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.
Way too difficult to navigate through Td direct investing site. Gave up and moved everything out of TD to new institution
I’ve been using the e-series funds for my kids’ RESPs at TD for 5 years now, but am shocked that they will not allow the BCTESG (free $1200/child from the BC government) to be deposited into the same account, instead insisting the money be deposited in a separate savings account that can only be invested in low interest bearing mutual funds. This is unlike any other bank, credit union or other investment firm I’ve contacted. Shame on you TD Bank! I hope other potential customers in BC think twice about using TD. I will be starting the process of moving asap!
Wow, that does seem odd! One would think they would rather have the grant funds from the provincial government invested in their own regular mutual funds, e-Series or otherwise. :(
I can definitely see certain RESP providers not set up with various provincial government grant capabilities but, since they’re clearly set up and can, as you say, put those funds received from the BCTESG grant in (presumably) money market mutual funds, this seems to me a rather silly thing.
With TD’s e-Series of funds, are you going to move to a self-directed discount brokerage and, presumably, make your regular contributions annually or will you move to a “robo-advisor”? Otherwise, moving to any bank-owned mutual fund dealer will result in higher overall portfolio MER. :(
Cheers,
Doug
Great tutorial video, Justin. While I was very familiar with all of the discussion points of the tutorial with my level of investing knowledge, this is an excellent, polished, professionally-produced and easy to understand video for novice DIY investors. I also appreciated the points on the “limit” orders as, although I was familiar with “limit” orders, I’ve always tended to utilize “market” orders to ensure the order gets filled the same day. However, with the ETFs chosen in this video, the low “bid/ask spreads” and average daily trading volume likely indicate the trade would be filled the same-day while ensuring you wouldn’t be “bid up” in an upwardly moving price with a “market” order. Curious, is there some sort of simple formula you’d utilize to determine, based on the average daily trading volume and “bid/ask spread,” how many cents higher than the current price to set the “maximum” of one’s limit order? Or, do you always go with 2-3 cents above the current “ask” price?
Your point about utilizing low-cost index mutual funds for small investors, TD e-Series being the preferred one, is a good one that I agree with wholeheartedly and a $15,000-25,000 “threshold” before converting to equivalent ETFs is probably one I’d agree with as well because of the administrative fee otherwise but also because of trading commissions. I do think the “robo-advisors” in Canada have the ability to democratize ETFs to small, retail investors by allowing regular contributions, since most of them typically including trading commissions and all account fees in their monthly or quarterly management fee that is typically between 0.40-0.80%, while also providing a relatively low cost access to excellent portfolio management, investment counselling and even financial planning advice that is normally afforded to higher net worth investors. Portfolio managers being held to a higher, fiduciary standard of care, likely due to them managing accounts on a fully- or semi-discretionary basis, than typical investment or mutual fund dealers is also a definite plus.
As an experienced and knowledgeable investor, who largely embraces passive investing, I’m probably leaning towards a “robo-advisor” because of the ability to reduce the “drag” on uninvested dividends and automated rebalancing, all of which would likely trigger trading commissions in self-directed accounts, I’m wondering if the extra cost – while minimal compared to traditional advisors or even fee-based financial planners – is worth it (for me at least). Justwealth seems to my preference for a “robo-advisor” – or even your firm, though your pricing structure is probably a bit out of reach for small investors, I’m guessing. That said, one of the “drawbacks” to a “robo-advisor” is, even though Justwealth maintains the largest number of portfolio options and ETFs within those portfolios, is sometimes there might be a particular equity or fixed income ETF that you might want within your portfolio.
Curious as to any thoughts you may have on this.
At any rate, whatever option I decide to do, whether to remain a self-directed investor or go with a “robo-advisor,” I’ll definitely take a look at your model portfolios in helping me to determine an appropriate asset allocation (whether I go with the same ETFs exactly remains to be seen, i.e. perhaps preferring an iShares ETF to Vanguard or vice versa). :)
Separately, I take your point about, generally, investing higher growth assets in a TFSA. However, I currently have about 25% of my allowable TFSA contribution room invested in REITs and I do this mainly because of the tax treatment of dividends and the more complicated recordkeeping in terms of having to track distributions over the long-term to calculate one’s adjusted cost base if “return of capital” is part of the distribution. Is there a certain logic to that or, for low- to moderate-income investors, is it true that, in terms of tax treatment, REIT distributions can actually be more favourable than straight “interest income” but less favourable than Canadian eligible dividend income (due to the dividend tax credit)?
