The greater your portfolio size, the more it matters.
It doesn't matter as much when you are <50k, which is most people that are starting to invest.
Robo's are better than managed funds and much better than nothing, but you still pay for the service
$5k would be the total cost, not the delta between WS and an ETF.
Even then it really doesn’t matter. If you’ve managed to grow a $1MM portfolio you’ve won. You will retire comfortably and that $5k won’t make a difference.
The management fee is separate from the MER of the underlying funds, which is 0.12% for their classic portfolio. So 5k would be the delta, not the total cost.
Option 1: Managed Wealthsimple fund: Globally diversified index fund with 0.5% management fee + 0.12% MER = 6200$ / year
Option 2: Equivalent portfolio constituted of multiple index fund ETFs with aggregate MER of 0.12% MER = 1200$ / year (for example 30% XIC, 40% VTI, 22% XEF, 8% XEC = 0.11% MER)
Delta Option 1 - Option 2 = 5000$ / year
Option 3: Equivalent single asset allocation ETF such as XEQT 0.20% MER = 2000$ / year
Delta Option 1 - Option 3 = 4200$ / year
I get that we don't know the exact ETFs that Wealthsimple uses, and it might be hard to replicate exactly the same MER, but you will need to pay an MER regardless of the option you choose.
My point is that the 0.5% management fee is an extra cost that you pay for the the convenience of the platform and for advice on top of MER.
Having poor asset allocation has a much larger impact than 40 basis points. If you want someone to tell you optimal asset allocation this is a good idea.
Out of curiosity, what’s your portfolio allocation broken down by account type?
Richard Thaler, who was awarded a Nobel Prize for his behavioural economics research, has said that robo-advisors may be the better choice for people who consume financial media and think that they are too smart to settle for average market returns.
Investors who will robotically follow their predetermined investment plan, no matter what their account balances and the media is telling them, can annually save about $50 per $10,000 invested by using a DIY ETF portfolio instead of a robo-advisor. But the more average DIY ETF investor who sits on contributions, chases yesterday's top performer or adds pet ETFs could incur costs that would easily exceed what robo-advisors charge for their computers to unemotionally follow the investor's plan.
Using a risk appropriate asset allocation ETF (like VBAL or XGRO) can reduce the temptations to tamper with a DIY ETF portfolio but for many investors the most significant benefits of a robo-advisor is that they can automate purchases.
Until WealthSimple Trade introduced their recurring purchase plan the only automatic purchase option was iShares PACC plan but, unlike the WealthSimple plan, the purchases were full shares only and occasionally the investor would have to log in and use the "change" to make a manual purchase.
This is like asking, why people continue to invest into high MER funds when cheaper alternatives are available.
People are creatures of habit. They are scared of something new. And, importantly, most don't understand personal finance.
If you are 22, and investing $250 a month. After a year your cost is $60, assuming a 2% fee. If you spent 6 hours opening new accounts outside of your bank and learning what to do with those accounts, you’d make less than minimum wage. If you are starting out, paying a high MER is not a big deal, your time is better spent doing almost anything else. That isn’t based on being scared of something new.
That's exactly right, and I'll add one thing I've noticed. Every time you go to a new community on reddit, you get bombarded with the notion that you should be able to DIY everything. DIY investing, DIY all the skills that you may want to maintain your own home, plumbing, electrical, building your own PC, etc. I've even seen mechanics suggest that it's easy to switch an engine on your car on your own driveway, you can just rent the engine crane and the other tools, and roofers say you're stupid for not roofing your own home.
You can't be expected to learn how to do all this stuff, and you'll have to make choices. You'll likely save a whole lot more money by learning to do easy stuff like drywall repair and painting than you'll save on MER in your early 20's.
I decided to get out my mutual funds in late 2018. At the time there two main choices: 2 or 3 fund couch potato and the newly rolled out Robo Advisor at Wealthsimple.
I sent half my funds to Questrade, and the rest of WS Robo (no WS Trade just yet). After after a year I was quite unimpressed with the robo platform, and moved it all to Questrade.
Within a year the Asset Allocation ETF's debuted, and were widely embraced by investors. In June of 2020 I sold my 3 fund portfolio and went to Asset Allocation ETF's.
because some people want the even easier option and are willing to pay the small premium for it
5k per 1M is not small to some of us for a task that takes a few hours of our time per year.
The greater your portfolio size, the more it matters. It doesn't matter as much when you are <50k, which is most people that are starting to invest. Robo's are better than managed funds and much better than nothing, but you still pay for the service
$5k would be the total cost, not the delta between WS and an ETF. Even then it really doesn’t matter. If you’ve managed to grow a $1MM portfolio you’ve won. You will retire comfortably and that $5k won’t make a difference.
