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Getting started as a do-it-yourself investor

rcarrick@globeandmail.com

An often overlooked drawback to do-it-yourself investing is the burden of having to choose from an overwhelming selection of Canadian stocks, U.S. stocks, American depositary receipts, preferred shares, mutual funds, exchange-traded funds, closed-end funds, government bonds, corporate bonds, GICs and more.

Finding the right investments to build a portfolio is certainly a lot tougher than finding a good broker. You'll find lots of guidance in The Globe and Mail's 14th annual ranking of online brokers, which was published this week and can be viewed at tgam.ca/DkQo. For more help, check out another Portfolio Strategy column about online resources for finding a broker: tgam.ca/DjVA.

Once you've chosen a broker, you're on the spot. Leaving money to sit in your account is negligence because returns range from laughable to non-existent. Here are four ideas to help you get started as a do-it-yourself investor. All were chosen on the understanding that access to low-fee investments is one of the main attractions of investing yourself.

Create ultra-cheap ETF portfolio

ETFs are a low-fee option for building a diversified portfolio, but you do have to pay commissions to buy and sell them. A few brokers have done away with these fees to varying extents, and that creates an opportunity for cost-conscious investors.

The idea here is to pair up low-cost ETFs with brokers like Scotia iTrade and Qtrade Investor, which offer a limited selection of ETFs with no commissions, or Virtual Brokers, which allows investors to buy any Canadian or U.S.-listed ETF with no commission. Sell trades cost the usual amount, although Virtual's commissions are as low as 99 cents a trade.

Among the low-fee ETFs offered by Scotia iTrade are the Horizons S&P/TSX 60 Index ETF (HXT), with a management fee of 0.08 per cent, the iShares 1-5 Year Laddered Government Bond Index Fund (CLF), with an MER of 0.17 per cent, the iShares 1-5 Year Laddered Corporate Bond Index Fund (CBO), with an MER of 0.28 per cent; and, the Vanguard MSCI EAFE Index ETF (VEF), with an MER of 0.48 per cent. Qtrade's low-fee ETF offerings include all of the above, except for VEF.

At Virtual Brokers, you could set up a no-cost monthly or quarterly investment purchase plan for any ETFs. To put a lid on costs, consider the bargain-priced offerings from Vanguard, a U.S. player that now lists ETFs on the TSX.

Use mutual funds and get professional help

DIY investors don't tend to think much about mutual funds because the cost of owning them is high, for the most part. But there are a few fund companies that are ideal because they keep their fees low by paying little or nothing to brokers who sell their products. Some fund companies to investigate are Beutel Goodman; Mawer; Phillips, Hager & North; and Steadyhand. All offer exactly the sort of stable, well-run, no-nonsense products that are ideal for long-term investing. Consider Mawer Canadian Equity, with a 20-year average annual return of 9.7 per cent.

Other funds to investigate: Steadyhand Income and Steadyhand Equity; Beutel Goodman's D-series Canadian equity, income and balanced funds; and PH&N's D-series bond funds and its dividend income fund.

GICs for fixed-income holdings

A five-year provincial government bond might get you a yield of 1.7 to 1.9 per cent these days. Five-year GIC yields run as high as 2.5 per cent.

Don't sweat the unfamiliarity of the smaller GIC issuers, such as trust companies and credit unions. They're either members of Canada Deposit Insurance Corp., or a provincial credit union deposit insurance plan. Anyway, big financial firms sometimes offer top rates as well. That 2.5-per-cent five-year GIC was offered by Manulife Bank.

Use dividend reinvestment plans

Pick some solid blue-chip stocks and have your broker collect your dividends and use them to buy more shares of the company at no cost to you. Broker DRIPs aren't as versatile as the plans you set up directly with a company through its transfer agent. Most important, you can't buy fractional shares with a broker DRIP. Still, these DRIPs are a great way to effortlessly build wealth over the long term at no cost.

*****

A LOW- OR NO-FEE CORNUCOPIA

Zero-commission ETF investing

A few online brokers charge no commissions to buy and sell ETFs, which are normally subject

to the same trading costs as stocks. Here's a rundown:

Broker...........................Number of Zero-Commission ETFs

Qtrade Investor............60

Scotia iTrade...............50

Virtual Brokers.............All Canadian and U.S.-listed ETFs; note that purchases are free, but sales commissions apply at a minimum fee of 99 cents

Low-cost mutual funds

A few mutual fund families are ideal for DIY investors because of low fees that include little or nothing

to compensate the brokers that sell their funds. Here's a breakdown of how four low-fee fund

families are handled by online brokers:

BROKER...........................AVAILABILITY.............................................................COSTS TO BUY OR SELL ONLINE

............................................Mawer...Steadyhand...PH&N*...Beutel Good.*

BMO InvestorLine................Yes...........Yes...............Yes...........Yes....................None

CIBC Investor's Edge..........Yes...........No................Yes...........Yes....................None

Credential Direct..................Yes...........Yes...............Yes...........Yes...................None

Disnat (Classic)....................Yes...........No................Yes...........Yes...................Fees apply to certain fund families

HSBC InvestDirect...............Yes...........Yes...............Yes...........Yes..................None

National Bank Direct

Brokerage.............................Yes...........No................Yes............Yes..................Fees apply to certain fund families

Qtrade Investor.....................Yes...........Yes...............Yes............Yes..................None

Questrade.............................Yes...........Yes...............Yes............Yes.................$9.95 per trade

RBC Direct Investing...........No.............No................Yes............Yes..................None

Scotia iTrade.......................Yes............Yes...............Yes............Yes..................None

TD Waterhouse...................Yes............Yes...............Yes............Yes..................$33.75 redemption fee

Virtual Brokers.....................Yes...........Yes...............Yes............Yes...................None

*D-series

Note: Fees may apply on funds sold fewer than 90 days after purchase.

Third-party GICs

Here's an example of the selection of five-year GICs available online late this week at CIBC Investor's Edge.*

Issuer.......................................Rate

AGF Trust...............................2.40%

B2B Trust...............................2.40%

Canadian West. Bank..........2.35%

Equitable Trust......................2.35%

HSBC Bank...........................2.40%

ICICI Bank Canada...............2.42%

Laurentian Bank....................2.40%

Manulife Bank.......................2.50%

Montreal Trust.......................2.35%

National Bank........................2.25%

National Trust........................2.35%

Pacific West. Bank...............2.40%

Peoples Trust........................2.30%

DRIP investing

Here's how brokers stack up in offering dividend reinvestment plans

Broker......................................Number of Stocks

BMO InvestorLine.................270+ Canadian stocks

CIBC Investor's Edge...........934 Canadian and U.S. stocks

Credential Direct...................380+ Canadian stocks

Disnat (Classic).....................165 Canadian stocks

HSBC InvestDirect................245 Canadian stocks

National Bank Di. Brok.........245 Canadian stocks

Qtrade Investor......................500+ Canadian and U.S. stocks

Questrade..............................A wide selection of Cdn./U.S. securities

RBC Direct Investing............1,200 Canadian and U.S. stocks

Scotia iTrade........................A wide selection of Cdn./U.S. securities

TD Waterhouse....................1,889 Canadian and U.S. stocks

Virtual Brokers.....................A wide selection of Cdn./U.S. securities**

*Most brokers offer a selection of guaranteed investment certificates from third-party issuers, many of them small

banks, trust companies and credit unions that offer much higher rates than the big banks.

**Virtual Brokers charges a DRIP fee of $1 per account per month

THE GLOBE AND MAIL

© 2007 The Globe and Mail. All rights reserved.

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