A dear friend of mine, whom I’ll refer to as “Em,” has recently become more interested in improving her finances by saving more and investing her savings. As she puts it, she’s “become obsessed with financial independence.” She is cutting down on her daily costs by bringing lunch to work, making her coffee there, and possibly/maybe selling her cottage in order to pay down her mortgage faster. All important decisions.

Em is asking me some very specific questions regarding which broader index ETFs to buy and where. I covered some investment basics in a previous blog about buying the market through ETFs – this is worth checking out as a reference.

Index ETFs

Below is a summary of my favourite ETF picks. I’ve included the current share price, the distribution amount they pay per share on a quarterly basis, and the distribution yield.

I did a quick comparison among these. They all have the same MER of 0.06, which is very nice and low.

As far as distributions go, VCN pays you slightly more than XIC, but its share price is a lot higher — a higher share price for around the same amount in distributions (aka dividends) means a lower yield. ZCN pays a lower distribution, but it does have the lowest share price of all of these.

My conclusion: The XIC wins as you’re getting a better return in distributions for what you’re paying in share price.

An important thing to note is that just like share price can change, the distributions can change too as these depend on how much the stocks within the fund itself are paying in dividends. Then as all these values change, so will the yield.

Where to Invest

As for the process of investing, Em will have to open an investment account with a brokerage. The big question is, what kind of investment account does Em want to open? The RRSP for retirement? The TFSA so that she has the flexibility to cash out when she needs to? The RESP to invest for her adorable son’s education? Em will probably want an investment account of each kind. As she saves, she can allocate the desired amount for each of those investments.

There are a number of discount brokerages out there where you can open up most kinds of investment accounts. You can even open up an investment account through your own bank’s discount brokerage. They all offer competitive commission fees, some are much cheaper than others.

I have traded and invested with Disnat Direct, Questrade, Interactive Brokers, and Virtual Brokers. I am still using Interactive Brokers for my US margin account and Virtual Brokers for my RRSP and TFSA. They both have really low commissions. You can even buy Canadian ETFs with Virtual Brokers and pay NO TRADE COMMISSIONS on them. The only thing is, you might have to pay a quarterly administrative fee for registered accounts unless they hold over $5,000. I’m not sure if that is still the case, but I found this information here.

Getting Started

Em wanted to know the logistics of setting up her investment accounts. First and foremost, make sure to have a strong drink nearby!

Once you figure out who you want to invest with, talk to the staff to find out exactly which forms you have to fill out. It’s been years since I opened an account, but I recall I had to fill out multi-page forms with vague fields. My recommendation is to fill out as much as you can and then ask the staff about the parts that aren’t clear. I also had to send with the application a copy of my government issued ID and a void cheque for the electronic fund transfers.

After I mailed off my completed forms, I waited about a week before I was given an account number. Once you have that, then you can fund the account through your bank as you would for making bill payments. It takes a couple of business days for the money to be in your investment account. Once it’s there, you’re all ready to go!

When you’re ready to buy, be sure to call the staff to walk you through the process of buying your ETF under the correct commission structure, accessing the order box, selecting the correct account, keying in the correct ticker symbol, and executing the order. This is tedious, but at some point, it will become second nature.

Another way is to invest through your bank’s discount brokerage. I believe the setup is nearly instant once you go in and sit down with an investment advisor. The only downside is felt longer term in that the commissions per trade will be higher.

Well, Em my dear, I hope this answers some of your questions for now. Keep ’em coming. I’m so proud that you’re taking this step!