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.