Net Worth Update: January 2018

Monthly Summary

2018 has started off with a bang! This past month we were quick to top up both of our Questrade TFSA accounts ($5,500 in each one). The stock markets have roared ahead this month as well.

I had to laugh when people started calling the next correction after just two consecutive down days near the end of a really profitable month. Who knows, January 26, 2018 might be the peak of the 2009-?2018? stock market run... but it's absolutely nuts to make that prediction after just two down days. Right now, all anyone can say with certainty is the trend is most definitely UP!

Thinking about the mini-panic and doom forecasts of the past few days, I realize our portfolio has never gone through a major downturn yet. Our biggest drawdown was around 16% in the 2015 market correction. (I started investing after the 2007-2009 crash and our investments were tiny in the 2011 correction.)

In the past few months, I've done a lot of market research, back-testing, and fine-tuning our investment strategy. I am confident that we can handle pretty much anything that comes our way.

Having predetermined selling points is very important in our strategy. Our portfolio is running very hot right now with nearly every position using 2x leveraged index ETFs or purchasing ETF positions using 2:1 initial margin.

I stuck my pledge not to dive into my investment accounts more than twice this month. However, I realize I'll probably need to log into my accounts once a week.

With the big upwards move of the past month, my stops got a little too far away from the price. By the end of the third week of January, my positions were up around 10% on average and I had not adjusted my stops up at all. That's a bit silly, but nothing a weekly update can't fix.

The move to Interactive Brokers has gone very smooth so far. The transfer of our positions was easy and I am enjoying IB's more technically advanced systems. I only placed one order so far, but I was happy with the order system, speed of the execution, and the price.

I can't comment on the tax situation yet as I have not received my tax slips for 2017 in my Questrade account. That said, I did an in-kind transfer using the ATON system, so there "shouldn't" be any tax issues.

After the transfer, I was able to update my position cost on the Interactive Brokers site, so proper reporting should not be a problem when I sell the transferred positions.

In December 2017, we finished the month with a total of $670,856 in our investment accounts. That was up a massive $230,000 for the year with a 35% investment return. The larger the accounts grow, the bigger the impact of the investment returns. At this point our monthly contributions seem to barely make a dent, but I recognize they are still important!

I hope through sharing our real numbers you will be inspired to start saving and investing young—it pays!

The Current Numbers

Here are our current Investment Assets as of the last trading day in January. We invest in TFSAs, RRSPs, and a joint margin Account. We use a trend investing strategy to determine what we buy and when we sell our ETF positions.

January 1 of the current year is in brackets to help illustrate the change during the current year. Net Worth Change reflects the total increase/decrease of this past month including new contributions.

The Investment Return is the total year-to-date return on our investment positions, corrected for new contributions at the end of the month. Due to the end-of-month adjustment, the true rate of return on a daily adjustment basis would be slightly different dependent on the intra-month return on the new contribution.

Total Investments:  $739,108  ($670,856)

Net Worth Change:  +$68,252

30x Rule Safe Annual Income:  $24,637  ($22,362)

YTD Investment Return:  +8.53%

Background Story

My wife and I are late-20s professionals working in the public sector. We don't earn enormous salaries, but by keeping our spending under control we save a large portion of our incomes each month. Our Investment Assets are 100% the result of our own hard work and the return on investments; we have not received any gifts or won any lotteries.

While we both work in pension careers, for this purpose we don't include pension values in our net worth nor pension contributions in our savings. Our investment assets and contributions are from our net paycheques.

We invest primarily with index ETFs using a trend strategy that I personally developed and maintain. To keep our investing costs as low as possible, I use Questrade and Interactive Brokers as my online brokerages. Questrade is my go-to choice for registered accounts. Interactive Brokers offers powerful tools, low commissions, and low margin interest for our joint margin account.

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National Bank Direct: Now With Free ETF Transactions

Edited Photo. Source: Flickr - Dinesh Kumar

I love competition. It lowers costs for consumers, requires companies to innovate, and ensures consumers get a good product at a fair price.

Since Questrade and other online discount brokers stormed on the brokerage scene nearly two decades ago, we have seen a steady drop in the cost of commissions and a steady increase in the quality of services and tools offered by discount brokerages.

In 2006, Questrade dropped commissions to as low as $4.95 per trade. Absolutely amazing considering many other brokerages were charging ten times that! Then, in 2013, Questrade began offering no commissions on the purchase of ETFs. This was a game changer for passive index investors!

