With competition being tough, many consumers would chase the highest interest rates, but that often required you to constantly switch banks. To combat this issue, horizons introduced CASH.to, a High Interest Savings exchange-traded fund (ETF). When looking at the yields, it’s obvious that CASH.to is a great choice for those looking to invest in fixed income. But what is CASH.to, is it safe, and how do you buy CASH.to? I’ve got all the answers in this CASH.to guide.

Understanding CASH.to?

CASH.to represents the ticker symbol for the Horizons High Interest Savings ETF listed on the Toronto Stock Exchange. The “.to” extension indicates that it trades on Canada’s main stock exchange.

This exchange-traded fund focuses on generating monthly income for investors by allocating assets into high-interest deposit accounts held with Canadian chartered banks. The fund’s primary goal centres on maximizing your monthly distributions while maintaining capital preservation and liquidity.

When you invest in CASH.to, you gain exposure to Canadian dollar-denominated cash-equivalent investments without needing to manage multiple bank accounts yourself. The ETF operates as a convenient vehicle for parking cash while earning competitive interest rates that often exceed traditional savings accounts.

How Does CASH.to Work?

When you invest in CASH.to, your funds are pooled with other investors’ money and placed into high-interest savings accounts at major Canadian financial institutions. The fund manager actively seeks out accounts offering the strongest returns and can shift money between institutions to maximize yields.

This pooling strategy provides a significant advantage. Because CASH.to manages billions of dollars in assets, it can negotiate better rates than individual investors typically access on their own.

Key operational features:

• Monthly distributions are paid directly to your brokerage account
• You must hold shares by the ex-dividend date to receive that month’s payment
• The fund continuously reallocates capital to maintain optimal yields
• Returns reflect the aggregated performance of multiple high-interest accounts

The mechanics mirror those of a standard savings account, where you deposit money and receive interest payments. The main difference is that CASH.to leverages institutional scale to secure enhanced rates for investors.

How do CASH.to Yields Work?

CASH.TO generates returns based on interest earned from deposits held at Canadian financial institutions. The fund’s performance fluctuates with prevailing interest rates. During 2021’s historically low rate environment, yields hovered around 0.6%. Current interest rates have pushed yields into the 3.5% to 4.5% range.

These rates typically exceed what you can access by opening accounts directly with banks. The quoted yields represent annual figures. You receive distributions monthly, calculated as roughly one-twelfth of the annual rate.

The fund charges a management expense ratio of 0.11%. This fee is deducted before your yield is calculated and posted, meaning the rate you see already accounts for costs. You don’t need to subtract anything additional to determine your actual return.

Your distributions arrive as monthly deposits into your brokerage account if you hold shares by the ex-dividend date. This structure mirrors traditional savings accounts but operates through the exchange-traded fund framework.

How Does the Share Price of CASH.to Function?

The share price of CASH.to operates on a predictable cycle tied to its monthly distributions. The ETF maintains a floor net asset value of $50, which means the trading price stays at or above this baseline.

Throughout each month, the share price gradually increases as the fund accrues interest income. This daily appreciation continues until the distribution payment date arrives. On the ex-dividend date, the share price typically reaches its monthly peak before resetting to the $50 minimum after the distribution is paid out.

Key pricing mechanics:

• The price climbs each trading day incrementally
• The increase reflects the accumulating distribution value
• The share price drops back to $50 after the payout

This structure means that the timing of your purchase makes little difference to your returns. When you buy at a higher price mid-month, you’re paying for the upcoming distribution that’s already embedded in the cost. The distribution you receive offsets the elevated purchase price, resulting in a neutral timing effect for investors.

How Are You Taxed on CASH.to?

When you hold CASH.to in a non-registered account, you’ll pay tax on the monthly distributions as interest income. This interest gets added directly to your total income for the year and taxed at your marginal tax rate.

If you sell your CASH.to shares for more than you paid, you’ll trigger a capital gain. The tax treatment works like this: only 50% of your capital gain is added to your taxable income. For example, if you sell shares and realize a $100 profit, you’ll include $50 in your taxable income, which is then taxed according to your marginal rate.

Registered accounts work differently:

• RRSP
• TFSA
• LIRA
• RESP

When you hold CASH.to in any of these registered accounts, you don’t need to track interest or capital gains. You won’t owe any tax on distributions or price appreciation within these accounts.

How to buy CASH.to?

You can buy CASH.to via your broker or your online discount brokerage account. CASH.to can be held in all registered and non-registered investment accounts.

CASH.to is eligible for placement in registered accounts such as TFSAs and RRSPs, as well as non-registered investment accounts. Your brokerage may charge a commission for executing the trade, though many platforms now offer commission-free ETF purchases.

Important limitation: Certain financial institutions restrict access to this ETF. TD Direct Investing currently blocks clients from purchasing CASH.to, which appears to be a business decision rather than a regulatory restriction.

Before placing your order, verify that your brokerage permits CASH.to transactions. If your current platform doesn’t support it, you may need to transfer funds to a different brokerage that allows High Interest Savings ETF purchases.

CASH.to vs. GICs

CASH.to and GICs represent two distinct approaches to cash management in Canada. GICs are fixed-term products offered by banks and trust companies that lock in a specific rate of return for a predetermined period.

The yield structure differs significantly between these options. A GIC provides a fixed interest rate that remains constant throughout its term, whether that’s one year or longer. CASH.to distributes monthly dividends that fluctuate based on prevailing market conditions and short-term interest rates.

Liquidity is another key distinction. GICs typically require you to commit your funds for the entire term, restricting access until maturity. You can trade CASH.to shares during Toronto Stock Exchange hours, providing the ability to access your capital when needed.

Protection and costs also vary. Eligible GICs qualify for CDIC coverage up to $100,000, safeguarding your principal. CASH.to does not carry this insurance protection. Additionally, CASH.to charges management fees that reduce your net returns, while GICs have no associated fees.

Overall, CASH.to gives you more flexibility than GICs since you can withdraw your funds at any time. However, you need to pay fees for CASH.to and there’s no CDIC insurance.

Comparing CASH.to with Other Options

Besides GICs, there are a few other alternatives to CASH.to that are worth considering:

High Interest Saving Accounts

ou can bypass CASH.to entirely by placing funds directly into a high-yield savings account. The returns from CASH.to typically exceed what most banks offer on standard deposit accounts.

Higher rates may be available through promotional offers for new deposits, but this requires effort on your part to transfer money between institutions and open multiple accounts. A key benefit of direct deposits is CDIC protection, which covers your money if you open an eligible account with a member institution of the Canadian Deposit Insurance Corporation.

CASH.to does not provide CDIC coverage, making direct savings accounts more secure for those prioritizing capital protection.

Money market funds

Money market funds are funds that invest in short-term bonds. They typically invest in bonds that have a maturity of less than 30 or 60 days so their yield can follow the interest rate movements. This can be a decent alternative to CASH.to, but investors should look at the quality of all bonds within the funds to make sure they match their risk profile.

What Happens to CASH.to if Interest Rates Drop?

When interest rates decline, your CASH.to distributions will decrease accordingly. The fund generates returns by depositing cash into Canadian bank accounts, and these earnings fluctuate with prevailing interest rates.

Your monthly payouts will shrink as the fund earns less on its holdings. During periods of historically low rates, distributions can fall significantly—potentially to levels similar to 2021 when yields hovered around 0.6%.

Key impacts on your investment:

• Lower monthly distributions
• Reduced annual yield percentage
• Decreased passive income generation

The fund’s performance remains directly tied to what Canadian banks pay for deposits. You won’t receive fixed returns, as the yield adjusts continuously based on market conditions.

Is CASH.to Safe?

CASH.to does not carry CDIC insurance, which distinguishes it from GICs or traditional high-interest savings accounts. This lack of insurance coverage applies to all ETFs, stocks, preferred shares, and bonds, not just CASH.to specifically.

The ETF deposits funds into accounts at major Canadian financial institutions, including National Bank, Scotiabank, and CIBC. Canadian banks rank among the most secure financial institutions globally, which provides a degree of safety for your investment.

While you cannot consider CASH.to 100% safe due to the absence of CDIC protection, the risk remains relatively low. If one of Canada’s major banks were to collapse, the resulting economic crisis would likely overshadow concerns about individual deposit losses.

Key Safety Considerations:

• No CDIC insurance coverage
• Funds held at multiple established Canadian banks
• Canadian banking system has strong stability record
• Risk comparable to other ETF investments

Your money faces minimal risk under normal economic conditions, though you should understand the differences between ETF holdings and insured deposit accounts.

Final Thoughts

CASH.TO stands out as a practical choice for parking funds you want to keep accessible. You won’t be locked into your capital for months or years, as you would with fixed-term products. The ability to trade during market hours gives you flexibility that traditional savings products can’t match.

You can hold this ETF in your TFSA, RRSP, or any other account type you already have. This means you won’t need to open additional accounts or juggle multiple institutions. The competitive interest distribution makes it worth considering, though you should weigh the absence of CDIC coverage against your own risk tolerance and financial goals.

The popularity of this fund reflects its usefulness for investors seeking liquidity combined with reasonable returns on cash holdings.

Have you ever found yourself thinking, “I really want to start investing, but where do I even begin?” It’s easy to feel overwhelmed – between all the jargon, acronyms, and that mysterious “ticker talk” (yes you got it, those ETF symbols), it can seem like a lot to handle. Figuring out what to invest in, how much of each asset to hold, and when to rebalance? It’s enough to make anyone feel stuck, even the most analytical among us.

