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.”
“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.
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.
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