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Reader Question – Annual Cost of a DIY Portfolio

Over the last few weeks, the inbox to My Own Advisor has been flooded.  Unfortunately it’s taken me a bit longer than I would have liked to get back to many of you, so thanks for your patience.  Here is a recent question from a reader including some follow-up questions, about the annual cost of a DIY portfolio.

“Been enjoying your blog for a while now. Wondering if you can direct me to a post describing how to calc the annual cost on a DIY portfolio.”

Also…

“I’ve been thinking of moving to a DIY portfolio for a while now, and educating myself by reading sites like yours.”  There is money to invest where the money would be invested with an annual cost of about only 1%.  “So I’m trying to determine how a DIY portfolio would compare in annual cost to that 1%.”  Thoughts?

Lots of information to digest here but I’ll try and tackle your questions in a few ways.

The cost of a DIY ETF portfolio

Stating what the annual money management fees for a DIY portfolio should be is a challenging question to answer since every DIY portfolio is different.  That said there are some great products to consider for your portfolio to keep your costs low.  Let’s look at some products and determine what money management fees you might pay for a portfolio value starting at about $30,000, a high enough threshold that should avoid any account fees to run your discount brokerage account.

U.S. ETF – Vanguard Total Stock Market ETF (VTI:US)

Pretty hard to beat a product that owns the entire U.S. stock market, holding over 3,300 companies.  For every $10,000 invested in this product you’ll pay about $5 per year in money management fees.  That’s cheap.

CDN ETF – iShares S&P/TSX 60 Index Fund (XIU)

Owning the biggest 60 companies in Canada won’t cost you very much.  For every $10,000 invested in this product you’ll pay about $18 in money management fees every year.

CDN Bond – iShares DEX Universe Bond Index (XBB)

Owning this all-in-one bond product that includes a healthy mix of federal, provincial and corporate bonds will cost you $33 for every $10,000 invested each year.

If you’re just focused on dividend funds, owning 30 of the highest yielding dividend companies in Canada (using iShares Dow Jones Canada Select Dividend Index Fund – XDV) will cost you $55 each year for every $10,000 invested.

Getting back to the first three ETFs above in my example, that’s just $56 paid in money management fees to own these products for modest diversification.  Add in a few transaction costs during the year at about $5 or even $10 to buy and rebalance your portfolio and I’m confident most DIY investors could get away with spending less than $100 per year to manage an ETF portfolio worth about $30,000.

This equates to a blended DIY management ratio of about 0.33%.

The cost of a DIY stock portfolio

Buying dividend stocks is another story but not necessary an expensive one, that probably requires a totally different blogpost.  Briefly though, with every stock purchase comes a transaction fee ($5 or $10) but there are no money management fees to own your stocks if you keep them in the appropriate accounts to avoid withholding taxes and other bad tax things.   Regarding my stock portfolio, I probably spend about $150 per year to keep building my stock portfolio across all accounts.  As more time goes on however my plan is to incur less transaction costs.  This is because many of my companies are DRIPping now.  With dividend reinvestment plans in my discount brokerage account, I don’t incur any transaction fees to earn more stock shares every quarter.  It happens automatically for free.   You can read more about the beauty of DRIPs here.

The takeaway…

A DIY portfolio of ETFs, stocks or a mix of both doesn’t need to cost very much but you do need to be very comfortable with your approach.  There is great value to be gained by going the DIY route and I’d highly recommend it based on my path to date.  If however you are unsure about operating your own discount brokerage account then get professional help to get started.  Once your portfolio has been set-up by a fee-only financial planner, you can talk to them about a transition plan to DIY investing.

I hope this information helped and thanks for your question.

Got a question for My Own Advisor?  Comment below or use my About & Contact page to get in touch with me.

Filed in: Index Investing, Reader Questions

22 Responses to "Reader Question – Annual Cost of a DIY Portfolio"

  1. I have made 56 transactions in my DIY investment accounts this year – about 9 a month which is more active than usual. This trends towards an estimated year end amount of about $1,100, if I double what it has cost to date (we are basically at the half way point).

    As a percentage of my total portfolio – $1,100 a year is about 1/3 of a percent. Not bad compared to retail investment alternatives (mutual funds)….Actually pretty good.

    This also oddly enough matches the 0.33% management fee for the DIY ETF portfolio described in the article.

    Sometimes when I buy stocks I often consider how long it will take before the dividends from the investment will cover the $9.95 commission, based upon the stock’s yield – helps brings things into reality.