But here’s the thing: investing doesn’t have to be intimidating. BMO’s Asset Allocation ETFs are designed to take the complexity out of the equation, giving you an all-in-one solution that balances your portfolio without all the stress and second-guessing.

What are Asset Allocation ETFs?

Asset allocation ETFs are portfolios built with a pre-determined asset mix. Within that mix, you’ll find a variety of asset classes, like fixed income and equities, across various indexes, sectors, and countries. Instead of having to manually automate and rebalance your portfolio, these ETFs have an automated re-balance set to bring it back to your determined asset mix, for a low cost.

For example, the BMO All-Equity ETF (ZEQT) focuses on growth by allocating a higher percentage to equities, while the BMO Conservative ETF (ZCON) has a conservative approach with a higher allocation to fixed income securities. This flexibility means that investors, whether just starting out or nearing retirement, can find a product that matches their goals.

Asset allocation ETFs provide a one-stop-shop for those looking for broad diversification, considering each investors unique goals and desired asset mix.

Solving a Problem: The Origins of Asset Allocation ETFs

To understand the popularity and importance of asset allocation ETFs, it can help to look back in time to how these useful tools came to existence. The concept was born out of a problem faced by many investors: managing a diverse investment portfolio, while sticking to their chosen asset allocation.

Imagine an investor in the early 2000s with a mix of individual stocks, bonds, and perhaps some mutual funds. Every year, they had to review their portfolio and adjust the weightings to match their evolving goals, all while considering tax implications, trading costs, and time constraints. Not only was this time-consuming, but there was also room for human error—sometimes leading to portfolios that were overly concentrated in certain sectors or regions.

The financial crisis of 2008 further highlighted the need for better portfolio management. Investors who had failed to properly diversify or rebalance suffered significant losses, while those who had a more disciplined approach weathered the storm more effectively.

Recognizing these challenges, ETF providers like BMO saw an opportunity to create a product that simplified the investment process. The idea was simple but powerful: create an all-in-one ETF that would offer diversification, automatic rebalancing, and cost efficiency. By using ETFs as the building blocks, providers could offer exposure to global markets and different asset classes at a fraction of the cost of traditional mutual funds. Thus, the asset allocation ETF was born.

Source: BMO Global Asset Management, BMO Growth ETF (ZGRO:TSX), as of September 18^th 2024 

The portfolio holdings are subject to change without notice and may only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.

Why Does the Mix Matter?

The famous Brinson, Hood, and Beebower (BHB) study, published in 1986, found that over 90% of a portfolio performance variability is driven by asset allocation, not stock picking or market timing.

This shifted how investors approach portfolio management, emphasizing the importance of diversification across asset classes for long term success. Most asset allocation ETFs, or funds for that matter, are now built on this principle. Reinforcing the idea that asset allocation, rather than stock-picking or timing, drives the bulk of long-term investing success – a perfect fit for investors looking for a hands-off “couch-potato” way to build their wealth.

Why Asset Allocation ETFs

Simplicity and Convenience

With asset allocation ETFs, they take care of the heavy lifting. With automatic rebalancing and built-in diversification, you get a hands-off investment strategy.

Diversification

These ETFs provide exposure to a broad mix of global stocks, ensuring you’re well diversified across sectors and regions, whether you prefer a conservative, growth, or somewhere in between approach.

Cost-Effective

One of the biggest advantages of ETFs is their cost-effectiveness, and BMO asset allocation ETFs are no exception. Additionally, with fewer transactions needed to maintain the portfolio, investors can avoid high trading costs.

Long-Term Focus

Asset allocation ETFs are designed with a long-term perspective in mind, making them ideal for investors focused on building wealth. By keeping a steady asset mix and rebalancing regularly, these ETFs help investors avoid emotional decision-making that often leads to buying high and selling low.

The T Series: A Tailored Solution for Retirees

One of the newer innovations in BMO’s lineup of asset allocation ETFs is the T series¹, specifically designed for retirees and those nearing retirement. Retirees often face the challenge of generating a steady cash flow from their investments while minimizing the risk of running out of money. The T series solves this problem by offering a systematic withdrawal plan, allowing investors to receive monthly cash flow helping to ease retirement planning.

For example, the BMO Balanced ETF (T6 Series) (ZBAL.T) is a T series ETF designed to provide steady cash flow by investing in a balanced mix of equities and bonds. The fund pays out fixed monthly distributions (6% annualized)² that are a blend of income and return of capital, which is especially valuable for in retirement.

Final thoughts

BMO Asset Allocation ETFs offer a simple, diversified, and cost-effective solution for investors at every stage of life. Whether you’re just starting out, looking for steady growth, or planning for retirement, these ETFs provide the perfect blend of convenience and financial security. For retirees, the T series includes the benefits of consistent cashflow, making it easier to manage withdrawals during retirement.

With BMO’s asset allocation ETFs, investors can feel confident in their financial future, knowing they’ve chosen a product that aligns with their long-term goals and offers peace of mind in any market condition.

For more information visit BMO Global Asset Management to learn more.

^{1 T series – These units are Fixed Percentage Distribution Units that provide a fixed monthly distribution based on an annual distribution rate of 6%. Distributions may be comprised of net income, net realized capital gains and/or a return of capital. The monthly amount is determined by applying the annual distribution rate to the T Series Fund’s unit price at the end of the previous calendar year, arriving at an annual amount per unit for the coming year. This annual amount is then divided into 12 equal distributions, which are paid each month.}

^{2 Standardized Performance: ZBAL.T, BMO Balanced ETF (T6 Series) 1 Year: 15.91%, Since Inception: 5.96% as of August 30th, 2024.
ZGRO.T, BMO Growth ETF (T6 Series) 1 Year: 18.78%, Since Inception: 14.61% as of August 30th, 2024.}

^Disclaimer:

^{This article has been sponsored by BMO ETFs.}

^{All investments involve risk. The value of an ETF can go down as well as up and you could lose money. The risk of an ETF is rated based on the volatility of the ETF’s returns using the standardized risk classification methodology mandated by the Canadian Securities Administrators. Historical volatility doesn’t tell you how volatile an ETF will be in the future. An ETF with a risk rating of “low” can still lose money. For more information about the risk rating and specific risks that can affect an ETF’s returns, see the BMO ETFs’ prospectus.}

^{This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.}

^{The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.}

^{Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.}

^{Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by month end net asset value (NAV). The yield calculation does not include reinvested distributions. Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations. The payment of distributions should not be confused with the BMO ETF’s performance, rate of return or yield. If distributions paid by a BMO ETF are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO ETF, and income and dividends earned by a BMO ETF, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.}

^{Cash distributions, if any, on units of a BMO ETF (other than accumulating units or units subject to a distribution reinvestment plan) are expected to be paid primarily out of dividends or distributions, and other income or gains, received by the BMO ETF less the expenses of the BMO ETF, but may also consist of non-taxable amounts including returns of capital, which may be paid in the manager’s sole discretion. To the extent that the expenses of a BMO ETF exceed the income generated by such BMO ETF in any given month, quarter, or year, as the case may be, it is not expected that a monthly, quarterly, or annual distribution will be paid. Distributions, if any, in respect of the accumulating units of BMO Short Corporate Bond Index ETF, BMO Short Federal Bond Index ETF, BMO Short Provincial Bond Index ETF, BMO Ultra Short-Term Bond ETF and BMO Ultra Short-Term US Bond ETF will be automatically reinvested in additional accumulating units of the applicable BMO ETF. Following each distribution, the number of accumulating units of the applicable BMO ETF will be immediately consolidated so that the number of outstanding accumulating units of the applicable BMO ETF will be the same as the number of outstanding accumulating units before the distribution. Non-resident unitholders may have the number of securities reduced due to withholding tax. Certain BMO ETFs have adopted a distribution reinvestment plan, which provides that a unitholder may elect to automatically reinvest all cash distributions paid on units held by that unitholder in additional units of the applicable BMO ETF in accordance with the terms of the distribution reinvestment plan. For further information, see the distribution policy in the BMO ETFs’ prospectus.}

^{Index returns do not reflect transactions costs, or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results.}

^{The Index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by the Manager. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”), and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the Manager. The ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.}

^{The ETF referred to herein is not sponsored, endorsed, or promoted by MSCI and MSCI bears no liability with respect to the ETF or any index on which such ETF is based. The ETF’s prospectus contains a more detailed description of the limited relationship MSCI has with the Manager and any related ETF.}

^{Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.}

^{For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.}

^{BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.}

^{BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.}

^{“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.}

The good news is that this is avoidable and it doesn’t have to happen to you. Here are the common mistakes that DIY investors make and tips on how to stay on track so that you can reach your financial goals.

What mistakes do DIY investors make? 

Over the years, I’ve seen many DIY investors who wanted to take the shortcut to get rich. Perhaps they could get away with it a first, but over time it catches up with them. 

I always find it interesting when you see people brag online about their short-term “wins”, but they go radio-silent after a few months when they’ve lost money. If you’re truly a long-term passive investor, here are common mistakes to avoid as a self-directed investor. 