Cheers,
Doug
Disclosure: I have been licensed as a mutual funds sales representative with a previous employer’s mutual fund dealer subsidiary. Additionally, in terms of personal and financial circumstances, I am a single, younger investor (33) with assets allocated specifically to retirement (i.e., RRSP, locked-in RRSP from a former employer-sponsored defined contribution pension plan and TFSA) of approximately $100,000 and total investable assets of approximately $225,000 with no debt, though I do not own a home as I currently rent. In terms of investing experience, I would rate myself as “intermediate”. Finally, in terms of “risk tolerance,” I can appreciate that short-term trading volatility is actually a long-term’s “friend” in providing potential buying opportunities and can tolerate a single-day decline of 20% in a single day without “flinching” or giving it a second thought, other than to take a “second look” at company or market fundamentals to determine if it would appropriate to further “average in” to a position.
Hi Justin! Thank you very much for your article.
As mentionned above, questrade has no fees for buying ETFs. Does it does makes sens then to invest in ETFs with a small portofolio with questrade? I’m currently invested with TD in e-series but I was looking to switch over with ETFs on questrade, since long-term I want to be investing in ETF to minimize management fees.
Are the transaction fees the only thing that make ETF less desirable for a small portofolio?
Thanks you very much!
@Frank: What is the size of the portfolio, and how much and often are you contributing to it?
Thanks for your quick reply!
I just started to invest so my portofolio is around 5,000 as of now. I’m currently contributing 300$/month to it and it should bump to 500$ in the next 6 months.
My thinking was that since I was going to switch in the next 2-3 years to ETF, it might make sens to do it right away instead of having to sell around 20-25k of the e-series and buying back at what might happens to be a bad timing.
I’m just starting on my investing journey so i’m looking at 30+ years of investment.
Thanks again for your input it’s appreciated!
@Frank: I’m assuming you hold your TD e-Series funds through TD bank and not TD Direct Investing. If this is the case, you could continue investing in TD e-Series until you hit that $25K target. At that point, you could speak with TD to see if they’ll switch your accounts over to a TD Direct Investing account (where you can buy ETFs). Once your e-Series funds have transferred over, you could sell them (watch out for short-term trading fees) and immediately buy back a simple 3-ETF portfolio (this will cost you about $30 in trading commissions).
If you want to transfer to Questrade at that time to avoid future trading commissions, you can transfer your 3 ETFs “in-kind” without selling. Questrade will also reimburse up to $150 of transfer-out fees if you move over at least $25,000 (http://www.questrade.com/campaigns/free_to_transfer). This plan would ensure that you are in the market for the entire period, and you avoid transfer-out fees.
You may end up deciding to stick with TD by that time though. National Bank Direct Brokerage has already stopped charging trading commissions on all Canadian-listed ETF purchases and sales. I wouldn’t be surprised if TD Direct Investing starting waiving trading commissions on their own line of ETFs sometime in the near future.
Thanks for this, Justin. I have read so many articles on ETF investing but very few actually talk about the logistics.
Our household has a combined portfolio of close to 125K between 4 accounts (my TFSA, my RRSP, SO’s TFSA, SO’s RRSP) I would appreciate a blog post on how to assess the various trading platforms (their trading fees, ECN fees, account maintenance fees, etc) We are currently all in e-series. I have been exploring Questrade but dint realize until recently that they have ECN fees. Knowing that, we are leaning towards TD Direct Investing. The plan is to make biweekly payments into e-series accounts and switch it over to ETF once a year. Does this make sense? Are there better alternatives? Any comments/suggestions are highly appreciated.
@Archi: Please feel free to subscribe to my blog and YouTube channel, as I will be releasing videos and blogs for six discount brokerages (TD, BMO, CIBC, RBC, Scotia, NB) that should help address your questions.
National Bank Direct Brokerage might be a possible option, as they no longer charge trading commissions on Canadian-listed ETF purchases and sales. TD Direct Investing would also be a decent option for a more hands-off approach.
Fantastic. Done and done! Looking forward to it.
Assuming a maxed out TFSA account, what’s the best allocation (tax-wise) for a TFSA – is it Canadian equities? REIT’s ?
Just transitioning from TD eseries to TD Direct Investing (soon).
Thanks!
@Adi: Generally, if you’re investing the TFSA funds long-term, you’d want to hold higher-growth assets within the account (as the dividends and growth are never taxed). As it’s impossible to know which asset class will have the highest returns going forward, I tend to hedge my bets and simply hold an even split of Canadian, US and International equity ETFs.
With TDDI account is the minimum of $15000 to eliminate the quarterly fee of $25 the same for registered and non registered accounts? Does the PPP of $100 a month waive the fees for both types of accounts?
@Jon: The minimum $15,000 applies to registered and non-registered accounts (but you can combine all of your household accounts to reach the $15,000) – there are also some other exceptions: https://www.td.com/ca/document/PDF/forms/521778.pdf
As long as you have a minimum $100/month contribution set-up on at least one of the accounts (or the total monthly contributions across all accounts is at least $100), you shouldn’t be charged the quarterly maintenance fee.
