Several friends have told me that they’ve read enough about investing to know that it’s best for non-professional investors to use index funds. But they don’t know how. Like, literally: what buttons should they press? I’m not a financial advisor, but here’s a system that works for me, as a Canadian:
1. Open a self-directed tax-free savings account (TFSA) with TD: https://www.td.com/ca/en/investing/direct-investing/tfsa-accounts/
The TFSA is a great place to start because you invest after-tax income, and can withdraw tax-free. There’s nothing fancy: you just put money in, then invest, and withdraw when you want to.
2. Transfer some money into your account. I don’t know the easiest way to do this if you don’t also have a checking account with TD, but if you do, you can do it on the transfers page on EasyWeb:
3. Now that you’ve added some money, go to your TFSA in WebBroker: https://webbroker.td.com
4. Click Buy/Sell at the top of the screen:
5. On the pop-up, go to Mutual Funds:
6. Decide on your portfolio: what proportion of your investments will go into which funds? Mine is adapted from the model portfolios on Canadian Couch Potato, a site that I think is the best source of information about passive investing for Canadians. Here’s the site: https://canadiancouchpotato.com
And here are the model portfolios for the TD e-Series funds, which are the ones I invest in: https://cdn.canadiancouchpotato.com/wp-content/uploads/2020/02/CCP-Model-Portfolios-TD-e-Series-2019.pdf
If your investment horizon is shorter (i.e. you want to withdraw this money in the next few years), choose a portfolio that has more bonds relative to stocks. If your horizon is longer, choose one with more stocks relative to bonds.
Personally, I have a shorter horizon for my TFSA (which I think of as down payment money) and a longer horizon for my RSP (which I think of as retirement money). So I have different portfolios for each.
I invest in more American and international stocks than Canadian ones, simply because those markets are larger and I want to avoid “home bias”—the tendency for investors to invest in companies from their own countries. But the best allocation for me is not necessarily the best one for you. To reiterate: I’m not a financial advisor, and if you feel more comfortable just following Canadian Couch Potato’s advice, you should do that. Really though, do your research and think it through.
If you’re interested, here’s the breakdown for my TFSA, which is quite conservative since it’s shorter-term:
- 10% cash
- 15% Canadian stock index (TDB900)
- 20% International stock index (TDB911)
- 25% US stock index (TDB902)
- 30% Canadian bond index (TDB909)
And here’s the breakdown for my RSP, which is more aggressive since it’s long-term:
- 0% cash
- 20% Canadian stock index (TDB900)
- 30% International stock index (TDB911)
- 40% US stock index (TDB902)
- 10% Canadian bond index (TDB909)
7. After deciding on your portfolio, calculate how much of your cash to invest in each fund. You can whip out your calculator and just calculate the percentages every time if you want, but:
Personally, I use a spreadsheet to rebalance my portfolio every time I add more cash. Feel free to make a copy of the template, if you want to use it. Edit the values under “Current Amount” and “Target Percentage”, and everything else will update automatically.
8. Go back to the Buy & Sell page on WebBroker, and search for the first fund in your list. For example:
9. For “Quantity type”, choose “Dollar Amount”:
10. Enter the amount from the “Delta” column if you’re using my spreadsheet template, or just add however much you want to invest in this particular fund. ($100 is the minimum amount for each of these funds.)
11. Click “Preview order”, then “Agree & Send Order”:
This system obviously isn’t for everyone, but if you’re a Canadian who has found this stuff a bit out of reach, I hope this post has demystified a few parts of it for you.
One last time: I am not a financial advisor, and I am definitely not your financial advisor. But if you have any questions on the level of this nuts & bolts stuff, or about my experience investing in the e-Series funds with TD’s self-directed accounts, I’m happy to help!
(PS: I know all this stuff because I’m fortunate to have a dad who worked at TD and who showed me how to do it. It’s all pretty simple once you’ve done it, but highly non-obvious if you haven’t.)