Buying ETFs monthly

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ohmer
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Buying ETFs monthly

Post by ohmer »

Hello,

I recently started an RRSP account at Questrade. I built a diversified portfolio containing 7 ETFs. The goal is to make monthly contributions. I already setuped automatic bill payment from online banking and I wondering how I should buy my units.

Should I do 7 trades splitted by my predefined percentages? Trading ETF units is free but this take time to setup all the required limit orders, With that setup, I would need to do the usual annual balancement.

Or should I just make something like 2 trades by month? I would buy the 2 ETFs that are the most under my predefined percentages. Setuping the limit orders would take less time. Essentially, this would equal to balance my portfolio each month. Is it something I would want to avoid?

Thanks!
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Re: Buying ETFs monthly

Post by Shine »

ohmer wrote:Hello,

I recently started an RRSP account at Questrade. I built a diversified portfolio containing 7 ETFs. The goal is to make monthly contributions. I already setuped automatic bill payment from online banking and I wondering how I should buy my units.

Should I do 7 trades splitted by my predefined percentages? Trading ETF units is free but this take time to setup all the required limit orders, With that setup, I would need to do the usual annual balancement.

Or should I just make something like 2 trades by month? I would buy the 2 ETFs that are the most under my predefined percentages. Setuping the limit orders would take less time. Essentially, this would equal to balance my portfolio each month. Is it something I would want to avoid?

Thanks!
Welcome to the FWF ohmer.

I think there are some diversified ETFs that will re balance for you as well as reinvest your distributions at less cost. Making monthly contributions to your existing 7 ETFs could cost you $69.00 plus taxes per month, or more depending on your account balance. Making a single monthly contribution would be preferable to me...you could also look at the balanced funds offered by Mawer.

Seven ETF's in an RRSP seems too many to me, however I am sure there are more knowledgeable individuals on this thread who can advise you.
ohmer
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Re: Buying ETFs monthly

Post by ohmer »

Shine wrote:
ohmer wrote: Making monthly contributions to your existing 7 ETFs could cost you $69.00 plus taxes per month, or more depending on your account balance. Making a single monthly contribution would be preferable to me...you could also look at the balanced funds offered by Mawer.
My account is with Questrade. I can buy any ETF with 0$ commission. I would not do this if I had to pay commission for each trade.
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AltaRed
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Re: Buying ETFs monthly

Post by AltaRed »

ohmer wrote:My account is with Questrade. I can buy any ETF with 0$ commission. I would not do this if I had to pay commission for each trade.
I understand the free purchases but why 7 ETFs in the first place? Surely 3-4 would cover the world.

P.S. But if you insist, just buy one each month.... you almost get 2 purchases per ETF per year (one per 6 months).
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adrian2
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Re: Buying ETFs monthly

Post by adrian2 »

I'm glad I have shares in TD, owner of TDW, and not whoever owns Questrade. I doubt the long term survivability of the business model offering free ETF purchases, model which is prone to abuse IMHO (one share purchase, some forum members).

If they are not profitable, eventually they'll close shop. Hopefully it will be orderly, and without recourse to the Canadian Investors Protection Fund.
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Re: Buying ETFs monthly

Post by RonBruce »

ohmer,

I'm new to this too but am trying to do as you are by using 'commission free' ETFS in my TFSA account with iTrade. Also I will be adding to them monthly and there are six funds to hit everything I want. My RRSP will be made of regular ETFs though and only a 3 fund account.

Canadian Couch Potato has a great re-balancing spreadsheet that should help a lot but from what I've read you'll need to decide how much percentage drift to go with. In other words if one fund is out a little don't rush to trade it back to your defined percentage. Still not quite sure how much of a drift to let go. Still researching that. :)

http://canadiancouchpotato.com/2011/03/ ... ing-costs/

EDIT: I may decide to always split my TFSA deposits 6 ways and only re-balance once or twice a year...
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Re: Buying ETFs monthly

Post by DmDave »

Here is a worksheet I created that will pull the price and US/CAD exchange from Google finance, and helps you rebalance.



I'd probably just dump my money into the ETF that's away from your AA the most. Too much hassle to do it to all 7 at the same time.
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Re: Buying ETFs monthly

Post by Bylo Selhi »

adrian2 wrote:I'm glad I have shares in TD, owner of TDW, and not whoever owns Questrade. I doubt the long term survivability of the business model offering free ETF purchases, model which is prone to abuse IMHO (one share purchase, some forum members).
Then I hope you don't own shares in BNS ;)

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Re: Buying ETFs monthly

Post by RonBruce »

DmDave wrote:Here is a worksheet I created that will pull the price and US/CAD exchange from Google finance, and helps you rebalance.

