# ETF slow investing plan



## Butters (Apr 20, 2012)

Hello, please critique my slow ETF investing plan.

I am encouraging my girlfriend I am living with to start investing. She has no debt, and enough cash for an emergency account and her tuition for the next few years.
Trying to keep this very simple.

Questrade is a cheap broker that offers free ETF purchases (small price[~$5] to withdraw). 
Questrade requires a $1000 dollar start up [you could withdraw after for a $250 balance (lowest to keep account open)].
Questrade also charges an inactivity fee if no stock is purchased per quarter, however an ETF purchase qualifies.

So to make this work, the rules are to get 3 ETF's for 40% Canada // 40% US // 20% International
Add $50 to the account each month, and buy at least 1 stock (ETF) each month and try to keep the allocations balanced by purchasing.

She will start of with 20% Canadian // 20% US // 10% International and hold 50% cash. If the market drops 10-15% she will then use half of her cash to average down her positions. If the market ever dropped 50% or more she then could use some of her other savings to beef up her positions, since she won't be starting with much out of the gun.

$1000 + ($50x12)x3 = $2,800 after 3 years assuming 0%. If the markets drop 50% that will be $1,400. Which is not much.

She saves more than $50/monthly so also in a few years she can decide on increasing it!

This will hopefully get her more comfortable with investing, while learning.

I really want to get her focused on dividend ETFs. The latest moneysense magazine suggested that the S&P 500 will return just 0.5% annual over the next 10 years. I'm not suggesting a crash will happen, but this will be a good learning opportunity if one does happen, she will be more educated, and could deploy more money if desired.

Royal Bank recently came out with 3 new ETF's
http://funds.rbcgam.com/etfs/

I REALLY REALLY like these for her, and think they are AMAZING!!!

RCD - Canadian Dividend Leaders
RUD - US Dividend Leaders
RID - International Dividend Leaders

The MER is 0.39% and 0.49%(for RID) 
It's currently the only International Dividend leader type of ETF, and those MERs are slightly lower than CDZ/// CUD / VGG
Close to a 3% yield with great great great stock names.

But when I went onto my Questrade account, I noticed the bid/ask spread was 4 cents to 10 cents, on 20 dollars that's half a percent gone.
These are new products so hopefully over the new few months/years they bid/ask will tighten! But this does worry me!

She won't be playing with much money, and this will be a very long term play. The ETFs must be Canadian, so she can continually add.

She could pick some tighter bid/ask ETFs like

CDZ // CUD // VEE
or
XIC // VUN // XEC/XEF(mix)


My questions for fellow CMFers

1. Do you like the idea of Questrade, and buying 1 share per month?
2. Which set of ETFs would you recommend and why?
3. Which account would you recommend? She won't do RRSP as her income will be much higher later. How favourable will these dividends be taxed in a non-reg? Capital gains implications once sold possibly in 10 years for a house or something? (We know the rules for TFSA thinking of doing it there for simplicity)
4. Anything else I've missed?

Please keep the comments on topic and civil.


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## MrMatt (Dec 21, 2011)

1. Don't tell your girlfriend how to manage her money.

2. You didn't refer to her risk tolerance or time horizon. 
If she's a student she might be relying on that money for all her needs for the next few years, it shouldn't be in equities.

When you're married or your personal committed equivalent you can talk about a joint financial plan.
Until then, treat her (financially) like a roomate.

3. Her savings should be in a TFSA until she needs them, a simple high yield savings account unless she has the time horizon and risk tolerance for something more aggressive.


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## Butters (Apr 20, 2012)

Let's keep it civil, she was with me as I wrote this. She understands risk, and it is briefly outlined in my post. "Market could lose 50%"
This is money she does not need for school as outlined in the second sentence I wrote. Timeline on this invested money could be closer to 10 years or forever. She has plenty of money sitting in a non-reg at PC financial.

This is a joint decision, I am just trying to guide her in the best direction and could use some useful pointers from some CMFers.


