I ditched my financial advisor about a decade ago and started investing on my own. I was fed up with paying high fees for underperforming mutual funds. Dividend-paying stocks were growing in popularity so I decided to take the plunge and build my own portfolio of blue-chip companies.

Several years later I realized my folly; it’s hard to pick winning stocks. It’s even more difficult to consistently pick winners and avoid losers over the long term. Overwhelmingly, the academic research showed that passive investing using mutual funds or exchange-traded funds (ETFs) has a much better chance of outperforming active investing that focuses on stock picking and market timing.

I bought into the research, sold my dividend stocks, and set up my new investment portfolio using two low-cost, broadly diversified ETFs.

Today investors have many more choices available to build an investment portfolio on the cheap. I’ll show you three ways to lower your investment costs, diversify your portfolio, and reduce the time you spend worrying about investing.

1). Use a robo-advisor

A traditional financial advisor or wealth manager might cost an investor between 1.5 to 2.5 per cent in management fees each year. Then along came robo-advisors to disrupt the portfolio management model and drive down costs to less than 1 per cent.

A robo-advisor helps you build a portfolio based on your risk tolerance, experience, and time horizon. Once your model portfolio is built all you have to do is make regular contributions and the robo-advisor will allocate your cash into the appropriate investments.

The robo-advisor takes care of rebalancing your money whenever the portfolio drifts away from its original allocation (due to market movements or from your own contributions).

Competition is heating up in the robo-advisor space with the likes of Wealthsimple, Nest Wealth, Justwealth, ModernAdvisor, Questwealth, and WealthBar all vying for your investment dollars. BMO SmartFolio has been around for a while and more recently RBC launched its own robo-platform with RBC InvestEase.

2.) Invest in index funds

An index fund tracks a stock or bond market and aims to deliver market returns minus a very small fee. All of the big banks offer index funds, typically at half the cost (or lower) than their traditional equity or bond mutual funds.

One popular set of index funds is TD’s e-Series funds. These funds can only be purchased online but they offer tremendous savings over their actively managed mutual fund cousins. Investors can find e-funds for Canadian equities, Canadian bonds, as well as U.S. equities and International equities all for fees of about 0.50 per cent or less.

Another solid set of index funds comes from Tangerine’s Investment Funds. These are one-fund solutions that come in five flavours; with the traditional 60 per cent equities, 40 per cent bonds balanced portfolio being its most popular. The expense ratio on Tangerine’s funds comes in at 1.07 per cent: higher than TD’s e-Series funds, but still a bargain compared to the industry average. Continue Reading…