Not paying attention to your fees 

If you’ve chosen an online brokerage or robo-advisor, you’ve already done a great job at eliminating fees. However, depending on which type of product you buy, you could be paying unnecessary fees. The investors that build a large nest egg are able to keep their hard-earned money in their own pockets—not transferring it to portfolio managers. Before you buy any product (such as a mutual fund, index fund or exchange-traded fund), find out what the fees are and see if you can find a comparable product for less fees. 

Making too many trades 

Online brokerages may incentivize you to make a certain number of trades in a quarter and offer you a discounted price. Don’t be fooled by this! That’s not for your benefit. It’s actually in the brokerage’s best interest because they earn money every time you make a transaction. The more trades you make, the more fees you may incur which will eat away at your portfolio’s performance. 

Letting FOMO get the best of you 

Do you remember the days of cannabis stocks, NFTs, meme stocks and cryptocurrency were all the rage? I admit, it was challenging not to feel any FOMO when you see clickbaity headlines about everyday people making a ton of money in a short amount of time. Look, I totally get it. I even dabbled in a Bitcoin ETF myself with my “fun” money. But before you take on speculative and volatile investments, be sure to do your research and ensure that it’s a logical decision—not an emotional one. 

Focusing on the short-term

There’s no need to get caught up in the stock market news since it’s normal for the market to fluctuate. In fact, the stock market will go through a correction roughly every two years, lasting about four months on average. When you’re worried about a dip in the market, just picture yourself walking up a staircase, and when you reach the end, you’ll be at the top. 

What is a monthly contribution plan (MCP)?

Once you’ve created your investment portfolio, you’ll want to continue making regular contributions. The more money you add to your portfolio, compound interest can help grow your net worth. Plus, every year, Canadians have the opportunity to contribute to their investment accounts, such as their Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). 

Here’s an example of how you can carry out the monthly contribution plan in your TFSA:

In 2024, the TFSA annual contribution limit is $7,000. It may sound like a huge amount, but if you divide $7,000 by 12 months, it works out to be $583.33 per month, $134.62 per week or $19.23 per day. I’m pretty sure most of us can think of a few ideas to save up $20 a day. Even if you can’t, start small and work your way up. If you don’t max out your contribution room for the current year, you still can catch up in future years. 

By contributing $583.33 per month to your TFSA, say if you’re invested in an index fund, you can buy shares every month (since there are usually no commissions charged on buying or selling). 

However, if you have an ETF, you’ll incur trading fees (usually up to $10 per transaction). So, you may want to accumulate a larger amount so that you can buy more shares and save on trading fees. 

What is dollar cost averaging?

Dollar cost averaging is a strategy for investors to divide up a large sum of money to spread out their purchases over a period of time. The benefit of dollar cost averaging is that you’re able to buy at the highs and lows of a particular fund and over time, it will average itself out. This way you don’t have to worry about timing the market. 

If you’re following the MCP discussed above, then it may make a lot of sense to do dollar cost averaging since you’re already contributing money into your investment account on a monthly basis. 

What are dividends?

Whenever you buy shares of a company, they may distribute their earnings in the form of dividends to their shareholders. Most of the time they are paid out quarterly, but they could be monthly or special one-time payments. 

For example, when you buy a share of Toronto-Dominion Bank (TD), at the time of writing, their quarterly dividend amount is $0.96 per share. So, if you buy 10 shares of TD Bank, in one quarter, you’ll receive $9.60 in dividends. In a year, you’ll earn a total of $38.40 in dividends ($9.60 in dividends x 4 quarters). 

How does the dividend reinvestment plan (DRIP) work?

When you receive dividends from your investment holdings, you may be able to enroll in a dividend reinvestment plan (DRIP) which allows you to take the cash dividends and automatically purchase more shares. It’s a great way to do dollar-cost averaging without paying any fees or commissions.

Tracking your performance

As tempting as it may be to monitor your portfolio’s performance daily or weekly, there’s really no need to. Especially when you have years before you need to withdraw your investments, such as for retirement. For most DIY investors, checking quarterly, semi-annually or annually should be sufficient. 

How to rebalance your portfolio

So, when you do look at your portfolio, what exactly should you be looking for? Well, you’ll want to determine if your portfolio’s asset allocation needs rebalancing. 

For example, if you have a portfolio with 80% stocks and 20% bonds, but over time it’s changed to 85% stocks and 15% bonds (because your stocks went up in price, but the bonds went down), then you’ll want to rebalance it so that your risk tolerance and asset allocation is back to normal. 

The simple way to do this is by selling the funds that have gone up in price and buying the funds that have gone down in price. 

Personally, what I like to do is take the money I’ve been contributing to my RRSP and TFSA all year long (plus any dividends that don’t have a DRIP option) and buy the funds that have gone down in price so that I don’t need to sell any funds. 

Learning from your investing journey

As humans, it can be easy to let our emotions get the best of us. When it comes to investing, it’s vital to control them so that we don’t get sidetracked from reaching our financial goals. Even if you do get off track, you always have the opportunity to make adjustments. 

Even as an experienced investor, I’ve made plenty of investing mistakes myself. As long as you take them as learning lessons, you can become a better investor and achieve your dream lifestyle. 

What’s the best discount brokerage in Canada?

There are 13 discount brokerages you can choose from. There are some similarities and differences between them. However, the path of least resistance for most people is to choose the same financial institution that they already bank with. 

• BMO InvestorLine
• CIBC Investor’s Edge
• CI Direct Trading
• Desjardins Online Brokerage
• HSBC InvestDirect
• Interactive Brokers
• National Bank Direct Brokerage
• Qtrade Direct Investing
• Questrade
• RBC Direct Investing
• Scotia iTrade
• TD Direct Investing
• Wealthsimple Invest

Factors to consider when choosing a discount brokerage 

When you’re determining which discount brokerage is your best match, here are some factors to consider.

• Stock trading commission – This can range from zero to $9.99 every time you make a trade. 
• Commission-free ETFs available – Most brokers have stocks and/or ETFs where they waive the commission fee. This can save you money if you make frequent trades.
• Foreign exchange rate – If you plan to buy international funds, you’ll be charged a foreign exchange fee and the costs will vary. 
• Mobile app features – having the app makes it convenient to check quotes and make trades while on the go. Some apps have enhanced features.
• Average wait times – In most cases, you may only need to wait a few minutes to get someone on the phone to help you. However, there are a few that have longer wait times.

The Globe and Mail published an online comparison guide, which will make it easier for you to make a decision.

How to open an account with an online brokerage 

Now that you’ve done your research and have chosen an online brokerage, here are the next steps on how to open an account. 

Step 1: Choose the type of investment account 

Explain the different types of investment accounts available. Depending on which brokerage you choose, they may offer any of the following accounts: 

• Tax-Free Savings Account (TFSA)
• Registered Retirement Savings Plan (RRSP)
• Spousal Registered Retirement Savings Plan (Spousal RRSP)
• Margin Account
• Cash Account
• Non-Registered Account
• First Home Savings Account (FHSA)
• Registered Education Savings Plan (RESP)
• Registered Retirement Income Fund (RRIF)
• Locked-In Retirement Account (LIRA)
• Life Income Funds (LIF)
• Registered Disability Savings Plan (RDSP)

Step 2: Fill out the online paperwork 

You’ll be asked to create an account (if you don’t have one). You may be required to provide the following information:

• Personal (e.g. contact info, mailing address)
• Employment (e.g. where you work)
• Financial (e.g. income, assets and liabilities)
• Tax residency (e.g. SIN and tax reporting info)

Step 3: Move your accounts over 

Once you’ve created your accounts with the new financial institution, you can transfer accounts from another financial institution, if needed. You’ll need to provide the banking information from your existing accounts. Your new broker will contact your existing broker and facilitate this process. They may even waive the transfer fees for up to a certain amount. 

For more details, check out these helpful articles about transferring your TFSA and transferring your RRSP.

Step 4: Add money to your account

Now you can fund your account. You may have several options, such as using your Canadian Visa Debit to make instant deposits, using online banking and creating a payee, or setting up pre-authorized deposits. Most deposits are processed within 1 to 2 business days. Check if there is a minimum account balance that you need to meet.

How to make trades 

Here’s how to buy stocks online in Canada. Each online brokerage account may have slight variations, but here are the basics you need to know. 

Step 1: Look up the ticker symbol 

When you’re ready to make a trade, clicking on the “buy” button will take you to a page where you can search for the ticker symbol (an abbreviation of the fund’s name) or the name of the fund you’re looking to purchase. Click on the fund, and it will display some background information. 

Step 2: Calculate the number of units  

Here’s where you’ll do some simple calculations. In order to figure out how many units to buy, you take the amount of money you want to invest and divide it by the current stock price. 

Depending on your platform, you may have the option to put in a dollar amount that you want to invest and it will calculate the number of units for you. However, if you need to calculate it on your own, here’s what you need to do:

Let’s say you have $5,000 in funds that are available to trade and you want to invest in the Vanguard FTSE Canada Index ETF (VCE) with a stock price of $41.75. You’ll take $5,000 and divide by $41.75 which gives you a total of 119.76. You will need to round the number down as you can’t buy a partial unit. 

Also, you may need to factor in the cost of making the trade (up to $10 per trade). As the market fluctuates, you may consider setting a price type. For a safety net,  choosing “limit” and setting a limit price means that you don’t want to pay above a certain dollar amount. Don’t forget, if you’re buying a fund that’s priced in US dollars, you’ll also need to factor in the currency exchange rate. For these reasons, I would round down to 115 units so that there’s a cash buffer. 

