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October-25-16

How to Build an ETF Portfolio at BMO InvestorLine

In the second tutorial of the series, I show DIY investors how to implement an ETF portfolio at BMO InvestorLine.  I’ve also included some additional commentary below that investors should read prior to implementing their portfolio. 

 

Avoiding the annual RRSP administration fee

Investors with less than $25,000 in their RRSP account pay a hefty annual administration fee of $100 plus tax.  Unlike TD Direct Investing, BMO does not consider all household RRSP accounts when determining this threshold (so a married couple each with an RRSP account worth $15,000 would both pay the annual administration fee).  BMO will also not waive the fee if you set-up a monthly contribution plan to the account.

Watch those cash balances

BMO’s online platform can sometimes take a few moments to update the cash balances after a trade. As a precaution, simply visit the order status screen in-between trades to ensure that each trade has been completed.

As Michael James pointed out in the comment section of my last blog, BMO’s online platform does not include the cost of their $9.95 trading commissions in the cash balance details right away (so while you’re placing your trades, you actually have less cash available than you think).  

Not knowing this, I placed the final trade during my tutorial, and thought everything went smoothly. The remaining cash balance was showing a credit of $23.12.

Quoted Cash Balance Details

Security Symbol Type Quantity Price Total Amount Cash Balance
            $25,000.00
Vanguard FTSE Canada All Cap Index ETF VCN Buy 174 $28.507 -$4,960.24 $20,039.76
Vanguard U.S. Total Market Index ETF VUN Buy 131 $37.950 -$4,971.45 $15,068.31
iShares Core MSCI EAFE IMI Index ETF XEF Buy 153 $26.070 -$3,988.71 $11,079.60
iShares Core MSCI Emerging Markets IMI Index ETF XEC Buy 48 $20.500 -$984.00 $10,095.60
Vanguard Canadian Aggregate Bond Index ETF VAB Buy 388 $25.960 -$10,072.48 $23.12

Source: BMO InvestorLine

When I logged back into the account the following week, I found to my surprise that the cash balance was now showing a debit of $26.63 (for a difference of $49.75, or 5 trades at $9.95 per trade). Luckily, BMO did not charge the account any debit interest, but it was annoying just the same.

Actual Cash Balance Details

Security Symbol Type Quantity Price Total Amount Cash Balance
            $25,000.00
Vanguard FTSE Canada All Cap Index ETF VCN Buy 174 $28.507 -$4,970.19 $20,029.81
Vanguard U.S. Total Market Index ETF VUN Buy 131 $37.950 -$4,981.40 $15,048.41
iShares Core MSCI EAFE IMI Index ETF XEF Buy 153 $26.070 -$3,998.66 $11,049.75
iShares Core MSCI Emerging Markets IMI Index ETF XEC Buy 48 $20.500 -$993.95 $10,055.80
Vanguard Canadian Aggregate Bond Index ETF VAB Buy 388 $25.960 -$10,082.43 -$26.63

Source: BMO InvestorLine

For the final trade

During my BMO tutorial, I advise viewers to first subtract the $9.95 trading commission before calculating the number of shares of the Vanguard Canadian Aggregate Bond Index ETF (VAB) to purchase. For the actual trade, I took the remaining cash balance of $10,095.60, subtracted the $9.95 commission, and divided by the ask price of $25.96, which equals ~388 shares.

In hindsight, I should have taken the final cash balance of $10,095.60 and subtracted the five $9.95 trading commissions that I would be incurring that day (which would have totaled $49.75). I should have then divided by the ask price of $25.96, which would have equaled ~386 shares (so I purchased 2 more shares of VAB than I should have).

For smaller accounts, use less ETFs

Although I’ve shown how to build a 5-ETF portfolio in my tutorial, you can get away with using just three ETFs to cut down on trading commissions. Instead of holding separate ETFs for US, international and emerging markets stocks, simply hold the iShares Core MSCI All Country World ex Canada Index ETF (XAW).

For smaller accounts, find another brokerage

Due to the relatively high and inflexible RRSP annual administration fees, I would suggest using another brokerage if you’re just starting out. BMO’s platform issues with their real-time cash balance details will likely cause additional headaches for DIY investors, which is another reason to consider using a different brokerage.

Stay tuned next week when we’ll learn How to Build an ETF Portfolio at CIBC Investor’s Edge.

