ETF Index Investing Course

16. Additional Tips and Conclusions

Additional Training Video:

Bonus Video:

What DIY Passive Investing Style is Optimum for You?
Examining the Pros and Cons of Each

Since initially launching this course, a new type of passive index investing product has launched called "Asset-Allocation ETFs". Robo advisors have also become very popular for newbie investors.

With that said, you may be wondering: "Should I still be buying individual ETFs like shown in the course? What if I just went with a robo-advisor or an asset allocation ETF instead?". The bottom line is that buying individual ETFs like shown in the course is still by far, the least expensive and most tax efficient way to invest. Asset allocation ETFs however can be a really great option for RESPs, and they can also be really good for people who are finding buying individual ETFs intimidating, and want to ease into it a bit more by just buying one ETF to start, and then eventually moving to individual ETFs once their portfolio gets larger.

If you choose to go with asset-allocation ETFs instead (to start), the material in the course will still be applicable to you, it'll just be a bit easier since you won't have to rebalance and you'll just be buying one ETF (instead of 4-5). You will however incur higher fees for this convenience.

With that said, I created a talk going through the pros and cons of each approach, and it's available for you at the video below. This was a talk that I did at the Canadian Financial Summit. Since you own the course, I wanted to give this presentation to you for free as an extra bonus. Here you go and enjoy. 🙂

If you have any questions, feel free to ask them in the comments section at the very bottom of this page.

Here's the video description directly from the Canadian Financial Summit:

After you learn about the ridiculous fees that you’re likely paying on your mutual funds, the next question becomes: “What type of DIY passive index investing is right for me?”. In Canada, there are 3 main types that we can choose from: Using a robo-advisor vs. an asset-allocation ETF vs. buying individual ETFs (what I do). While each of these options will move you away from overpaying in fees, and let you retire years (possibly even decades) earlier, there are pros and cons to each approach, and there isn’t one method that is perfect for all Canadians. Join me as I take you through the pros and cons of each one, so that you can make a more educated decision on which one is right for you.

While especially critical for those Canadians looking to became DIY investors, even if you are already a DIY investor, this presentation will help you determine if maybe now is the time to switch to lower your fees even further.

Asset Allocation ETF Options in Canada:

If after seeing the video from the Summit above you feel that buying an asset allocation ETF is the best entry point for you (as opposed to buying individual ETFs like shown in the course), then the next course of action is to decide what asset allocation you want, and which provider to choose.

Regarding the Asset Allocation: You should already know your asset allocation after going through the course (as I linked out to different resources/questionnaires that you can use to help you figure this out).

Regarding which ETF provider to choose: Once you know your asset allocation (for example 80% stocks, 20% bonds), then the next step is to pick the ETF from one of the providers that has that particular stock to bond split.

The most popular providers in Canada for these types of investments are Vanguard, iShares, and BMO.

If you go out and do your own research, you'll notice that there are some differences between what each one offers, but most experts online will agree that you would be fine with either one. In other words, it's not like one of these providers has a drastically inferior product, or is significantly more expensive than the rest.

Personally, I use individual ETF like shown in the course, but I do use a Vanguard Asset Allocation ETF for my RESP (since the advantages of using individual ETFs within an RESP are very small compared to an Asset Allocation ETF). In case you're curious, I use VEQT which is the 100% equity asset allocation ETF from Vanguard. My kids are still very young and I am okay with high volatility, hence the 100% equity allocation by using VEQT.

To help you decide which provider you prefer, Dan Bortolotti from canadiancouchpotato.com has conducted some analysis on what the differences are between these three different providers. Here are the resources for you:

Asset Allocation ETF Showdown: Vanguard vs. iShares

Inside the BMO Asset Allocation ETFs

Keep in mind that the MERs do change from time-to-time so what you see on those pages may be slightly different now, but the bottom line is that the MERs are very similar between the three providers. They all know of each other's existence, and constantly make sure that their pricing (MER) is in-line with the rest of the competition.

I hope that helps.

