Thursday, 25 February 2016

Do's and Don'ts of DIY Investing (Do-It-Yourself)

  • Do understand that you are in it for the long term
  • Do understand that you are responsible for all losses and gains
  • Do know about fees - MER, transaction fees, financial advisor fees, etc
  • Do know the difference between a TFSA at the bank level and a TFSA self directed account
  • Do know the difference between a RRSP at the bank level and a RRSP self directed account
  • Do know the difference between a RESP at the bank level and a RESP self directed account
  • Do act like a fund manager
  • Do know your investment style (Dividend, growth, index)
  • Do know your risk tolerance
  • Do setup DRIPs
  • Do keep learning.  Books, blogs, podcasts, newspapers, magazines, websites, etc
  • Do setup tickers on your smartphone or online account
  • Do know the difference between investing and trading
  • Don't think you can time the market
  • Don't invest in mutual funds
  • Don't invest in GICs or market linked GICs
  • Don't invest in commodity or inverse ETFs.  (HVU, HOD, HOU,etc )
  • Don't go for the home run
  • Don't buy penny stocks
  • Don't buy stocks you hear about on online forums, CNBC, BNN, neighbour

Now this is not an extensive listing but these are my do's and don'ts of DIY investing.  My biggest concern on this list is the fees, namely my least favourite fee, the mutual fund fee.  It all started when I first opened my RRSP account at my local bank.  You go in and they tell you to pick your mutual funds you want to invest in.  There is no one to talk to.  You basically just give them money and if you want to do something, there is nothing to do.  I see the ups and downs of the mutual funds.  But basically everything is a mystery.  I think there must be a better way.  I started to learn about fees and was very taken back at the amount fees can add up.  They advertise that you are compounding your savings over 20 years but they never advertise that fees compound also.

The home run.  Yes, there are individuals who I know have made the switch to being self directed and in just a matter of days, they are talking trash.  How they are going to be day traders and all this and that.  It's amazing what one episode of Mad Money can do to an individual.  Word of advice, don't do it.  It was so easy to be a day trader, everyone would be doing it.

Timing the market.  Here is a classic where everyone and their uncle thinks they know the market bottom and top.  If timing the market was so easy, again, everyone including experts would know how to do it.  Remember the old saying, "buy low, sell high"?  Well it seems everyone forgets that in up markets and then again in down markets.  It's always panic time, so lets buy high and sell low.

GICs.  These things do not pay enough interest to keep up with inflation.  That basically means, you are losing money if you hold these.  And wasn't the whole idea of doing it yourself is so you can have more choice.  Going back to GICs just defeats that purpose.

Learning.  There is so much information out there in the online world and traditional media.  Learning from anyone that has come before you is a very humbling experience.  Reading and following other financial bloggers and financial columnists is a very good source of information.

Does anyone else have their Do's and Don'ts of investing? 

Friday, 19 February 2016

Big 5 Banks in Canada - Brokerage Fees compared

Bank Brokage Regular fee Trade 150+ times quarter
Bank of Nova Scotia Itrade $9.99 $4.99
CIBC Investors Edge $6.95  
Royal Bank Direct Investing $9.95 $6.95
TD Bank Direct Investing $9.95 $7.00
Bank of Montreal InvestorLine $9.95  

Discussions with fellow investors raised the question of Brokerage fees.  We all had over own reasons for why we banked / invested with certain institutions.  Examples were some simply opened their self direct accounts with the bank they banked with since they opened their account.  In most cases, the bank they opened their initial bank account with, also held their mortgage.  

Loyalty to one's local branch is what the big 5 banks work on very hard.  They want you to stay with them and do all your banking needs with them.  Which in turns means they make their money with you banking with them.  In the banking industry, this is called retail banking.  It is always an item discussed when quarterly reports are released as retail banking can be a strong or weak area of a bank's earnings.    