Also for future posters, I understand the TD mutual funds would be simpler, but ETFs will provide better learning and more interaction.


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## tygrus (Mar 13, 2012)

Well two comments;

First those are very new funds even if they are offered by RBC. It takes a long time for a new ETF to get stable. There is no volume on those. BMO launched some 2 years ago and half of those are still very low volume and market cap. I would wait until these get established before I would by them. Ishares has been around a long time and have nice volumes and liquidity. Buy those.

Secondly, buying one share a month isn't really a strategy and you aren't going to get any momentum that way. Really, its a waste of time. The commission to buy one share a month is just about as much as the share. I am all for being conservative, but frankly, this is not a sound strategy. Save up $30k and then get that into your TFSA and then drip it.


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## OnlyMyOpinion (Sep 1, 2013)

Suggest you keep it even simpler and don't hold back 50% cash to try to average down on dips - too much hassle for the amounts and things will average out over the years. Just put the full monthly amount to work automatically buying monthly dollar amounts per the percentages you've decided on. Then once or twice a year, if changing values have put your percentages 'out of whack', adjust the purcahses that month to rebalance them, then carry on as before.


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## Moneytoo (Mar 26, 2014)

For US and International, I would consider new Vanguard FTSE All-World ex Canada Index ETF - VXC (MER 0.25%). This way she'll only need to balance two ETFs


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## Butters (Apr 20, 2012)

Thanks for the replies.

Yes tygrus, volume is the biggest issue with the royal bank ETFs. This is why the bid/ask is half a percent.
BMO has way too many products! There are a few that are good and people like. Maybe this is why Royal is only going with 3 ETFs and making them dividend leaders, remember the RID is unlike any other canadian ETF at a low cost. But you're right, should wait until they have at least a 20k or more average volume, not 3000. There is no liquidity, seems like a penny stock. I am curious, what happens to the ETFs BMO has that have 100 average volume. Will they eventually close the fund and pay out the holders? or keep it open forever and collect their lonely mer

1 vote for CDZ//CUD//VEE 

Questrade has no commission on ETFs, so you won't be making 9.95 a trade to buy each ETF, instead ETF purchases are FREE with questrade.


OnlyMyOpinion - she doesn't mind not being "all-in" just yet, there is not much $$ to be gained regardless, more for learning! When she starts making real money and understands things more clearly then she can dive in herself!

VXC is also a new product, very very new.


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## favelle75 (Feb 6, 2013)

MrMatt said:


> 1. Don't tell your girlfriend how to manage her money.
> 
> 2. You didn't refer to her risk tolerance or time horizon.
> If she's a student she might be relying on that money for all her needs for the next few years, it shouldn't be in equities.
> ...


This wasn't civil? Really?


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## MrMatt (Dec 21, 2011)

-Let's keep it civil, she was with me as I wrote this.
I did, I just tend to write tersely, some people don't like my style.

-She understands risk, and it is briefly outlined in my post. "Market could lose 50%"
Reading that I thought this was your strategy to deal with a contingency, not her understanding of what could happen.

-This is money she does not need for school as outlined in the second sentence I wrote.
You said she has money for tuition for the next few years. That's very different from having all the money to pay for the remainder of her education.

-Also for future posters, I understand the TD mutual funds would be simpler, but ETFs will provide better learning and more interaction.
TD e-funds are very cost competitive and easy to use.
Understanding MF, ETFs and stocks I've learned one thing. Simpler is better.

For amounts less than $5000, most bank index mutual funds are so cheap, it's not worth the hassle of anything else.
Personally I would set up a mutual fund savings account with your bank, and do it there, if you're ambitious and comfortable with all electronic, get a TD efunds account, and save a few dollars a year.
Mutual funds are the right vehicle for frequent small purchases.

If you really want to go to Questrade, go ahead, but it's going to be more work, more confusing, and you'll only save a dollar or two a month with a small account.