Step 3: Verify the trading fee

Double-check that you have sufficient funds to cover the cost of making your trade. If you’re over your limit, it should give you a warning that you need to revise the number of units you can purchase. There’s also an option to choose a time limit on your transaction, which can be for the day you’re trading or in the future. 

If there are any trading fees, they should also be listed in your summary. When you’re ready to confirm your trade, you may be prompted to enter a trading password. This is an extra security feature to ensure that you’re the one who’s authorizing this transaction. 

Once you’ve placed your order, typically it will fulfilled within a few seconds. However, if it’s a very volatile fund and you’ve set a certain price limit, your order may not be filled right away. 

Step 4: Repeat until you’ve completed your portfolio 

Congrats! You’ve completed your first trade. As you can see, it’s fairly straightforward. There are more sophisticated features available in your account, which you can explore when you’ve got more experience under your belt. In the meantime, go back and repeat these steps to purchase the rest of your funds across your investment accounts (e.g. RRSP and TFSA) to build your portfolio. 

Mission accomplished: You’re a DIY investor

Now that you’re all set up, you’re officially a DIY investor! You should be very proud of achieving this milestone. In the next article, I’ll explain how you can monitor the performance of your investments and ensure you stay on track to meet your financial goals. 

It’s important to do it right—or you could face hefty taxes or penalties. Find out which investment accounts are best for your financial goals and how to create your own investment portfolio.

Types of investment accounts

In Canada, there are a variety of investment accounts that you can open. They all provide different benefits, and eligibility requirements, along with various tax implications. Here’s a high-level overview of these accounts. You can do further research to learn more about how they work based on the links below. All these accounts will allow you to invest in mutual funds, index funds, ETFs, GICs and more (which we’ll cover in the next section).

Registered Retirement Savings Plan (RRSP)

A popular investment account is the RRSP, where Canadians can save their money towards retirement until age 71. The main draw is the amount that you contribute will help to reduce your taxable income. The RRSP contribution limit is 18% of your income from the previous year.

Tax-Free Savings Account (TFSA)

The beauty of the TFSA is that the money you invest, any growth on it, will be tax-free. Thus far, the lifetime contribution limit is $88,000, if you have been at least 18 years old since 2009 (when this account first became available). The contribution limit for 2023 is $6,500.

It also provides flexibility when withdrawing your money compared to the RRSP. Keep in mind that the amount you withdraw in a given year, you’ll have to wait until the following year on January 1st to contribute back that amount.

Non-registered account

Another option to invest your money is through a non-registered account, which means the income earned and capital gains will be taxable. Any contributions to this account aren’t tax deductible. The upside is that this type of account doesn’t have any contribution or withdrawal limits. This may be a good option for those who have maxed out their RRSP and/or TFSA.

Registered Education Savings Plan (RESP)

If you have kids, then you may want to save for their post-secondary education. With the Registered Education Savings Plan (RESP), you can contribute up to $50,000 per beneficiary. Plus, if you contribute a minimum of $2,500 per year, you can receive a 20% match (up to $500) thanks to the Canadian Education Savings Grant (CESG). Fortunately, any capital gains earned within the account are tax-free.

First Home Savings Account (FHSA)

Since April 1, 2023, this registered account allows aspiring homeowners to save up for their first home. You can contribute up to $8,000 per year, for a total lifetime contribution of $40,000. Some financial institutions have started offering FHSAs while others are expected to launch this year.

Keep it simple

If you’re new to investing, you may choose to open one or two accounts to keep things simple—instead of trying to juggle multiple accounts. Most Canadians already have a difficult choice choosing between contributing to their RRSP versus their TFSA. So, unless you’re already maximizing your existing investment accounts, or you’re looking to save up money for your children’s education or for a down payment on a home, then you may consider starting out with a TFSA and RRSP.

How to create your stock market portfolio

Now that you know what type of investment accounts to choose from, the next step is to assemble your portfolio. Here are some tips to help you decide how to invest your money in the stock market.

Consider a mix of stocks and bonds

When you’re investing in the stock market, you can purchase different types of assets such as stocks (shares of individual companies) and bonds (also called fixed income). Generally, having a mix of stocks and bonds can match your risk profile.

What are the types of investment products can you purchase?

• Mutual funds – This type of investment contains a portfolio of asset classes such as stocks, bonds and other securities. Money is pooled together from individual investors, and a fund manager will manage the fund’s assets. It only trades once a day after the market closes. Beware of the fees as they can be expensive.

• Index Funds – This is a portfolio of funds that is designed to mimic the performance of a certain financial market index, such as the S&P 500 and is not actively managed. They typically offer lower fees. 

• Exchange-Traded Fund (ETF) – This is similar to a mutual fund, but the main difference is that it can be bought and sold on the stock exchange in the same manner as an individual stock, so the price can fluctuate. ETFs can be designed to track a particular commodity, sector or an index. Just like index funds, these fees are cost-effective.

• Guaranteed Investment Certificate (GIC) – This is a safe investments as you’re guaranteed a fixed amount of income over a specified period of time and you won’t lose your principal investment. Although, you typically have to lock in your money for a certain period, so be sure that you don’t need to access it right away.

Diversify your stock market portfolio

When it comes to long-term investing, you’ll want to ensure that you have diversification in your portfolio. It basically means putting your eggs in many baskets. If you put all your eggs into one basket and that basket tanks, then you’ll lose all your hard-earned money.

Invest globally vs. locally

You can diversify your investments by expanding beyond Canada and branching out to the United States and international markets. With human nature, we tend to have a home-based bias, meaning that we like to invest in our home country.

Don’t get me wrong, Canada is a wonderful country but if you think about it, most of the companies are clustered around financial institutions, energy, basic materials, and telecommunications. By investing in developed and emerging international markets, you’ll get exposure to other countries and companies that have their own specialties.

Invest in many sectors vs. several sectors

What’s more, you’ll want to consider investing in many sectors or industries as opposed to handpicking a few. The reason is that perhaps AI could be the hottest sector this year, but next year, it could be the healthcare sector that is booming. You never know and it’s almost impossible to predict accurately year after year. So, why not save yourself the stress and just invest in all sectors?

The way I like to think of it is when you go to a buffet, are you going to eat one item for dinner? (unless you’re the type who likes to feast on the crab legs or sushi!). Or are you going to choose a little bit of everything? As DIY investors, the world is your oyster, so go ahead and indulge in everything!

Be cautious with risky and volatile stocks

It wasn’t too long ago when cryptocurrency, NFTs and meme stocks were the talk of the town. It seemed like everyone was jumping on the bandwagon as a way to get rich quickly and FOMO was rearing its ugly head. Now we’ve seen the fallout of numerous bankruptcies and a plethora of financial scams.

Nowadays, AI is all the hype. Only time will tell which companies will last. If you want to try your hand at selecting a few hot stocks, consider allocating a very small percentage to risky and volatile stocks as part of your overall investment portfolio. This way, you can still play around with your “fun money” but you can still sleep at night knowing you’re not putting all your eggs in one basket.

Even for seasoned investors like myself, I dabbled in some bitcoin ETF (which I ended up selling at a loss because it wasn’t worth my time and energy to go on a rollercoaster ride of volatility).

Also, be sure you understand the implications of day trading in your investment accounts. For example, the CRA may audit you and charge you with hefty taxes if they find you day trading with your TFSA.

Your path to financial success

Hopefully, you have a solid understanding of the investment accounts and products that are available to you.  Now you can choose the ones that are best suited for your financial goals. Do your research to create a portfolio based on your risk tolerance.

Having a diversified portfolio, with low-cost funds and a long-term focus is key to becoming a successful self-directed investor. Remember, you always have the opportunity to change your selections if you find they aren’t suitable for you. In the next article, I will show you how to choose and open a brokerage account.

So, how are you supposed to figure out an easy way to invest while keeping costs down and without rebalancing your portfolio? Look no further as the all-in-one ETFs (a.k.a. asset allocation ETFs) may be the answer for you. We’ll explain what is an all-in-one ETF, which companies offer them and the benefits of having it in your portfolio.

What is an all-in-one ETF?

If you’re looking for a one-stop-shop solution to building your stock market portfolio, an all-in-one ETF may be a good choice. Essentially, an all-in-one ETF is a diversified fund that has an appropriate asset allocation, with low management fees and can self-rebalance.

Vanguard was the first to launch all-in-one ETFs into the Canadian market in 2018. Although some may argue that iShares came out with this type of fund back in 2007.

Typically, it will hold a basket of about six to ten funds with a certain percentage of equities (stocks) and fixed income (bonds). Plus, they provide diversified exposure to various asset classes and regions. In some cases, they may hold a tiny percentage in cash or crypto.

To give you an idea, the iShares Core ETF portfolios hold the following underlying funds with varying percentages based on which specific fund you choose:

Equities:

• Canadian equities (XIC)
• U.S. equities (ITOT)
• International developed market equities (XEF)
• Emerging market equities (XEC)

Fixed Income: 

• Canadian fixed income (XBB & XSH)
• Non-Canadian fixed income (GOVT & USIG)

There’s something for everyone— from conservative, moderate to aggressive investors. As such, they’ve become a popular choice amongst everyday investors based on their performance, attractive fees and convenience.

What are the benefits of an all-in-one ETF?

