Hi, I'm Justin Bender, Portfolio Manager at PWL Capital in Toronto, and this is episode
one of my DIY Investing series.
Today's lesson is on How to Build an ETF portfolio at TD Direct Investing.
For our example, we’ll be purchasing the five ETFs from my 40% fixed income / 60% equity
model portfolio – please feel free to download the model portfolios from my blog before getting
started.
We’ll begin by reviewing the cash balance in the account details screen.
As you can see, we currently have $15,000 of cash available for the trades in our Canadian
dollar RRSP account.
When you’re ready to start trading, click on the ‘Buy/Sell’ icon at the top of the
screen.
This will bring us to the trading screen.
You’ll notice that the account drop-down menu is set to the Canadian dollar RRSP account,
and that the available cash is $15,000.
Let’s start by entering VCN as our symbol.
When the fund name appears, click on it – this will populate a quote to the right
of the screen.
The letters “CA” that appear after the ETF symbol just means that the ETF trades
on the Canadian stock market.
We can then select ‘Buy’ as our action.
When we’re buying an ETF, we will be focusing on the ‘Ask’ price, which is the price
per share that an investor is willing to sell the ETF to us for.
In order to determine the number of shares that we need to purchase, we’ll use our
computer’s calculator:
Multiplying the total account value of $15,000 by VCN’s target allocation of 20% (or 0.2),
gives us $3,000.
We then subtract the trading commission of $9.99 from this amount, and divide by the
current ask price of the ETF, which is $29.28 in our example.
This equals 102 shares (we can just round down to the nearest whole share).
Let’s go ahead and enter 102 in the ‘Quantity’ field.
For the next step, I prefer to select ‘Limit’ instead of ‘Market’, as this puts a cap
on how much we are willing to pay for the ETF.
In the ‘Limit Price’ field, enter an amount that is a couple cents above the current
ask price.
Even if you use a higher limit price to place your trade, you’ll still receive the
lower ask price if it’s available.
The ‘Good Til’ drop-down menu should be set to ‘Day’, meaning that if your trade
does not get filled by the end of the trading day, it will expire.
Enter your four-digit trading password next, and click on the ‘Remember password for
this session’ checkbox, so that you won’t have to enter it again.
When you’re ready, click on ‘Preview Order’ to move to the next screen.
On the confirmation page, you’ll notice a warning about your limit order being above
the current ask price – you can safely ignore this warning.
Once you’ve reviewed the order details, and verified that the estimated cost is approximately
the dollar amount that you would like to purchase, click on ‘Agree & Send Order’.
And to place another trade, click on ‘New Order’.
We’ll enter VUN next as our symbol.
When the fund name appears, we’ll click on it to populate a quote to the right.
We’ll select “Buy” as our action.
In order to calculate the number of shares to purchase, we’ll multiply our total account
value of $15,000 by 20%, subtract the $9.99 commission, and divide this value by the current
ask price of $38.89, which equals 76 shares We can then enter 76 in the quantity field.
We’ll select ‘Limit’ price, and enter a price that is about 2 cents above the current
ask price.
We can then click on ‘Preview Order’.
After verifying the order details , we’ll click on ‘Agree & send Order’
To place another order, click on ‘New Order’.
We’ll enter XEF next as our symbol.
When the fund name appears, we’ll click on it to populate a quote to the right.
We’ll then select “Buy” as our action.
And in order to calculate the number of shares to purchase, we’ll multiply our total account
value of $15,000 by 16%, subtract the $9.99 commission, and divide this value by the current
ask price of $25.13, which equals 95 shares We can then enter 95 in the quantity field.
We’ll select ‘Limit’ price, and enter a price that is about 2 cents above the current
ask price.
We can then click on ‘Preview Order’.
After verifying the order details , we’ll click on ‘Agree & send Order’
To place another trade, click on ‘New Order’.
We’ll enter XEC next as our symbol.
When the fund name appears, click on it to populate a quote to the right.
We’ll select “Buy” as our action.
And in order to calculate the number of shares to purchase, we’ll multiply our total account
value of $15,000 by 4%, subtract the $9.99 commission, and divide this value by the current
ask price of $21.82, which equals 27 shares We can then enter 27 in the quantity field.
We’ll select ‘Limit’ price, and enter a price that is about 2 cents above the current
ask price.
We can then click on ‘Preview Order’.
After verifying the order details , we’ll click on ‘Send Order’
To place our final trade, we’ll close the confirmation screen and click on the buy/sell
icon.
This should ensure that our remaining cash balance is updated.
For our final trade, we’ll try to use up as much of the remaining cash as possible
– there is currently $6,042.11 available.
We’ll enter VAB as our symbol.
When the fund name appears, we’ll click on it to populate a quote to the right.
We’ll then select ‘Buy’ as our action.
And in order to calculate the number of shares to purchase, we’ll take our remaining cash
balance of $6,042.11 and subtract the $9.99 commission.
We’ll then divide this value by the current ask price of $26.45, which equals 228 shares
We can then enter 228 in the quantity field.
We’ll select ‘Limit’ price, and this time, we’ll actually enter a price that
is the exact same as the current ask price.
We want to try to use up most of the available cash while ensuring that we don’t place
the account into a debit position).
We can then click on ‘Preview Order’.
After verifying the order details , we’ll click on ‘Send Order’
Now that our final trade has been placed, we can verify the order details by clicking
on ‘Go to Order Status’.
The ‘Fill Status’ column shows that all shares from each ETF purchase have been
completely filled.
If you’d like to review your new portfolio holdings, click on the ‘Accounts’ heading,
and then click on the ‘Holdings’ sub-heading.
Here we’ll find that we now have about $3,000
of our portfolio in Canadian stocks, $3,000 in U.S. stocks, $2,400 in international stocks,
$600 in emerging markets stocks, and $6,000 in Canadian bonds.
You may also notice that the portfolio percentages now closely correspond to the model ETF weights.
There is now about 20% allocated to Canadian stocks, 20% allocated to U.S. stocks, 16%
allocated to international stocks, 4% allocated to emerging markets stocks and 40% allocated
to Canadian bonds.
If you have any questions, please feel free to send them to me via email: jbender@pwlcapital.com