Hi, I’m Shannon Bender, Associate Portfolio Manager at PWL Capital in Toronto.
In today’s lesson, I’m going to show you how to rebalance your ETF portfolio at Questrade.
For our example, we will be rebalancing our 60% equity / 40% fixed income model portfolio.
To begin, let’s hover over the DIY Investor’s Toolkit tab found at the top right corner
of the Canadian Portfolio Manager Blog.
From there, we’ll click on the Calculators tab.
Once you’ve arrived on the page, scroll down to the ‘Rebalance your Portfolio Calculator’
section and click on the ‘download calculator’ button.
The initial worksheet only requires you to enter your target asset allocation in column
C next to the relevant asset classes.
For our example, our target asset mix is 40% Canadian Bonds, 20% Canadian equities, 20%
US equities, 15% international equities, and 5% emerging market equities.
We’ll discuss the remaining columns later on in the tutorial.
Next, let’s click on the ‘Input’ worksheet tab at the bottom left of the spreadsheet
– this is where we’ll enter our market values for each ETF.
Column A of the worksheet comes prefilled with the recommended ETFs from our model portfolios
– feel free to update these if you have slightly different holdings.
Row 1 allows you to enter in the type of account you are investing within.
In our example, we’ll only be investing within one account so we’ll type in RRSP.
Next, we can begin by inputting the market values for each holding within our account.
Let’s pull up the ‘balances’ section of our Questrade platform to locate the cash
balance within the account.
In our example, we can see that there is $1.90 of cash sitting in our RRSP account.
We can then simply type $1.90 into the cash section of the Rebalancing spreadsheet.
We continue with this process for each security held within the RRSP.
We’ll now click on the ‘Positions’ tab to view the market values of each ETF
within the account.
In our example, you can see that we hold VCN, XEC, XEF, XUU and ZAG.
Returning to the spreadsheet, simply type in the market value for each corresponding
security.
Once the market values have been added to the spreadsheet, the rebalancing table will
do the heavy lifting and will determine which asset classes need to be rebalanced.
Columns D and F display the minimum and maximum thresholds for each individual asset class
as it relates to the Target Asset Allocation.
The minimum and maximum thresholds are based on Larry Swedroe’s 5/25 rule.
For more information on this rule, please refer to my blog on the topic.
To begin, let’s review the ‘Actual’ column.
This column displays the portfolio’s current asset allocation.
Referring to the ‘Actual’ column, we can see that we are under our minimum threshold
of 35% for Canadian bonds.
Additionally, we are over our maximum threshold of 25% for our Canadian equities.
Note that our US, International and emerging market equities are all within our thresholds
so there is no reason to rebalance these holdings.
In this example, we’ll simply sell a portion of our Canadian equities and purchase more
Canadian bonds.
The difference column to the far right of the table specifies the exact amount that
we need to buy or sell of each asset class in order to get back on target.
Instead of selling $418 of Canadian Equities, we’ll sell $393 which is the total amount
that we are overweight in the Equity category.
Now we’re ready to place our trades.
First, we’ll sell a portion of our Canadian equities in order to generate the cash required
to purchase our bond fund.
To begin, enter the letters VCN in to the Order Entry field and click on the fund name
when it appears.
This will generate a quote directly below the stock ticker.
When selling an ETF, we’ll focus on the Bid price.
This is the price per share that an investor is willing to pay us for our ETF.
To calculate the number of shares we need to sell, we’ll use our computers calculator.
As a reminder, the rebalancing table calculated that we need to sell $393 of equities, so
we’ll divide $393 by VCN’s current bid price of $30.87.
This equals 12 shares – we can just round down to the nearest whole share.
Let’s go ahead and enter 12 into the quantity field.
For the order type we prefer to select limit, since this puts a limit on how much we are
willing to sell the ETF for.
In the limit price field, enter in an amount that is a couple of cents below the bid price.
In our example, this would be $30.85.
The duration should be set to day which means that your order will expire by the end of
the trading day if it goes unfilled.
Also, please ensure that you are trading in the correct account, which is the RRSP in
our case.
Once all fields have been completed, click on the red sell button and an order confirmation
box will appear.
Once you’ve had a chance to review the order details, you can click on the green ‘send
order’ button.
When the order has been filled, you’ll receive a confirmation at the bottom, right-hand corner
of the screen.
Let’s close this notification, and click on the ‘balances’ tab at the top left
of the page.
We can now see that our cash balance matches the amount we would expect from the sale of
12 shares of VCN.
We’re now ready to place our final trade, and purchase ZAG.
Let’s click on the ‘positions’ tab and enter ZAG in the order entry search field
and click on the fund name when it appears.
Since we’re buying this ETF, we’ll enter in the full cash balance of $367.23 and divide
this amount by the current ask price of $15.61.
This equals about 23 shares.
Let’s go ahead and enter 23 in to the quantity field.
We’ll enter a limit price of $15.63 which is a couple of cents above ZAG’s current
ask price, and then click on the green buy button.
Review the details to ensure they reflect your desired trade.
After confirming the order details we’ll click on send order.
The ‘Positions’ page of the Questrade platform now shows that you have a 39.43%
allocation to ZAG in your account.
Similarly, VCN is now reflecting 20.82% of the account.
If you have any questions, please feel free to send them to me by email at sbender@pwlcapital.com.
Thank you so much for watching.