Yes. And No.
I am hesitant to say one over another…
So I had a friend email me about BMO Smartfolio which charges you tiered fees based on investments; so $60 a year if you have $5000 invested, up to $2850 a year if you have $500,000 invested.
Initially, I had suggested she go with TD e-series mutual funds because she is not very investing-savvy so she can’t do ETFs on her own the way I do with Questrade (referral link here for free trades with code o0soehds ), but she can at least rebalance her own portfolio, and TD is easy enough to login and do so with their e-Series funds.
- (Psst! Here’s if you want to know whether TD E-Series or ETFs are for you.)
Then she got an email from an investment advisor from BMO who sniffed business, and he sent her the email about BMO Smartfolio, and she wanted to know what I thought about all three options.
This is kind of what I said…
LET’S LOOK AT THE NUMBERS…
If you look at it percentage-wise versus your assets, it’s pocket change, really.
$2850 / $500,000 = 0.57% PLUS the Management Expense Ratio (MER) of whichever of the 5 ETF funds they provide to buy.
So if the ETF MER’s range from 0.25% – 0.35%, then you’re looking at under 1% MAXIMUM for total fees a year for BMO Smartfolio
SO IS SPENDING ON MANAGEMENT FEES A GOOD DEAL?
Do you think spending $3000 a year forever a good deal for something you could do for free if you just invested time in doing so?
See, on the one hand, if you’re super busy and you make a lot of money, $2850 a year can seem like a wise investment to pay for someone (less than $250 a month, really) to basically manage your money for you, shuffling it around index funds because you have ZERO time or inclination to do so.
Yet the way I see it, on the other hand that’s almost $250 a month that could go to a nice cup of daily Starbucks coffee or shopping for new clothes.
LOL.. and here you thought I was going to savings or something stupidly practical, didn’t you? 😀
If you want to stick to facts, over 25 years with that amount a month you’re losing out on $142,000 @ ~5% interest.
That’s a spent / lost money that you don’t get back even if your investments don’t do well.
See, the trick is that these banks get paid even if your investments tank.
You may think:
Hey but that’s money well spent for me to not worry about my money being invested at all, and they do it FOR me…
…but as for myself, I am far too fee-averse to be comfortable wasting $2850 a year on what I can do on my own, by myself for FREE.
NOW, COMPARING BMO SMARTFOLIO TO TD E-SERIES
I am still not against someone signing up for either, but the difference is simple:
For 0.57%, you won’t have to rebalance your portfolio with BMO Smartfolio but you can save that 0.57% a year and do it yourself with TD E-Series.
Their mutual funds are pretty much the same MER cost, so that’s a wash.
The real question is: Do you like to DIY to save money (TD E-Series), or just set it & forget it (BMO Smartfolio)?
BUT WHAT DO YOU DO WITH YOUR MONEY?
I save even more than with TD E-Series because I trade index fund Exchange Traded Funds (ETFs).
I’m too cheap to pay for mutual funds, even with TD E-Series.
I did that before I had any real savings (under $20,000) but once I built up enough equity, I jumped ship to Questrade (referral code: o0soehds ) and traded my own ETFs.
I can save even MORE money doing what they do, for free.
Index fund ETF MERs are half of what BMO or TD Bank are offering because … they’re ETFs and not mutual funds.
So basically what I am doing, is buying exactly (or close) to what TD or BMO is buying, for half of what they buy it for, and I manage my own portfolio, trade & all that, for free.
I spend about 2 hours every 3 months at a MAXIMUM to check my investments and rebalance my trades, which is about 8 hours a year.
I think I feel pretty good saving $2850 for those 8 hours. I’m saving $356.26 an hour which is more than double what I currently charge as a freelancer. 😉
The only caveat in all of this?
You have to roll up your sleeves, start doing some serious reading and digging around and educate yourself.
This is something I want to start pushing everyone around me to start doing.
It’s not that hard, really. It REALLY ISN’T.
Don’t know where to start?
Begin here with my Money Guide (it’s geared towards Canadians but has general money, budgeting & investing help).
Too easy for you? I have a whole Investing Series here.