How to Start DIY Investing in Canada

Choose your RRSP or TFSA
How to Pick Your Asset Allocation
What Kind of DIY Investor Do You Want to Be?

If you’re here, I assume you already know that you should be saving and investing. Saving for your future isn’t enough, you need to invest. This post outlines some common strategies for how to start DIY investing in Canada.

Learning about personal finance and investing can be overwhelming. There are so many options out there, but it doesn’t have to be confusing.

You just need to reduce complexity and take action. The most important thing is that you start. You can always make changes alone the way.

My goal for this site is to provide a place for beginners to learn about investing. I want to breakdown the emotional and mental barriers that hold people back from starting. Fear and lack of knowledge will kill your motivation to start investing.

The good news is it doesn’t have to be complicated and it can be as little effort as you want it to be.

I prefer a minimally hands-on approach and so you’ll notice my recommendations follow a minimal effort and efficient approach. I feel this is the best place for beginners to start and for intermediate investors to continue with. If you’re looking for stocks picks or specific sector ETFs, you won’t find that here.

Let your portfolio do the work and check-in every once in a while to make sure your portfolio is aligned with your plan. Other than that, you can sit back, relax, and focus your time and energy into your other passions.

Hopefully, you can walk away with some new information and have the confidence to invest yourself and, of course to continue learning.

If you didn’t think you could DIY before, I hope this post changes your mind!

Disclaimer: I am not a financial advisor, therefore the information contained on this site is for information and entertainment purposes only. Please do your own due diligence when making financial decisions. 

Step 1: Choose Your RRSP or TFSA

One of the first things you need to decide is if you want to invest in your RRSP or TFSA.

My recommendation is to start with the RRSP. For most Canadians, you can’t go wrong with your RRSP. Here’s why:

• You receive tax back on your contributions that should be re-invested in your RRSP, or used to pay down debt, or put into your TFSA.
• You are unlikely to touch your money in an RRSP.

Investing in an RRSP provides a mental barrier to keeping your money invested (which is a good thing) as you will have to pay tax on any withdrawls.

The TFSA is great as well, it’s very flexible and gives you easy access to your money. But too many people hurt their long-term savings by treating the TFSA as a short-term savings account (which they unfortunately named it).

If you are a low income earner or you don’t reinvest your RRSP refunds, the TFSA is a better option. Asides from those two reasons, I lean towards the RRSP for starting out. Either way, if you are investing for the long-term, both the RRSP and TFSA are great options.

Remember – The most important thing is that you start. You can always make changes along the way!

Check out my related posts here: How an RRSP Works and How a TFSA Works

Step 2: Pick your Asset Allocation

Another decision you need to make is your portfolio asset allocation. This is largely based on your risk tolerance and how long you plan to be invested (time horizon).

Your ability to take risk depends on your time horizon and stability of your income. If you have many years to invest and a stable income, you should be able to take more risk. – Jessica Bender PWL Capital

Asset allocation can easily be summed up as the percentage of equities (stocks) and bonds.

For example, a balanced portfolio is 60% equities and 40% bonds.

What is your risk tolerance or Sleep-at-Night factor? You need to be comfortable with swings in the market. The greater the volatility means the greater the swing. If you can’t sleep at night because your portfolio dropped 40%, consider more bonds in your portfolio.

What is your time horizon? I assume you are investing for the long-term (10+ years) which means you can have more equities in your portfolio. The long horizon gives your portfolio time to recover after a market crash.

A higher equity portfolio has more opportunity to increase in value, but you need to be conformable with the ride.

The trick is to not sell. Invest regularly and consistently, regardless of current market conditions and market forecasts. This may sound easy, but staying invested through downturns and continuing to invest when the markets are scary, is one of the biggest emotional barriers we investors have.

Caution: If your time horizon is less that five (5) years, you should not follow the advice in this post and instead find a high interest savings account to park your cash. I recommend EQ Bank (referral).

Portfolio Examples (Equity % / Bond %)

Here are the most common portfolio asset allocations you’ll see.

Porfolio	Stocks	Bonds
Conservative	40%	60%
Balanced	60%	40%
Growth	80%	20%
All-Equity	100%	0%

I am a “Growth” investor. I use VGRO in multiple accounts and have a 75% / 25% allocation in core ETFs.