There are many advantages to asset allocation ETFs, including:

• Low fees – That means more money in your pocket
• Instant diversification – ETFs bundle a bunch of funds for you. Thus, it could save you from buying individual funds and racking up trading costs.
• Automatically rebalancing – They’re designed to keep the same ratio of stocks/bonds.
• Dividend payouts – Dividends are cash payouts you get for holding some ETFs. You can use the money to reinvest in your portfolio.

Overall, it’s a solid all-in-one solution for your investment needs that is often overlooked by investors.

What are the best all-in-one ETFs in Canada?

We’ve researched and compiled a list of the top Canadian companies that offer asset allocation ETFs categorized based on your investor type. The fund name, ticker symbol, and fees are listed in the table below.

BMO

Most notably, BMO Growth ETF (ZGRO) was voted as one of the all-in-one ETFs by MoneySense in 2023. The fees are cost-effective with 0.18% in management fees and 0.20% in management expense ratios (MERs). 

Fidelity

Launched in 2021, these portfolios are unique as they hold a small percentage in cryptocurrency. So, if you want to have exposure to this asset class without having to purchase it separately, this could be a suitable option. Compared to its competitors, it has the highest combined fees.

*Based on the chart above, it has an indirect management fee and a direct management fee, respectively.

Horizons ETFs

The ratio is different than its competitors with a 50/50, 70/30 split compared to the common 60/40 and 80/20 split. They currently offer the lowest fees, but you have only three portfolios to choose from.

iShares

iShares Core Growth ETF Portfolio (XGRO) and iShares Core Equity ETF Portfolio (XEQT) were also voted as one of the best all-in-one ETFs by MoneySense this year. They offer the same fees as BMO. If you’re an aggressive investor, these could be worthy contenders.

Vanguard

Even with slightly higher fees, the asset allocation is what attracts investors to buy Vanguard portfolios. Vanguard Growth ETF Portfolio (VGRO)’s track record over the past five years is worth considering for young, aggressive investors.

Which all-in-one ETF should I choose?

If you haven’t figured out your investor type where I discussed your financial goals, risk tolerance and asset allocation, be sure to review the article and find out your investor profile. It will help you narrow down which all-in-one ETF is most suitable for your financial situation. Some investors may decide to have an all-in-one ETF and set aside a small amount to handpick a few individual companies to invest in.

No matter which one you choose, know that they are all excellent choices and you’ll be setting yourself up for success in the long run. Remember, don’t feel like you’re locked into the decision forever. You always have the option to switch to a different ETF if you find that the one you originally chose isn’t a right fit for you.

Dan Bortolotti’s book, Reboot Your Portfolio is highly recommend for every investor to read. He mentions a strategy where you can buy all-in-one ETFs in all of your investment accounts such as your TFSA, RRSP and non-registered accounts.

Although it may not be tax efficient, it saves you the time and effort of rebalancing your portfolio from time to time. Of course, this strategy may not be for everyone, but it may appeal to those who don’t want to use a spreadsheet and manually calculate how much they need to buy and/or sell to rebalance their portfolio.

How to buy all-in-one ETFs

Buying all-in-one ETFs is easy and can be done so in a discount brokerage account, such as Qtrade Direct Investing. Once you have opened an account, you would purchase the ETF like a stock. That’s where you select how many units you want to purchase at the current price (ask price). For example, let’s say you want to purchase $5,000 of a single ETF that’s trading for $50. You’d be able to buy 100 units. That said, you also need to factor in any trading fees.

How all-in-one ETFs can align with your financial goals

All-in-one ETFs are one of the leading innovative products being offered in the Canadian market for the past five years. It’s still a relatively new fund and should be used more often by everyday investors. It’s a simple solution that rebalances on its own, offers cost-effective management fees, and diversifies with underlying funds.

It’s entirely up to you whether you decide to put all your money into an all-in-one ETF or to have it as a piece of your entire portfolio. If done correctly, it can be a nice addition to your overall investment strategy.

In the next segment, I’ll walk you through the different types of investment accounts you can open and how to assemble your stock market portfolio.

What are your financial goals with investing? 

Knowing what your purpose is when you invest your money is essential to your financial success. When you envision your future lifestyle, what does it look like? Perhaps you want to travel to different countries, become a homeowner or save for retirement. You can also separate them between short-term (three years or less), mid-term (three to five years), and long-term (more than five years) goals.

Take a few minutes to write down your financial goals. Make sure that they are SMART goals. Here are a few examples:

• Short-term: I want to go on a four-night trip to Bermuda next year which will cost me $2,500. I will save $156.25 per month for the next 16 months. I will have a separate savings account to save for this family vacation.   

• Medium-term: I plan to save $8,000 annually for the next five years towards the new First Home Savings Account (FHSA). This will total $40,000 to go towards a down payment on a one-bedroom condo. 

• Long-term: I plan to retire in 35 years. I will need $1.5 million to retire comfortably and become financially independent. I have an initial investment of $150,000. By contributing $255 per month for the next 35 years and with an annual compound interest of 6%, I will have a stock market portfolio worth $1.5 million.

Once you’ve decided what you want in your life, you can make a plan to achieve your financial goals. Becoming a DIY investor can help you achieve your financial goals faster. 

Calculating your time horizon

First, you’ll want to figure out your time horizon, which simply means how much time you have to invest your money before you need it. You can determine this by selecting an end date of when you want to reach your financial goal. For instance, if you want to build your retirement nest egg by the year 2058, then you will have 35 years as your time horizon. The longer you have to invest, the more you’ll be able to benefit from compounding interest. 

Assessing your risk tolerance

Another factor to consider is your risk tolerance. This is how much risk you’re willing to take when investing your money. The stock market constantly fluctuates. When it goes up, it may seem like it’s all sunshine and rainbows. 

But the real test is when the market starts tumbling down. How will you handle this situation? Can you stomach losses of -5%, -10% or even -30%? Looking back to March 2020, we witnessed steep declines in the -37% territory. When this happens again, will you panic and start selling your investments at a loss? Or will you “keep calm and carry on”? 

Your risk appetite will fall into one of these categories:

• Conservative/Low-risk: These are relatively stable and safe investments. They will have a slow and steady growth. You may have to lock up your money for a specific timeframe to receive interest payments. Examples include bonds and Guaranteed Investment Certificates (GICs).
  
• Moderate/Medium-risk: These are middle-of-the-road investments. They could have double-digit growth and losses. Examples include blue chip stocks and dividend stocks.
  
• Aggressive/High-risk: These are highly volatile and it’s not wise to put all your money into a single stock or sector. Yes, you can earn significant gains, but you could lose all your money overnight. Examples include speculative stocks, meme stocks and cryptocurrency. 

You can take this online quiz to see what your risk profile is. 

Determining your asset allocation 

Based on your time horizon and risk tolerance, you can choose your asset allocation—the ratio of stocks and bonds in your portfolio. Let’s take a look at a few scenarios.

David is a conservative investor who is nearing retirement in a few years. His portfolio has 40% stocks and 60% bonds. 

Lauren is a moderate investor with another eight years left to invest her money. Her portfolio contains 60% stocks and 40% bonds.

Kyle is an aggressive investor who is in his early 20s. His portfolio consists of 80% stocks and 20% bonds. 

Each person has a unique scenario and investor type. Ultimately, it’s trying to find the balance between taking on some risk—but not any more than you need to. 

Canadian Couch Potato model portfolios 

An excellent resource that provides asset allocation ETF examples is the Canadian Couch Potato website by Dan Bortolotti. 

About a decade ago, you would’ve had to choose several index funds or ETFs to create your portfolio. In recent years, all-in-one ETFs have been introduced in Canada. Dan explains how they work and how you can simplify your portfolio by owning these ETFs. It’s worth considering if you’re looking to simplify your portfolio, save fees, and the time it takes to rebalance your portfolio. We’ll explore this in more detail in the later part of this series. 

If you’re looking for a discount brokerage where you can start investing with low fees, consider opening a Qtrade Direct Investing account where you can get up to $150 in bonus cash.

Target rate of return 

Although no one can predict how the stock market will perform, when we look at the historical track record, the average annual rate of return is between 6% to 8%. Of course, past performance does not guarantee future returns. Even though the stock market has trended upwards over the years, you may want to be conservative with your estimates in case anything happens.

By investing today, you can reap the benefits of compound interest and enjoy higher returns than you would compared to keeping your money in a high-interest savings account or sitting in cash. That said, using a high-interest savings account such as EQ Bank is good for short term savings.

What is the difference between active vs. passive investing? 

Active investing is when you try to pick individual stocks in an attempt to outperform the market. Passive investing is when you build a portfolio of low-cost index funds or exchange-traded funds (ETFs) that follow the market or a benchmark.

Humans have egos and it’s not uncommon to believe you can select the best stocks. In reality, it’s difficult to outperform the market year after year. No one has a magic eight-ball to predict how the market will perform. So you can tune out all the news because it’s merely a distraction. Plus, actively trading stocks requires time to research and follow specific companies. I’m sure you’d rather spend your time with family and friends. 

That’s why instead of putting all your eggs into one basket, you should consider spreading them into many baskets. This strategy is called diversification. By doing this, the historical annual rate of return is between 6% to 8% per year. It’s a decent amount of growth where you can sleep well at night. 

ETFs and index funds are available from various providers, including Tangerine, Vanguard, TD, and more.

