Indexing My RRSP

by Mike Holman

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I recently moved my rrsp account from low cost mutual funds to Questrade where I bought some ETFs. I thought I would share the experience with you since I learned a few things during the process.

My plan was to buy four ETFs:

  1. XSB – ishares short term bond (Cdn $)
  2. XRB – iShares real return bond (Cdn $)
  3. VTI – Vanguard US equity (US$)
  4. VEA – Vanguard Europe and Far East (US$ to buy)

I described in a previous post about my first efforts at completing an equity trade. With this solid background I figured I’d be in better shape this time.

If you check out my post on my planned asset allocation you’ll notice that this portfolio is incomplete. That’s because we have several investment accounts so this one doesn’t represent the entire asset allocations. Once I get all the accounts figured out then I’ll post on the final asset allocations.

My goals for this exercise was to try to buy as many shares as possible and minimize the amount of cash in the account and to try to get it over with quickly. I didn’t want to have to spend a lot of time at work trying to get the best price for each security.

I started off with the Canadian purchases. This turned out to be a minor mistake because for some reason I thought that once I purchased the Canadian securities I would phone Questrade and get the Cdn$ converted to US$ and then buy the US$ securities. In actual fact when you buy US$ securities, you put the order in and then the dealer converts to US$ when the trade gets filled. The problem is that since you don’t know the exact currency conversion rate in advance you can’t utilize your last few dollars properly when buying a US$ security since you don’t know the exact maximum number of shares you can buy.

I used only limit orders which are market orders with a limit on them ie if you put in a buy when a stock is trading for around $50.00 with a limit of $50.50 then you will get the market price but only if it is less than or equal to $50.50.

Anyways, on with the trades…

XRB – The ETF had gone from $18.49 to $18.50. I put in a limit order for 700 shares with a limit of $18.55. It was filled immediately for $18.49. Very successful trade!

XSB – This one caused me a some trouble. This one has very slow trading activity so unless your order gets filled right away it might take a while. The last order was $27.97, I put an order for 1050 shares with a limit of $27.98 – first mistake – I should have had a higher limit. Second mistake, I didn’t put in a “all or none” order and 50 shares got filled at $27.98. The price drifted up during the day so my 1000 shares remaining with a limit of $27.98 couldn’t get filled. The problem was that I was already looking at one commission for the 50 shares so if I cancelled the remaining order the I have to pay a second commission. Luckily the trades are cheap at Questrade because by the end of the day the order had expired. The next day the last trade was $28.03, I put in my order of 1000 shares with a limit of $28.05 – filled right away.

VTI – this ETF had the higher share price so I bought it next. Last trade was $146.17 so I put in order for 350 shares with limit of $146.20. The price went up quickly to $146.20 so I had to wait about 15 minutes and it was filled at $146.20.

VEA – my problem with this order was that I didn’t know how much money I had in US$ – I called Questrade to get a recent conversion rate which I used to approximate the amount – I decided to go for 1000 shares. Last trade was $47.29, I put in order for 1000 shares with limit of $47.32 with all-or-none to prevent partial filling. Price went up for a while but it got filled about half an hour later at $47.32.

The next day I checked my cash balance and I ended up with about $900 in cash. This isn’t a big deal since these ETFs will be creating cash via interest and dividends anyways but if I could do it again, I would have left one of the Canadian securities to be the last trade so that I could accurately use up all my cash.

Anyways, it was fun buying these ETFs and I ended up learning quite a bit in the process.

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max

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{ 11 comments… read them below or add one }

1 Mr. Cheap

Interesting experience! I don’t try to nail the trades as exactly as you do (paying a trading commission twice on the blocks of XSB would make me angry).

If you’d bought on margin you could have insured that there wasn’t any cash left in your account (and if you were just slightly on margin, the cash created would quickly pay it off).

2 Four Pillars

I don’t know why I trade the way I do…I would probably be better off to just put in a market order and get it over with. :)

Unfortunately you can’t buy on margin in a rrsp but your suggestion is a good one for non-reg accounts.

Mike

3 Mr. Cheap

Ah, of course, you’re right (as always ;-) ). I tend to just go with market orders (and for the stocks I like to buy, they aren’t THAT volatile over the 10 seconds it takes for the trade to executre )

4 telly

4P, as I mentioned to you previously, I’ve only recently purchased individual stocks and boy, do our experiences sound similar?! :)

Too bad that $900 is in an RRSP, I would have suggested a new flat screen plasma or something. ;)

5 The Dividend Guy

Interesting account of your trades. Like one of the previous commenters, on the more actively traded ETFs I probably would have done a market order – but only if the spread was tight and consistently tight. Saves some stress.

Thanks.

6 FourPillars

Telly – I didn’t think you could get much of a plasma tv for $900, but good idea!

DG – you’re right – I think next time I may either put a market order in or have a limit that is not as likely to be reached.

Mike

7 Nobleea

Sounds like it didn’t take you long to spend $141K. Impressive!

8 SavingDiva

I need to consider redistributing my 401(k)…however, I need to really study up before I make any changes.

9 FourPillars

Nobleea – I tried not to think about the $$ values when I did the trades – a lot of dough!

SD – try not to over analyse things like I did. It’s great to have the perfect asset allocation but nothing wrong with just going simple. Ie put part of your investment in bonds (if you want) and the equity portion maybe just do 50% USA and 50% Europe. You can always add other asset classes in later.

Mike

10 Joe

WOW! I must admit, you have inspired me to do something similar with my RRSP. However, I don’t have 141k ;-)

Thanks for sharing and good luck.

11 CanadianInvestor

Excellent post. Have encountered all these issues too. My present policy:
- use market orders so that they will get filled completely; I will pay the ask price, a little more each time but it costs less than two trades and usually the problem is that the price went up so the second trade is at a higher price; if you are patient, you can use a limit order, ”all or none” fill and a month ”good until” expiry and hope the price goes back down at some point
- the FX difficulty doesn’t go away, the only way is to leave lots of margin for error; maybe some day the brokerages will do the logical thing and build their systems to enable us to hold US $ cash

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