Author Topic: What's your minimum for buying EFT?  (Read 5679 times)

Maya

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What's your minimum for buying EFT?
« on: March 25, 2016, 04:50:10 PM »
I've been currently saving 100% of my income and investing it periodically about every 3-4 months. Been trying to maintain a balanced portfollio according to the couch potato strategy as discussed in MoneySense magazine (I'm in Canada).

My allocations:
Cnd Bond (25%)
Cnd Index (25%)
World Market (50%)

so I use each EFT buying time to rebalance. 

I currently have
TSX   - XIC
World - VXC
US- VFV
Cnd Bond - VAB

What's your minimum for buying EFTs when paying $10 per transaction? Should I be investing more often in the TD e-series mutual funds with higher management fees and then sell 1-2x a year when I reach a certain level? or is it about the same to go with the EFTs but save up. I want to take advantage of market averging as much as I can.

If it makes any difference in your answer I'm 35, DH is 38. I have 100k in investments, DH has about 250k.

meghan88

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Re: What's your minimum for buying EFT?
« Reply #1 on: March 25, 2016, 05:04:09 PM »
On another thread, powersuitrecall had the following advice, which might be of help to you.  Especially if you bank with TD:
-----------------------
We use TD Waterhouse because we have (only) bank account with TD.  It's nice having everything in one place so that on payday we can transfer funds and immediately invest. 

Since TD Doesn't have free ETF purchases, here's our strategy.

Accounts with ~zero activity (RRSP, for example)
- Hold ETFs only
- Dividends/interest go to cash
- Once or twice a year, invest dividends/interest into ETFs following Asset Allocation (AA) ($10 a trade)

Accounts with little activity (RESP, for example):
- Same as above, but each year add $5000 (+$1000 grant) and buy ETFs following AA ($10 a trade)

Account with lots of activity (Taxable, for example)
- Invest weekly/monthly/whenever into e-series mutual funds following AA (free)
- Once a year, sell all e-series funds and buy ETFs following AA ($10 a trade)
---------------------------
So in other words, you build up your balances in TD eSeries, then you move them per your asset allocation into ETFs.

ulrichw

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Re: What's your minimum for buying EFT?
« Reply #2 on: March 25, 2016, 05:33:55 PM »
Here's one way to look at it:

Basically it depends on the expected return you will get, and how quickly you can build up the amount to invest to a larger sum.

Fundamentally, you expect money you invest to appreciate (even though it may not do so uniformly, in the long run this should hold true). This means that the longer you have it invested, the more you expect it to grow.

Basically what you want to do is to find the "point of indifference" where the amount of gain that you sacrifice by waiting to invest equals the cost of investing immediately.

Let's do an example:
- Let's say your expected return on an investment is 4% per year
- Let's say you currently have $1000 to invest

Basically your $10 commission represents a 1% fee - because you expect to gain 4% per year, the 1% represents 1/4 of a year's gain, or 3 months of gain.

Let's say you know that you will get another $1000 in a month.

If you wait until then and invest the $2000, you're now only paying .5% which is 1.5 months of expected return.

So by waiting 1 month, you've managed to reduce your "lost" time from 3 months to 2.5 months from the initial investment opportunity - this is a win.

The higher the expected returns, the shorter the time windows become.

This is all pretty complicated, so ultimately you could also just use a rule of thumb - find what percentage you're comfortably giving up in the first year of your investment and wait until that threshold is reached. If your threshold is 1%, that number is $1,000. If it is 0.5%, that number is $2,000, etc.


Heckler

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Re: What's your minimum for buying EFT?
« Reply #3 on: March 25, 2016, 05:52:32 PM »
$2500 is my minimum buy @$9.95 trading fee, although I'm pushing to get at least $3-4000 per buy now that we're mortgage free.

MER is basically the eqivalent of trading costs.  What MER will you accept?  $9.95/$2500 is 0.4, but also the amount that's covered by ~1 month of dividend payment for the equity funds (VCN, VUN, XEF, VEE) I'm buying.  I have a $5000 minimum for VAB, as it takes ~ one month of dividend payment of $5000 VAB to cover the $9.95 fee.
« Last Edit: March 25, 2016, 05:54:58 PM by Heckler »

nobodyspecial

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Re: What's your minimum for buying EFT?
« Reply #4 on: March 25, 2016, 05:56:45 PM »
Questrade, no fee for buying ETFs - so I buy down to the number which uses up whatever cash amount is left

Heckler

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Re: What's your minimum for buying EFT?
« Reply #5 on: March 25, 2016, 05:59:31 PM »
I also buy index mutual funds in my work plan and transfer them once per year to my self directed ETFs.   10 months of buying (no trading fee) Sunlife's S&P500 index has the same costs as VUN with one trading fee for me.  Thus, I save every two weeks into Sunlife and transfer once a year to buy self directed VUN - $10-20K at a time!

