In the last five years we’ve seen the rise of robo-advisors offering low cost online portfolio management to investors large and small. Investors pay a management fee of around 0.50 percent plus another 0.20 percent or so for the robo-advisor to hold the underlying ETFs.
This is a massive improvement from a traditional mutual fund portfolio that investors get from their bank salesperson advisor, where clients pay between 2 and 3 percent MER. But has the investment industry come up with something even better? I think so.
The proliferation of one-ticket ETF solutions like those offered by Vanguard, iShares, and BMO has put major pressure on robo-advisors and their value proposition for investors.
I’ve recommended robo-advisors to fee-conscious investors who might not have the time or inclination to set up their own portfolio of ETFs, which involves opening a discount brokerage, setting up contributions, constructing a diversified portfolio, making trades, and rebalancing periodically.
Investors can get hung up selecting appropriate ETFs for their portfolio, and once they do, it can be endless tinkering (or paralysis by analysis) to set up the right allocation. Once in place, allocations get thrown out of alignment immediately after a new contribution or with normal market fluctuations.
A one-ticket ETF takes away these pain points because it’s one diversified product that constantly rebalances itself. Best of all, the fees on these one-ticket ETF portfolios hover between 0.17 and 0.22 percent.
Paying a robo-advisor 0.50 percent annually for portfolio management is less compelling now that the DIY option is so much more simple with a one-ticket ETF solution. An investor can open a discount brokerage account, set up automatic contributions, and then simply buy one ticker symbol. The one-ticket ETF will take care of the rest.
One-Ticket ETF solutions:
Vanguard
- Vanguard Conservative Income ETF Portfolio (VCIP)
- Vanguard Conservative ETF Portfolio (VCNS)
- Vanguard Balanced ETF Portfolio (VBAL)
- Vanguard Growth ETF Portfolio (VGRO)
- Vanguard All-Equity ETF Portfolio (VEQT)
iShares
- iShares Core Balanced ETF Portfolio (XBAL)
- iShares Core Growth ETF Portfolio
BMO
- BMO Conservative ETF (ZCON)
- BMO Balanced ETF (ZBAL)
- BMO Growth ETF (ZGRO)
Horizons
- Horizons Conservative TRI ETF Portfolio (HCON)
- Horizons Balanced TRI ETF Portfolio (HBAL)
One caveat to mention is that with most robo-advisor services your trades are included, whereas you’ll pay $10 a trade at most discount brokerages. That could be a deal breaker for a new investor who’s making small contributions on a bi-weekly or monthly basis.
I should also point out that the robo-advisor Nest Wealth still offers exceptional value for affluent investors due to its subscription fee model that’s capped at $960 per year. That puts the annual fee on a million dollar portfolio at less than 0.10 percent.
This Week’s Recap:
On Monday I wrote an epic post called how to save money on everything that matters.
Then I got travel fever (or was delirious from shovelling snow in -30C temperatures) and booked a family trip to Maui next February, and an anniversary getaway to Vancouver in the fall. Now we’re looking ahead to the summer of 2020 with visions of exploring Italy.
I’ll come back to reality next week with a post on a potential change to my own portfolio, plus some ideas on what to do with your tax refund.
Promo of the Week:
I like the idea of luxury travel but I don’t want to pay luxury prices on accommodations. That’s why I’ve zeroed-in on the Marriott Rewards program, which was recently rebranded to Marriott Bonvoy (for some reason).
With the rebrand the SPG Card from American Express now becomes the Marriott Bonvoy American Express Card. It comes with a welcome bonus of 61,000 hotel points (with a referral link) when you charge $3,000 to your card in the first three months. The annual fee is $120, but you also receive an annual free night award each year on your card anniversary.
Weekend Reading:
Morgan Housel from the Collaborative Fund blog explains why the subtle art of not caring what others think is a unique and powerful skill.
Planning jointly for retirement with a spouse pays off. Why your biggest tax asset in retirement may be sleeping right beside you.
RRSPs or TFSAs? The usual choice is to contribute to an RRSP but the TFSA might be better for enhanced flexibility. Here’s how to decide between the two.
Liz has just retired and wonders if she should use her investments to pay off her mortgage, despite her advisor’s advice to the contrary.
Successful and miserable. The upper echelon is hoarding money and privilege to a degree not seen in decades. But that doesn’t make them happy at work.
Ben Carlson takes to LinkedIn to ask why are people miserable at work?
Now we compare can ourselves to every humblebragger from around the globe and it’s making many of us miserable because everyone’s life is perfect on the Internet and our real life is flawed.This is a game you’ll never win because the other side is always cheating.
Here’s Dale Roberts to remind us that the biggest stock market collapse in our lifetime is now a distant memory.
Retirement is the hardest, nastiest problem in finance. Nick Magguilli explains why asset allocation is the easiest retirement choice you can make.
One of the oldest questions in investing is whether you should own individual bonds, GICs, or bond funds to get your fixed income exposure. PWL Capital’s Ben Felix does an excellent job explaining the pros and cons of each:
Michael James channels his inner Warren Buffett when it comes to his views on debt.
Rob Carrick explains how new “round-up” features can help save money in much the same way as the old-fashioned change jar.
Finally, a highly enjoyable read from VICE blogger Hayden Vernon, who tested the savings technique that promises retirement at 40. (Hint: It did not go well.)
Have a great weekend, everyone!
