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How to Build an ETF Portfolio at Questrade

January 24, 2017 - 14 comments

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 with 14 comments.
Comments
  20/03/2017 12:48:57 PM
Justin Bender
@Randy Luke: It depends how much risk you want to take with your fixed income investments and how much time you want to spend managing your portfolio. Investing in other fixed income securities (like a 1-5 year GIC ladder) takes more time than a simple bond ETF.

VAB is yielding about 2.0% before fees, while VSB is yielding about 1.2% before fees. I checked the GIC list at RBC today, and here are the current rates: 1-year = 1.40%, 2-year = 1.55%, 3-year = 1.70%, 4-year = 1.86%, 5-year = 2.02%.

Perhaps it doesn't have to be one or the other. I manage many of our client portfolios with a mix of GICs and bond ETFs. The GICs give a relatively high yield for the amount of risk taken, while the bond ETFs offer liquidity for portfolio rebalancing purposes and unexpected calls on capital.
 
  18/03/2017 9:09:56 AM
Randy Luke
My question is in regards to my Fixed Income allocation (currently 40% with VAB). Your comment was that VAB may be for younger investors with a longer timeline, and VSB for retirees. Where would I fall being 51 years old and hopefully 10 years from retirement - VAB , VSB, or other fixed income?
 
  14/03/2017 6:05:02 PM
Justin Bender
@Albert Belanger: Nearly all of the asset classes you have listed are already contained in my model ETF portfolios (i.e. VCN = Canadian stocks, VUN = US stocks, XEC = emerging markets stocks, VAB = Canadian bonds).

There's unfortunately no broad-market Canadian-listed Japanese equity ETFs available, however.

The Vanguard FTSE Developed Asia Pacific All Cap Index ETF (VA) might be an option (it allocates approx. 60% to Japanese equities).
 
  09/03/2017 3:28:51 PM
Albert Belanger
Action direct portfolio "assertive" with 25%
Canadian,25% U.S. 10% emerg. markets
10% Japan and 30 % bonds. How would you
do this through ETF's. Thank you
 
  28/02/2017 10:42:07 AM
Justin Bender
@Vito: ECN fees would be similar to commissions for tax purposes. They increase your cost base on purchase, and decrease the proceeds of disposition on sale.
 
  24/02/2017 9:35:04 PM
Vito
Hey Justin,

First let me say thank you for getting back to me about where the last post you made was found, thank you.

My question is regarding ECN fees. Unlike ETFs, when buying them with Questrade it is commission fee, but no so with respect to ECN fees, they are charged both at buy and then eventually at sell.

1) Do you know if one can claim those ECN fees during taxes? (even when not selling an ETF)

2) Eventually when you do sell the ETF and trying to calculate your capital gain or loss, can you then add those ECN fees in your calculations? If so, can you only add the ECN fee of the sale? What about the purchase (imagine buying an ETF and selling it 25 years later)?

Thanks Justin.
 
  13/02/2017 10:34:37 AM
Justin Bender
@Vito: VAB has a higher yield to maturity, but it's price could decline more than VSB if interest rates quickly increased.
 
  11/02/2017 1:26:53 AM
Vito
Hey Justin,

Just a follow-up question. So is it fair to say if the broad based Bond (VAB) is more volatile/risky because its for a younger investors because of a longer time horizon and therefore a better rate of return and the short term Bond (VSB) is less risky and more well suited for retirees, but the rate of return would be less? Thanks again for the reply!
 
  10/02/2017 3:29:32 PM
Justin Bender
@Vito: I have two sets of model ETF portfolios on my personal blog (one with short-term bonds, like VSB, and one with broad-market bonds, like VAB): http://www.canadianportfoliomanagerblog.com/model-etf-portfolios/

For younger investors who are saving, a broad-market bond may be more appropriate. For more conservative investors who are withdrawing from their portfolios, a short-term bond ETF or laddered GICs may be more appropriate.
 
  09/02/2017 11:05:07 PM
Vito
Hey Justin, great video. I trade with Questrade and want to start index trading and didn't know which ETFs to buy, so thank you! I noticed, however, in your model portfolio page, you have the ETF ticker VSB for the Bond allocation, but in the video you show to get VAB. Is that just a typo on the model portfolio or was that a mistake in the video?
 
  25/01/2017 11:14:03 AM
Justin Bender
@Aleks: You are correct - placing non-marketable limit orders could save you some ECN fees, or it could cost you much more if the ETF price increases and the order goes unfilled.

Trading in 100 share increments is likely not reasonable for most DIY investors who are targeting a certain asset allocation mix.
 
  24/01/2017 10:10:15 PM
Aleks
Justin,
Thanks again for your blog!
I'm in process of transferring my RRSP to Questrade and building Couch Potato portfolio.

I found about this ECN fee by placing my first order... Then I searched the web and found that it's charged when "liquidity is removed". So I quickly updated my order and by offering just a penny less I managed to save 100 bucks. I also read that you need to trade shares in chunks of 100.

Still, it's just fraction of percent from portfolio :)

Cheers!
 
  24/01/2017 3:53:41 PM
Justin Bender
@Tony: As you mentioned, the risk of placing non-marketable limit orders to avoid ECN fees could end up costing you a lot more in opportunity costs. I prefer not to take that bet, and place a marketable limit order instead (eating the relatively modest ECN fees).
 
  24/01/2017 2:44:02 PM
Tony
Would it be better to execute ETF trades using non-marketable limit orders? It would avoid ECN fees (by creating liquidity) but you run the risk of not buying the ETF if the price never crosses your limit price.
 



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