Disclaimer: I am not a financial advisor. None of this is financial advice. I encourage you to do your own research.

In this chapter we will cover how to set up a DIY investing account and make your first purchase

Back home in Toronto, I called my financial advisor to tell him I was planning on managing my own investments. “No problem-o,” he said cheerily. “It’s your money!” Maybe he wasn’t so bad after all, I thought. Then he mentioned that since I was transferring my actively managed mutual funds to my brokerage, and those funds had been specific to his firm, he would need to sell everything, incurring large capital gains. There would also be a charge to move my money over. I would pay another large tax bill this year, and this time no Keg gift certificate. But it would all be worth it once I was in control of my investments.

I made an appointment with my bank and set up three accounts: Non-registered, Registered Retirement Savings Plan (RRSP), and Tax-Free Savings Account (TFSA). I filled out a series of forms to transfer over my now sold investments from my financial advisor’s firm. Luckily my bank covered the $100 in ‘leaving fees’ that my old firm charged to move my money over. While I waited for the money to be transferred, I took the Vanguard risk tolerance test. It turned out I was a balanced to growth investor. Based on my test results, the Canadian Couch Potato recommended that I invest in low-cost index funds that tracked the Canada, US, International and Bond market indexes at 25% each. My ideal fund was Vanguard Growth ETF Portfolio (VGRO), which tracked the Canada, US and International indexes like VEQT, but added in some bonds for protection. The idea was that if the market took a dive and equities went down, the fund would rebalance automatically by selling the overweighted bonds and buying equities on the cheap.

After a few weeks the money from my sold expensive bond funds was in each of my three accounts, and I was ready to buy some low-cost index funds! With the click of a button I bought VGRO for each account. At the time I had to pay $9.95 per transaction, but since then several brokerages like Questrade, BMO, Scotia iTrade and Wealthsimple now offer commission-free trading on select Vanguard index funds. I encourage new investors to consider this when choosing their trading platform.

Despite the $9.95 transaction fees, my 100k nest egg was no longer bleeding money in actively-managed expensive bond funds. In fact, within a few weeks my low-cost globally-diversified portfolio was already in the green! I had created a money-machine that would passively churn a profit while I slept. Now I just needed to make sure I invested as much new money as I could from every paycheck going forward.

In Millionaire Teacher, Andrew Hallam had suggested I set up automatic transfers to ensure that every time I got paid the money would automatically go into my brokerage account (Hallam, 2017). This way I would be paying myself first before I accidentally spent the money on something else. 

I called up my bank and asked to set up automatic transfers from my chequing account into my brokerage account on the 1st and 15th of each month, because those were the days I would receive my paycheque. Since my rent was due on the 1st, I would have less disposable income earlier in the month than in the middle of the month. I asked for only $500 to come out on the 1st and $1,500 to come out on the 15th when I would have fewer bills to pay. TD was able to set up automatic purchases of index funds for me, which at the time were the TD e-series index funds. They would do this every month on the 20th to ensure the money from my transfers on the 1st and 15th would be available. The lady over the phone gave me an extra tip that would set my investments up for even more success.

“And of course, you’ll want the automatic DRIP,” she said. She explained that DRIP stood for Dividend Re-investment Program. This would ensure that every time a dividend was paid, it would automatically be re-invested, without me having to do anything. Since my portfolio was 100k, I could expect to receive around $2,000 a year in dividends! As I look back, I am grateful to this lady for suggesting I apply a DRIP across my whole portfolio. I know myself well enough to know that if the $2,000/year from dividend payments had just been deposited into my account, I likely would have spent it on something frivolous. Instead, year after year, the dividends have been automatically re-invested, creating a snowball effect and helping my investments grow. My back-of-the-napkin math suggests that at least 5% of my portfolio today can be attributed to the re-invested dividends over the past 10 years.

Soon money from each paycheque was being automatically transferred and invested into the Canadian Couch Potato portfolio. I was already making capital gains and I was looking forward to my first dividend payment in a few months. But as my investments grew so did my anxiety. Not long after I had committed $2,000 every month to my savings plan, did I realize that I was underwater. With $2,000 a month no longer available to pay for my rent, utilities, cable/internet, groceries, TTC pass, lunches and coffees, fancy gym membership and outfits for the office, I started to put everything on my credit card, incurring interest in the process. What I was making in the stock market I was losing to the credit card companies. I quickly realized, if I was going to avoid financial ruin by collection agency, I would need to make a budget – and stick to it.

Repeatable steps I took that you can too!

  • Select your brokerage. I used TD Canada Trust because I was already a client. However, I still had to pay $9.95 a trade for Vanguard index funds. Since then, brokerages like Questrade and Wealthsimple now offer commission-free trades, and platforms like BMO, National Bank and Scotia iTrade offer free trades on some Vanguard funds. Of these, Wealthsimple is currently the only brokerage who will set up automatic purchases. For the rest, you’ll need to go in once a month or so and purchase your ETFs whenever the money is in your account.
  • Set up the following Canadian accounts: non-registered, Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), and First Home Savings Account (FHSA) if you have not owned a home for four years. Note, each of these accounts will have an allowable amount that you can invest, which you should be able to find out from your CRA account. Be careful not to go over your allotted amount otherwise you will get dinged by the tax man.
  • Transfer any existing nest egg into your new accounts. Note, if you are already invested in actively-managed mutual funds not offered by your new brokerage then your old brokerage may need to sell the funds first. Be sure you can handle the potential tax bill. Ask your new brokerage to cover any transfer fees from your old brokerage.
  • Purchase a low-cost, broad-based Vanguard index fund that tracks the US, International and Canadian indexes, with a bond component depending on your risk profile. For a globally-diversified index portfolio aggressive investors can buy Vanguard All-Equity ETF Portfolio (VEQT). Growth investors can buy Vanguard Growth ETF Portfolio (VGRO) which adds in 20% bonds for stability, and balanced investors can purchase Vanguard Balanced ETF Portfolio (VBAL) which is 60% equities and 40% bonds.
  • When using large amounts of money to buy or sell ETFs, always use limit orders to ensure you are setting a limit on the price. Justin Bender of PWL Capital has some great YouTube videos on how to purchase ETFs by using limit orders. His playlist can be accessed here.
  • Ensure you set up a Dividend Re-investment Plan (DRIP) for every account, so that your dividends are automatically re-invested. One day you may choose to turn off the DRIP so you can live off your dividends in retirement, but you can easily do that in the future.
  • If you receive a paycheque every two weeks, set up automatic transfers from your chequing account to your brokerage. Keep in mind that you will likely have more bills due on the 1st of the month, such as rent or mortgage, so you might want to set up less on the 1st of the month and more on the 15th of the month.

Works Cited

  1. Hallam, A. (2017). Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (1st ed., pp. 148-9, 153, 261-268, 338-45). John Wiley & Sons, Inc., Hoboken, New Jersey.