Quotations by Dan Bortolotti

Many countries levy a tax on dividends paid to foreign investors. For example, the IRS withholds 15% when dividends from US stocks are paid inside a Canadian-listed ETF. These withholding taxes will reduce the fund's reported performance, sometimes significantly. [2021] - Dan Bortolotti

It's not enough to compare ETFs solely on the basis of their MER by assuming a fund that is cheaper by 3 or 4 basis points will automatically outperform a competitor by that same amount. An ETF with a slightly higher fee but consistently lower tracking error might turn out to be a better choice. You can usually learn the fund's tracking error by visiting its web page: the major ETF providers (including iShares, Vanguard and BMO) publish both fund returns and benchmark returns (e.g. XUU lagged its benchmark by 1.52% in 2020). You can also find this information in the Management Report of Fund Performance: this document is typically published twice a year, and you can download a copy on the fund provider's website. [2021] - Dan Bortolotti

Probably the best-known robo-advisor in Canada is Wealthsimple, which was one of the first on the scene in 2014. But there are many others, including Nest Wealth, Justwealth and CI Direct Investing. Moreover, a number of banks and brokerages have their own branded robo-advisor services. The Bank of Montreal has BMO SmartFolio, Royal Bank has RBC InvestEase, and Questrade has Questwealth Portfolios. There's a lot of information online to help you compare various robo-advisors, including annual comparisons in the Globe and Mail and on MoneySense.ca. [2021] - Dan Bortolotti

Perhaps the greatest benefit of robo-advisors is that they automate almost everything. You can set up a regular monthly contribution and your cash is immediately invested, typically with no trading commissions. When the ETFs pay dividends, these are reinvested automatically as well. And if your portfolio drifts away from its target, the portfolio is automatically rebalanced. The cost of using a robo-advisor obviously varies among firms, but it's typically about 0.50%, and you can qualify for lower fees if your portfolio is large. That cost doesn't include the management fees on the ETFs themselves. One of the best features of robo-advisors is their extremely low minimums: you can often invest with as little as $1,000. [2021] - Dan Bortolotti

All of the banks have a brokerage arm-RBC Direct Investing, Scotia iTRADE, BMO InvestorLine and so on. There are a number of non-bank-owned firms with good offerings as well: Questrade, Qtrade and Virtual Brokers, to name a few. The Globe and Mail does a comprehensive review of all the major online brokerage every year, and this is worth searching for online. Most online brokerages waive administrative fees if your account balance (or the sum of all your accounts) is higher than a certain amount (e.g. $25,000). Commission-free trading is an excellent feature. Questrade has long offered free purchases of all ETFs, though you still pay their standard commission when you sell. Qtrade and Scotia iTRADE have a limited menu of ETFs that trade commission-free. National Bank Direct offers commission-free trades on ETFs as long as you purchase at least 100 shares at a time. [2021] - Dan Bortolotti

If you were in the same tax bracket for your whole life, the TFSA and RRSP would be essentially the same. Generally, use a TFSA if you're in a low tax bracket now but expect to earn more in the future. On the other hand, if you're a high-income earner, you'll get a significant benefit from the RRSP's tax deduction. Money withdrawn from TFSAs can be re-contributed the following calendar year with no penalty, whereas money withdrawn from an RRSP is not only taxable, the contribution room is lost forever. This means TFSAs are a great option if you're a young person saving for a medium-term goal, like a down payment on a home, while RRSPs should be earmarked for long-term retirement savings only. [2021] - Dan Bortolotti

ETF investors should always use limit orders-no exception. A good practice is to place a limit order a penny above the ask price. For example, if the ask is $16.94, place your limit order at $16.95. Some investors think entering a value higher than the current ask price is telling the market they're willing to overpay. But that's not true: a stock exchange matches orders from buyers and sellers and fills them at best mutually agreed upon price. If you enter a limit order to buy at $16.95 and there are units available for $16.94, our order will get filled a the lower price. When you're selling ETF shares, enter the limit order at the bid price or a penny below. [2021] - Dan Bortolotti

It's worth paying attention to the bid-ask spread when you buy an ETF. As a general rule, the spread should be no more than 2 or 3 cents, especially if the share price is less than $30 or so. ETFs with high share prices are less expensive to trade. In North America, stock exchanges are open between 9:30 am and 4:00 pm Eastern Time. Never place an order on a stock exchange when the markets are closed. The US market is closed on Martin Luther King Jr. Day in January and Memorial Day in May, while the Canadian exchanges remain open. You could see the bid-ask spread on your ETF much wider than usual, and that should be a signal not to place your trade. To be safe, don't make any ETF trades on days the US market is closed. [2021] - Dan Bortolotti

When you're enrolling in a DRIP (dividend reinvestment program), you'll receive your dividend and interest payments in the form of new ETF units rather than cash. DRIPs are a great way to keep your investments compounding in a TFSA, an RRSP or another tax-sheltered account. But I generally don't recommend them in non-registered accounts, as they can complicate your recordkeeping. [2021] - Dan Bortolotti

US-listed ETFs have lower fees and may also be more tax-efficient in RRSPs (US securities held in a RRSP are exempt from withholding taxes, thanks to a tax treaty between the two countries). Unfortunately, the currency exchange rates charged by online brokerages are usually terrible, especially on smallish amounts, and these costs can erode much or all of the benefit of using US-listed funds. If you're investing in a non-registered account, you need to report their capital gains and losses in Canadian dollars and report to the Canada Revenue Agency using Form T1135 if your non-registered account includes US-listed ETFs with a cost of more than $100,000. For these reasons, I recommend that do-it-yourself investors stick to using ETFs that trade on the Toronto Stock Exchange. [2021] - Dan Bortolotti

There are three general strategies for rebalancing: 1) By the calendar - e.g. once a year; 2) By thresholds - rebalance only when an asset class is off by an absolute 5% or a relative 2.5% (for asset classes with smaller targets like 10% allocation to emerging markets); 3) With cash flow - whenever you add new money or make withdrawals. If you're in the drawdown stage and no longer adding money to the portfolio, you can also rebalance with cash outflows. For example, if you're taking income from a RRIF in retirement, you'll be required to make prescribed withdrawals from the account each year. You can use this opportunity to rebalance the portfolio at the same time. [2021] - Dan Bortolotti

Assets in a TFSA grow tax-free indefinitely, and no tax is payable when you eventually make withdrawals. It makes good sense to keep assets with the highest growth potential in a TFSA to take full advantage of this tax shelter: in other words, fill up your TFSA with stocks and keep low-growth assets, such as bonds and GICs, in other account types. [2021] - Dan Bortolotti

Studies comparing DCA (dollar-cost averaging) and lump-sum investing over various historical periods are quite consistent in their findings: investing all at once tends to come out ahead about two-thirds of the time, which makes sense when you consider DCA only delivers higher returns if stock prices trend downward over the period, and we know stocks go up more often than they fall. [2021] - Dan Bortolotti

If you're fortunate enough to have a seven-figure portfolio, there will be no shortage of salespeople ready to flatter you by offering access to exclusive opportunities available only to "accredited investors." These include hedge funds, private equity, peer-to-peer lending, real estate partnerships and on and on. It's possible that some of these opportunities will go on to deliver outsized returns without undue risk, but you'll likely have to accept high expense, illiquidity and a lack of transparency. You're not sacrificing anything by taking a pass and just sticking to index ETFs. And you're not missing out on anything except disappointment. [2021] - Dan Bortolotti