Investing

In a previous post, I had set up my Questrade account and decided that I was going to purchase the iShares Canadian Financial Sector Index Fund (XFN).

My funds are currently in transit from CIBC to Questrade and once the transfer is complete, I'll be making my purchase.

But after thinking about it and reading some of the comments particularly from the MyFindependence Day Blog, I've decided that for my situation it is better to purchase an individual stock. After taking a real close look at XFN, I realized (and it was pointed out to me) that the top four holdings represent 60% of the value of the fund. That's not a large number.

SAVING ON TRANSACTION COSTS

So, the question becomes, even with a low management expense ratio (MER) of .55% versus an MER of 2% with my old mutual fund, could I save my self some money by simply buying the stocks myself? Why pay any MER fee (admittedly one this reasonable) when most of the holdings are represented by only a few stocks?

I have to say in my case, I could probably buy just a couple of the stocks and pretty much replicate the same result. Granted, I wouldn't have the full effect of holding all the stocks in the ETF but with the level of holdings I have right now, would it really matter? I feel fairly confidant at my ability to research a few stocks and make the proper selection.

WHAT LEVEL OF HOLDINGS?

I have to admit, if my portfolio were worth hundreds of thousands of dollars I'd have no problem purchasing this ETF. With that much capital to protect, it would be a little more intimidating choosing a larger selection of stocks. I'd probably choose a few different ETF's from various sectors but sadly, I don't have that kind of money. :(

You have to really wonder how good that kind of diversification would be if you have a small portfolio (like I do).

Obviously, for beginning investors an ETF would be a great place to start, but I have actually traded some stocks before so I have some experience. I'm also doing this trading for the enjoyment AND as a learning process.

What do you think? Is there a level under which you think it's better to own stocks or ETF's? $10K? 25K? 50K? Or does it matter?

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Well, I am almost finished setting up my Questrade account. Here's what I've done so far:

CIBC ACCOUNT

Called them up and asked them to close it down. In actual fact, what they did was liquidate my current holdings and place them into a money market fund. When you transfer your account to Questrade, you have the following choice of how you want to transfer your investments:

• In cash – they will liquidate your accounts for you upon your transfer from your old broker or bank.
• In kind – they will transfer your investments as is – all stocks, mutual funds or whatever you have intact.

I knew that I was not going to keep my current funds so by liquidating and placing the proceeds into a money market (pretty close to cash) beforehand, it should make it easier and quicker (?) for Questrade to transfer my account as cash. I wonder – would they have charged me a fee to liquidate my account had CIBC not done it?

QUESTRADE

I filled out all the paperwork online and electronically signed the documents. They actually check your credit report for this and ask you questions to verify certain information from your account to make sure it is you.

I then emailed a copy of my driver's license and that's pretty much it. My account should be open soon.

Once your account is open you then have to transfer funds. Thankfully, Questrade made it fairly easy and they automatically generated a Form T2033 (here in Canada) to transfer your registered account from one broker to another without any taxes withheld or penalties. In Canada, if you cash in your retirement account, there is a 10% withholding tax. This form T2033 prevents that.

Since my CIBC has been liquidated and is (pretty much) in cash, the transfer should be fairly straightforward.

All in all the process was fairly smooth but a slight glitch happened … I think. I was done setting up and then I realized they didn't give me a password and I had already logged out! So, I had to request a new password by email. Strange. I'm fairly detailed and find it hard to believe that I missed such an important step.

That's it for now! I'll keep you posted on what I purchase in the coming weeks … or should I leave as cash and wait for the market to come down?

Hmm, the age-old question.

RELATED POSTS

• Discount Broker Choice
• Investor Reading List
• Do It Yourself Investing – Taking the Plunge
• Friday Night Links – DIY Investing Edition
• Do You Suffer From Portfolio Envy?
• Going Self-Directed with an RRSP

FOLLOW ME on TWITTER

If you like this post, then subscribe for free email updates HERE or click on the bright orange logo on the TOP RIGHT section of my blog. You can also sign up for updates via RSS FEED. What is RSS?

Well, I've decided to go with Questrade as my discount broker. Thanks for the recommendation from Four Pillars! I'll be opening the account within the next 7 days after I liquidate my CIBC account. Goodbye CIBC! Although, I have to admit, I never had a problem with their service and I do like having the account easily integrated with my online banking – ie, having one password is nice.

Why am I doing this?

Well, I want to take more control over my financial destiny and I feel leaving my money in a mutual fund and hoping it goes up, just isn't the way for me. I have nothing against mutual funds – there are many fine funds out there – but I find it disconcerting to sit there and watch my returns being eat up by high fees … even if the performance isn't there!

I currently own the CIBC Managed Balanced Income Fund. This fund is actually made up of several difference CIBC funds put together. I'm very sceptical of these so-called managed funds, now. Why own a managed fund and pay the higher fees, when a simple Canadian Equity Fund or Balanced Fund by itself might suffice? I purchased this at $10 and it is now sitting at $7.84. On the plus side, the yield has gone up since it does pay out a monthly 'dividend'.

What will I purchase?

After a bit of research and pretty much bugging everyone I know, I am leaning towards the iShares CDN Financial Sector Index Fund (XFN)

I really like the long-term outlook for financials and it's a great way to get into this sector if you're not sure which stock to buy. I also like the management expense ratio (MER) of %0.55 – a far cry from the 2% of my previous fund.  Actually, I was shocked when I finally read the prospectus and saw the number. Totally shocked.

It's currently priced at $17.71 per unit – certainly up from its 52-week low of $11.60 but off its high of $25.11. I was thinking of doing this in February when it hit its low – darn!!

So, that's it for now. I'll keep you posted on what I do in the coming months. This is going to sound weird, but I feel I have finally see the light (… enter singing angles …). It's like a whole new world is opening up before me …

What would you buy if you had less than $50K to spend? Less than 25K?

RELATED POSTS

• Investor Reading List
• Do It Yourself Investing – Taking the Plunge
• Friday Night Links – DIY Investing Edition
• Do You Suffer From Portfolio Envy?
• Going Self-Directed with an RRSP

FOLLOW ME on TWITTER

If you like this post, then subscribe for free email updates HERE or click on the bright orange logo on the TOP RIGHT section of my blog. You can also sign up for updates via RSS FEED. What is RSS?