    • 9 transactions per month is quite active I think even for a DIY stock portfolio. I don’t incur as many fees. However, if as a percentage of your portfolio, those costs are only about 0.33% then that’s quite good and certainly in line with a low-cost ETF portfolio over one year. I suspect once your portfolio is established, you won’t be buying or selling 9 times/month?

      I didn’t mention in my article, the very same thing you: I often consider how long it will take for dividends paid from the investment to cover the commission cost. If this is one month or so, I really don’t worry about the $5 or $10 transaction cost.

      Thanks for your comment!

  2. Robb says:

    Nice post, Mark. I’ve got a similar one lined up for tomorrow – looking at an individual stock portfolio versus ETF versus mutual fund.

  3. Le says:

    I guess currency transactions are free with your broker.

    • Hi Le. Good point but with only paying $56 in money management fees to own a few products, even after some transaction costs, the forex fees are only a pain to buy VTI if your broker doesn’t have a USD $ RRSP account or cannot “wash” trades; putting the proceeds of a U.S.-dollar transaction into a TD USD $ Money Market Fund.

      I’m still confident most DIY investors could get away with spending less than or about $100/year to manage an ETF portfolio worth about $30,000.

  4. Moneycone says:

    I think the biggest challenge with a DIY approach is ‘knowing’ what your expenses are, especially if your investments are spread over different brokerages and funds.

    Also important is your tolerance to expenses. How far would you go in order to buy a particular fund? But the best part of DIY investing is the choice. You can make your own decisions, shop around and invest in a way you are comfortable with.

  5. I had no idea how much it costs, so thanks for the informative post! I’m still playing around with where to start investing (other than retirement – I have MF for those), so I need all of the information I can get.

    • No sweat Daisy. Let me know what other saving or investing articles you might be interested in, I’ll see if I can write something on those topics.

  6. Helen S. says:

    Robb :Nice post, Mark. I’ve got a similar one lined up for tomorrow – looking at an individual stock portfolio versus ETF versus mutual fund.

    ROBB: Please advise where we can find your article.

  7. Helen S. says:

    Where will ROBB’s article be posted?

  8. Robb says:

    I don’t think I’ll make it to CPFC13. Toronto is a long haul from Lethbridge, unfortunately. I’d love to meet you, and everyone from the area. Maybe next year….

  9. Robb says:

    @My Own Advisor
    For sure. My wife and I spent some time in Ottawa in ’07 and we’d love to go back some time. If we ever make it out east, we’ll give you a holler!

  10. Thanks for all the info Mark. I really had no idea the costs involved but knew there were some that should be noted. I didn’t think the management fees were as cheap as they are.This probably would have been a question I would have asked as a newbie at some point in time. Thanks for sharing this.

  11. BetCrooks says:

    Just a reminder to those who are truly just starting out: Most of the “Big 5″ bank-type brokerages don’t reduce the commission to $10 until you have $50,000 in your account. Sometimes they will reduce the fee, though, based on other banking business you have with them such as other bank accounts, mortgages or loans. Be sure to check the fees before choosing your brokerage if you are going to have to trade often.

    Some super-discount brokerages charge about $5 for accounts with even very low balances, but you may/may not like the interface and the bookkeeping they provide.

    I agree that for most investors (not traders or speculators) the cost to maintain and add to a portfolio is usually less than 1% of the cost. For a couch potato type ETF portfolio, for instance the one you describe using the US and Cdn markets and bonds, it’s quite sensible to switch to self-directed investing unless the investor is afraid they will sell in a panic during a market down-swoop.

    • Solid point BetCrooks.

      Here is some information to your point:

      TD Waterhouse=
      “You are automatically eligible for our Flat Fee Commission Rates when you meet the trading activity thresholds or the household asset level threshold. If your combined household assets are greater than $50,000 but less than $100,000, you must also be subscribed to eServices – electronic account statements, trade confirmations, and tax documents.”

      RBC Direct Investing=
      “Trades starting from as low as $6.95 – $9.95 flat. RBC Direct Investing clients can trade for $9.95 flat with $50,000 or more in household assets.”

      CIBC Investor’s Edge=
      “No account maintenance fees on non-registered investment accounts. There are no account maintenance fees for non-registered accounts with a minimum balance of $10,000.” “There are no administration fees for RRSP, RRIF, LIRA and LIF accounts with a minimum market balance of $25,000. (Fees and restrictions apply if you hold your own mortgage in a registered account.) There is no administration fee for RESP accounts with a minimum market balance of $15,000.”

      If folks are not comfortable with DIY investing, that is totally OK in my opinion, you just need to understand the fee structure you are paying; or at least, should want to understand your fees.

      Thanks for your comment.

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