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
Hi Justin!
I’m new to investing. I want to finally take the plunge and buy my first ETF on questrade (asset allocation iShares core ETF portfolio, XGRO). My question is, currently I have a small balance to start as I don’t want to diminish my emergency fund. I want to start with $1,000 in the iShares core portfolio, with $300/month contributions to start out. On questrade I know it’s free to purchase ETFs, but because this account rebalances for you, does that mean I will rack up a lot of trading fees?? I’m confused about how you incur trading fees. I really want to invest and I don’t want to do mutual funds because of their higher fees and my small starting balance.
I also have an account on Questwealth for an SRI growth portfolio that also rebalances for you, and I would also be starting out with $1,000 for that. I really like the idea of Sustainable resources. But then my $300 would have to be split between the 2 accounts.
I hope all of this makes sense, I just want to make the smartest, most cost efficient move. But I want to invest and take the plunge as my time is ticking! (30 years old).
@Taylor – A big benefit of asset allocation ETFs is that the fund company takes care of the rebalancing for you behind the scenes (so you benefit from economies of scale, and do not need to place any rebalancing trades yourself).
Hi Justin,
I’m new to DIY ETF investing. I just opened a Questrade account and was evaluating a list of recommended ETFs to buy. I was using Vanguard’s site to compare various funds and noticed a big difference in ‘Portfolio Turnover Rate’ metrics for the funds I was evaluating. Investopedia says a turnover rate of more than 30% is a sign of a poorly managed fund. Is this true? Here is an example for Canadian Equities:
Fund Turnover Rate (%)
Vanguard FTSE Canada All Cap Index ETF (VCN) 12.74
iShares Core S&P Total U.S. Stock Market ETF (ITOT) 82.69
Could you explain what this means? Otherwise the funds were very similar in terms of holdings and fees.
I would greatly appreciate that :)
Christiane
@Christiane: For broad-market ETFs (like VCN and ITOT), I wouldn’t be concerned about turnover metrics (they don’t mean much). Both funds are very tax-efficient.
And if you’re just starting out as a DIY ETF investor, I would check out the one-ticket asset allocation ETFs.
What is minimum $4.95 and maximum $9.95 per trade? You dod not mention that.
Hi Justin, I would like to know if we can do Norbert’s Gambit in a Questrade margin account by selling the shares first on the canadian side, then buy the same amount of shares on the us side. Would that make it possible to do Norbert’s Gambit without having to journal shares and make the conversion the same day so there is almost no FX risk?
@Sebastien: I’ve never tried Norbert’s gambit in a Questrade margin account, but if you can place both trades same day without any debit charges accruing, then there would be less FX risk during the settlement period. Perhaps try it out with a small amount of shares if you’re interested.
Hi Justin,
I’m a new investor and looking to move away from my broker and more towards DIY investing. I have watched your videos and read some articles. Before taking the plunge, I wanted to confirm that I understand how to invest correctly and if I’m doing it right.
My plan is to open my accounts at Questrade (TFSA, RRSP, Locked-in RRSP and Margin). From there, I have chosen to follow your models (80%/20%). If I understand this correctly, do I just go ahead and replicate the model (3 ETF model for TFSA and Margin, 5 ETF model for RRSP accounts) for each account? Or should this ratio be done across all accounts, as a whole?
Thank you for taking the time.
@George E: You could definitely do that, if you want to hold the same asset mix in each account (you could also consider holding VGRO in all accounts, if you’re looking for more simplicity).
If you want to attempt to optimize further, please refer to my asset location blogs:
https://canadianportfoliomanagerblog.com/asset-location-in-a-post-tax-world-tfsas-vs-rrsps/
https://canadianportfoliomanagerblog.com/asset-location-in-a-post-tax-world-rrsps-vs-taxable-accounts/
https://canadianportfoliomanagerblog.com/asset-location-in-a-post-tax-world-tfsas-vs-taxable-accounts/
https://canadianportfoliomanagerblog.com/optimal-asset-location-applied/
Hi Justin,
Thank you for your response. It was very insightful and I was able to understand the general concept you presented in your Asset Location blog posts.