Heckler

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Re: What's your minimum for buying EFT?
« Reply #6 on: March 25, 2016, 06:00:37 PM »
Questrade, no fee for buying ETFs - so I buy down to the number which uses up whatever cash amount is left

Questrade will bite a lot of people in the ass when they go to sell.  You heard it here first.

ransom132

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Re: What's your minimum for buying EFT?
« Reply #7 on: March 25, 2016, 06:02:10 PM »
Questrade, no fee for buying ETFs - so I buy down to the number which uses up whatever cash amount is left

Questrade will bite a lot of people in the ass when they go to sell.  You heard it here first.
Care to share on why is that?

ransom132

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Re: What's your minimum for buying EFT?
« Reply #8 on: March 25, 2016, 06:04:07 PM »
I've been currently saving 100% of my income and investing it periodically about every 3-4 months. Been trying to maintain a balanced portfollio according to the couch potato strategy as discussed in MoneySense magazine (I'm in Canada).

My allocations:
Cnd Bond (25%)
Cnd Index (25%)
World Market (50%)

so I use each EFT buying time to rebalance. 

I currently have
TSX   - XIC
World - VXC
US- VFV
Cnd Bond - VAB

What's your minimum for buying EFTs when paying $10 per transaction? Should I be investing more often in the TD e-series mutual funds with higher management fees and then sell 1-2x a year when I reach a certain level? or is it about the same to go with the EFTs but save up. I want to take advantage of market averging as much as I can.

If it makes any difference in your answer I'm 35, DH is 38. I have 100k in investments, DH has about 250k.
I invest with questrade to answer your question, I invest in 60% VXC, 30% VCN and 10%VAB. There is no limit on how much you can invest.

nobodyspecial

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Re: What's your minimum for buying EFT?
« Reply #9 on: March 25, 2016, 06:56:36 PM »
Questrade, no fee for buying ETFs - so I buy down to the number which uses up whatever cash amount is left

Questrade will bite a lot of people in the ass when they go to sell.  You heard it here first.
Care to share on why is that?

ETF fees,  sell: 1/share ($4.95 min - $ 9.95 max)
So if you sold a single $30 share of VXC you would pay 16% commission  ;-)

Heckler

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Re: What's your minimum for buying EFT?
« Reply #10 on: March 25, 2016, 07:10:28 PM »
Care to share on why is that?

I just have an irrational fear of companies who claim to do business for free.

ransom132

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Re: What's your minimum for buying EFT?
« Reply #11 on: March 25, 2016, 07:49:20 PM »
Care to share on why is that?

I just have an irrational fear of companies who claim to do business for free.
They make their money on selling shares and a little bit on commissions, so it isn't all free.

tyir

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Re: What's your minimum for buying EFT?
« Reply #12 on: March 25, 2016, 11:17:03 PM »
Care to share on why is that?

I just have an irrational fear of companies who claim to do business for free.
They make their money on selling shares and a little bit on commissions, so it isn't all free.

As well as having their own line of ETFs, charging for currency conversion, intrest on margin accounts, and probably several other sources of revenue. I don't believe they've ever claimed to do business for free.

Spreading rumours without any evidence is pretty bizarre.

stashgrower

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Re: What's your minimum for buying EFT?
« Reply #13 on: March 26, 2016, 06:51:02 AM »
I'm missing something here. Could be that I'm not Canadian. Do you pay capital gains tax on the profit you made before transferring it to an ETF? If not, I understand! If so, what am I missing about the advantage of doing things this way (apart from those already mentioned)?

Heckler

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Re: What's your minimum for buying EFT?
« Reply #14 on: March 26, 2016, 08:03:53 AM »
Most Canadian brokerages charge $7-10 commission to buy or sell an ETF.  Vanguard doesn't sell direct in Canada, unlike the US where you can open a Vanguard account.   We can only buy Vanguard as Exchange Traded Funds, similar to a stock on the TSX or NYSE.   We can buy VTI, but not VTSAX.

http://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/

Questrade is one brokerage who offers buying commission free ETFs, but no one ever mentions what they charge to sell them when someone asks the best brokerage to use.  I'm not spreading rumours, just the whole information. 