Step 3: What Kind of DIY Investor Do You Want To Be?

I’ve broken down the different DIY investor types as I see them. They range from simple and automatic to more complex and hands-on. How much effort you want to put in is completely up to you.

For beginners, I recommend becoming a Robo-investor or an All-in-One ETF investor.

1. The Robo-Investor
2. The All-in-One ETF Investor

For those that want a more hands-on approach and are interested in learning more, you can check these types out as well.

3. The Model Portfolio Investor
4. The Dividend/Growth Investor
5. The Day Trader

Below is my super technical scoring (aka my opinion) of the different DIY investors.

Type	Investment Knowledge	Complexity	Upfront Effort	On-Going Effort	MER Range
Robo-Investor					0.40% – 0.50%
All-in-One ETF Investor					0.20% – 0.25%
Model Portfolio Investor					0.07% – 0.15%
Dividend/Growth Investor					*N/A
Day Trader					*N/A

1. Investment Knowledge – What is the learning curve for you to be confident and comfortable with this investing style.
   
2. Complexity – How complex is the strategy. The more ETFs or stocks you select, the greater the complexity, as that increases the time you need to spend to review, analyze, and rebalance your portfolio.
   
3. Upfront Effort – How long will it take to get your accounts created and make your first investment purchase.
   
4. On-going Effort – How much time is needed for you to maintain your portfolio on a regular basis.
   
5. MER Range (*)- Management Expense Ratio (MER) fees can range. NOTE: Individual stocks do not have an MER but you need to be conscious of trading (commission) fees. The brokerage I recommend has very low commissions.

Recommendation: If you are new to investing, start as a Robo-Investor or an All-in-One ETF. They provide the easiest path to starting.

Related Post: Check out my post on How to Pick and Online Brokerage.

1. The Robo-Investor

Type	Investment Knowledge	Complexity	Upfront Effort	On-Going Effort	MER Range
Robo-Investor					0.40% – 0.50%

Robo-investing is also known as the set and forget strategy. This is very similar to what people are familiar with their banks but costs way less in fees. Pick your asset allocation upfront, set up a regular contribution, and the money is automatically invested.

Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.

When to Use

• Little to no investment knowledge
• No upfront money to invest
• You want a hands-off approach to low cost investing

Robo-Investor Benefits

• High chance of financial success with the least amount of effort
• $0-$25 minimal starting balance
• Auto Investing
• Auto Rebalancing
• Minimal upfront effort
• No ongoing effort

Robo-Investor Drawbacks

• Higher MER fees compared to All-in-One and Model Portfolio investment types

How Do You Become a Robo-Investor?

1. Create an account with a Robo-advisor (i.e. Wealthsimple Invest)
2. Determine your portfolio (balanced vs. growth vs. all-equity)
3. Link your bank account and set up your scheduled contribution
4. (Optional) Fund from a bank account or transfer money from another RRSP/TFSA account.

Robo-Advisor Recommendation: I recommend Wealthsimple (referral). It has a super easy sign-up process and a great app. It doesn’t get any easier than this!

2. The All-in-One ETF Investor

Type	Investment Knowledge	Complexity	Upfront Effort	On-Going Effort	MER Range
All-in-One Investor					0.20% – 0.25%

The All-in-One funds, or Asset Allocation ETFs, are a relatively new creation in the financial world and provide incredible diversification at a very low cost.

These funds are made up of broad market index ETFs (Exchange-Traded Funds). Which means you are buying stocks across the world in one fund. You purchase All-in-One ETFs on a stock market through an online broker.

When to Use

• Little investment knowledge
• No upfront money to invest
• You want a lower MER than robo-advisors

All-in-One ETF Investor Benefits

• High chance of financial success with minimal effort
• Auto Rebalancing
• Minimal upfront effort
• Minimal ongoing effort

All-in-One ETF Investor Drawbacks

• You must pick an online brokage to invest with, which adds a barrier to starting
• You must make ETF purchases through a broker (which is actually quite easy)

How Do You Become and All-in-One ETF Investor?