My question is what are your thoughts on how to do this when I have two RRSP accounts (one RRSP and one Locked-in RRSP)? When I perform my asset allocation, I will count them as one account and sum up the balance. But when comes to purchasing the ETFs, I assume I would just buy the required number shares as per their respective percentages of the total?
My second question, your blog posts assumed a 30% effective tax rate. Is this employment income tax rate or is it just the highest tax that is being withheld at withdrawal for more than $15k (Ontario)?
Thank you again for your insightful advice.
@George E: Correct – you can view the RRSP and the LIRA as one account having the same tax consequences.
The 30% figure is a hypothetical average tax rate in retirement (every investor will have a different tax rate, but it is impossible to know with any certainty what that rate is).
Please keep in mind that I wrote those asset location articles because I had received countless reader questions on the topic – not because I advocate complicating the investment management of your portfolio in an attempt to “optimize” it.
Hi Justin, Thank you again for answering my questions. I’m glad to say that I have made the jump and purchased my first ETFs today.
So I decided to keep it simple and simply have the same allocation in all accounts. I decided to create your 5 ETF portfolio in my TFSA and in my RRSP will purchase the 3 US based ETFs instead.
My questions is for my Locked-in RRSP account, since I won’t be able to rebalance every year by adding additional funds, since it is locked, I would then be forced to sell some. Would it be more efficient to simply hold VGRO in my lockedin RRSP account and have it automatically rebalance?
Thank you again for your input.
@George E.: Is the LIRA a relatively small account overall? If so, could you just hold a single asset class there that you will likely not need to rebalance (like fixed income or Canadian equities)? You could still hold fixed income and Canadian equities in the TFSA and RRSP.
I tend to just hold a single bond ETF in my clients’ LIRAs (which would make up a portion of their fixed income allocation).
Sorry for the vague response – there’s just too many variables that I don’t know.
@Justin: Well currently my LIRA account will be the largest part of my portfolio at ~60k until I keep building up my TFSA and RRSP. I figured since I was not separating allocation to different accounts and was simply going to treat each account individually, I found this account to be a bit tricky. This is why I was thinking of simply holding VGRO in this account as it would rebalance itself. I would be loosing the withholding tax portion, I guess.
Hope this makes some sense.
@George: If the LIRA is the main account right now, holding just VGRO in it would be super simple. Breaking VGRO up into its component ETFs in the LIRA/portfolio (using VTI instead of VUN and VWO instead of VEE) would only save you about 0.11% per year in foreign withholding taxes (or $66 on a $60,000 portfolio).
Hardly seems worth the complexity. VGRO across all accounts might be easier to manage, until the overall portfolio size is larger (at which point, you could decide whether to further optimize it).
@Justin Thank you so much for your insight and information.
Hey Justin,
I hope this post finds you well.
I just recently did a NG (DLR.U.TO to DLR.TO) and re-watched your video to brush up before proceeding with my trade, but I have a question about something I noticed in two of your Questrade tutorial videos, one for the NG and the other building ETF portfolio.
In the NG video, I noticed when buying DLR.TO, you placed the limit orders at the exact Ask price and when selling DLR.U.TO, you placed the limit order at the exact Bid price. However, when I compare this with your building ETF portfolio video, when you made the ETF limit buying orders, you added 2 cents above asking price.
After reading several articles on CCP I understand the reason why adding a couple cents more than the ask or bid price, but what I don’t understand is, why not use the same principle when doing the NG? Any differences? Advantages or Disadvantages?
Thanks Justin!
@Vito: As DLR/DLR.U just hold US currency, they tend to not fluctuate much during the trading day (so placing your limit order directly at the bid or ask prices should immediately get filled).
Equity ETFs tend to fluctuate more throughout the day. You can definitely place your limit orders directly at the bid or ask (I do this in practice) as long as you are comfortable updating your price if the trade goes unfilled due to a change in price. As this was meant to be a beginner’s video, I wanted to make it as simple as possible (and have the limit orders fill immediately for the newbie investors).
Thanks Justin ! You probably recommand to have a DRIP for each ETF ? How activate or ask it with Questrade ? Thank you :)
@Charles: I would recommend setting up a DRIP on ETFs held in your RRSP and TFSA accounts (setting them up in taxable accounts can be a pain when you start tracking your adjusted cost base).