Other Frequently Asked Questions:

Which account do I use for each ETF? (i.e. RRSP vs TFSA vs taxable):

I've been receiving lots of questions about which account to use for the different ETFs, so I wrote an in-depth article explaining the different ways to approach this, as well as what I personally do. I did it as a blog post to not cram everything on this page. You can read it here:

What Investments to Hold in an RRSP vs TFSA vs Taxable Account (Asset Location)

Norbert's Gambit:

This more advanced technique is a common question that I receive also. Here are my own personal notes on how I do it. Keep in mind that I don't recommend this technique if you are just getting started or if your RRSP portfolio size is under $100,000 (as the extra work you have to do for this technique may not be worth the slight savings in withholding taxes). I definitely do not recommend that you just convert your currency through your broker, as that is often very expensive compared to what you will get if you use Norbert's Gambit. Here is the article:

How To Do Norbert’s Gambit (currency conversion for the lowest possible cost)

The markets are at all time highs. Should I wait for a dip before investing? Also, should I invest the available cash gradually or all at once?

This question gets asked a lot (and I've answered it in the comments section earlier in the course. But, I thought I'd include it here for you for easy reference as well in case you missed it:

Great question. Based on the research that I’ve done, the expert interviews, and what I personally do, you are more likely to come out ahead by investing as soon as possible (thereby increasing your time in the market), rather than waiting for a slight dip or significant decline before you invest the money.

Generally, the market goes up roughly 2/3rds of the time. In other words, the odds are on your side that the longer you are in the market, the higher your returns are likely to be. Of course, there is no guarantee when it comes to investing in equities and so while you may get unlucky, the chance of that happening and it actually impacting your net worth significantly are relatively small.

Another way to look at it is if you can own something that you know is going to go up in value on average, wouldn’t you want to own that thing as soon as possible?

If you'd like to do some more research and reading on this, there is a great paper on this from PWL Capital called "Buy the Dip". Here is the link to it so you can download it.

If you are feeling nervous about deploying your cash due to all time highs (which is totally understandable and many people are), one good option to help reduce your anxiety around it is through dollar-cost-averaging. This means taking the cash you have, splitting it into equal parts, and then investing 1 part every x weeks or months (the x is whatever timeframe makes you comfortable, but remember that the longer you spread it out, the more likely you are to miss out on growth so I would make this as short as possible, while still making you comfortable).

Historically and statistically speaking, doing this approach is likely to hurt the growth of your investments a bit (i.e. you are more likely to be better off investing it all at once as a lump sum), but that may be a price that you are willing to pay for the piece-of-mind and anxiety reduction.

If you want to go into the weeds on this a bit and take a look at some of the research that was done, here are some great resources to help you.

1. This video is from the guys at PWL Capital (particularly Benjamin Felix) and they do some great research. This link will take you right to the part of the video that talks about whether you should wait for a dip before buying in or just get in the market ASAP with any cash you have. Some parts get a bit technical, but it should help with the piece-of-mind: https://youtu.be/NXo3c7sEiQA?t=2240

One very interesting finding in their research, was that they found that an all time high followed by a decline of 10% or more within 12 months (i.e. what you are worried about) only happened less than 3% of the time across all the indexes they were looking at (internationally).

2. The same researcher (Benjamin Felix) also wrote a white paper on the subject of dollar cost averaging vs lump sum investing (i.e. if you have a lump sum of money just sitting there, should you invest it gradually or all at once). The conclusion from him, Vanguard, and every expert that I’ve talked to about on the subject is that you are better off doing it all at once.

I encourage you to check out his paper here:
https://www.pwlcapital.com/resources/dollar-cost-averaging-vs-lump-sum-investing/

For easy reference, if you want to jump straight to his conclusion, it’s the 4th last page of that paper.

3. As a bonus, here’s another source discussing lump sum vs dollar cost averaging. It’s from Vanguard who is also highly respected in this field, and they have done their own research on this too:
https://investor.vanguard.com/investing/online-trading/invest-lump-sum

I hope that helps 🙂
Kornel

Free government money through the RESP (Registered Education Savings Plan for your Kids)

I've included a written guide below the video which goes into even more detail such as how I invest in the RESP.

