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Tag: Robo-Advisors

  • Wealthsimple reveals that it’s now profitable, after 10 years in operation – MoneySense

    Wealthsimple reveals that it’s now profitable, after 10 years in operation – MoneySense

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    It also ditched U.S. expansion efforts after selling its U.S. book of business to Betterment in 2021, and sold its Wealthsimple for Advisors to Purpose Advisor Solutions as it focused in on Canadian consumers. 

    The company’s valuation is also down from its peak. Power Corp., which across several divisions together held a 55.1% undiluted equity interest as of June 30, said the fair value of its holding was $1.5 billion. That’s down from $2.1 billion in 2021. 

    But the company has still managed a steep climb in assets from growth across the board, whether it’s wealth management, trading and brokerage or its banking business, said Katchen. 

    It comes as Wealthsimple increasingly positions itself as a full-suite alternative to the big banks, including boosting its banking services last year, that has helped lead to a $20 billion boost to the bank’s net deposits. 

    “We’ve been pretty excited about a more complete product offering,” said Katchen.

    Product expansion to include mortgages, credit and insurance

    Wealthsimple, which also offers tax services after buying Simpletax in 2019, launched a mortgage offering earlier this year and plans more credit products ahead along with an expansion into insurance, he said.

    It’s all part of the company’s effort to rival the big banks, by having more than a trillion dollars in assets under administration. 

    While Katchen had originally said he’d want to reach that goal within the first 15 years, he’s now aiming for a slightly less ambitious timeline of within 20 years of co-founding Wealthsimple. 

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    The Canadian Press

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  • What happens when you can’t manage your investments anymore? – MoneySense

    What happens when you can’t manage your investments anymore? – MoneySense

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    I try to picture 84-year-old me being told by my kids that it is time to hire a financial planner. I may not be so keen myself when the time comes. Maybe I should bookmark this column.

    I took over the management of my mother’s finances toward the end of her life. She seemed reluctant, but she knew it was time. I think she still saw me as her little boy even though thousands of clients and readers looked to me for advice that she was hesitant to take.

    Managing your own investments to save on fees

    If you expect to pay $35,000 a year on fees to invest in mutual funds, Laasya, I am speculating here, but you probably have somewhere between $1.5 million and $2 million of investments. Mutual fund management expense ratios (MERs) are embedded fees that are paid from the fund’s returns each year. They are about 2% on average but can range from under 0.5% for low-cost, passive index funds to 3% or more for segregated funds from insurance companies.

    If you have $1 million or more to invest, there are discretionary portfolio managers who use stocks and bonds or proprietary pooled funds who may charge 1% or less of your portfolio value. (Discretionary means the portfolio manager makes buy and sell decisions on your behalf.)

    You could certainly invest in exchange-traded funds (ETFs), and now there are plenty of simple asset-allocation ETFs (also known as all-in-one ETFs) that can be a one-stop shop for investors. Fees are in the 0.25% range.

    Why self-directed investing may not be the answer

    The problem with buying an ETF, Laasya, is that your kids are concerned about you investing on your own. And if they wanted to be self-directed investors, they probably would have offered to help you manage your investments. They did not. So, if you pull your investments to manage them yourself again, you may be putting your kids in an uncomfortable position, as they may potentially have to become DIY investors at some point if you’re unable to manage your own investments.

    Self-directed investing may seem easy to people who are comfortable doing it. But I remain convinced that some people will never be able to manage their own investments, no matter how simple it becomes.

    Have you considered a robo-advisor?

    I often joke with my wife that I am very good at a short list of things in the financial planning realm, but not much else. There are plenty of things that I could probably learn to do around my house or in other aspects of life that I have no interest in learning. I would rather pay an expert.

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    Jason Heath, CFP

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  • Robo-advisor or all-in-one ETF: which is best for new investors? – MoneySense

    Robo-advisor or all-in-one ETF: which is best for new investors? – MoneySense

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    In my opinion, the best thing about the evolution of the investment industry is a (slight) increase in transparency. There is a long way to go, and consumers are still disadvantaged in a lot of ways, but we are making progress.

    I am also of the opinion that not everyone should be a self-directed investor. Sure, it can be relatively easy, but having worked directly with thousands of clients during my career, I can also say that does not matter to some people who would never think of pressing the buy and sell button themselves. 

    Investment professionals are better off working with clients who do not want to micromanage them. Conversely, investors who want to take control of their own portfolios have lots of tools at their disposal. I like to see everyone investing in the way most suited to their situation. Below, I explore two important innovations that have appeared over the past decade that can lower the cost of managing an investment portfolio for retail investors.

    How ETFs changed the game

    The first Canadian mutual fund was introduced in 1932, but it was not until the past 40 years that they became mainstream. The past 10 years have started to show a shift in demand from investors to exchange-traded funds (ETFs), but mutual fund assets still dwarf that of ETFs. In fact, though the ETF market is growing faster, the mutual fund market in Canada is still about five times bigger (about $2 trillion compared to about $400 billion).

    An investor can build an ETF portfolio using individual components like a Canadian stock ETF, a U.S. stock ETF, a global stock ETF, and a bond ETF. They can buy ETFs that track stock market sectors and complement these ETFs with individual stocks.

    There are over 1,100 ETFs in Canada with 40 fund sponsors and easy access to thousands of U.S.-listed ETFs as well.

    The selection is enough to make your head spin and almost necessitates the use of an advisor to wade through the options. More and more advisors are using ETFs throughout their client portfolios, but a new class of ETFs may be better suited to self-directed investors. 

    How to invest using all-in-one ETFs

    Enter stage left the all-in-one exchange-traded fund, also known as asset-allocation or one-click ETF. The idea is simple: choose a single ETF that gives you access to all the asset classes an investor might need in a single product.

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    Jason Heath, CFP

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  • Don’t get stuck on financial advice that doesn’t ring true – MoneySense

    Don’t get stuck on financial advice that doesn’t ring true – MoneySense

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    Dividends are after-tax profits a company distributes among its shareholders, typically every quarter, and can be paid in cash or a form of reinvestment.

    Heath said a company that pays a high dividend reinvests less of its profit into growth, potentially losing out on opportunities to up its market value. In Canada, stocks with high dividends come from a narrow slice of the stock market—banks, telecoms and utilities. 

    “Ideally, an investor should consider a combination of stocks with high and low dividends to have a well-diversified portfolio,” he said.

    Contribute to RRSP, save on taxes

    “There’s a lot of taxpayers, investment advisers and accountants who really promote the concept of putting as much into your (registered retirement savings plan) as you absolutely can,” said Heath.

    As a financial planner, he thinks the contrary. Heath says using RRSP contributions to get the biggest tax refund possible is not necessarily the best approach for people in low tax brackets and can hurt them in the long run when they withdraw those savings at a higher tax bracket in retirement.

    “Sometimes, it’s OK to pay a little bit of tax, as long as you’re paying at a low tax rate,” he said.

    Instead, tax-free savings account (TFSA) contributions could be better for someone with a low income. 

    It can be wise to use the low tax bracket by taking RRSP withdrawals early in retirement, even though it might feel good to withdraw only from your TFSA or non-registered savings and keep your taxable income low. 

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    The Canadian Press

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