# Asking advice: Switch from commission broker to DIY



## PuckiTwo (Oct 26, 2011)

I have been reading this forum now for several months. Fantastic information, wonderful spirit, humour and advice. I like the multitude of opinions and especially the willingness of the experts to spend their time to educate newcomers and hope for your opinions and comments in regards to the portfolio I am posting below. 
*Some background:* running a very busy office we left decisions to financial advisors. By sheer chance and a bit of gut feeling we switched in 2008 from a fee-based FA (2% annually on portfolio) to a commission-based stock broker (2-3% commission on each buy/sell order). 
Primary* investing goals*: income thru dividends, preserving capital but we like capital appreciation too.
99% of stocks, etfs, (recommendations by the stock broker) were bought in 2009. The portfolio appreciated nicely, individual stocks between 30-180%, except CLC (-23% + NAE -32%). It produces ca. 4% interest/dividend. So, in general, this person has done a very good job but lately we are not so sure anymore as some of the recommendations did not seem to be in our interest. There is nobody else to blame than ourselves as we did not partake in the decision process but bought and sold what was recommended. 

Now retired and more time on our hands we got more involved, started educating ourselves about what we owned, questioning recommendations. We made some mistakes like agreeing to sell the banks we held. Other recommendations we did not execute (which did not come over well). Our concerns are: 
- should we have more fixed income and if so, what would you choose?
- do we own too much equity? 
- too much in O&G and Pipelines? What would you sell and with what would you replace them ? For example, one recommendation was to sell Veresen (VSN) but it gives us a fair chunk of income. 
- how would you re-allocate without losing the yield (each re-allocation costs us commission)
- what would you add if we injected more cash (we have a bond coming due)?
We opened a Questrade account with a small amount of money. We are not ready yet to switch the whole portfolio to QT but would *gradually *increase our DIY involvement. 
l
*Portfolio with commission-based stock broker*
*Individual Stocks*
3 % Finance (TD) 
5 % Food (AW-Un, KEG-UN, Liq) 
1 % Health (CLC) 
3 % Entertainment (CGX) 
4 % Technology/Telecom (T) 
6 % Utilities (EMA, NPI, BA) 
14 % Pipelines (TRP, ENB, IPL, PPL, VSN) 
7 % Oil&Gas (CPG, KEY Corp, NAE, PVE, ARX.)	
12% Reits (AP-Un, AX-Un, CAR-Un, REI-Un)
26% *ETFs *(XBB, XCB, XGB, XLB, XSB)	
1% *Mutual Funds*
5% *short- and long-term government/corporate bonds*
2% *Precious Metals* (physical) 
11% *Cash* (HISA 2% and HISA TFSAs 3%) 
*)XBB, A&W, PVE in RSP accounts. Liq and NAE in TFSAs 

Sorry for the long post Your comments would be highly appreciated and thanks a lot for reading this! Pucki.


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## Four Pillars (Apr 5, 2009)

I'm sure there are some good questions hidden in there somewhere. Maybe edit the post down to about 1/3 the size - put in some spacing and I'll take a look.


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## MoneyGal (Apr 24, 2009)

Why so much in cash? Is this deliberate, or incidental?


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## humble_pie (Jun 7, 2009)

a difficulty i have in replying to you is that your message seems somewhat dual-directional to me.

on the one hand you show us the breakdown from your present portf which was set up by your broker. Here you seem to be asking the forum to second-guess your broker. What changes to the broker's picks might forum members suggest, goes this message.

on the other hand you mention you have opened a questrade account, although there doesn't seem to be anything in it yet. Here you say your plans are to gradually fill out the account with actual securities, which you will manage yourself. The impression i receive is that this account is being regarded as a play or trial account. That the hope is to remain well sheltered by the broker's advice, while learning to play with the trial account, until you have sufficient expertise to cut the cord & manage 100% of your portfolio yourself.

myself i doubt that time is going to be as accommodating as you may be hoping. I think that as soon as he realizes you are tiptoeing away, the broker is going to stop rendering good service. He might even dump you. It won't be necessary to tell him what you are doing. He'll know. He's seen the symptoms so many times.