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## the-royal-mail (Dec 11, 2009)

This strategy is really complicated and overly simple all at once lol.

First of all, there have been a lot of problems with Questrade in the past. Do some searching in CMF and google and you will see what happens when there are problems and you cannot reach customer service. There have been problems with tax forms as well. Why did you decide on this broker right off the bat? We are in the era of quality brokerage fees of $9.95.

Secondly, why does it have to be mutal funds and ETFs? Why not research individual stocks and pick some good CDN ones and prosper?

IMO you are hampering your gf right off the bat by seemingly having decided on those two things. I do not think you have done enough research into stock investing and other brokerages.

1 share a month? What a waste of time. Try to buy 100 shares at a time, keep the fees and buying/selling to a minimum and start to realize growth immediately. If she has money saved for emergencies and no debt, why not simply wait for dips and buy when prices come down a bit.

Personally, I don't bother with the US and International stuff as you describe. My stuff is CDN. That just adds unnecessary complication IMO. Root for the home team.

My 2 cents.


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## SkyFall (Jun 19, 2012)

Long investment horizon + not really risk averse + want a simple plan and reduce maintenance (don't want to cherry pick) = Mutual Funds.... set up a purchase program for X amount every month..... forget about it for years and enjoy life


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## cannew (Jun 19, 2011)

I agree with Mail, look at individual stocks. If you have limited resources than why not look at Cdn companies which offer both DRIP & SPP. Once you selected a stock or stocks and have the drip setup, you can buy additional shares (based on their min criteria) without any fees and have the dividends re-invested automatically (every dollar). Stick with large companies with a long history of increasing the dividend (not necessarily every year).

The problem with etf's is they hold 70 some stocks, many which are cyclical and\or stocks one might not wish to hold.


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## Butters (Apr 20, 2012)

I would love to do the full drip with the banks, fts, telus, and some others but it seems complex, and I don't know who has fees and who doesn't!
If anyone would like to sell me a share of fts at market value + 10$ (For mailing) and walk me through the steps I would do it! I just always see this $250 dollar fee on there and shy away from it. 

The reason why I'd like to get her started with some simple ETFs is to get her learning about the stock market, in the future when she makes more money then she can afford to buy 100 shares of a single stock, times 10 different companies for a diversified portfolio. At that point she could also transfer to royal bank and get the synthetic drip discounts which questrade does not offer.


SkyFall I'm with you! But ETFs could be just as easy, say the first business day of the month, log in for 5 mins buy a share enjoy the other 30 days of the month. Also fund it same day since she will be holding cash. 

The Royal Bank ETFs are too good to be true, I really do hope they take off.

Anyone else like the plan or idea? The rules involved to avoid fees


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## MrMatt (Dec 21, 2011)

http://www.dripprimer.ca/

If you don't have lots of money, buy mutual funds, when you have more, buy ETFs or stocks directly.


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## derico (Nov 23, 2013)

It's a similar sort of plan to the one I started with. I wanted it get into investing for myself, but didn't have a large amount to start with but knew it would grow with time. I opened a margin account with Virtual Brokers with $1000 dollars and made a few purchases of CDZ (at the time one of the commission free etfs at VB). Since then just buy additional CDZ when I collect enough cash through distributions, occasionally tossing a little money in when it's time to buy. But this gave me the confidence in trading to open RRSP and TFSA accounts as week, which is now where the majority of my money is. Since I opened those VB changed to all ETF purchases as commission free, so when I throw my biweekly deposit into the RRSP after I get paid, I buy whatever is low in my allocation. Someday after I buildup more money in there, may switch to purchasing individual stocks but not there yet. My suggestion would be to start in a TFSA rather than in a margin account as the most annoying thing to me about the 72 shares of CDZ I own is the delay in getting my taxes done. The forms for that are the absolute last thing I get and delays me in filing my taxes by several weeks over $60 in income. It's ok, as I've learned some things by doing it but it's the one major annoyance over a small account. My experience has been positive in starting out like you say, I see no reason it wouldn't work for your gf as we'll.