The video below however is a very good primer for the RESP, and it's actually a presentation that I was asked to do by Questrade, to educate their users. Whether you are with Questrade or not, the video will be relevant to you as the focus is on RESPs and not Questrade and RESP specifically.

Enjoy the presentation, and remember that you can watch it in full-screen mode which I definitely recommend so you can see all the numbers:

Written Guide Portion On RESPs:

If you have kids, then definitely read this as it will be highly relevant and is an easy way to get a substantial amount of free money from the government (up to $500 per year per child).

First, now that you've gone through the course, you have the knowledge to actually manage your own RESP, as opposed to outsourcing it to one of those RESP companies where they do it all for you.

The BIG reason that you want to do it yourself, is that many of the RESP companies that are giving you their sales pitch are known to have very strict rules and restrictions that really limit your options and can significantly negatively impact your gains. I'm not going to paint with too broad of brush strokes and say that they are all bad, but I've talked to enough family and friends who either had their returns decimated by them, or were on the path to get their returns decimated if they decided to just let them manage their RESPs for them.

The bottom line, is that in my opinion, now that you know how to buy ETFs, you can easily just open an RESP account in Questrade (or another brokerage), and just buy the ETFs you want within your RESP, and get that free $500 per kid, per year (you get the $500 if you contribute $2500 for that kid in the year, and less than that if you contribute less). Again, you don't have to use Questrade, but I use them for my RESP because they let me buy ETFs for free (i.e. no $5-$10 commissions per trade).

If you want to know the ins and outs of the RESP, the best place is to get it straight from the horse's mouth which is here:

https://www.canada.ca/en/services/benefits/education/education-savings/resp.html

They keep this updated so you are better off reading about it here as the information is more accurate and up-to-date there than on any other site. If however you have any questions, feel free to ask them in the comments and I'll gladly help.

How to open an RESP in Questrade:

  1. Login into Questrade, and click the button to open a new account. If you haven't signed up to Questrade yet, the process is the same, just click the "OPEN AN ACCOUNT" button on the top of their page.
  2. You will now see a list of different accounts that you can open (like Margin, TFSA, RRSP, etc).
  3. You likely won't see RESP in that initial list, so click on "See more account types".
    From here, select "Education". Now select "Family Registered Education Savings Plan".Aside: You'll notice that there is also the option for just a "Registered Education Savings Plan" (as opposed to the Family RESP that I mentioned above). The reason that I recommend the Family one is that it lets you have just one account for all your kids (instead of having to open up another RESP account if you end up having more kids). It also gives you some extra flexibility in using that money down the road so this is just a better option. You don't get any less money from the government by having a Family RESP instead of an individual RESP.
  4. Follow their steps to open this account (it's free), and feel free to reach out to their online live support if you're having some issues with the signup process.

Aside 2: With a Family RESP, when you make contributions, they will be evenly split between your kids. If you don't want the money evenly split, then talk to Questrade's live chat support and tell them. They will then send you a form which you can use to specify what you want to split to be.

Make sure you read the RESP rules at the link I mentioned to actually fully understand this program. But, as far as the mechanics go, investing in the RESP is the same as investing in your TFSA or RRSP. The big difference though, is that once you do it, within a few weeks you'll have extra money show up in your account that you didn't put in there. That is the grant from the government which you can now invest however you'd like. This will now grow and compound like the rest of your investments (remember to actually invest it, as when you receive it, it will just sit there as cash in your RESP account).

While this whole RESP setup thing is a bit of work, it's also free money and totally worth it. For example, I personally to the amount to get the max grant every year. At the time of this writing, that's $2,500 that I put in every year per child, and that gets me a free $500 per child from the government every year. You're eligible for the exact same thing.