so i wonder whether you might want to do your planning along different lines. For example, how do you see your future portfolio, once it's totally in your own hands.

a basic question is, do you see a portfolio consisting initially of nothing but index funds or etfs or both. This is how many new investors begin. It's a wise beginning. Only later do some branch out & begin to acquire the kinds of common stock that your broker has been choosing for you. 

however, please consider that if you were to sell existing holdings in order to reinvest in a simple couch potato group of etfs that would be suitable for a new investor, there will be a massive capital gains/loss reckoning that will have to be done. You may wish to avoid this by transferring an account in kind, ie without selling the securities.

however if you would be planning to transfer your existing account exactly as it is, you will immediately face the challenge of managing those securities yourself.

in either case, how will you prepare & educate yourself.

lastly, with respect to questrade. I am wondering if you have selected this firm because, in your mind's eye, any DIY account you might build up is still only a play or trial account. Therefore an ultra-cheap broker might seem like a good idea. Because, if the experiment fails, it will not have cost very much. Another example of the yes-we-do-no-we-don't-want-to-DIY duality !

however, for full-blown retirement accounts of any complexity, i believe it would be better to select an online broker which offers valuable research services, even though the commissions may be slightly higher.


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## Cal (Jun 17, 2009)

I am surprised that you paid more than 1% of your portfolio for a fee based advisor.

And yes, as per HP, you will get a different recommendation from every poster on here as per your chosen assets, and equity holdings.

The cash does seem high imo too.

You mention a bit of concern about not losing any of the dividend payments if you money money around....have you calculated what you are getting annually from these holdings, and what you need to live off of.

I would look at it a little more along the lines of why wouldn't I want to have any of these holdings longer term. ie, why would you want to change anything. I mean you did agree to this collection of assets in the first place. So try to figure out what you would like to change, and why.


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## Soils4Peace (Mar 14, 2010)

Do a risk tolerance assessment, and use that to allocate between stocks, bonds, REITs, cash and precious metals. I like this one. 

I wouldn't worry excessively about yield. You pay tax twice on dividends, once at the company, then again in your hands, so don't be seduced by the dividend tax credit. With capital gains you pay once, at half the income rate for capital gains + your trading fee. You can just sell down when you need the money and rebalance as you go. If you can get comfortable with less focus on yield, you can improve diversification of your stock allocation, either with stock index ETFs (like VCE, VUS etc.) or with low / no dividend individual stocks. If you go it alone, your trading fees will be a lot smaller.

Cash in a TFSA is a waste of tax free space. You need to consider the return as well as the tax rate on your gains. Is it better to shelter 2% per year taxed as income or 8+% per year taxed as capital gains and dividends?

You could reduce the pipelines, though there is no hurry.

There is room in your portfolio for Materials, Technology and more Financials. 

Here is an example of a portfolio allocation, recommended for individual investors by David Swensen, who manages Yale University's endowment. Clearly you would add a Canadian component and decrease the other equity regions, but you get the idea. 

30%	US Equity
15%	Developed Equity
10%	Emerging Equity
15%	REITs
15%	US Gov Long Bonds
15%	US TIPS


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## leoc2 (Dec 28, 2010)

Please review this link:

http://www.bogleheads.org/wiki/Three-fund_portfolio

Please do not dismiss this information because the information is for a USA based investor. You seem to have way too many individual stocks. The message I am trying to convey is to simplify your portfolio. There are many great posters on the boglehead forum. If you adapt to their references of 401K, IRA, and 529 funds and think of the Canadian equivalents of RRSP, TFSA, and RESP you can learn allot from that message board. 

http://www.bogleheads.org/forum/index.php?sid=469dfa55be90300c6447e9135099a856


One great poster is Nisiprius.
http://www.bogleheads.org/forum/search.php?author_id=2820&sr=posts


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## stephenheath (Apr 3, 2009)

Maybe I'm in the minority here, but looking at that portfolio, while it's not necessarily a DIY portfolio, it seems remarkably good for a commission fee agent... I've never seen one not dump the whole thing in mutual funds. You've also had excellent returns, and while part of that is the market timing, overall you appear to have outperformed the market.