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## cannew (Jun 19, 2011)

SheaButters said:


> I would love to do the full drip with the banks, fts, telus, and some others but it seems complex, and I don't know who has fees and who doesn't!
> 
> Anyone else like the plan or idea? The rules involved to avoid fees


If had a broker account ask them if you can do an "In Kind" transfer of any of the shares below. Then buy 10 or more shares of any of the stocks which can be transferred without buying a Share Certificate. If they won't do an In Kind transfer than you will have to buy the shares and get a Share Certificate in your name.

Computershare	
Bank of Montreal	1	Feb\May\Aug\Nov $0.00	Monthly
Emera 1	Feb\May\Aug\Nov $25.00	Quarterly
Fortis 0	Mar\Jun\Sep\Dec $25.00	Quarterly
Telus 1	Jan\Apr\Jul\Oct $100.00	Monthly
BNS 1	Jan\Apr\Jul\Oct $100.00	Monthly
TRP 1	Jan\Apr\Jul\Oct $50.00	Quarterly
Canadian Share Transfer 
BCE 1	Mar\Jun\Sep\Dec $0.00	Monthly
CIBC 1	Jan\Apr\Jul\Oct $100.00	Monthly
Enbridge 1	Mar\Jun\Sep\Dec $0.00	Quarterly

Once you have bought the shares, open up your DRIP account with either Computershare or Canadian Share Transfer so you can transfer the shares In Kind.

Once the shares are transferred you can then buy more shares, based on the Min Amts, Monthly or Quarterly as shown above.

That's it.


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## Butters (Apr 20, 2012)

I really like your post derico thank you.

Instead of trying 3 ETF's, maybe just stick to the one for now.

Open TFSA at Questrade.
Fund it with $1,000
Buy 15 units of CDZ ~$400 dollars, so 600 cash
Each month add 50$ and buy 1 share of CDZ, if the market sinks a bit and looks like it may bounce back, good opportunity to pick up a few more shares.

If Royal Bank ETFs pick up, can always buy the US and International later... and can always sell CDZ for $5 and buy RCD

Like mail talks about, stick with the home crowd for now....


Any other comments?


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## protomok (Jul 9, 2012)

SheaButters, I think it's an excellent plan. Here's a couple more ideas to consider:

-> As others have mentioned, index funds such as TD eSeries would have certain advantages over ETFs. For example, ability to invest partial shares, synthetic dripping including partial shares, pre-authorized purchase plans (e.g. automatic monthly purchases). That said, it sounds like you're set on Questrade, and using Questrade for ETFs is still a great plan due to the free ETF purchases, and cheap commissions which will be helpful if your girlfriend switches to individual stocks in the future.

-> Again, it sounds like you have already decided on dividend focused ETFs, but have you considered index ETFs?

-> Once the account balance gets a bit higher you can set a synthetic drip w/ Questrade...doesn't support partial shares but still better than nothing.

-> Watch out for transfer fees if she ever transfers money out of the Questrade account. I was dumb enough to not notice the Questrade transfer fees and paid $125 in fees as a going away present...plus another $16.25 for HST 

-> Not sure if you're planning to invest the cash portion, but I'd recommend at least putting part of the cash allocation in either a bond ETF or a savings account fund like TDB8150. If that huge correction never happens you don't want to have had 50% of the portfolio getting 0% return over that 10-20 year period.


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## liquidfinance (Jan 28, 2011)

I've been with Questrade for two years now and my wife has been since 2009. No problems at all and customer service have always been easy to reach. No real problems there. 

Let's also remember the OP is talking about etf purchases. Despite the big banks low fees Questrade is still the ideal vehicle for the new investor starting out with low sums of money. The ETF purchase is free so if you wish to buy 1 share then in the long run it will cost you no more than buying in lots of 100. 

I agree with waiting until the RBC funds pick up in volume.


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