GreatLaker

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Re: What's your minimum for buying EFT?
« Reply #15 on: March 26, 2016, 09:56:32 AM »
I like to buy 100 share increments for ETFs. Just a little quirk I have. It makes my holdings all in even dollar increments, no cents. Also when buying or selling non-board lots (i.e. 100 share increments) I find sometimes the order will be split into multiple orders when filled, sometimes at different prices for the <100 share portion, which is a minor nuisance.

Anyway, 100 share increments usually implies $2000 - $3500 minimum purchase based on typical prices for the ETFs I hold. With $10 trades at TD this means the commission equals 0.3 - 0.5% of the total.

I make automatic monthly contributions into my RRSP into a low cost balanced mutual fund, then once a year or when I rebalance I will sell the balanced fund and purchase ETFs. That keeps my money invested at low cost. I use TD Balanced Index Fund (TDB965), since that results in one transaction per month instead of 4 per month which would be needed with TD eFunds to maintain a balanced portfolio. TDB965 is not an eFund so should be available at most brokers. The MER is 0.89%, so not super cheap compared to ETFs, but my average holding is only a couple of thousand $.

http://canadiancouchpotato.com/2010/09/27/under-the-hood-td-balanced-index-fund/
https://www.tdassetmanagement.com/fundDetails.form?fundId=2099&lang=en

Also I noticed you hold both VXC and VFV. VXC holdings include 55% USA, so by also holding VFV you are overweighting USA vs. its global market cap share.

nobodyspecial

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Re: What's your minimum for buying EFT?
« Reply #16 on: March 26, 2016, 11:16:27 AM »
Care to share on why is that?

I just have an irrational fear of companies who claim to do business for free.
Fair enough, and my first paranoid thought was - and how much to sell once you have me trapped ?
So I called them and, as I posted above, 1c/share min $5 / max $10

Remember their costs are tiny. Money transfers are free to/from your bank, they don't have to deal with paypal/check/credit card fees.
They can offset customers buying vs selling and pool trades. But even without this, HFT has made institutional trading incredibly cheap

They charge for robo-adviser and selling you market reports but I'm guessing they could run the business just on interest from cash balances sitting in trading accounts.

   

tyir

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Re: What's your minimum for buying EFT?
« Reply #17 on: March 26, 2016, 11:33:50 AM »
Most Canadian brokerages charge $7-10 commission to buy or sell an ETF.  Vanguard doesn't sell direct in Canada, unlike the US where you can open a Vanguard account.   We can only buy Vanguard as Exchange Traded Funds, similar to a stock on the TSX or NYSE.   We can buy VTI, but not VTSAX.

http://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/

Questrade is one brokerage who offers buying commission free ETFs, but no one ever mentions what they charge to sell them when someone asks the best brokerage to use.  I'm not spreading rumours, just the whole information.

Selling is less important for index investors, as the majority of trading should be buying in the accumulation phase - even rebalancing can generally be handled by buying low. Selling only becomes more important after retiring, and likely only needs to be done a couple times a year.

If you're an active trader this is no longer true, but the OP to this thread is interested in index investing.

nobodyspecial

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Re: What's your minimum for buying EFT?
« Reply #18 on: March 26, 2016, 11:46:17 AM »
I wonder how cheaply you could really run an index fund?

If you had a website only, no advisors, no call center.
You track the FT/MSCI index in the same way as vanguard to make you own market weighted listing and you buy the shares.
The software is just a sales ledger, not exactly rocket scientist stuff. The only clever bit would be optimising how often you buy/sell externally to reduce your tracking error.

I'm just a number in your database, it doesn't cost anymore to record that I own 100 shares than it does to record that I own 1 - so why charge an annual percentage based fee? 
If you limit the trading rate you should be able to run it for free on advertising and the interest from the cash balances.

   

Telecaster

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Re: What's your minimum for buying EFT?
« Reply #19 on: March 26, 2016, 12:08:46 PM »
Fidelity has a number of commission free ETFs.   I buy as few as one at time, typically when I receive a dividend from something, I'll just plow it back into an ETF.