There is fierce competition within the banks to maintain or increase their retail banking earnings.  That being said, I would like to compare brokerage fees at the 5 big banks.  Now there are many fees for many different options of products you can buy using your self directed account for.  But for this post, we will compare the plain online equity purchase.  This type of transaction would normally be the main type of transaction most DIY investors would do anyways.  This is also reflected on all the big bank websites fee charts.  It is the 1st item on every chart.

Now my chart above in the first column shows the standard fee without any special considerations.  The 2nd column shows volume discounts, if you trade more than 150 times a quarter.  

To me, the clear winner here is CIBC Investor's Edge.  They will charge for all transactions regardless of volume or how much your portfolio is, $6.95.  Now as a DIY investor myself, I do not trade even close to 150 times a quarter.  Probably not even close to 100 times all time.  So the difference between $9.99 and $6.95 is not noticeable to me.

I personally invest using Scotia Bank's Itrade.  I do not have other experience with other brokerages but can comment on Itrade.  To me, Itrade is easy to use.  I do my daily online banking with Scotia and it is linked directly with Itrade.  I can transfer money from my regular checking account to my brokerage account in seconds.  My mortgage is with Scotia also so that is listed as well.  The interface to me is simple, clean, efficient and is user friendly.  They also have in depth analysis of the stock market and individual stocks.  The rating of individual stocks is what I find useful, it usually has the pros rating whether to buy, sell, or hold a stock.  Now this is not the end all of deciding to buy or not a stock but it gives information to me, as a DIY investor to consider.  Their Itrade mobile app is very clean and clear, I have only used it once and it was flawless.

Here are links to all 5 brokerages.

Final thoughts.

I must disclose that I use Scotia Itrade for everything and am satisfied.  But I am comparing fees so CIBC Investor's edge caught my attention when I scanned the prices of all the big banks.  Now that is something for everyone to think about when they decide where they want to open their brokerage account.

Any thoughts or comments on discount brokerage fees would be help?

Monday, 15 February 2016

Buying a Market linked GIC - think again

Now that the RRSP season is in full swing.  I am pretty sure there is a high chance that you have been reminded by your bank that you still have time to make your RRSP contribution for the year.  Either in visual posters at the branch, through email reminders, through snail mail reminders, the banks know that  they make money with anything you give them.  But being an investor that is always questioning things, I come across the old Market Linked GIC poster at my local branch.  It guarantees your principal 100% yet I can benefit potentially from a stock market if it was to rise.

Sounds amazing doesn't it?  You win no matter what.  Don't worry if you don't bank at my branch.  All banks have the their version of the market linked GIC.

You have to lock in for either 3 or 5 years.  You get your principal back at the end.  Some have a small guaranteed returned and you have the chance to get a higher rate of return.

What's the catch?  If the markets take off like a rocket, there will be cap on the returned passed to you.  There are also Market linked GICs that average out the return.  For example, if you locked in for 3 years.  The market that you are linked to, say rises 15% each year.  At the end of 3 years, the markets have risen 45% not compounded but then your GIC will return you the average which would be 15%.  Sufficient to say, the market linked GIC that averages the yearly returns is calculated in some unknown way at the end of 3 years that no normal person would understand.  So we don't know if it is even 15% because it has been so long,  like who tracks markets for 3 years and records it.

A big issue with many of these products that track indexes is that the returns are unknown and not particularly flexible.  You are locked in for a term that I am not comfortable with.

These products are designed for investors are not comfortable with the stock market in general.  So why would I want to track a index that I can buy with an ETF that tracks that same index?  I keep the dividends that the ETF pays out and I pay under $10 to purchase the ETF.  I can sell anytime I want.  Again for only $10.  I know if I gain or lose and the calculation is my own calculation so I know it is correct.

To sum it up, market linked GICS are complicated in their calculations, lock in for way too long, and returns are not easy to understand.  There are no fees but the opportunity cost of locking in for that long is too big.  Also, to buy ETFs, you would need a self directed account while GICs or market linked GICs can be bought at the bank without opening a self directed account.

