One advantage to building your own individual stock portfolio is the cost can be much cheaper than a portfolio of mutual funds or ETFs.

Aside from the initial set-up period, and assuming you don’t trade very often, a portfolio of individual stocks can cost just a fraction of even the cheapest funds on the market.

I started building my dividend stock portfolio with TD Waterhouse in 2009.  Since I had less than $50,000 in total assets, I had to pay $29 per trade.  In hindsight I should have started with Questrade, the low cost online brokerage which charges less than $5 per trade.

Related: Questrade Tutorial – How To Use The Trading Platform

Still, my trading costs have been minimal over the last four years.  I looked back at my trading activity to determine how much my DIY portfolio of individual stocks has cost me.

Cost of Individual Stock Portfolio:

Year Trades Cost Assets MER
2009 13 $377 $25,328 1.49%
2010 18 $522 $31,067 1.68%
2011 5 $145 $36,659 0.40%
2012 3 $30 $46,275 0.06%
2013 3 $30 $55,183 0.05%

As you can see, it was pretty expensive to buy and sell stocks at $29 per trade.  That’s why it makes sense to go with a low cost brokerage when you’re first starting out.  Over time, it has become much cheaper to manage my investments.

I only have 16 individual stocks in my portfolio at the moment, but I’m still in the accumulation phase and I expect to add another 10 or 12 stocks over the next decade.

Related: How Much Of Your Income Should You Save?

Let’s assume that, instead of buying individual stocks, I purchased a popular dividend ETF – iShares’ CDZ.  This ETF tracks the Canadian dividend aristocrats and is one that I use as a benchmark for my own portfolio.

I’ll keep the math really simple and say that I bought $25,000 worth of CDZ back in 2009 and then added new money twice per year.

Cost of Dividend ETF Portfolio:

Year Trades MER Assets Cost
2009 1 0.66% $25,328 $196.17
2010 2 0.66% $31,067 $263.04
2011 2 0.66% $36,659 $299.95
2012 2 0.66% $46,275 $325.41
2013 2 0.66% $55,183 $384.21

While the cost of an individual stock portfolio goes down over time, the opposite happens with the dividend ETF portfolio.  That’s because the 0.66% MER takes a bigger bite from your investments as they grow in value.

I’ve saved $365 in fees by building my own portfolio of individual stocks instead of purchasing CDZ.  That gap will continue to grow over the years as my investments grow and my trading costs go down.

Now, just for fun, let’s assume that I bought RBC’s Canadian dividend fund, the biggest dividend mutual fund on the market.  I’ll use the same assumptions as before, but keep in mind there are no trading costs associated with buying mutual funds.

Related: Are Mutual Funds Really That Bad?

Cost of RBC Canadian Dividend Mutual Fund Portfolio:

Year MER Assets Cost
2009 1.78% $25,328 $450.84
2010 1.78% $31,067 $553.00
2011 1.78% $36,659 $652.53
2012 1.78% $46,275 $823.69
2013 1.78% $55,183 $982.27

RBC’s dividend mutual fund would cost more than three times what my portfolio of individual stocks cost to set up – $2,360 more!

You can see how fees can be destructive to your investment returns over time.  And that’s with a relatively small portfolio of $50,000.  Imagine the impact 1.78% MER has on a $250,000 portfolio each year.  That’s nearly $4,500 in fees each year!

Final thoughts

I recognize that a small portfolio of individual stocks comes with more risk and higher volatility than an ETF or mutual fund holding dozens or even hundreds of stocks.

But studies have shown that a diversified portfolio of 20 to 30 individual stocks isn’t significantly more volatile than a portfolio that holds 50 or even 100 stocks.

Related: The Beginners Guide On How NOT To Start Investing

I’ll continue to build up my portfolio of dividend stocks and be satisfied that I’m saving hundreds (if not thousands) per year on fees.


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