What is the difference between investing vs. speculating? 

How can you tell when something is an investment versus speculation? When people try to find that one stock that will outperform the market and benefit from enormous gains (remember, cannabis stocks, cryptocurrency, or Gamestop?), it’s a red flag and a sign that people are speculating. The rewards can be high, but so are the risks. When everyone is talking about it, it’s already too late to invest in that particular stock because the price will probably be at an all-time high. 

As boring and un-sexy as it may sound, plain vanilla index funds will suit most investors. Even Warren Buffet said, “By periodically investing in index funds, the know-nothing investors can outperform investment professionals.” Having a diversified portfolio and a long-term approach will help you withstand the ups and downs of the stock market and come out ahead.

But if you can’t shake off that feeling of trying your hand at stock picking, you can consider allocating a small portion of your investment portfolio (less than 5%) and call it your “fun money”. Then you can choose a stock to buy and see how it performs. Make sure that you’re willing to lose all of this money and not sweat it. 

What is your investor type? 

Whatever your financial goals are, you can reach them by investing in the stock market over the long term. Now that you understand your time horizon and risk tolerance, you can better formulate your portfolio’s asset allocation. 

Stay tuned for part 3 of the DIY Investing Series, where you’ll learn how to assemble your stock market portfolio.

This is a first article of a six-part DIY Investing series, which will span over the course of a few months. As a self-directed investor for a dozen years, I’ll be sharing some of my experience and expertise to guide you to become a DIY investor. 

Why you should invest in the stock market 

If you haven’t already started investing in the stock market, there are plenty of reasons why you should start now. If you have some money that you’ve saved up that’s sitting in a low-interest savings account that you don’t need to touch anytime soon (and you’ve got your emergency fund topped up), then you may benefit from investing it. That way, you can earn interest on your money and it will help you reach your financial goals much faster through compound interest and dividend payouts.

Before you start investing, it’s important to think about what your financial goals are. Perhaps you are looking to save for retirement, achieve financial independence/retire early (FI/RE), quit your full-time job, or start a family. Whatever your reason, investing your money is a great way to have money work for you and to grow your net worth.

3 ways to invest your money in the stock market 

Here I’ll explain the three common options for you to start investing your money. 

Using a financial advisor

If you’ve received an inheritance, windfall, or have a complex financial situation, going with a financial advisor may be helpful. They can sit down with you and provide advice on how to invest your money. However, be sure to check if they are tied to specific institutions or products and they should disclose upfront what their fees are. A fee-only advisor can be a good option if you want unbiased advice. 

Since it’s not an entirely regulated industry yet (anyone can give themselves a fancy title to sound legit), you’ll want to check that they have the proper credentials and can suit your needs. Since they make a living from fees, they typically only work with high net worth clients ($250K to $1M+) and their fees can be quite high. Ask for recommendations, referrals and interview several candidates before you make a decision. 

Going with a robo advisor 

With as little as $1,000, you can start investing with a robo-advisor. Typically you’ll fill out a questionnaire and an algorithm will assemble your portfolio. The fees are in the middle of the road: you’ll still need to pay the management expense ratios (MER) of the funds you buy and the cost of having a robo-advisor manage your portfolio for you. For some high-net worth investors, the provider may offer services of a human advisor. This option is a good choice for those who want to be more hands-off with their investments but don’t want to pay high fees with a financial advisor. 

DIY investing 

Becoming a self-directed investor can be a suitable choice for individuals who feel like they have good investing knowledge and want to have full control over which funds they hold in their portfolio and save on fees. Since you’re responsible for your performance, it’s important to keep your emotions out of the equation so that you don’t start tinkering with your portfolio. Your success will be based on your own decision-making ability. 

If you’re looking for a discount brokerage where you can start investing with low fees, consider opening a Qtrade Direct Investing account where you can get up to $150 in bonus cash.

What is compound interest?

Remember when you were a kid and you built a huge snowball? At first, it takes a lot of effort to get the ball going, but once it gets bigger, it gets easier to roll. That’s the same way compound interest works in the stock market. 

When you first start investing with a small amount of money, you’ll see your account grow slowly. Then the pace picks up and the money will accumulate at a faster rate over the long term.

In this chart below, you can see that if you were to invest $6,500 a year (the current annual TFSA contribution limit) with an annual interest rate of 6%, after 10 years it will be worth $85,675.17 when compounded yearly. Even though your total investment will be $65,000, you will have earned $20,675.17 in compounded interest. That’s why Warren Buffett called “compounding interest the 8th wonder of the world.” 

Year	Total investment	Yearly interest	total interst	Total value
1	$6,500	$0	$0	$6,500
2	$13,000	$390	$390	$13,390
3	$19,500	$803.40	$1,193.40	$20,693.40
4	$26,000	$1,241.60	$2,435	$28,435
5	$32,500	$1,706.10	$4,141.10	$36,641.10
6	$39,000	$2,198.47	$6,339.57	$45,339.57
7	$45,500	$2,720.37	$9,050.94	$54,559.94
8	$52,000	$3,273.60	$12,333.54	$64,333.54
9	$58,500	$3,860.01	$16,193.55	$74,693.55
10	$65,000	$4,481.62	$20,675.17	$85,675.17

How compound interest can help you grow your portfolio

Here’s a comparison chart showing how much your investment will grow annually, based on a certain monthly contribution and a certain annual interest rate. 

Please note: the following is for illustrative purposes only. There is no guarantee when it comes to investing as there are always risks involved. 

Amount per month	40 years @ 4% interest	40 years @ 6% interest	40 years @ 8% interest
$100	$116,106.38	$190,767.78	$322,107.93
$500	$580,531.88	$953,838.88	$1,610,539.67
$1,000	$1,161,063.76	$1,907,677.76	$3,221,079.35

In the diagram above, if you had a monthly investment of $100.00 at an annualized interest rate of 4% will be worth $116K after 40 years when compounded yearly. 

Bumping this up to $500 per month, at a 6% interest rate, your investment will be worth $953K.

For the super savers, if you invested $1,000 per month, at a 8% interest rate, you’ll have a jaw-dropping net worth of around $3.2 million after 40 years. 

You can use this compound interest calculator and plug in your numbers to see how much your investments can grow. This goes to show that the longer your time horizon (the amount of time you have to invest your money), then the more time for compounding interest to work its magic! 

The benefits of switching to DIY investing

As humans, it can be easy to sit on the fence and not make any changes. However, as I’ve illustrated above how much money you’re wasting on excessive fees, may be the tipping point for some of you to make the decision to become a self-directed investor. Plus, if you want to be in the driver’s seat to select your funds, then it’s a good reason to hop over the fence. 

When I decided to switch my mutual funds from one of the big banks over to an online brokerage, all it took was a few hours of my time filling out some paperwork, and mailing it in. Again, that was over a decade ago and technology has made it a lot faster and easier. 

Nowadays, you can fill out the paperwork online to expedite the processing times. Once you open an account with your new online brokerage, you’ll be able to transfer your money from your existing RRSP and/or TFSA. 

There are several ways to bring your money over. The most common method when you fill out the transfer form, is to checkmark the box to transfer in-kind so that it ports everything as-is to your new brokerage. It may take a few weeks, so you’ll have to be patient. Once this is complete, you’ll be able to start managing your investment portfolio and save on fees immediately. 

Make the switch and get started

There are many benefits when it comes to DIY investing such as minimizing your fees and being in control of your investment decisions. For those of you who are making the switch from a financial advisor or robo advisor to an online brokerage, then you’ve got your work cut out for you. If you’re willing to make the commitment to learn (which is why you’re here reading this!), then soon you’ll be able to reap the benefits of becoming a self-directed investor. 

Remember, you don’t need to know everything about investing—just the basics to get you started. 

You’ll always have the opportunity to make adjustments as you become a more experienced investor. Unlike a decade ago, there are so many options available to you. The key is to get started early so that you can take advantage of compound interest. 

The next part of this DIY Investing series focuses on learning about your investor personality type.

While it’s true that index funds will only give you average returns, the reality is that 90% of actively managed funds don’t outperform similar indexes. By taking the passive approach with index funds, you’re accepting average returns, but at a much lower cost. The difference in the management fee is often huge when you compound it over your investing lifetime. Here’s how to invest in index funds.

What is an index fund?

Before getting into the details about how to invest in index funds, you’ll want to know what is an index fund. Think of index funds as a type of mutual fund or exchange traded fund that’s designed to track a specific stock market index. Some of the most common indexes include:

• S&P/TSX Composite Index (The benchmark index in Canada)
• S&P 500 Index (The benchmark index in the United States)
• Dow Jones Industrial Average (DJIA – tracks the largest 30 companies in the U.S.)
• Nasdaq Composite (Tracks 3,000+ technology companies)
• MSCI EAFE (Tracks stocks from countries outside of Canada and the U.S. including Europe, Australia, and the far east)

Index funds are passive which means the portfolio manager isn’t making any decisions based on gut or emotion. The index is really just an algorithm that’s meant to mirror the market. If the markets are up, index funds are up. If the markets go down, so do index funds. You’re getting average returns which have been relatively decent since the stock market has opened to the public.

Since index funds are a collection of many stocks, you don’t need to worry about picking individual stocks. More importantly, you’re not required to do any research. Index funds rebalance themselves based on market conditions, so there’s no need for you to worry about anything. Once you have your index funds portfolio, you can sit back and relax. Taking the passive approach can balance your own risk profile as well as any fluctuations in the market. 