Virtual Brokers basically copied Questrade with no commissions on ETF purchases, but are somewhat notorious for questionable customer service and they charge higher commissions on other trades. Other brokerages offered commission free ETF transaction on a very limited number of ETFs (think Scotia iTrade and QTrade).

However, Questrade does charge ECN fees for transactions that take liquidity out of the market. This means you are charged an exchange fee for any transaction that does not equal a round lot—some multiple of 100 shares/units. The ECN fees are tiny, but do amount to a very small “commission” of sorts when making small purchases.

Well, in summer 2017, National Bank Direct has really come out to challenge Questrade and Virtual Brokers. National now offers commission-free ETF purchases and sales on all ETFs listed on Canadian or U.S. stock exchanges—with a small catch. Each transaction must include at least 100 units.

Who Can Benefit

Considering that most ETFs in Canada trade at a price ranging from $20 - $50 per unit, this means you could eliminate all commissions and ECN fees if you are an aggressive saver, or a retiree living off your ETF portfolio.

If you are still in those accumulation years, to benefit from National Bank Direct’s ETF program, you should be saving at least $2,500 a month. This means you could make a 100% commission free purchase of ETFs every month or two. ETF sales—for rebalancing purposes or withdrawals—shouldn’t be an issue because they would almost always include more than 100 units in the transaction.

This free commission offer can also be effective for investors who are using a Dual Momentum investment strategy. The Dual Momentum strategy calls for periodic turnover of your entire portfolio; you would make transactions to sell your entire holding of one ETF and buy a different ETF once or twice per year (on average). That transaction is bound to include more than 100 units.

Other National Bank Direct Considerations

RESPs

National Bank might be the best place for you to open a self-directed family RESP account—especially if you are a lower income family. RESP contributions are often made in lump-sums and your contributions get topped up by government programs, so the 100-unit transaction minimum shouldn’t be a problem.

National Bank is possibly the only self-directed discount brokerage in Canada that is eligible to get funding from every federal and provincial education grant program available. This includes the Canada Education Savings Grant, the Additional Canada Education Savings Grant, Canada Learning Bond, the Saskatchewan Advantage Grant for Education Savings, and the BC Training and Education Savings Grant. Check the list here.

Margin Accounts

While not quite competitive with Interactive Brokers, National Bank Direct has really stepped up their game with margin pricing as well. This, combined with the commission-free ETF transactions, can be a nice option for more aggressive investors employing margin.

National Bank Direct currently charges the bank prime rate for margin amounts in excess of $100,000. As of January 2018, that’s just 3.45% interest which is completely tax deductible off your income. That translates to a net interest rate in the range of 2% for many people, less than the current rate of inflation.

Aside from Interactive Brokers, which is cheaper still, the only other brokerage I’m aware of that charges interest rates this low is RBC Direct for their Royal Circle members (investors with combined account values over $250,000).

Is It Worth Switching

While the National Bank Direct pricing package is very compelling (we all love FREE), I don’t think it is the best option for most people. The benefit of no commissions can easily be eroded if you have cash sitting in your accounts for months at a time while you try to save up enough money to purchase 100 units of more.

The National Bank Direct offer will be most attractive to retirees who will always be making transactions involving over 100 ETF units without thinking out it. It may also attract some very aggressive savers who are also higher earning individuals that can easily make regular purchases involving more than 100 ETF units. That means people saving $5,000 a month or more—a very small portion of the Canadian population.

It’s a smart offer on the part of National Bank Direct because it means they will generally be attracting a higher net-worth client who is probably familiar with self-directed investing and requires less customer service work.

Personally, I will keep my registered accounts with Questrade for the time being. My trading is very minimal—even with my trend strategy. I currently spend less than $50 a year on trading commissions. For that price I get instant price quotes, great customer service, and a platform that I’m familiar with and is incredibly easy to understand and use. Questrade gives me nothing to complaint about!

I’m not saying that National Bank Direct won’t give me the same experience, but I’m just not sure it’s worth switching from a service I’m very happy with for the potential of saving less than $50 per year in trading costs. However, if Questrade ever fails me in a big way, or if their current commission structure changes for the worse, it’s nice to know there’s another competitive option out there.

Comments & Questions

All comments are moderated before being posted for public viewing. Please don't send in multiple comments if yours doesn't appear right away. It can take up to 24 hours before comments are posted.

Comments containing promo links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.