Very nice. Newb question... why have VXUS in American dollars? Or is it you just decided to have a portion of your portfolio in US dollars and VXUS is mostly American anyway? :?
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Re: Buying ETFs monthly

Post by queerasmoi »

With free ETF buys you can certainly buy as often as you want... I would say for simplicity though:

- Set up a rebalancing spreadsheet.
- Twice a month maximum is decent. If you have a semimonthly or biweekly pay cycle, you may find it convenient to time it to coincide with whenever your new money arrives in the account after your payday. Sop up any distribution cash along with it.
- Don't sweat too hard the desire to balance perfectly with each contribution. Contribute to one or two each time based on what is under allocation. As long as your overall balance of equity vs fixed income is not too out of whack, the week to week imbalances will not matter as much.
- If you have an initial amount to invest, split it up according to desired allocations and invest it. Otherwise perhaps your inaugural regular purchase could just be one fixed-income fund and one equity fund in a ratio matching your overall allocation. Next cycle introduce the next ones.
- Don't obsess too much about a perfect limit price on every order, especially if your portfolio is built up and you're just adding a few shares at a time. Some days an asset class is on its way up when you sit down to buy shares, and for sufficiently liquid ETFs you might have a better outcome just putting in a market order.
- If your regular contribution goes into your account and ends up sitting as cash for a few more weeks because you're just too damn busy, that's OK. Allow yourself to feel relaxed about the account and attend to it when you can.

The ideal situation in the long term - you pay attention to your account only in the one or two days surrounding your contribution days, then save the info to your records and *blissfully ignore it* until the next cycle. Otherwise you never really gain the benefit of "set it and forget it" that passive investing can provide.
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Re: Buying ETFs monthly

Post by DmDave »

RonBruce wrote:
DmDave wrote:Here is a worksheet I created that will pull the price and US/CAD exchange from Google finance, and helps you rebalance.

Very nice. Newb question... why have VXUS in American dollars? Or is it you just decided to have a portion of your portfolio in US dollars and VXUS is mostly American anyway? :?
VXUS is denominated in USD, thus it falls under the USD column. The spreadsheet will convert all USD to CAD first, and churn out how much USD you need to buy in order to get to your designated AA in CAD.
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Re: Buying ETFs monthly

Post by RonBruce »

DmDave wrote:
VXUS is denominated in USD, thus it falls under the USD column. The spreadsheet will convert all USD to CAD first, and churn out how much USD you need to buy in order to get to your designated AA in CAD.
Thanks, DmDave. That makes sense.

And thanks, queerasmoi, that will help me a lot too.
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Re: Buying ETFs monthly

Post by newguy »

Don't forget the spread for these free etfs. I doubt it costs the bank anything if these are sold from inventory and they make the spread. I'm always skeptical when I hear "free".

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adrian2
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Re: Buying ETFs monthly

Post by adrian2 »

newguy wrote:Don't forget the spread for these free etfs. I doubt it costs the bank anything if these are sold from inventory and they make the spread.
If the spread is 2 cents and the client is buying one share from their inventory, they make the grand sum of a penny. If they mail a transaction confirmation, it costs much more. Plus record keeping, reporting requirements to CRA, etc, etc.
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Re: Buying ETFs monthly

Post by newguy »

adrian2 wrote:
newguy wrote:Don't forget the spread for these free etfs. I doubt it costs the bank anything if these are sold from inventory and they make the spread.
If the spread is 2 cents and the client is buying one share from their inventory, they make the grand sum of a penny. If they mail a transaction confirmation, it costs much more. Plus record keeping, reporting requirements to CRA, etc, etc.
Except for mailings the rest is already paid for overhead. I doubt enough people get free mail or buy one share to cause a loss.

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ohmer
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Re: Buying ETFs monthly

Post by ohmer »

Thank you for your answers!

I'm paid bi-weekly, I think I will just buy the ETF that is the most under allocation after each pay day. It's quick and easy to setup.

For the others that think this is crazy because of the fees... the broker allow it and I don't think this is an abuse of the system. Questrade already have to reports my bi-weekly contributions to the CRA, even if I don't do any trades. They don't post any confirmation by snail mail (why would they do that.. this is 2014!). I'm sure they don't lose money with my account. I would even say that this is big bank' brokers that are abusing you with huge trading fees.
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