What is an index fund vs. a mutual fund? 

Okay, so I’ve explained what index funds are, but I also said they’re a type of mutual fund. You’re probably still wondering what is an index fund vs. a mutual fund? There are two major differences when it comes to mutual funds: active management and fees

Active management 

The majority of mutual funds are actively managed. That means a portfolio manager is actively looking at the markets and making decisions based on what’s happening. While this may sound like a good thing since managers are able to gauge what’s going on in the world and make immediate changes to the funds, it rarely works out in their favour. Historically, about 80% of passive funds outperform actively managed funds (That’s a rough estimate). 

Sure, 20% of the funds will beat passive funds, but the odds of you choosing those ones are rare. Why’s that? Because most people who sell mutual funds will recommend funds that have performed historically well. The thing is, past performance is not indicative of future results. You might choose a fund that outperforms the index this year, but it might not the next year. Going with index funds can be a bit boring, but accepting average results is not a bad thing.

Management expense ratio

The management expense ratio (MER) is the other major difference when looking at index funds vs. mutual funds. Generally speaking, mutual funds have an MER between 2% – 2.5%. Index funds traditionally charge .20% – .50% (although there are some that charge more). That may not seem like a huge difference, but think about it over your investing lifetime. You’d be giving up tens of thousands of dollars.

For example, let’s say you have $100,000 invested. A mutual fund with a 2.5% MER would cost you $2,500 a year. An index fund with an MER of .25% would only cost you $250. This is per year! The increased fee cuts into your profit margins. Now think about the costs of a larger portfolio. If you had $1,000,000 invested in mutual funds, you’d be paying $25,000 a year. Some people may think they’ll never have a million dollars saved, but after working 20-30 years, it’s totally achievable. 

Anyone who works at a bank will try to sell you on actively managed mutual funds since that’s what makes their employer (and sometimes them) the most money, but it’s rarely the best decision for you. Index funds have such a good track record that some mutual funds track indexes, but they still charge you the higher MER. 

Note that if you choose to use a robo advisor, they charge an additional management fee which averages about .50%. When you combine that with the fund MER, you’ll still pay less than .80%, so you’re saving quite a bit.

Avoiding high fees should be something you aim for when investing. Think about, let’s say the stock market index returned 7% for the year, but you’ve invested in a mutual fund that charges a 2.30% MER. That mutual would need to outperform the market by about 2% just to match an index fund. The odds of that happening are low. Don’t let fees destroy your returns, go the passive route with index funds.

How the management expense ratio affects your return

If you’re still on the fence about how fees affect your portfolio, let’s take a look at how some mutual funds compare to index funds. I’ve purposely chosen big bank funds so it’s a fair assessment. In fact, these funds are pretty much identical, but one is classified as a mutual fund and the other is an index fund. The performance difference from March 2011 – March 2021 will likely shock you.

As you can see, in every scenario, index funds outperform mutual funds. It’s worth noting that I purposely compared bank index funds to their equivalent mutual funds so it’s a fair assessment. What you may have noticed is that only TD and RBC have a relatively low MER. If you were to use an exchange traded fund (ETF), your MER would likely be much lower. For reference, I use Vanguard All-Equity ETF Portfolio (VEQT) and it has an MER of just .25%.

It’s absolutely ridiculous that financial institutions try to convince investors that you shouldn’t settle for average returns with index funds. They also try to convince you that you’re getting human interaction. Well, guess what? I spent about 12 years working with actively managed funds and they didn’t outperform the index. I’d argue I was in an even worse spot because the “financial advisors” I worked with really didn’t know what they were doing. The mutual funds they chose for me did not make any sense for my profile. Of course, I didn’t realize that was the case at the time because I trusted them.

Switching to index funds was the best decision I ever made. Not only did I reduce my fees and increase my returns, but I also learned how to manage my own finances. If I can do it, so can you!

Understand your investor profile

Before I get into how to invest in index funds, I need to talk about your investor profile as this will affect your investment strategy. When you invest, there are two types of assets you need to consider: fixed income and equities.

Fixed income investments are things such as bonds, term deposits, and money market funds. It’s highly unlikely they’ll go down in value, but as a result, the returns are quite low. Equities include stocks and are considered riskier, but they can also give you a higher return. Finding the right balance between the two is one of the core principles of investing and is known as your asset allocation.

Someone who’s in their early 20’s can afford to take more risks because they won’t need the money until they retire. However, if they plan on buying a home in the next five years, they should keep their money in fixed income since they likely don’t want to lose their down payment.

Understandably, some people who are new to investing don’t want to take many risks, so they may be tempted to stick to fixed income investments. That may not be practical since fixed income only returns about 2% a year and inflation is typically higher than that. You need to have some fixed income in your portfolio.

Traditionally, many advisors recommend that you use your age to determine how much fixed income you have. So if you’re 30, you should have a portfolio that’s 30% fixed income and 70% equities. I personally think that’s a bit outdated. I turn 42 this year, and I only have 20% dedicated to fixed income in my retirement account.

I should also mention that many people say they have an appetite for risk, but they panic when markets drop. You’ll have no idea how you really feel about your portfolio until you see it drop 25% – 40% in a month. If that happens and you stay the course, then you’re good.

How to invest in index funds 

Okay, you’re ready to get started. But you still want to know how to invest in index funds. It’s actually pretty simple as there are three ways to go about it.

• Use Tangerine’s investment funds or global ETF portfolios
• Use a robo advisor
• Go the do-it-yourself route with a discount brokerage

Which option you choose depends on your comfort zone, but understand that you can always make a switch later. I started with Tangerine index funds before I switched to TD e-series funds. I eventually went the DIY route since it was the cheapest way to invest.

Keep in mind that there were no robo advisors when I started investing, so I had fewer choices. These days, there are so many tools to get you started regardless of how much money you have. Here’s a quick look at your options.

Tangerine funds

Tangerine has two index fund options: Investment funds and global ETF portfolios. There are five different investment funds that are suitable for different investor profiles. All of the funds have a management and admin fee of 1.07%. The global ETF portfolios are relatively new, so there are only three choices, but they have a management and admin fee of .77%. Clearly choosing the cheaper option in the Global ETFs is better, but this assumes there’s a portfolio that fits your investment profile. 

Like robo advisors, Tangerine’s funds are fully automated so there’s nothing for you to do. The .77% fee you pay covers the MER and admin costs, you don’t pay any brokerage fees whenever you invest. Overall, Tangerine is a good solution for people who already bank with them and want to keep their money with a single financial institution. The fees you pay are similar to robo advisors, so they’re a great way to start investing. Note that you must have a Tangerine account to invest with them.

Robo advisors

Robo advisors are arguably the best of both worlds. They mainly use algorithms for their investment decisions, but there are still real people behind the scenes that are available to customers. When you set up an account, you’ll be asked a series of questions. Based on your answers, you’ll be recommended a portfolio.

The major advantage of robo advisors is that you have many more options. Not only are there multiple robo advisors, but most of them have a variety of portfolios. Some robo advisors have portfolios that focus on responsible investing, while others are great if you’re opening a Registered Education Savings Plan. When it comes to fees, all robo advisors charge about the same (.40 – .80ish), so you should pick one that best suits your needs.

If you’re new to investing and don’t have any brand loyalty, then going with a robo advisor is the way to go. Some of them even offer some sweet incentives when you sign up. Here are some of my favourite robo advisors:

• Justwealth – Get up to $500 when you join
• Wealthsimple – Get $50 when you join
• CI Direct Investing – Get $10,000 managed free for a year
• RBC InvestEase – Good if you already bank with RBC
• Nest Wealth – Lowest fees for high net worth individuals 

Do-it-yourself / discount brokerage

While doing things on your own may sound a bit intimidating, you may already be ready after reading this article. There are many all-in-one ETFs that you can purchase on your own. These ETFs are used by robo advisors, so you’re cutting out the middleman, which saves you about .50% in management fees. The advantage here is that you’re lowering your overall costs. 

As a DIY investor, you only pay the MER and any brokerage fees. I personally only make about two purchases a year, so my fees are just $20 ($10 a trade) a year with TD Direct Investing. Other discount brokerages charge similar fees, so you really can’t go wrong regardless of who you sign up with. If you’re making monthly contributions, using Questrade is your best bet since they allow you to purchase ETFs at no cost. You only pay when you sell. 

All-in-one ETFs also rebalance themselves, so there’s really no maintenance on your end. Just choose an ETF that makes sense for you. As in, look for one that has an asset allocation that fits your investor profile. Some of the most popular all-in-one ETFs include

• VEQT – 100% in equities (good for investors with a long time frame)
• VGRO – 80% equities, 20% fixed income (arguably the best choice for new investors)
• VBAL – 60% equities, 40% fixed income (a solid pick for those looking for less risks)

Which index fund should I invest in?

Generally speaking, many new investors go with VGRO. This is a balanced ETF that has an 80% equities and 20% fixed income mix. It’s a good balance for most people. You can literally just keep buying VGRO and not have to worry about anything else for some time.

That said, there are a few things to consider. As you know, your risk tolerance and time frame should also factor into your decision. Someone in their early 20s could start with VEQT if they’re sure they can stomach any market drops. For those closer to retirement, going with VBAL is beneficial since it has more fixed income.

