I read a Moneyville article by Robb Engen (Boomer and Echo) last week and it had some great news: as of February 1st, Questrade customers can buy Canadian and US Exchange-Traded Funds and for free (you pay the commission but then get a 100% rebate within a few days). According to the details Questrade posted on their blog: ”…there are no trading commissions on purchases of ETFs. Yup: buy any ETF for free.”
Any ETF? Sorry for repeating myself, but this is stunningly awesome news. Buying index ETFs across several asset classes is a great way to diversify, generate income, save costs, and recover free time.The reason that this move is a game changer is that it’s a massive boon to a small or medium investor’s portfolio. People who save a few hundred dollars per paycheque will no longer need to accumulate a couple grand in savings before pushing that money into the market. In Questrade’s honour, I’ve prepared a comprehensive promotional strategy for free:
While Questrade’s famous $4.95 trade commissions are incredibly low, that’s a 1% dent in $500; if you did that every two weeks you’d put yourself at a sizable performance disadvantage. But with the new free ETF policy, Johnny or Sally Canuck can buy ETF shares from each paycheque without paying commissions — whether they’re adding to a single position or many. Questrade’s new free ETF purchases policy apparently covers all North American ETFs. This is completely different from the “list of free ETFs” offered at other brokerages and will shake up the industry. Scratch that — it’ll change the industry if consumers wake up. OK, so maybe not that much will change but consumer laziness doesn’t undermine how awesome Questrade’s new policy is.
Sure, there’s fine print. The policy doesn’t apply to sales of ETFs. That means that if you need to re-balance by selling a certain ETF, you’ll pay a commission. But if you need to re-balance by selling, it’s probably because (1) your future contributions aren’t big enough compared to your portfolio to make up the difference and (2) the ETF being sold has appreciated relative to your portfolio. So quit whining. Also, remember that Questrade has the lowest or almost the lowest commissions in Canada — if you’re selling a hundred grand from your multi-million dollar ETF portfolio, paying a penny per share (up to the maximum of $9.95) isn’t going to break the bank. Well, maybe it will. But it certainly won’t break you. Also, if you change an order to reduce the number of shares before fulfillment, their ECN fees apply, yada yada. The limitations sound entirely reasonable to me but check them out for yourself before making a decision.
I know I’m in. Upon my return to the workforce from leave, I’m definitely going to funnel some excess cashflow into index fund ETFs. Vanguard has an amazing line of index ETFs trading on the TSX – most with MERs of under 0.21% a year. Note the ZERO in front of the .21%. I also want to load up on a high-yield fixed income ETF like iShares’ CHB. It’s a junk bond fund with a less attractive MER (0.55%) but the yield is insane (greater than 6.5% at the time of writing). Are junk bonds risky? You bet. The benefit is that the fund’s bonds are highly diversified (the biggest holding is 1.51% of the portfolio).
If you’re a regular reader, you may recall that I declared Questrade to be Canada’s best brokerage. Some people expressed doubts and, to their credit, raised reasonable concerns — e.g. people with a balance below $5,000 now pay an account maintenance fee (waived with a single trade per quarter), etc. Well, take Questrade’s new ETF policy as a definitive sign that — despite minor drawbacks — the Canadian brokerage offering the most value is Questrade. After the original article, even I had some doubts. But I’m now incredibly confident that Questrade is legitimately on the lookout for ways to save average investors like you and I from ridiculous fees.
Oh, and make sure you get $50 free towards your non-free trades (hopefully there aren’t many).