$500 is 20% of $2,500 so I view this as a guaranteed initial 20% return that I'm getting on my $2,500 investments. You can't get a guaranteed 20% anywhere, so this is definitely a good deal. Then of course you invest that 20% and that starts to compound along the rest of your money.

What do I invest in within my RESP?

My kids are currently young, so I actually go 100% equities for their RESP. Once it gets close to them going to post-secondary I might at that time add more bond exposure in case there is some major decline in the markets shortly before they need the money for school.

In terms of what ETF(s) I buy for their RESP, I actually just buy one of the asset-allocation ETFs from Vanguard. The one I currently buy is VEQT. This is the all-equity Vanguard ETF that gives me global diversification. If I wanted a bit more bond exposure, I would likely pick one of the other ETFs in that lineup. i.e. Ones that invest in the same way, but have a bit more dedicated to bonds instead of equities (ex. an 80/20 split like VGRO)

Obviously do your own research on what ETF to buy (as I don't know your personal situation), but here is my thought process on why I chose that one:

First, if you aren't sure what an asset allocation ETF is, then scroll up on this page to find my talk "What DIY Passive Investing Style is Optimum for You?". This will explain it well. My answer below assumes that you saw that video or already know the pros and cons of asset allocation ETFs vs individual ETFs.

As you know, I'm all about buying the individual ETFs due to their lower cost and higher tax efficiency. However, the reason that I decided to use an asset-allocation ETF for the RESP, is that:

  1. The amount in the RESP won't be nearly as large as your retirement accounts (RRSP, TFSA, taxable account). So, even though the MER on the asset allocation ETFs is more, it's not a giant amount, and I'm personally willing to pay that small extra MER amount for the automatic rebalancing that the asset allocation ETFs provide.
  2. The RESP should be viewed as its own portfolio. Its purpose is education and not retirement. Therefore, if one type of ETF is more tax efficient outside the RESP than in it, that doesn't matter to me as I still want that ETF in there to get exposure to those markets. In other words, since the RESP is its own independent portfolio, I want it to be fully diversified internationally, and that is more important than saving a small amount of money due to tax efficiency (i.e. I don't want to exclude exposure to a certain market in my RESP because that market is more efficiently held outside the RESP).

I hope that helps. If something is unclear, feel free to reply in the comments below and I'll add my answer to this guide for you. 🙂

Withdrawing from your RRSP, TFSA, and Non-Registered Accounts for Retired Canadians:

Kyle Prevost and I worked on creating a very comprehensive guide on withdrawing from your investments once you are retired or semi-retired.

I was also used as a case study in this guide where I go over how I withdraw money from our portfolio (when I was in full retirement and semi-retirement).

Even if you are still many years away from an early retirement, I think you'll find this reading very interesting, and it's good for you to know what's coming up for you in the future once you hit your early retirement number.

If you have any questions about it, leave a comment on this course page (not on the milliondollarjourney.com website) so that I can prioritize your question as a student of the course.

Here's the full guide:

https://milliondollarjourney.com/withdrawing-from-your-rrsp-tfsa-and-non-registered-accounts-for-retired-canadians.htm

Also, while we're on the subject of withdrawing from your portfolio, you of course need to consider the safe withdrawal rates to ensure that you don't actually run out of money in retirement. Here is an excellent guide on the subject:

https://milliondollarjourney.com/the-ultimate-guide-to-safe-withdrawal-rates-in-canada-for-any-retirement-age.htm

Last but not least, Kyle and I also created a guide on Canadian Investing Taxes: Dividends, Interest, and Capital Gains. When you are at the point where you're withdrawing from your portfolio, there are a lot of ways you can do it, and some ways are drastically more tax efficient than others. Definitely you'll want to understand how your investments are taxed when you are in semi or full retirement, so that you can withdraw the optimum amount from the different accounts (RRSP, TFSA and taxable) to stay in the lowest possible tax bracket.