One of the reasons I excluded TD Direct Investing is, sadly, because it charges a minimum balance fee of, I thought, $25,000 “per account” rather than “per client” so, while my non-registered and RRSP accounts would’ve been exempt from the fee, my locked-in RRSP would not and, since locked-in RRSPs do not allow additional contributions (I get the idea of prohibiting withdrawals, but why won’t the federal government, which has jurisdiction over my locked-in RRSP, permit additional contributions provided an advisory informs the client that the contribution will be locked-in?), would’ve been subject to the fee. I haven’t checked in the last year or so, has TD Direct Investing made changes to this to base the “registered account fee” by “client” instead by “account”? If so, that’s great. HSBC InvestDirect, which custodies with NBCN, and NBDB did the same a few years ago.
The reason I have avoided HSBC InvestDirect and NBDB is their “external bank account authorization form” excludes TD Canada Trust and Tangerine bank accounts for some odd reason and they won’t tell me WHY when I e-mail them. :(
Virtual Brokers has a monthly fee to participate in their broker-sponsored DRIPs and DPPs and has multiple commission schemes with “catches” (i.e. like having to use one of their desktop trading platforms, which carries a high monthly fee) so I never utilized the accounts I opened with them.
Questrade is, arguably, the best in terms of allowing free “buys” of Canadian and US-listed ETFs but their commissions on mutual fund purchases, I believe, are what turned me away since, I presume, that would apply to bank-sponsored high interest savings accounts available through FundSERV.
I looked at Qtrade but, as it’s almost identical to Scotia iTRADE, wouldn’t have been an advantage to switching. On TD’s e-Series of funds, I wish TD would consider distributing their e-Series of funds through other brokers rather than only through TD Direct Investing or going through a complicated process of either: (a) going to a TD Canada Trust branch and opening an account with their standard, higher MER A-series of funds and then calling the TD mutual fund dealer call centre to “switch” them to the lower MER e-Series of funds or (b) going through their extensive “virtual” account opening process including sending in copies of one’s photo ID in addition to one’s initial deposit cheque.
So, I’m with Scotia iTRADE unless I, ultimately, decide to go with a “robo-advisor,” which would likely be Justwealth, though I did seriously look at PWL Capital. :)
Cheers,
Doug M.
For ETF purchases I just use Questrade. It is supposedly ‘free’ to purchase (but not to sell) ETFs but you will pay some minor ECN fees. I think I paid like 20 cents for a 2500 transaction, I think their commission is typically 5 bucks?
Some brokers offer a lineup of free ETFs like Scotia iTrade as well. TD Direct Investing (I have them as well) is good for its research, design, integration with bank account, and service but 9.99 per trade (for ETFs) is cost prohibitive (I’m very cheap)…Still beats 40 a few years ago lol…
These free ETF options can remove the minimum account size threshold to play around with ETFs…
@Jason: Questrade is definitely a popular option for smaller accounts. If your account size is over $20,000, you may want to consider National Bank Direct Brokerage (NBDB), as they no longer charge commissions on ETF purchases either: http://nbdb.ca/
I’m not sure if NBDB charges additional fees for limit orders or ECN fees, but I don’t believe so – I’ll test drive their system when I implement the 6th portfolio in this series.
That’s very interesting news about NBDB, and it seems to apply to both buying and selling ETFs. If there are also no ECN fees, then this is squarely better than what others, e.g., Questrade or Virtual Brokers offer. Hopefully the other players will follow suit.
@Tyler: One additional difference is that NBDB still charges commissions on “US-listed” ETF purchases, whereas Questrade doesn’t.
I didn’t do the arithmetic, but it seemed that when you got to the last trade, the remaining cash balance took into account the trading commissions. Is this right? BMO Investorline doesn’t do this. I have to keep track of the number of trades I’ve made and subtract $10 for each trade before I try to use up all the remaining cash. It’s either the next day or when the trades settle that they subtract the commissions. Has this been your experience as well?
@Michael James: The remaining cash balance for the last trade started out at $6,042.11. I then subtracted the $9.99 commission manually (which equals $6,032.12). I was able to purchase 228 shares of VAB at $26.45 per share (which totals $6,030.60). If we subtract the ETF cost of $6,030.60 from the cash balance of $6,032.12 remaining after taking into account the $9.99 commission, we end up with $1.52 (which was the final cash balance remaining after all trades have been placed).
So it looks like TD Direct Investing is subtracting the trading commission from the cash balance post-trade, resulting in an up-to-date cash balance figure (we can look at the BMO InvestorLine numbers when I post the video next week to compare).