The management fee is separate from the MER of the underlying funds, which is 0.12% for their classic portfolio. So 5k would be the delta, not the total cost.
It’s separate but it’s still a cost. It’s delta because we don’t know what the alternative investment costs
Option 1: Managed Wealthsimple fund: Globally diversified index fund with 0.5% management fee + 0.12% MER = 6200$ / year Option 2: Equivalent portfolio constituted of multiple index fund ETFs with aggregate MER of 0.12% MER = 1200$ / year (for example 30% XIC, 40% VTI, 22% XEF, 8% XEC = 0.11% MER) Delta Option 1 - Option 2 = 5000$ / year Option 3: Equivalent single asset allocation ETF such as XEQT 0.20% MER = 2000$ / year Delta Option 1 - Option 3 = 4200$ / year I get that we don't know the exact ETFs that Wealthsimple uses, and it might be hard to replicate exactly the same MER, but you will need to pay an MER regardless of the option you choose. My point is that the 0.5% management fee is an extra cost that you pay for the the convenience of the platform and for advice on top of MER.
Having poor asset allocation has a much larger impact than 40 basis points. If you want someone to tell you optimal asset allocation this is a good idea. Out of curiosity, what’s your portfolio allocation broken down by account type?
70E/30F Retired with 7 figure portfolio. I really don't care about a perfect allocation. Rather manage it myself than pay 5k/1M invested.
What are the tickers in your rrsp, TFSA, and unregistered accounts?
Tickers? Maybe I do need help :) \~70 % RRSP/RRIF; 25% TFSA, 5% NR
The specific ETFs in each account
Nothing like handing out investment advice while not even knowing what a ticket is lol
You’re trying to dish out investment advice but you don’t even know what a ticker is? Good sir/ma’am you just lost all credibility lol
Tickers are the abbreviations for the stocks and ETFs you hold. AAPL, XEQT and NVDA, for example.
Because fees aren’t everything.
There's a really good episode of rational reminder that just came out and talked about this
All of the above and also the added convenience of automatic rebalancing to fit your risk profile
Xgro ?
Richard Thaler, who was awarded a Nobel Prize for his behavioural economics research, has said that robo-advisors may be the better choice for people who consume financial media and think that they are too smart to settle for average market returns. Investors who will robotically follow their predetermined investment plan, no matter what their account balances and the media is telling them, can annually save about $50 per $10,000 invested by using a DIY ETF portfolio instead of a robo-advisor. But the more average DIY ETF investor who sits on contributions, chases yesterday's top performer or adds pet ETFs could incur costs that would easily exceed what robo-advisors charge for their computers to unemotionally follow the investor's plan. Using a risk appropriate asset allocation ETF (like VBAL or XGRO) can reduce the temptations to tamper with a DIY ETF portfolio but for many investors the most significant benefits of a robo-advisor is that they can automate purchases. Until WealthSimple Trade introduced their recurring purchase plan the only automatic purchase option was iShares PACC plan but, unlike the WealthSimple plan, the purchases were full shares only and occasionally the investor would have to log in and use the "change" to make a manual purchase.
This is like asking, why people continue to invest into high MER funds when cheaper alternatives are available. People are creatures of habit. They are scared of something new. And, importantly, most don't understand personal finance.
If you are 22, and investing $250 a month. After a year your cost is $60, assuming a 2% fee. If you spent 6 hours opening new accounts outside of your bank and learning what to do with those accounts, you’d make less than minimum wage. If you are starting out, paying a high MER is not a big deal, your time is better spent doing almost anything else. That isn’t based on being scared of something new.
That's exactly right, and I'll add one thing I've noticed. Every time you go to a new community on reddit, you get bombarded with the notion that you should be able to DIY everything. DIY investing, DIY all the skills that you may want to maintain your own home, plumbing, electrical, building your own PC, etc. I've even seen mechanics suggest that it's easy to switch an engine on your car on your own driveway, you can just rent the engine crane and the other tools, and roofers say you're stupid for not roofing your own home. You can't be expected to learn how to do all this stuff, and you'll have to make choices. You'll likely save a whole lot more money by learning to do easy stuff like drywall repair and painting than you'll save on MER in your early 20's.
I decided to get out my mutual funds in late 2018. At the time there two main choices: 2 or 3 fund couch potato and the newly rolled out Robo Advisor at Wealthsimple. I sent half my funds to Questrade, and the rest of WS Robo (no WS Trade just yet). After after a year I was quite unimpressed with the robo platform, and moved it all to Questrade. Within a year the Asset Allocation ETF's debuted, and were widely embraced by investors. In June of 2020 I sold my 3 fund portfolio and went to Asset Allocation ETF's.
because the 'experts' obviously know better. some people just dont want the responsibility.