Brokers

Laurie want to begin investing, but…(Part 3 of 6)

by

…she doesn’t know where to invest in equities (stocks) or debt securities (bonds) for her self-directed investment portfolio.

If you’re like Laurie, you’ve selected what proportions you want to invest in equities and in debt in Part 2. You could now go to any one of your favourite financial institutions and open a self-directed investment account. All major financial institutions (banks and credit unions) in Canada offer them. Note however, that:

  • They all generally charge fees
  • The amount of fees differ between them
  • And, those fees can eat up a significant chunk of your investment returns if you are starting with a small account

Or you could find out which financial institutions do not charge you fees. For example, Questrade doesn’t charge for the purchase of ETFs and comes highly recommended by a number of Canadian financial web sites.

National Bank Direct Brokerage charges $0 commission when buying or selling exchange trade funds (ETFs – more on that in Part 4). Mind you, there are some restrictions, such as the minimum order size must be for 100 units of an ETF.

WealthSimple Trade, a financial technology (fintech) firm based in Toronto charges no commission to trade securities and has a convenient app with which to do so. Do not confuse WealthSimple Trade with WealthSimple Invest, which charges you to manage a portfolio on your behalf – something you can quite easily do yourself to boost your returns. At the time of writing, WealthSimple Trade did not yet offer TFSA or RRSP accounts, but was planning to do so soon.

To compare other self-directed investing options you may view SavvyNewCanadians‘ list of bank and credit union brokerages along with the commissions that they charge for buying and selling ETFs, plus fees for administration. Saving on commissions and administration costs means your investment account will grow faster than if you share your gains with the brokerage.

Once the self-directed brokerage account has been opened and funded with some cash, investments may be purchased. On to Part 4…

Broker instead of Bank for Better FX Rate

by

So here is the follow-up on my implementation of “Norbert’s Gambit”. I needed about USD 5,000, and according to the rates posted on my bank’s site at that time, it would cost me CAD 7,145.

My first step was to purchase 500 units of DLR in my brokerage margin account (each unit represents USD 10). The (ask) price in CAD was 13.88, and the commission CAD 9.95, for an all-in cost of CAD 6,949.95. I immediately sold 500 units of DLR.U which is equivalent to DLR, but priced in USD. The (bid) price in USD was 9.96, and the commission USD 9.95, netting me USD 4,970.05.

The results:
USD 4,970.05 cost CAD 6,949.95, or CAD 1.3984 per USD (equivalent to USD 0.7151 per CAD). For that same CAD 6,949.95, I would have received only USD 4,863.58 at the bank FX rate at that time of USD 0.6998 per CAD (equivalent to CAD 1.4290 per USD). The savings: USD 106.47. The effective commission: USD 29.95 or 0.6% – a fraction of bank’s effective commission of 2.14%.

Here are the calculations:
FX Calculations

Exchanging CAD for USD less expensively

by

I need US dollars for an investment in a USD-denominated stock, but I am unwilling to pay what I perceive to be the extravagant commissions banks are charging. The Canadian dollar is currently trading at about 0.72 in US dollar terms. I plan to use what has been referred to as “Norbert’s Gambit” to reduce my foreign exchange purchasing costs. The gambit has been explored on various sites, but I plan to implement the version described by PWL Capital Ltd, as I am a customer of RBC Direct Investing, and that version sets out almost exactly what I propose to do.

Here are my steps, assuming I need about USD 10,000 to make my investment, costing me about CAD 13, 800 at current exchange rates:

  1. Transfer CAD 13,800 from my RBC CAD chequing account to my Direct Investing Account.
  2. Buy 100 DLR ETF units at the ask price of CAD 13.79 each and pay commission of CAD 9.95.
  3. Sell 100 DLR.U ETF units at the bid price of USD 9.96 each and pay commission of USD 9.95. (DLR and DLR.U are equivalent units, except the former is priced in CAD, while the latter is priced in USD).
  4. Purchase the stock denominated in USD with the USD 9,967 now in my Direct Investing Account.

I calculate that my effective cost will be CAD 1.3845 per USD. This compares with the CAD 1.4201 per USD the bank would charge me at one one its branches. At the bank’s exchange rate, I would only be able to obtain USD 9,718. Using the gambit I will be able to obtain USD 9,967 – a savings of about USD 250.

I’ll update this post with the results as soon as I have them.