Fixed Income Faceoff: Bond ETFs vs GICs vs High Interest Savings Account

Here is another article/guide that I wrote to help you choose among these different options. Keep in mind that the interest rates constantly change on these products, and this article was written several years ago (2019). Still, the concepts are relevant today and can be used to help you evaluate these options as I go over the pros and cons of each option.

Here's the full article:

https://milliondollarjourney.com/fixed-income-faceoff-bond-etfs-vs-gics-vs-high-interest-savings-accounts.htm

Do You Have A Question?

If you have a question, feel free to ask it in the comments section below and I'll personally answer it for you. Before you do that though, definitely take a look at the other questions asked in the comments section below as there is a good chance that your question was already answered.

There are also answered questions in the comments sections of the different module within the course (i.e. this way you can easily find the answers by topic).

11 Comments

  • Dana

    Reply Reply July 27, 2022

    I am not sure if you answer personal questions but I will ask one and you can answer if you are able. I have a Tangerine Mutual with a 1% MER (it is an index fund). I recently discovered all-in-one ETFs and now invest in XEQT. I would like to transfer all of my Tangerine Mutuals to XEQT to take advantage of the much lower MER on XEQT. However, in order to do so, I have to sell all my Tangerine Mutuals and then re-invest in XEQT. I am trying to figure out if I should wait for the market to recover before selling my Tangerine Mutuals, meaning I would sell high, but also buy high when I purchase XEQT. Or should I just sell now since I will be selling low but also buying XEQT low. I am not sure if it makes a difference either way, but I am anxious to stop paying the 1% MER on the Tangerine Mutuals. If you have any thoughts I would love to hear them!

    • By Kornel Szrejber

      Reply Reply July 27, 2022

      In my opinion, if it was me, I would do it immediately (selling low, buying low). My reasoning is that the higher MER is guaranteed so by cutting that you are immediately saving money. Nobody can reliably and consistently predict the direction of the markets in the short term, but the MER is a known and posted variable so it makes sense to have that as one of the areas to optimize around.

      Also, if you wait, how do you decide when to do the swap? It would be based on some arbitrary number and every day that you wait is a day that you are being charged the higher MER. Personally, I don’t see any benefit in waiting.

      Awesome about XEQT by the way. I’m a big fan of that ETF as well.

  • Marion Richards

    Reply Reply July 13, 2022

    I have a question about the most cost effective way to transfer my investments that I have with a broker. I have TFSA, RSP and investment accounts, in each of those accounts there are a combination of individual stocks, ETFs and US funds – but none of them are the ETFs that I have started to buy for myself. What is the best course of action?

    • By Kornel Szrejber

      Reply Reply July 27, 2022

      Hi Marion. I’m not 100% sure if I understand your question, but to start, here is a guide that I created which shows you how to switch from things like mutual funds to low cost index ETFs:
      https://docs.google.com/document/d/1veUN9phvPTnyWaIOqyujfWvThc08pgSTSIVabbWH3rg/edit?usp=sharing

      Based on your question, I’m not sure if you are looking to switch brokers, or want to sell everything and just replace it with low cost ETFs. Feel free to clarify and I’ll do my best to help. Hopefully the guide above answers your question though so please give that a look first.

  • Jimmy

    Reply Reply May 3, 2020

    Great course! I have learned a lot and ready to catch up and start saving for the long term!

    However this last “Additional Tips and Conclusions” video can definitely use a little more explanation as to the “why” with these additional tips.

    Thank you for the explanation above in the comments about trading during market hours, but can you please expand on why avoiding the first and last 30 minutes of the day? A lot more volatility at those times?

    • Thanks for the feedback and great question Jimmy.
      As an index investor, the reason that you don’t want to be trading right as the markets open and as they get close to closing, is that during those times you are more likely to get larger price swings and in my opinion, not the truest market price of that ETF. Here’s an example and what I mean:

      Let’s say that after the markets close for the day, some positive news comes out that causes people to speculate that we’re going to see a massive increase in the stock market. When the markets open the next day, opportunists quickly start buying the stocks, driving the price up. I would argue that a lot of this buying is at this point fuelled by emotion. i.e. They heard a good news story, and think now is the time to buy and “we better get in as soon as possible to take advantage of this opportunity”. I like to think of this as the masses making emotional investing decisions based on fear or greed. It’s not likely most of them are expert investors with financial models built out and they are making decisions based on actual calculations and their own thought out forecasts.

