0035/share $0.2800
Total     $0.6055

Source: Questrade

By: Justin Bender | 14 comments
January-10-17

Norbert’s Gambit at RBC Direct Investing

US-listed ETFS are the most tax-efficient way to invest in foreign equities within your RRSP account. The funds also tend to have lower annual fees than Canadian-listed ETFs. However, they must be bought and sold in US dollars, and if you have to exchange your Canadian dollars for greenbacks, it can be extremely costly. Many discount brokerages charge about 1.5% - or a whopping $150 on a $10,000 conversion. If you’re going to use US-listed ETFs, you need to find a way to mitigate these high costs.

If you need to convert loonies to US dollars, I’ll show you a technique that can save you hundreds of dollars per transaction. At RBC Direct Investing, there is no need to even pick up the phone: the entire process can be completed online.

Introducing Norbert’s gambit

Savvy DIY investors have long used a technique called “Norbert’s gambit” to sidestep these steep currency conversion costs. The name comes from Norbert Schlenker, an investment advisor in B.C. who was the first to popularize it.

Norbert’s gambit with DLR and DLR.U

The simplest way to do Norbert’s gambit is with the Horizons US Dollar Currency ETF.  This ETF – which is equivalent to holding US cash – is available in two versions.  Both trade on the TSX, but the first, with the ticker symbol DLR, is bought and sold in Canadian dollars, while the second, DLR.U, trades in US dollars.

You can use these ETFs to exchange Canadian dollars for US dollars and then use the proceeds to buy US-listed ETFs. Norbert’s gambit can be confusing, so I’ve put together a video tutorial that you can follow along with. For more information on this strategy, please refer to our white paper.

 

By: Justin Bender | 2 comments