It also looks to be something I would expect from people on this forum. How many of us are saying we can't find value right now so we're building up cash waiting for a downturn. How many of us have over the last few months been overweighting oil and pipelines to take advantage of concerns? The funds are all low fee ETF's instead of high fee mutual funds, which is an axiom here. 

On the flip side, to be honest it looks like you're bored and have time on your hands and now think you can beat his performance. And maybe you can, except you don't provide any actual numbers. You say "but lately we are not so sure anymore as some of the recommendations did not seem to be in our interest". Your goals are "income thru dividends, preserving capital but we like capital appreciation too". These are all quite vague statements with no backup.

My recommendation is before you possibly get rid of what might be an excellent advisor is you change those into real numbers. You're "not so sure" that the investments "seem to be" in your interest. You say "there's noone to blame but ourselves" but don't say what an actual problem requiring blame is. So, work out his actual return recently and compare it to the S&P, or any other benchmark you want to use. Is he outperforming or not? Because sure, after 120% returns getting 12% might be disappointing but if the market's only returning 6% it's still great. It also might be better than what you can do yourself. Also, you said you didn't follow some of his advice. Look at what your return is and compare it to what your return would be today if you had followed his advice. Is it higher with what you did or higher with what he suggested? Finally, before anything else, turn your goals into numbers. To get through retirment do you need a 6% return or 10%? Do you need to ramp up the risk or you're going to eat cat food or could you go 100% GIC's/bonds right now and be fine? And once you've done that you can set up a portfolio and decide how much you want in equites vs. fixed income, how much in what sector, etc.

And one last thought... another reason you might get a feeling he's not "working for you" might be because he doesn't have time to be your tutor in investments... he's giving you low fee options so probably makes his money in volume of customers rather than mutual fund kickbacks. And you've changed from a customer that just executed his recommendations and said "thank you very much for the great returns" to one that spends a lot of time second guessing and wanting explanations when, based on your post, you still have an extremely basic knowledge. Imagine back when you were busy running your office... would you not be frustrated if one of your customers was constantly questioning everything that was in your field of expertise, or wanted to know everything behind every decision you made just because they had time on their hands, and you felt they didn't even have enough understanding of your industry to understand, let alone value, your responses?

Don't get me wrong, I'm not suggesting you're wrong in any way, not even for questioning decisions or asking other advice. The only criticism I have is you seem to be making all these decisions on your gut, which might have worked fine in your field where you had decades of experience reinforcing your instincts, but since this is a new field for you, you should definately run ALL the numbers before making decisions.


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## PuckiTwo (Oct 26, 2011)

MoneyGal said:


> Why so much in cash? Is this deliberate, or incidental?


Thks MG, it's half deliberate. Proceeds from maturing bonds + sold MFs accumulated in the broker account. After the cash wasn't invested after 1.5 yrs we finally parked it in a HISA outside the brokerage.


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## blin10 (Jun 27, 2011)

MoneyGal said:


> Why so much in cash? Is this deliberate, or incidental?


11% in cash is a lot ? you kidding me right? always hold some spare cash so you don't get cough with your pants down.... i'm always at 50% cash, who cares about that 5% yeild if markets take a nose dive? if you bought good companies long time ago then you're fine, but buying now i'd be very carefull


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## Causalien (Apr 4, 2009)

I'll tell you what you want to hear. If I read between the lines correctly.

More income producing, less equity. You are retired.
The portfolio is just your average, follow the herd portfolio. You won't do better by yourself, except save 1%... unless you are suddenly open to risk and learning exotic strategies. At retirement. NO RISK!


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## PuckiTwo (Oct 26, 2011)

humble_pie said:


> a difficulty i have in replying to you is that your message seems somewhat dual-directional to me.
> .....Here you seem to be asking the forum to second-guess your broker.
> 
> .....That the hope is to remain well sheltered by the broker's advice, while learning to play with the trial account, until you have sufficient expertise to cut the cord & manage 100% of your portfolio yourself.
> ...


Thanks for the great reply.
You’re right...I am a somewhat undecided. 