      So, for short term investors like day traders, this is where they see an opportunity because they can take advantage of these temporary swings based on the masses and this news. Here are 2 articles that I found that actually say how as a day trader, you want to trade right as the market opens and as it’s about to close as this is where they can take advantage of these things (i.e. the opposite of what I’m recommending).

      https://www.investopedia.com/day-trading/best-time-day-week-month-trade-stocks/
      https://www.thebalance.com/best-time-s-of-day-to-day-trade-the-stock-market-1031361

      You and I however, are not day traders. So the question you have to ask yourself, is do you want to be buying index ETFs while the prices are jumping around due to some speculation and opportunistic trading? Do you want to buy or sell when people are especially trying to time the market? Or would you rather buy or sell when the trading has calmed down later in the day, and where you can get, in my opinion, a more true price of what that ETF is actually worth?

      Regarding trading close to market closing: Some investors want to get certain trades completed before the markets close for the day (ex. a client may tell an advisor that they want to sell/buy an investments in company x by end of day today at the latest) and so you may see a flood of orders right as the market gets close to closing which can spike the price a bit (either up or down) temporarily. Another reason (this one accordingly to Investopedia) is that some day traders want to close out their positions by the end of the trading day and so this can cause some extra fluctuations too. So once again, do you want to be investing when the price of the ETF may be fluctuating a lot? or would you rather do it when it’s more stable?

      I hope that helps. I am not an expert on market timing (as I don’t do it, and encourage you to also not do it based on all the evidence that is out there), but within my research into this tip of “when not to buy/sell”, this is the consistent advice that I have found, and as per my explanation above, the logic behind it also makes sense.

      Let me know what you think 🙂
      Kornel

  • Moe

    Reply Reply January 5, 2020

    Hi Kornel,
    I bought your course today and went through all the videos. Thank you for simplifying the process.
    Are there any videos about dividend-paying ETFs? Are any of the ETFs you chose pay dividends?
    Thank you

    • By Kornel Szrejber

      Reply Reply January 16, 2020

      Hi Moe. I don’t have any videos on dividends specifically. From the research that I’ve done and read, dividends are not the ideal thing to try to optimize around. Instead, you should be aiming for a high “total return” (which is dividends+capital growth) instead of just dividends (i.e. yield).

      Here is a very good video on the subject (from a reputable source): https://www.youtube.com/watch?v=UpXI_Vd51dA

      To answer your 2nd question: Yes, all of the ETFs that I buy (the ones that I show in the course) also pay dividends. You can find out how much an ETF pays out in dividends by looking at its yield. The ones in my portfolio average out to a bit over 2%.

      One key thing to remember about the dividends paid in these ETFs, is that they get issued typically once per quarter. So, if you own these ETFs, you’ll have cash automatically arrive in your accounts, and then you can take those dividends and use them to buy more of the ETFs. That’s one way of getting that compounding that everyone loves so much.

  • Lee-Anne Ekland

    Reply Reply September 18, 2017

    Thanks Kornel, the course was really informative. I had asked a question in another video but since have had it answered, so no need to 🙂 I look forward to more content and podcasts!

  • Jacob

    Reply Reply December 5, 2016

    I would love to hear more on why you want to trade during open Market hours!

    • By Kornel Szrejber

      Reply Reply October 22, 2018

      I like to do it then so that you know exactly what price you’re getting the ETFs at. Also if the markets are very volatile that day or there’s some big event that temporarily spikes the prices then you can wait for things to stabilize a bit. It’s also nice to be able to complete it from start-to-finish in one sitting, instead of initiating the trade, and then having to remember to check back to see if it went through, maybe modify it if it didn’t, etc.

      Thanks for the question!

      Kornel

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