1. Create an account with an online brokerage (i.e. Questrade)
2. Determine your portfolio (balanced vs. growth vs. equity)
3. (Optional) Fund from a bank account or transfer money from another RRSP/TFSA account.
4. Link your bank account and set up your scheduled contribution.
5. REPEAT – Regularly buy your preferred ETF when funds are deposited into your account. Consistency is KEY!

All-in-One ETF Products

Type	Symbol	Equities	Bonds	MER
Vanguard All-in-One ETFs
Balanced	VBAL	60%	40%	0.24%
Growth	VGRO	80%	20%	0.24%
Equity	VEQT	100%	0%	0.24%
iShares All-in-One ETFs
Balanced	XBAL	60%	40%	0.20%
Growth	XGRO	80%	20%	0.20%
Equity	XEQT	100%	0%	0.20%

Extra Resources:
PWL Capital has some great videos on How to Choose Your Asset Allocation ETF and a great comparison Asset Allocation ETFs: Vanguard vs. iShares

Online Brokerage Recommendation: I recommend Questrade (referral) for its commission-free trades for ETFs and no account fees. You can start an account with $0 but you need $1000 before you can execute a trade.

3. The Model Portfolio Investor

Type	Investment Knowledge	Complexity	Upfront Effort	On-Going Effort	MER Range
Model Portfolio Investor					0.07% – 0.15%

Model Porfolios are made up of core index funds which have a large selection of stocks. A broad market index like the S&P 500 Index or U.S Total Stock Market Index is the best way to get diversification.

Vanguard and iShares have a great selection of core ETFs for the Model Portfolio investor.

What Makes up a Model Portfolio?

• Canadian Equities
• U.S. Equities
• International Equities
• Canadian Bonds

Vanguard Core ETFs

Click here for a complete list of Vanguards ETFs.

Fund	Name	MER	Holdings
VCN	Vanguard FTSE Canada All Cap Index ETF	0.05%	180
VUN	Vanguard U.S. Total Market Index ETF	0.15%	3935
VIU	Vanguard FTSE Developed All Cap ex North America Index ETF	0.20%	3822
VEE	Vanguard FTSE Emerging Markets All Cap Index ETF	0.23%	5204
VAB	Vanguard Canadian Aggregate Bond Index ETF	0.08%	1082

As you can see, the above funds combined is globally diversified and includes 13,141 stocks and 1082 bonds.

Vanguard Model Portfolio Examples

For simplicity, I’ve listed a Vanguard model portfolio for different asset allocations. iShares has similar funds which I plan to include in a follow-up post to outline more options for a Model Portfolio investor.

Description	Canadian Equities	U.S. Equities	Developed Markets	Emerging Markets	Canadian Bonds	Portfolio MER
Core ETFs	VCN	VUN	VIU	VEE	VAB
Fund MER	0.05%	0.15%	0.20%	0.23%	0.08%
Balanced	18%	25%	12%	5%	40%	0.11%
Growth	24%	34%	15%	7%	20%	0.12%
All-Equity	30%	42%	20%	8%	0%	0.12%

When to Use

• You want to build your own portfolio of low-cost broad market index ETFs
• You have $10,000 – $50,000+ available to invest

Model Portfolio Investor Benefits

• Low MER fees
• High chance of financial success with some upfront effort and minimal ongoing effort
• You have more control of your portfolio and can tilt your asset allocation as you like

Model Portfolio Investor Drawbacks

• There are A LOT of index ETFs to choose from, so picking can be hard and can lead to not investing at all
• You must pick an online brokage to invest with, which adds a barrier to starting
• You must make ETF purchases through a broker (which is actually quite easy)
• You need to rebalance yourself (Questrade and Passiv help with this).

How Do You Become and Model Portfolio Investor?

1. Create an account with an online brokerage (i.e. Questrade)
2. Determine your asset allocations (Canadian / U.S. / International Equities and Bonds)
3. Fund from a bank account or transfer money from another RRSP/TFSA account.
4. Link your bank account and set up your scheduled contribution.
5. Buy your ETFs in their respective allocations.
6. REPEAT – When adding funds, buy the ETF(s) that are under-weighted.
7. REPEAT – Rebalance – Regularly review your asset allocation to ensure within 5% of your target portfolio. I do this yearly and if there are large market swings/corrections.