By: Justin Bender | 0 comments
October-18-16

How to Build an ETF Portfolio at TD Direct Investing

So you’ve made the decision to become a DIY investor, but there’s way too much information online to wrap your head around. Not to worry – my new series of tutorials will cut through the noise and show you just what you need to know. The first set of videos will be geared towards the novice investor who is currently investing within their RRSP, TFSA or RESP accounts. Let’s start things off with a tutorial on How to Build an ETF Portfolio at TD Direct Investing (I’ve also included some additional commentary below).

 

Watch those cash balances

TD’s online platform sometimes takes a moment to update the cash balances. If you are unsure whether your previous trades are being reflected in the remaining cash balance details, review the order status screen between trades, just to ensure that your trades are being successfully filled.

Avoid the quarterly maintenance fee

For household accounts below $15,000, TD Direct Investing will waive their $25 quarterly maintenance fee if you set-up a pre-authorized contribution of at least $100 per month. This one is a no-brainer – not only does it force you to systematically save, it reduces your account fees.

For smaller accounts, use index funds

Even if you avoid the quarterly maintenance fee by setting up a monthly contribution plan, it may be less costly to invest in the TD e-Series Index Funds instead of ETFs. As a rule of thumb, if you have less than $15,000 to invest, and it will likely be a few years until you have saved up this amount, avoid ETFs. For those investors with less than $15,000, please refer to Dan Bortolotti’s model TD e-Series Index Fund Portfolios on his Canadian Couch Potato blog.

For smaller accounts, use less ETFs

Although I’ve shown how to build a 5-ETF portfolio in my tutorial, you can get away with using just three ETFs to cut down on trading commissions.  Instead of holding separate ETFs for US, international and emerging markets stocks, simply hold the iShares Core MSCI All Country World ex Canada Index ETF (XAW).

Stay tuned next week when we’ll learn How to Build an ETF Portfolio at BMO InvestorLine.

By: Justin Bender | 3 comments
October-03-16

How to Build an ETF Portfolio

DIY investing can be intimidating. Sure, I post model ETF portfolios on my blog that readers can download and implement at their favourite brokerage, but novice investors may still find the process overwhelming.

That’s why I’ve decided to set-up a DIY investing channel on YouTube (the videos have been produced by Tara Hunt and edited by Unbuttoned Media). My initial videos will focus on the basics of implementing an ETF portfolio at each of the big bank discount brokerages. Viewers will learn how to calculate the number of ETF shares to purchase and also how to place limit orders (this is great stuff for beginners). Please be sure to subscribe so that you don’t miss any of them – the videos are scheduled for release over the next few weeks.

Although I’ve used the actual ETFs from my model portfolios, please feel free to substitute any of the recommended ETFs for similar ones in the same asset class (I’ve included a list below of alternative ETF choices).  

Alternative ETF choices

Asset Class BlackRock Canada Vanguard Canada Bank of Montreal
Canadian Bonds iShares Core High Quality Canadian Bond Index ETF (XQB) Vanguard Canadian Aggregate Bond Index ETF (VAB) BMO Aggregate Bond Index ETF (ZAG)
Canadian Stocks iShares Core S&P/TSX Capped Composite Index ETF (XIC) Vanguard FTSE Canada All Cap Index ETF (VCN) BMO S&P/TSX Capped Composite Index ETF (ZCN)
U.S. Stocks iShares Core S&P U.S. Total Market Index ETF (XUU) Vanguard U.S. Total Market Index ETF (VUN) BMO S&P 500 Index ETF (ZSP)
International Stocks iShares Core MSCI EAFE IMI Index ETF (XEF) Vanguard FTSE Developed All Cap ex North America Index ETF (VIU) BMO MSCI EAFE Index ETF (ZEA)
Emerging Markets Stocks iShares Core MSCI Emerging Markets IMI Index ETF (XEC) Vanguard FTSE Emerging Markets All Cap Index ETF (VEE) BMO MSCI Emerging Markets Index ETF (ZEM)
       
Global ex Canada Stocks iShares Core MSCI All Country World ex Canada Index ETF (XAW) Vanguard FTSE Global All Cap ex Canada Index ETF (VXC) N/A

Sources: BlackRock Canada, Vanguard Canada, BMO

If you’re an investor with a smaller portfolio, you may also want to consider swapping out your US, international and emerging markets ETFs for a single global fund, such as the iShares Core MSCI All Country World ex Canada Index ETF (XAW) or the Vanguard FTSE Global All Cap ex Canada Index ETF (VXC) (the Canadian Couch Potato uses VXC in his model ETF portfolios). This should help reduce trading commissions as you continue to manage your new ETF portfolio.

The first video in the series will be on How to Build an ETF Portfolio at TD Direct Investing.

By: Justin Bender | 6 comments