I would not buy a market linked GIC.

Does anyone else have any thoughts or comments on Market linked GICs?

Tuesday, 9 February 2016

BMO 1st of the big banks to introduce online portfolio management - BMO SMARTFOLIO

BMO introduced this January, a new online portfolio service called BMO Smart folio.  At first, I was what exactly is BMO introducing?  Was it something new, was it something for novice investors or for more advanced investors?

What is BMO Smart folio?

BMO Smart folio is an online portfolio management service offered by the bank of Montreal being advertised as being hands free and affordable and taking care of your insetting needs.

It starts you off with a survey about your personal life and investment tolerance.  Once this investor profile is completed.  Smart folio will recommend an ETF portfolio for you.

There are 5 ETF model Portfolios:

  • BMO Smart folio Capital Preservation Portfolio
  • BMO Smart folio Income Portfolio
  • BMO Smart folio Balanced Portfolio
  • BMO Smart folio Long Term Growth Portfolio
  • BMO Smart folio Equity Growth Portfolio

These portfolios are watched by expert managers and rebalanced each day to make sure they meet investor needs.


Portfolio amount Annual cost
1st $100.000 0.70%
$150,000+ 0.60%
$250,000+ 0.50%
$500,000+ 0.40%

Here are the annual percentages that will be charged according to how much money you have in your portfolio.  There is also a $15 quarterly fee but you can have this waived if you deposit $250 or more into BMO Smart folio that quarter.

So what is that going to cost in actual dollars.  Here is simple chart to show how much it will cost.

Portfolio amount Annual cost
$5,000 $60
$10,000 $70
$50,000 $350
$100,000 $700
$500,000 $2,850

There is also a $5,000 minimum amount you need to maintain.

These Smart folio fees do not include the ETF MERs.  Now ETF MERs are very reasonable but the site indicates that the ETF fees will range from 0.2% to 0.35% of your portfolio.

The Good

Access to ETF portfolio management 
Effortless investing
Active management i.e. will rebalance daily
Full disclosure of holdings, performance, and transactions
Big Bank which is reputable
You can open a non-registered account and also open the alphabet accounts. (RRSP, RESP, TFSA, RRIF, LIRA, etc)

The Bad

I know this a new product offered by BMO and BMO happens to be the leader of the big banks in terms of ETF selections but to only have BMO ETFs, so be it.  Would have been nice to have other ETFs available to pick from.

My Comments

This product does provide ETF exposure without having to open a trading account but only to BMO ETFs and only in portfolio style, no picking which ETF you only want.  The opening survey looks like the investor profile questionnaire you have to answer when you open any account.  The setup seems similar to the model portfolios offered at my workplace RRSP but they use only mutual funds instead of ETFs.  This is a great starting point for investors that heard of ETFs and their lower cost but need to see it in action to fully understand how it works.  The fees are acceptable.  BMO being the first big bank to offer something like this is really good.  They must have finally heard from investors that they want more investment choices at affordable costs.  The investors must have wanted something better than mutual funds but not a self directed account.  This BMO Smartfolio looks to me to be an hybrid of between the 2 styles.

Has anyone opened a BMO Smartfolio account yet?  Let me know your thoughts and comments.


Link to BMO Smartfolio BMO Smartfolio

Sunday, 7 February 2016

Canadian ETFs do record business in 2015

In a recent article on The Financial Post regarding ETF sales for 2015.  They indicated that the ETF industry had a record inflow of cash in 2015.

It is still true that ETFs only account for 10% of the industry mutual fund business.  There are a lot events that show that the major players in the mutual fund industry is taking notice.

Exchange-Traded-Funds (ETFs) vs Mutual funds on the cost side.  Well ETFs simply destroy mutual funds.  The average Mutual Fund Management Expense Ratio (MER) was 2.3% while their ETF counterpart cost as little as 0.03%.  Again, the power of compounding that everyone keeps taking about where they refer to your money compounding over time, well what about about fees compounding over time also.  Previous average MERs were quoted at 2.1% and now this article has stated that the average is 2.3% (according to

Major players in the industry such as Mackenzie Financial and CI Funds are making moves into this space.  Power Financial Corp took at $30 million position ETF company Wealthsimple.