You also need to think about your personal situation. Let’s say you have a defined benefit pension through your employer. That acts like one giant bond, so you could go 100% equities (VEQT) when investing since you’d still have guaranteed money when you retire.

I use VEQT in my TFSA since I consider that a long term account and have no intentions of withdrawing from it. However, in my RRSP and taxable trading account, I use VGRO. These choices make the most sense for my investment style and risk tolerance. 

Even though there are multiple companies that provide all-in-one ETFs, it’s best to not overthink things. Just choose one and start investing. Try to avoid getting creative by choosing multiple ETFs (especially niche ones) as part of your portfolio. If you’re still feeling a bit overwhelmed, check out Boomer and Echo’s post on the top ETFs and model portfolios.

Do index funds give dividends?

ETFs do pay dividends. If you’re unfamiliar with dividends, it’s what companies pay shareholders. Since ETFs hold many shares, you would get paid dividends. The dividend payout differs for each ETF, but they can be monthly, quarterly, or annually. 

If you’re using Tangerine or a robo advisor, those dividends are automatically reinvested. However, if you’re using a discount brokerage, you’ll need to set up your account with a dividend reinvestment plan (DRIP). This is pretty simple as all you need to do is call in and tell customer service to set your account to DRIP.

Note that when doing this, you should ask them to DRIP all your accounts AND all purchases. Some discount brokerages are weird. Even though your account may be set up to DRIP, it may not automatically do it when you purchase a new ETF. 

Reinvesting your dividends is beneficial since you don’t pay any brokerage fees even though you’re buying more shares. Plus, by reinvesting any dividends, you’re letting your investments compound. That will just further grow your portfolio.

Can you lose money in an index fund?

Like any other investment, index funds can go down in value. However, since index funds track hundreds of different stocks, if one drops, it’ll have very little effect on your portfolio. There will be times where ETFs drop in value by 10%+, but that’s normal and arguably a good thing.

Think of it this way, when prices drop, you can buy them on sale. When they eventually go back up in price, you’ll see some big gains. Most investors will typically buy high and sell low because they’re emotionally wired to do so. 

Think about the latest investment trends. That could be cryptocurrency, Gamestock, weed stocks or anything else. By the time you’ve heard about them, they’re probably overvalued. As soon as they lose value, inexperienced investors sell. That’s not a good long-term strategy. 

If you stick to index funds, you’ll “only” get average returns, but you also won’t need to track your portfolio constantly. Just set up some automatic purchases, and forget about it.

Final thoughts

Index funds may be boring, but it’s a solid strategy for anyone new to investing. It’s also great for experienced investors since it requires minimal work. With the availability of robo advisors and all-in-one ETFs, you can literally get started in just a few minutes. Start index investing now, and you could save thousands of dollars.

At first glance, switching your Registered Retirement Savings Plan may appear difficult. If you’re not careful, you could end up making withdrawals that could trigger tax implications. You would also likely have to pay a fee when you close your accounts. However, porting your Registered Retirement Savings Plan to somewhere else is a surprisingly easy process. Generally, all you need to do is sign one form with your new financial institution, and they’ll take care of the rest. It’s that easy!

How to transfer your RRSP

• Open a new RRSP at another financial institution or discount brokerage
• Fill out the paperwork and have the new financial institution request an RRSP transfer from your old financial institution
• Choose between transfer in kind or transfer in cash
• Initiate the transfer
• Wait for the funds to arrive at your new financial institution

To get your RRSP transferred to another financial institution or discount brokerage, all you need to do is fill out the paperwork to authorize them to move the funds over. This sounds simple enough, but you should do a few other things to prepare for the transfer.

First, grab the most recent statement from your investments and bring it to the new financial institution. They’ll basically want to know if you want to do a transfer “in kind,” where you can literally just move your investments to them as is (when available) or if you want them to “sell” all your investments so you can start fresh with the “cash” from the sale. An “in cash” sale is mandatory if you’re moving your money to a financial institution that doesn’t offer the same investments as your previous one. You’d basically sell your old investments at fair market value and then reinvest in something else at your new financial institution.

This in kind or in cash transfer is arguably the most important part. Since the new financial institution is requesting a transfer from your old RRSP to your new RRSP, no taxes will apply. What that means is that you can’t just withdraw your finds on your own and then redeposit it into your new accounts. There’s a specific process that needs to be followed. If you did it any other way, it would trigger withholding taxes that would affect your income tax return.

Now the institution you’re leaving won’t be happy once they find out you’ve triggered the transfer, but they really have no say at this point. What they can do is charge you a transfer fee which should be posted on their website. The good thing is that the receiving institution will usually cover that fee for you up to a certain amount so ask them about it before you sign.

The transfer can take some time but you still want to ask your new financial institution about when you should expect your funds to arrive. Monitor your account and if your money hasn’t arrived by the time they said it would; make a follow-up call. While rare, your old financial institution may be holding things up.

Once your money is in your new account, you can start investing. Alternatively, your new institution can start investing on your behalf. Be mindful of the RRSP deadline if you want to transfer things in advance. The deadline is 60 days after the start of the new year, but transfers can take weeks to complete.

Note that since you’re just transferring funds, your available RRSP contribution room is irrelevant. You’re not adding any new funds to your RRSP, so there’s no to worry about how much space you have left.

Should you transfer your RRSP?

People who are seriously considering transferring their RRSP (or any investments, for that matter) usually aren’t satisfied with how their money is currently being handled. Making a switch just because your investments haven’t been performing well is probably a bad idea. Why? Because markets change all the time, so you need to stick to your plan (assuming you’ve got an actual investment plan).

Admittedly, changing financial institutions just to lower your management expense ratio (MER) is often worth it. For example, let’s say you’re paying an average MER of 2.5% for a mutual fund. If you switched to an all-in-one ETF, the MER is usually below .50%. That’s a 2% savings that could translate to tens, if not hundreds, of thousands of dollars over the course of your investment life.

Questrade’s entire marketing campaign is based around lower fees, and I admit, it’s probably worth making the switch. That said, you need to have the right mindset before you make any changes. Switching just because your investments haven’t been performing well in the last few months is a bad idea. Why? Because markets change all the time, so you need to stick to your plan (assuming you’ve got an actual investment plan). However, if your investments are constantly performing below market averages, then you should switch.

Another instance where you may need to transfer your RRSP is when you’re changing employers. If you were part of their group plans, you likely wouldn’t have access anymore if you leave the company. This would require you to move your money out. Fortunately, as you’ve already, it’s easy to make a transfer since it can be done in a lump-sum.

Note that if you’re looking to transfer your Registered Pension Plan (RPP) to your RRSP or you want to convert your RRSP to a Registered Retirement Income Fund (RRIF), it’s a slightly different process that requires a bit more paperwork. Basically, when you leave an employer with a defined benefit pension plan, your plan administrator will provide you with different options for your money. How much you can transfer to your RRSP/RRIF/LIRA will depend on your years of service, a formula that determines your pension income, and what contribution room you have available. The paperwork you get after leaving will be quite clear, so there shouldn’t be any confusion. 

When should you transfer your RRSP?

Let’s assume that you’ve already decided you want to switch. There’s really no reason to delay things. Don’t try to time the market so you’re selling high and then buying low after the switch. Just stick to your investment plan, whatever that may be.

One thing that might hold you back is any fees associated with transferring your funds. Some mutual funds have deferred sales charges which will cost you a percentage of your portfolio when you make the transfer. There’s no denying that these fees suck, but the amount you’ll save in the MER difference could pay for itself after a few years. Note that DSC fees have been banned in Canada, so they’re no longer a major concern.

If you’re switching from an employer plan, you may have a set deadline to move things out, which is why you don’t want to delay things.

Before you make the switch, you’ll need to decide where you’re sending the money. Is your goal to use a robo-advisor since it’s a low-maintenance, no fee solution? Justwealth has become one of the most popular robo advisors in Canada, and they’ll even give you up to $500 for free if you sign up with my referral link. Wealthsimple gives people $50 when they sign up. What’s great about robo advisors is that they’re transparent and don’t require any effort on your end.

Some people will prefer to manage their finances on their own, but that will require you to know what you’re doing. This may sound intimidating, but if I learned to manage my finances on my own, so can you.

When not to transfer your RRSP

In a few situations, you might not want to transfer your RRSP or you might not be allowed to at all.

If your employer offers some kind of RRSP matching program or has a group rate for investments, there’s a good chance that you’ll be forced to keep your money invested with a specific financial institution or brokerage. This may be annoying, but considering you’re getting a match or access to funds which cost less, I think you’re actually coming out ahead.

As mentioned above, you shouldn’t transfer your RRSP just because you’re disappointed with the performance. I did this years ago before doing my research and ended up with an advisor with a financial institution that put me in overpriced mutual funds.

Finally, if you recently purchased investments that have a holding period, you shouldn’t make a transfer right away. Just wait for the holding period to end so you can avoid paying any additional fees. For example, with the Home Buyers Plan, you need to have your money in your RRSP for at least 90 days for it to qualify. If you need that money, you’re better off leaving it in.

Final thoughts

Transferring your RRSP to another financial institution is simple; you just want to make sure you’re doing it for the right reasons. Once you’ve committed, take the time to ensure that everything is the way you want it to be so you don’t end up switching again in a few years. Note that if you’re looking to transfer your TFSA to another financial institution, it works in a very similar way, but you have a few additional options.