Here’s a link to the process at Questrade: http://help.questrade.com/how-to/frequently-asked-questions-(faqs)/self-directed-investing/diy-understanding-our-products-and-services/what-is-a-drip-and-how-do-i-set-that-up-#.WMV8pGczXZ4
Hey Justin. Just a follow-up on your last comment about ACB. I understand its a pain to calculate the ACB in non-registered accounts, but with respect to TFSA (not RRSP, because I am aware of the tax treaty b/w USA and Canada), the only disadvantage I find with DRIPs in a TFSA is that you cannot claim the foreign tax credit for the 15% withholding tax. whereas in a non-registered account you can. Often wondered which is better, but after reading Dan’s article about his on CCP, it seems he leans more towards still investing into the TFSA.
My question is, in a TFSA even though you don’t need to calculate the ACB, would it make more sense set up a DRIP or just take the dividends as cash and reinvest the dividend proceeds to buy more shares when annually rebalancing your portfolio?
Cheers!
Justin I have a quick question why don’t you ever go to 10% on emerging markets on your model portfolio, just wondering the reson. I have a index portfolio as follows now is this fine, I’m 38 years old and plan to hold it til I’m 55, I retire with a defined pension through my work as well and it is adjusted to inflation. Should I take more risk or is a 70/30 fine
VCN-20%
VUN-20%
XEF-20%
VEE-10%
VAB-30%
@Nick: In my model portfolios, I typically allocate 1/3 to Canadian stocks and 2/3 to global stocks (US, international developed and emerging markets), so for a 70% equity portfolio, ~23% would be Canadian stocks and ~47% would be global stocks. Emerging markets make up roughly 11% of the world market capitalization (ex Canada), so if we multiply this percentage by our allocation to global stocks, we get about 5% (11% EM market cap x 47% global stock allocation).
There is no perfect asset allocation – if you’re comfortable with your current weights, please feel free to deviate from my model ETF portfolios to suit your risk profile.
Hi Justin,
You gave me a great explanation last week about how I questioned that in your video you showed VAB for your bond allocation vs. using VSB as in one of your two model portfolios, and I came back see your response again and I cannot find it. You had said that one of the two (VAB or VSB) is geared more towards the younger investor and I was hoping you wouldn’t mind explaining again and this time I will take a screen shot in the event that your comment threading is limited.
Cheers Justin! and thank you again for the video tutorial, I trade with Questrade and always wanted to see an example of it, so really, thank you!
@Vito: Your question was posted on the PWL blog (which is why you can’t find it on my personal blog): https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/Blog/Justin-Bender/January-2017/How-to-Build-an-ETF-Portfolio-at-Questrade
I’m glad you enjoyed the tutorial! :)
Hello Justin,
The fees are low indeed, but Virtual Brokers has ETF buying for free, so why bother paying at all when you can get it for free ?
@JFLD: Virtual Brokers does not allow the Norbert’s gambit strategy (to convert CAD to USD cheaply) in their RRSP accounts (which would be a deal-breaker for DIY ETF investors who are trying to mitigate foreign withholding taxes by holding US-listed ETFs in their RRSP accounts).
Thank you Justin for your quick response.
To be honest with you, I have never considered doing a Norbert’s gambit.
Do you know the difference in total return between buying Canadian ETF with the higher fees and the US listed ETF? It seems to me that it will be marginal and I certainly might be wrong. The difference cannot be large enough to consider stopping using Canadian ETFs?
One of the thing I do appreciate with this Norbert’s gambit is the much larger selection of ETFs available in the US and the lower fees as you mentioned. Just not sure the difference, if known, is worth the troubles of changing broker, transfering funds, pay fees, etc?
You might be able to convert me depending on the excess return i could generate haha :)
Thabk you in advance for your response and congratulation on your site, the informations provided and tips. I do enjoy readi g your article.
Keep it up.
Best regards
JFLD
@JFLD: I’m glad that you’ve found the information and tips provided on this blog to be useful :)
I would estimate that the difference in fees and foreign withholding taxes between a global equity Canadian-listed ETF and a global equity US-listed ETF when held in an RRSP account is about 0.30%. I would suggest referring to our white paper on foreign withholding taxes for more information: https://www.canadianportfoliomanagerblog.com/wp-content/uploads/2014/09/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf?850eac