In Canada, the big ETF players are Ishare, Vanguard and Horizons.  Of the big banks that are involved in the ETF business.  The clear leader is Bank of Montreal.  BMO Global Asset Management has confirmed that their ETF business had a record breaking year in 2015.  Canada only has about a 3% stake in the Global ETF business.

This article shows that investors have shown that change can happened, be it slowly.  After all the mutual fund industry started in the 1960s and the ETF industry is still new to the industry.   The quoted new average Mutual Fund MER of 2.3% is very concerning to any investor concerned with cost.   Every year, the ETF industry looks to be on the rise, there may be a day that is in the future where we go to think about our RRSP contribution and ETFs come to mind first.

A few numbers

In 2004, ETFs accounted for 1% o the market share.  5% share in 2014.  Expected to rise to 8% in 2024

In 2004, standalone Mutual Funds accounted for 69% of the market share.  39% market share in 2014

Source: Financal Post, Jonathan Chevreau

Tuesday, 2 February 2016

EQ Bank introduces 3% interest savings account to shake up Canadian banking

High-interest savings accounts will get attention in the financial world.  Remember ING direct (now Tangerine) \with those catchy television commercials asking you to "save your money" and President's Choice savings account.  Alas, those rates are no more.  But EQ Bank has caught everyone's attention with their eye popping 3% interest rate, with no fees, no minimum balance requirements.  The account allows daily transactions including bill payments, e-transfers, and moving money via computer or mobile phone with the emphasis on catering to mobile phone users.

What is even more interesting is that this is not a promotional or short term rate.  It is here to stay as long as the bank needs it.  The savings accounts are a small portion of EQ so it is manageable.

What is EQ Bank?

EQ Bank is well known in the alternative mortgage space, where it serves many clients whose credit profiles are too thin or too weak to secure loans from traditional banks.  In their latest online only banking dubbed EQ Bank, they offer their high interest savings account of 3%, hoping to tap into the $400 billion dollars sitting in savings accounts that earn 0.2% to 0.6% per year at traditional banks.  EQ Bank, since it is online only (Similar to Tangerine), has no branch network to pay for, a cost that the must be borne by traditional banks.  EQ Bank mortgages typically have higher interest rates for their mortgages as their clients are in the A- or B category

How can the bank make money paying 3% interest?

EQ Bank's main business is high interest mortgages.  They make money still offering a 3% interest rate, simply because of the spread from the mortgages to the savings account.

"Obviously we're not there yet, but we've made very good progress in a short period of time", says Andrew Moor, chief executive of Equitable Bank.

"We are making a positive margin even at the three per cent we're offering",  Moor told the Financial Post during a telephone interview.  "The average mortgage rate is probably four and a quarter, or something like that, so yeah, there is a margin."

Their motto

"What we want to do is offer a product that people don't have to be constantly looking and checking to see what the rate is"

Some numbers to think about

$400 billion in bank accounts earning 0.2% to 0.6% at traditional banks.

Tangerine currently offering 0.8% interest on their savings account

Internet is now the main means of banking for 55% of Canadians, according to the Canadian Bankers Association

EQ Bank has set a target of opening 10,000 accounts in 2016

Competitors whose businesses are built on offering rates higher than traditional banks are responding to EQ Bank's launch by promoting additional features they offer, and boosting their rates.

Some have "come close" to matching the three percent savings rate but with short term offers only, Moor says

With this launch by EQ Bank, does it not seem deja vu all over again.  This is what ING Direct did back in the glory days.  With high rates and television ads using their pitch man and highlighting their orange colours.

What are your thoughts?

Would you open an EQ Bank account?

Sources : Canadian Bankers Association, Financial Post, EQ Bank