This is a sponsored post written by me on behalf of BMO. All opinions are 100% mine.
The emergence of online portfolio management has begun to reshape the investment landscape in Canada and the U.S. The market is estimated to reach assets under management of $300B in North America by 2020. With more than half of Canadians currently using the Internet as their primary way to bank (including 57 per cent of Millennials and half of Boomers) it’s no surprise to see Canada’s big banks start to enter the fray.
The first of which is BMO’s new SmartFolio service. Billed as a personalized digital portfolio management service, SmartFolio is aimed at Canadian investors who prefer to take a hands-free approach to investing, who want access to their portfolio from a computer, tablet, or smart-phone, and who have as little as $5,000 to invest.
BMO reached out and asked me to take a look at their new SmartFolio service. I started by taking the investor profile questionnaire, answering a series of personal and investment questions such as, how much of a loss would you be financially and emotionally able to accept. After completing the 10 questions I was presented with one of SmartFolio’s five recommended model ETF Portfolios:
- BMO SmartFolio Capital Preservation Portfolio
- BMO SmartFolio Income Portfolio
- BMO SmartFolio Balanced Portfolio
- BMO SmartFolio Long Term Growth Portfolio
- BMO SmartFolio Equity Growth Portfolio
Clients have access to some of the most attractive and cost efficient ETF offerings available as well as active portfolios managed by BMO experts.
The recommended option for me was the Equity Growth portfolio with a asset mix of 90% equities and 10% fixed income:
The equity component included a broad range of ETFs from Canada, the U.S., and other global markets.
The fixed income component was made up entirely of ZMU, BMO’s Mid-Term US IG Corporate Bond Hedged to CAD Index ETF.
A team of portfolio managers monitor the model ETF portfolios every day, and rebalance where and when required, to keep clients on track with their investment objectives.
SmartFolio’s advisory fee is based on a percentage of your assets and includes all trading costs. As with other online portfolio managers, there’s an additional charge to cover the ETFs that are held within your portfolio. Expect the ETFs used to build your portfolio to have a weighted-average MER of 0.20% to 0.35% of the value of your SmartFolio account.
There’s a minimum quarterly advisory fee of $15, which is waived if you deposit $250 or greater into your account during that calendar quarter.
An investor with a $75,000 portfolio can expect to pay $525 a year, plus the cost of the ETFs held in their portfolio. That puts their total annual advisory fee in the affordable 0.90% to 1.05% range.
An investor with $250,000, on the other hand, would expect to pay $1,600 a year, plus the cost of the ETFs held in their portfolio. The advisory fee is lowered to 0.64%, which would keep their total annual fee, including investment costs, under 1 percent.
SmartFolio is currently set up to offer investment accounts (individual cash only), RRSPs, Spousal RRSPs, and TFSAs, and will be adding RESPs, LIRAs, and joint accounts in the coming months.
BMO’s SmartFolio service represents a continuing shift in the investment industry as investors seek more affordable and effortless investing solutions. Affordable ETFs combined with smart portfolio management gives investors piece of mind without the hassle of trying to do it all themselves or paying 2% or more for a similar portfolio of mutual funds.
We are constantly reminded about the rising level of outstanding personal debt carried by Canadians. Every few months we hear about the perils of rising interest rates that may leave many in financial difficulty.
The reality is – debt is not all bad. Most of us wouldn’t have been able to purchase our homes without a mortgage, or buy a car, or pursue secondary education. Even credit cards are not evil in and of themselves no matter how they are often portrayed.
To never (ever) borrow money is to live in the land of the already rich, or to always be a renter. At the other extreme, using other people’s money to fully finance your lifestyle is ridiculous and precarious.
Most of us don’t fall into these extreme circumstances. We hold a reasonable amount of debt, make our payments on time and have good, to very good, credit ratings. That being said, most people fail to optimize their overall debt management strategies to pay the least amount of interest.
We no longer hear about the “all-in-one” mortgages offered by financial institutions such as the Manulife ONE and National Bank All-in-One. These accounts combine chequing, savings, and borrowing into one account. If used properly, consumers could simplify their debt and lower their overall interest paid.
These won’t work for most people because they like to keep all their accounts separate. They have multiple liabilities at different interest rates:
- Home mortgage
- Car loan
- Line of Credit
- Student loan
- Credit card to use for discounts at your favourite store
- Credit card for other rewards.
When I worked in banking, I gave out many consolidation loans. I confiscated and cut up credit cards, cancelled overdraft protection, and closed out other loans and lines of credit. Invariably, within a couple of months, more than half of these clients would reapply for their credit cards, reinstate ODP, and sneak off to a different branch to get another line of credit.
More personal debt mismanagement
Here are some other ways people don’t think clearly about managing their personal debt.
- Mike and Molly are determined to pay off their mortgage (2.7%) in less than 10 years. They put every available dollar towards the principal. They also have two car loans at 4.5% and 8% and purchased a “don’t-pay-for-six-months” entertainment system. It makes more sense to address these debts first.
- When their mortgage came up for renewal, Fred and Ethel rolled the balance into a new Home Equity Line of Credit. However, they continue to finance their lavish life style with their credit cards. They pay off the cards each month from the HELOC on which they make the required minimum payment of accrued interest. After all, they have a huge balance still available to them. They think they are managing their debt well by paying off “bad” credit card debt and having “good” mortgage debt.
- Jess went to her favourite home décor store to purchase some sheets. There was a store promotion that gave 20% off purchases when opening a new store credit card. Excited by the discount, Jess picked out a whole bedding set from duvet to accent cushions. The balance is too high to pay when the bill arrives so she makes minimum monthly payments while incurring interest charges of 29.9%. Meanwhile, she has enough money in her low-interest savings account to pay the entire bill, but chooses not to.
- Leonard works on commission and his paycheque amounts vary. He makes up the difference in lean months with his overdraft protection at 24%. Until he learns how to budget for his irregular income, he should use his credit card for purchases, even if he carries a balance for a month or two.
- Ross receives a credit card offer with a “teaser” 0% interest on balance transfers. He transfers the balance from his high interest rate card and cancels it. He uses his new card for future purchases, not realizing that the 0% only applies to the amount of the transfer. His payments go to the new purchases he made which carry a much higher rate. He would have been better off to continue using his old card for his occasional new purchases, pay the monthly balance in full, and avoid using the new card at all.
- Barney and Betty have a systematic plan to pay off all their debt. They are using the “snowball” method popularized by author Dave Ramsey, which states that it is psychologically satisfying to first rid yourself of the smallest debts first, regardless of interest rates. The reasoning is they would be better prepared – and more enthusiastic – to stick with the strategy. But, once the small debts were done they took their foot off the gas and paid random amounts on the higher debts whenever the inclination hit them.
Instead of speculating about the direction of future interest rates, we should be examining our own habits.
Take a look at how you think about – and manage – your personal debt and see if you can minimize your borrowing costs.