We have the impression that our broker has lost interest either in us or perhaps in all of his customers. He seems to be gradually retiring.
I want to be clear that we are NOT thinking of taking his advice and then investing elsewhere. If we take his advice we would invest thru him and pay his commision.

We don’t want to take anything away from him - We simply do not want to become stranded w/o alternative as there has been very little trading activity in the past 2 years - the reason why we are exploring alternatives and educating ourselves more in investing. 

I wouldn't call it second-guessing but getting second opinions. Call me a control freak, but our life experience has been that “blind” trust in lawyers, accountants, brokers, and other professionals doesn’t pay off. 

So, I have been trying to educate myself by following different threads here and on other forums, reading investing books and a lot financial information, and trading small amounts on Questrade.. 

We looked into the couch potato pp - I don’t think that’s us at the moment. We like a mix of bond ETF’s, some cash, maybe 5% PMs, and possibly to get some more foreign (outside of North America) exposure. In our age, we should probably cut back on equity, envisioning a 45/50 equities /50/55 mix other. 

Any suggestions re online broker with more in-depth research? 
PS: we are aware of the implications if we moved the portfolio. Thks again.


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## PuckiTwo (Oct 26, 2011)

stephenheath said:


> ....Maybe I'm in the minority here, but looking at that portfolio, while it's not necessarily a DIY portfolio, it seems remarkably good for a commission fee agent It also looks to be something I would expect from people on this forum.
> .....it looks like you're bored and have time on your hands and now think you can beat his performance.
> ....My recommendation is before you possibly get rid of what might be an excellent advisor is you change those into real numbers.
> ....Because sure, after 120% returns getting 12% might be disappointing but if the market's only returning 6% it's still great. It also might be better than what you can do yourself. Also, you said you didn't follow some of his advice. Look at what your return is and compare it to what your return would be today if you had followed his advice.
> ...


Thks for yr comments - provocation clears the mind.

Maybe I wasn’t clear. It’s not that we want to outsmart the broker and we are also not so naive to expect returns as experienced since 2009. Somebody setting up an excellent portfolio with an excellent return does not mean this will stay excellent if there is no activity. 

I have been running “dummy portfolios” for the last 2 yrs to see what would have happened if we had “blindly” followed the broker’s advice. As you might expect, sometimes we would have been ahead, sometimes behind. 

The real problem is that there hasn't been any trading activity except a very few sell orders without re-investing the cash = less return; maturing bonds w/o re-invest = less return. No re-balancing. Cash in TFSA wasn’t invested = 2 yrs 0 gain! (which is sinful); almost no exposure to international markets. Perhaps because there are no opportunities out there...but since 2010??

This is why we are exploring if the portfolio I posted upthread is something we can work with or if and where we need to make major adjustments.

As for making "gut" decisions, perhaps I used a too relaxed term....what I really mean is decisions made by me/us as non-professionals, but someone trying hard to learn (because it's our retirement I have been spending many hours a day on this). And we do run the numbers frequently.
Poocki (wish I were bored)


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## stephenheath (Apr 3, 2009)

^

Hey, that wasn't supposed to be provocation, just sharing the impressions your initial message gave... but your subsequent messages have clarified a lot more, especially in terms of your goals and concerns. There's a very different impression now... that of a concern of a retiring/winding up good broker leaving you vulnerable instead of you wanting to DIY just because you can. And even if there wasn't, once you said you've run the numbers, well, that trumps any opinion I'd have... facts >>>> opinions.

That said... it just goes to show that you'll get every opinion under the sun on this board (which I personally think is a good thing, I tend to get in a rut with my thinking)... I tend to be like you, thinking cash sitting there not earning me money is a bad thing, and yet blin10 is happily sitting on 50% cash. And I know someone 100% in cash assuming we have another 2008 coming... maybe your broker is building up cash in anticipation of a pullback? I guess only your broker could tell you why he's doing that.


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## Square Root (Jan 30, 2010)

Does the portfolio generate all of your retirement income or do you have significant pension income? Obviouslly pension income can take the place of the fixed income portion of a portfolio if significant enough. Seems to be a lot of individual names and light on financials.


