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Financial Friday #151: DIY Investing Made Fast & Easy!

Friday, April 14, 2023   /   by Mario Daniel Sconza

Financial Friday #151: DIY Investing Made Fast & Easy!

What is a robo-advisor?

A robo-advisor is an automated, online financial advisor. Users can get started by simply answering an online questionnaire or survey about their investing preferences and risk tolerance. That data is then used to select from portfolios of exchange-traded funds (ETFs) which the robo-advisor continuously manages to keep in line with the pre-determined risk profile — buying and selling funds as required and re-investing dividends. If you don’t want to jump into DIY investing but still want the low fees and freedom of foregoing a living, breathing financial advisor, a robo-advisor may be the perfect investing option for you.

Are they any good?
If you know very little about investing and are strapped for time or just don’t want to learn more, a robo-advisor is a good choice. You give up flexibility in what you invest in (no stock or fund picking), but you can be assured that your portfolio is being managed to mirror your preferences while you go out about your other business — it is sometimes called “set and forget” investing. However, like any investment, you should be regularly monitoring your returns and making adjustments as your risk tolerance/life situation changes.

We can’t tell you whether a full-service financial advisor or a self-directed (DIY) investing approach will yield better returns than a robo-advisor — it may or may not! Our view is that it is very difficult for anyone (professional or not) to consistently beat the market. Passive investing with low-cost ETFs is a trusted strategy and robo-advisors make pursuing this type of strategy convenient and easy with a simple, low-cost fee structure.

What are the fees?
One of the major advantages of robo-advisors is that unlike mutual funds, they require very little human management and therefore have relatively low fees. Their fees are also very transparent. They charge a fee to manage your portfolio and it usually ranges between 0.30% and 0.60%. In addition, there is a built-in management expense ratio (MER) in the ETFs of around 0.10% to 0.30%.

At the end of the day, you may be paying around 0.7%. This is probably going to save you a bundle compared to the other options, especially when you consider that many mutual funds still have MER fees in excess of 2%. Make sure to review your investments annually to ensure any above average fees are justified by above average returns or other services/features that you value.

Which robo-advisor is best for me?
For a lot of us looking to simply invest our RRSP or TFSA, fees should be a prime consideration. Some institutions have a minimum account size so that may be a factor if you don’t have a lot to get started. Others may offer more personalized service (telephone or live chat support) or a larger selection of portfolios including socially or environmentally focused options. You may also want to look at the functions and features of the mobile app as well as how it integrates with other financial services you are using.

Many financial institutions offering robo-advisors will pay transfer fees and help facilitate the switch from your existing investment account. Please be aware that there may be considerable fees or penalties when selling mutual funds and switching to a robo-advisor — consult with your advisor.

Resources:

Steal these 3 frugal habits from Warren Buffett
He is worth over $100 billion so he must know something! A quick, 4-minute read to remind you that some simple money habits can add up fast.

Poor tax planning leaves free CRA money on the table
Big tax refund coming? Why that may not be such a good thing and why everyone should consider tax planning.

Tips on how to get the most out of your TFSA
A quick read with 8 great tips to make sure you are getting the most out of your TFSA and not making any costly mistakes.

Managing your money
Unbiased advice, tools & calculators and lots of practical information on budgeting, banking, insurance, buying as house, credit scores, etc. — this federal government website is a treasure trove of useful information.

Simple "side hustles" to put some extra cash in your pocket
Staying ahead financially requires a great defense (managing expenses) combined with whatever offensive (money-making) firepower you have — here are are 20 income bolstering ideas to consider.
Your Home Sold Guaranteed Realty Legacy House inc.,
Mario Daniel Sconza
259 Edgeley Blvd #3
Vaughan, ON L4K 3Y5
416-760-0306

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Information is provided exclusively for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®. Copyright 2024 Last Updated February 29, 2024
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