The Canadian Couch Potato has a rebalancing spreadsheet you can use to start out with.

Related Post: Check out my post on How I Become a DIY Investor.

My Portfolio

In my RRSP is use a model portfolio that the Canadian Couch Potato had created in 2012. I still stick with that today.

There are three (3) notable differences in my portfolio vs. the model portfolio above.

1. I use XIC instead of VUN (as XIC has a few more holdings).
2. My U.S. and International equity portions use U.S. listed ETFs which trade in U.S dollars (USD).
3. You’ll also notice that I use 25% across all my allocations. I do this for simplicity, so I can easily look at my accounts and get a feel for how far off my allocation percentages are.

Having U.S. listed ETFs adds a layer of complexity to my portfolio that most people don’t need to do. If you are interested on knowing how to convert CAD to USD, check out the PWL Capitals’s resources on Norbert’s Gambit.

My approach has a “home bias” as I’ve invested 25% of my portfolio in Canada, which makes up less than 10% of the world market. I’m OK with this, as I expect my portfolio to have similar returns in the long run with and I prefer the ease of rebalancing and visual checks.

Description	Canadian Equities	U.S. Equities	Developed Markets	Emerging Markets	Canadian Bonds
My Allocation	25%	25%	25%		25%
My RRSP Portfolio	XIC	VTI†	VXUS†		VAB

† VTI and VXUS are ETFs that trade on the U.S. Stock Exchange and are trade in U.S. dollars (USD)

4. The Dividend/Growth Investor

Type	Investment Knowledge	Complexity	Upfront Effort	On-Going Effort	MER Range
Dividend Investor					*N/A

I’ve combined Dividend and Growth investing as they both involve researching and analyzing individual companies.

Dividend investing is very popular in the FI community. I’m not a dividend investor so I can’t do as good of a job highlighting the benefits of dividends as other people/bloggers can.

Growth investing is similar in that you are selecting individual companies that you think will do well over the long-term but you will get price appreciation only, where dividend companies pay out money on a scheduled basis which can be used to buy more shares.

I find dividend and growth investing very interesting, but I don’t have the time, or desire, to spend researching companies. For now, I’m sticking with my model portfolio.

When to Use

• You want to receive dividend income or growth from your investments
• You’re comfortable researching and analysing company financials and investment criteria
• You have $10,000 available to invest (you can start with less, but you can only buy a few stocks at a time)

Dividend/Growth Investing Benefits

• You have complete control of your portfolio and can buy individual companies you like
• You receive dividends from strong companies that either maintain or increase their dividend each year
• Many more I’m sure missing…

Dividend Investing Drawbacks

• Individual stock picking is risky and can easily lead to under-diversification
• There is a learning curve to understand which companies to invest in and develop your investing criteria.
• You need to continually monitor your stocks to ensure the companies meet your investment criteria.

I’ve also noticed that individual stock pickers usually have core ETFs as part of their portfolio in order to help with diversification but enjoy the control and research of stock picking.

5. The Day Trader

Type	Investment Knowledge	Complexity	Upfront Effort	On-Going Effort	MER Range
Day Trader					*N/A

The day trader is last and definitely the riskiest form of market investing. Day Traders (aka Speculators) are trying to profit from very short-term price movements. Day traders can also use leverage to amplify returns, which can also amplify losses.

The risk and level of effort needed for this sort of investing isn’t worth it to me so I will stick to my consistent investing approach rather than risking it for a big payoff.

When to Use

• Don’t

Day Trading Benefits

• Potential for big investment returns
• You have control of your portfolio

Day Trading Drawbacks

• Very high risk
• You need to continually monitor your stocks on a daily/hourly basis
• Professional financial “experts” aren’t able to beat the market over the long-term, you shouldn’t think you’re any better positioned to do so

Final Thoughts

There you have it, my take on the different types of stock market investors. I hope this has provided you with enough information to take the next step.

Open your account and start investing today!

If you have any questions or comments, please leave them below. I would love to hear from you.