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## humble_pie (Jun 7, 2009)

amazing. When my firstborn was a newborn, for a short while we called her pookh. Sometimes pookhie. This gave way to her real name within months & i had forgotten all about it until your message.

re being undecided, i think this is normal & healthy for a party at this point in what could be an epochal transition. I would be more worried if you were plunging ahead with some outlandish scheme. The good thing about being undecided is that one still has all the freedom one wants to inspect alternatives.

i believe in the artichoke school of investing myself. This means tearing off one leaf at a time. If it doesn't look good, discard & continue.

supposing you do migrate your account to DIYland. A gigantic step - several big leaves plucked from the artichoke right off the bat - is to be able to discard the 100% couch potato approach, as you have done. This means most of the portfolio will transfer in kind or in cash. One good thing about this is that there will be no immediate tax consequences. It also means orienting yourself now & developing your skills so as to be able to take up the new burden with pleasure.

a few general comments.

1) square root's question, Do you have pensions, is important. Significant pension income, even if it's only coming in the future, will replace a lot of bond allocation.

2) way i see it, you're 31% in bonds already (those 6 etfs are all bond funds, are they not), so i'd say bonds is already cooked & dished, no need to acquire any more.

3) i am not one to enthuse over the benefits of foreign or international investing. Has not really paid out for a decade or more, save & except for emerging.

i think i've said this 100 times so will get flamed for repetition ... but canada's top companies are multinational investment funds in their own right. The big banks are moving/have moved outside canada. Big energy is all over the planet. Big ag is hugely into asia. Even our small cap companies are hungry for foreign partners & foreign markets, as our top trading member toronto.gal showed us yesterday when she made a killing in a little-known quebec city pharmaceutical that has partnered with a US pharma to develop its colorectal cancer treatment drug. So an investor who buys sound canadian corporations will frequently obtain international exposure willy-nilly.

i believe you will initially have your hands full with the bonds, the stocks, the etfs & the smidgin of precious metals. There will be plenty of time in year II of the DIY program to begin looking for offshore common stocks.

4) pipelines plus O&G combo may seem high to you but to me it looks A-OK. You have good picks here imho. Your O&G are a good study point for you since this sector is so important in canada. Why was each company chosen ? what are the strong points of each ? the weak ? are there any companies you might consider selling, if only a portion ? what are their charts showing you about seasonal weakness in oilcos in the summertime ?

5) banks are too low in the portf imho, you did mention there had been an unfortunate recommendation to sell. I for one would build this bedrock up again. Banks & energy are the beavers of canadian finance. Never leave home without em. You could select 1 or 2 other banks in addition to the big green, wait for dips & deploy cash as available.

6) another item screaming out for attention is what looks like an all-HISA tfsa. Oh, dear. HISA tfsas are for the ultra-ultra-conservative or else for parties saving to buy a house or for some other near or mid-term goal. Otherwise, tfsas should incorporate some potential for capital gain. It's also fine to include dividend payors in tfsas, unless one is hell-bent on retaining all of the dividend tax credits. Because zero tax is better than any kind of tax-favoured tax.


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## PuckiTwo (Oct 26, 2011)

humble_pie said:


> 8. amazing. When my firstborn was a newborn, for a short while we called her pookh. Sometimes pookhie. This gave way to her real name within months & i had forgotten all about it until your message.
> 
> 1. i believe in the artichoke school of investing myself. This means tearing off one leaf at a time. If it doesn't look good, discard & continue.
> 
> ...


HP, love yr artichoke simile. May I expand:you need to trim and cut the inedible parts first before you peel off leaf by leaf and devour them with some delicious garlic vinaigrette. Yr comments are very appreciated:

1.One sometimes doesn’t see the forest for the trees. That point could take pressure off increasing fixed income even though the pension isn’t significant.

3./4. Points taken

5. Good to know that opinion. Some of Pipelines/O&G we have some understanding, on others we don’t. We are learning. 

6. Agree 100%. Have my eye on RY and BNS to buy back, waiting for an ease in share price

7. More 100% agreement. The Hisa/Tfsas are actually outside the brokerage (was our first artichoke trimming). There are other TFSAs inside the brokerage and we would have moved some existing REITs or other dividend payors from the main portfolio to those TFSAs but can’t do this w/o triggering capital gains tax and brokerage commission. Need to convert cash in Hisa/Tfsa to dividend payors, maybe banks. 

