My front door was ajar. Inside, my apartment felt abnormally still. Nothing was out of place. No torn curtain waving in the wind. But my laptop was nowhere to be seen.
My apartment had been broken into. My laptop was stolen.
So after a few tears (let’s be honest), four hours on the phone with Best Buy (who has the worst customer service in recorded history) and three failed delivery attempts, I got a new laptop – and a big fat bill that gobbled up all the money I planned to invest.
In other words: I have very bad news everyone. Those $500 you wanted to follow? Gone.
But even with a shrunken budget, I still plan to invest. And now I have a beautiful laptop with which to investigate the whole process.
The name of my game is low fees
My proposed budget was five hundred dollars. With such a small runway, keeping my fees to an absolute minimum is very important.
Frittering away my investment on fees would be to take two steps forward and one step back.
For example, if I pay $100 in fees per year, I’m throwing away almost a quarter of my investment. I would be better off to put it in a high-interest savings account without any fees, where it could earn up to 2.4% interest (thanks to Tangerine).
What type of broker do I choose?
I didn’t consider brick and mortar brokers because in general, their fees are the highest among investing platforms. And they wouldn’t be interesting in investing such a small amount anyway.
Discount brokers didn’t interest me. Although their fees are lower than standard brokers, discount brokers focus more on investor autonomy. That means I would have to choose exactly what stocks, funds or ETFs I would purchase, and probably monitor them over time. But as I said in my first article, I don’t want investing to take up any additional space in my daily life. I consider it a part of good financial hygiene, but I don’t consider it a hobby, or a passion per se.
I want a low-worry, auto-pilot investment strategy. In other words, I want a robo-advisor. Robo-advisors invest and rebalance investment portfolios automatically usually mathematical algorithms. If you’re interested in knowing the ins and outs of Canadian robo-advisors, this article is everything you ever wanted to know about them.
Robo-advisors charge two types of fees: MER (management expense ratio) which are associated with the ETFs you purchase, and management fees charged to the robo-advisor itself.
Using Hardbacon’s Robo-advisor Comparator
Using Hardbacon’s Robo-advisor Comparator, I eliminated every robo-advisor with a minimum account balance above $500 since I didn’t plan to spend more than that.
I got rid of NestWealth and PortfolioIQ because their fees were too high for my small budget. PortfolioIQ (which is a division of the very popular discount broker Questrade) charges $100 yearly for any investment under $1,999. That eats up a fifth of my initial investment after 1 year. NestWealth charges $240 yearly for any investment under $74,999, meaning in the first year I would lose half of my initial investment. No thanks!
A 4-way Robot Battle
After I wiped away the more fee-heavy options, there were four robo-advisors that fit my criteria: Wealthsimple, Invisor, Modern Advisor and Tangerine.
Each robo-advisor had a similar acquisition strategy: I filled out an online survey that assessed my financial goals, my risk profile and my current net worth. Then they used this information to suggest a few portfolios. This process was ubiquitous, except at Tangerine – they did it a little differently.
Their survey was lightning fast and used easy-to-understand language. Their site in general was bright, friendly and made me feel like investing was hip.
But once Wealthsimple suggested a portfolio, it was hard to track down the details about its performance (and by that I mean if it’s gaining or losing value). I had to hunt around, Googling codes like “ZFM Government Bonds”, but I did eventually find the information.
Once I found the ETFs in their portfolios, I saw they were generally well performing.
Finally, I was pleased to see that Wealthsimple offered a socially responsible portfolio. It doesn’t invest in nuclear power, tobacco or other environmentally questionable businesses. Yay!
Invisor was full of information! But for that reason, it felt more like a discount broker than a robo-advisor.
Invisor recently launched InvisorGPS, which is a free financial goal planning and investment tracker. For my very basic investment needs, the service felt unnecessarily advanced. There were graphs with multiple lines, predictions, targets, balances and shortfalls – all words that dizzied me in my quest for low maintenance financial hygiene.
For someone very goal oriented about their investing though, I think InvisorGPS would be a very valuable service.
Ultimately, Invisor gave the most straightforward and detailed information about their portfolios. This is a definite plus. No googling required.
Modern Advisor confused me.
Their survey immediately asked what sort of account I wanted to use, which seemed like the wrong time to ask. Although the type of account (and by this I mean TFSA or RRSP) does matter, I wanted to see their portfolios first and decide on that later.
Once the survey was over, I could only browse the portfolio in my risk category (conservative, according to them). In order to compare it to the other options, I had to redo the survey and intentionally try to earn different results.
To their credit, Modern Advisor did have a socially responsible portfolio.
Overall, I did a lot of unnecessary navigating to find the information I wanted from Modern Advisor (tip: to find the detailed info about their portfolios, you have to accept their terms of service and allow the popup to appear with the detailed list. A pain if you have an ad-blocker).
Tangerine didn’t feel like the other robo-advisors. Instead of filling out a survey, their site simply listed 5 in-house funds.
Because Tangerine didn’t offer any suggestions, it seemed less personal and more intimidating to start. If I didn’t already know the difference between an aggressive and a conservative portfolio, I would have gone elsewhere for advice. In that sense, the 3 other robo-advisors offer tremendously more value to beginner investors.
So, 3 questionnaires and 20 minutes later, I had scoped out my possible investment options. For free.
Bottom line: who has the lowest fees?
Wealthsimple had the best deal for my small budget. And I promise they aren’t sponsoring me to write this. [Disclosure: Hardbacon, however, does make money every time someone opens an account with one of its partners through its robo-advisor comparator. Wealthsimple is one of its partners, along with other robo-advisors].
Wealthsimple charges no fees if you have less than $5000, and then 0.5% on any account balance higher than that. So if I start investing with $500, I only have to pay MER fees on the ETFs in my portfolio until it grows into $5000.
Invisor offers 0.6% in yearly fees up to $100,000 (which I won’t exceed any time soon), and a 0.55% MER on their portfolios. Total fees: about 1.05%.
Tangerine charges 1.07% MER on all their portfolios, plus 0.01% trading fees. Total fees: 1.08%.
Finally, Modern Advisor charges $49 in fees for any investment up to $10,000. This works out to 0.5% at best (when I have 10K), and 10% at worst (when I start with five hundred). That’s 200x more fees than Wealthsimple.
If only earning back that $500 was just as easy.
This article was compiled by Hardbacon, which has designed an online broker comparator listing dozens of Canadian online brokers. Hardbacon also helps you save on savings accounts, chequing accounts, credit cards, robo-advisors, life insurance, mortgages and personal loans. If you want to go one step further and take control of your finances, you should download Hardbacon’s mobile app, which links to your bank and investing accounts, helps you plan for your financial goals, create a budget and invest better.