8. Pookhie / Pucki (mine is a German 1935 children book series, where does yr Pookhie come from? Is it the Russian Vinny-the Pookh?
Pucki 


Square Root said:


> Does the portfolio generate all of your retirement income or do you have significant pension income? Obviouslly pension income can take the place of the fixed income portion of a portfolio if significant enough. Seems to be a lot of individual names and light on financials.


Particular thks. As we were mostly self-employed the pension income is more a supplement rather than significant. We treat it like a fixed asset like a house/property. That’s why it’s not included in the investment portfolio. I wouldn't call us rich, therefore need the investments to perform steadily = we
need to have a good mix in case the markets go tipsy-turvy. Definitely see yr point. 




stephenheath said:


> ^
> 
> 1. Hey, that wasn't supposed to be provocation,....
> 2........ maybe your broker is building up cash in anticipation of a pullback?


1. ....is quite alright. Provocation keeps you alive
2. It’s quite likely that our broker wants to build up cash and I agree that you need cash for dips to buy low but object to let cash sit at zero gain. The solution maybe to move dormant cash outside the brokerage and at least park it in some interest-bearing account and then carefully build a DIY portfolio.


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## Eclectic12 (Oct 20, 2010)

PuckiTwo said:


> [ ... ]
> 
> 7. More 100% agreement. The Hisa/Tfsas are actually outside the brokerage (was our first artichoke trimming). There are other TFSAs inside the brokerage and we would have moved some existing REITs or other dividend payors from the main portfolio to those TFSAs but can’t do this w/o triggering capital gains tax and brokerage commission. Need to convert cash in Hisa/Tfsa to dividend payors, maybe banks.
> 
> ...


For the REITs/dividend payers you'd like to move into the TFSA but don't like the CG, keep an eye on trading values during the day. I was able to phone the broker at 2pm to request an "in-kind" transfer to my TFSA for my trust and pick a value that it had traded for earlier in the day. This locked in a low $200 CG as the trust had dipped. It's been giving 10.3% yield on cost ever since plus has regained unit price.

Now it was an exceptional situation in April/June 2009 but if you are confident in the company, have the TFSA room and are paying attention, there may be opportunities to minimise the tax hit.


As for transferring dormant cash, why not not use something that can be done in the brokerage account like:
http://www.renaissanceinvestments.ca/en/products/hisa.asp

If you do the leg work with the broker, I understand there are a range of companies offering this. You should be able to find something that is liquid and easily moved back to cash cheaply. Some other threads on CMF have more details or check out this link:
http://www.canadiancapitalist.com/the-renaissance-high-interest-savings-account/


Cheers


Cheers


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## humble_pie (Jun 7, 2009)

now you're cooking. You have just written the gastro larousse, the julia child, the james beard, the mark bittman, the jamie oliver & The Fat Duck of artichoke preparation:

_" The solution maybe to move dormant cash outside the brokerage and at least park it in some interest-bearing account and then carefully build a DIY portfolio."_

there you go. Please pick your discount broker carefully. I have td & bmo online accounts & there's no comparison between the 2. The waterhouse research website is generally considered to be the best of all.

reading lists: there are some fab investment reading lists floating around the forum. So sorry i don't have one myself. Toronto.gal created one of the best, perhaps she'll pass by & drop it off. Needless to say, no one ever buys these books. Folks borrow em from libraries. Frugal is as frugal does.

banks: once you've got the cash moving towards the discount broker, you could begin gradually adding banks to the simmering broth.

hisa: i actually keep mine at an outside hisa-offering institution because their links to my bank & bank-owned broker work like magic. Their rate is a tad higher than the 1.25% from renaissance & similar purveyors available at brokers, just as Eclectic has described. All depends on the amount to be kept in ready-cash hisa deposits. If this amount is small or will be used soon, then it's easier to keep it in hisa at the broker, imho.


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