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earlier discussion

It can be intimidating to get started trading stocks online. So many things can go wrong, it seems. How do you avoid the pitfalls? What should set off the alarm bells? What are the advantages to trading with a discount brokerage? What about over the phone? Personal finance writer Gail Bebee will took your questions reader questions in a live discussion.

Gail Bebee is the author of No Hype - The Straight Goods on Investing Your Money and president of The Ganneth Company. She has mastered the finer points of investing through years of practice in the investment trenches and extensive personal study. Her academic background includes undergraduate studies in biology and a Master of Environmental Engineering. She is an honours graduate of the Canadian Securities Course. Her book drew on her experience as an independent investor.



Pauline: Through a consolidation I have stocks that are less than a lot (1,000 shares turned into 250). Since I can't sell less than a lot with my discount broker I was wondering if you have any suggestions on what I can do with these. Do I have to open an account with a full service broker to get rid of them or is there an other way?



Gail Bebee: Pauline, I'm surprised you can't trade shares which are not board lots at your discount broker. There could be an extra cost for the odd lot, but you should be able to trade it. If you can't enter the non-board lot amount online, give your broker a call. If they still don't allow the trade, you could open an account at another discount broker who does allow you to buy and sell odd lots.



Dennis: I have an "Itrade" account with Scotia Bank. How do I avoid trading fees for currencies when I buy U.S. stock in my RRSP account. I sometimes request that they "wash" the trade but this is a pain.



Gail Bebee: Dennis, If you buy/sell U.S. investments frequently in your RRSP, you could open an account with Questrade or virtualbrokers. Both let you hold US currency in an RRSP.



Andrew: I am of the opinion that, for a novice investor, unless you have $20,000 to devote to equities (or $30,000-$40,000 total investable assets including fixed income), you should stick to index mutual funds or index ETFs, rather than try to pick individual stocks. Reasons include: (1) learning about your risk tolerance while facing only market risk and not individual-stock risk, (2) allowing you to test you stock-picking skills on a paper portfolio against the market, and (3) being able to reasonably diversify (100 shares each of Royal Bank, Encana, and RIM will take up $20,000). Please comment.



Gail Bebee: My approach is somewhat similar. In my book, No Hype - The Straight Goods on Investing Your Money, I suggest that you start off with mutual funds, maybe bought at your local bank. These funds are good for small amounts of money invested regularly. At $25,000 you open a discount brokerage account and try out ETFs and mutual funds not available at your local bank and ones with higher minimum purchase amounts. When your account reaches $50,000, you start to buy equities directly as part of your portfolio. At that point, you have enough money to diversify with direct purchases and have hopefully taken the time along the way to learn the investing basics.



Carolyne: I just want to know, how do you start?



Gail Bebee: A good place to start is to read to see which brokers offer what. As a beginner, you probably want a broker who has good educational tools. In the survey, RBC and TD Waterhouse had the best tools. Learn the investing basics before you dive in and start buying. Practice accounts are a good idea. RBC Direct has them if you open an account and BMO Investorline will let you test drive an account if you give them a call.





Monty: I have my RRSP and RESP invested through BMO. My account manager changed and I was not even informed. I was pissed of with the lack of communication from the bank, that I asked the new account manager to park my current year's contribution into money market funds. I also asked him to provide me with an update on RESP contribution. It has been 1 month and he has not even called back. The RRSP and RESP funds are invested in BMO Lifestage accounts, do you think I should just transfer them to my online brokerage a/c since I don't intend to sell them and loose my principal amount.



Gail Bebee: Monty, If you intend to keep the mutual funds, consider transferring them. The question is whether the bank will charge fees to transfer the funds. If you are opening new accounts at the discount broker, try to get them to pay for any transfer/account closing costs.



Jon Wilson: Can you explain what ECN fees are all about? When should I expect to be hit with this fee?



Anthony: How do you get around from paying ECN charges? I really don't require this service. The brokers don't advertise this hidden cost.



Gail Bebee: ECN Electronic communication networks charges. No easy answers to this one, other than to shop around. Some discount brokers may offer a break on certain trades.



Eric: What do you advise for a reasonably knowledgeable and active investor who needs to net decent returns during a market downturn? The government won't let us short stocks in our RRSPs or other tax-protected accounts where most of us keep the majority of our investments funds. Cash, GICs and bonds barely have a pulse. Inverse ETFs are too few and most of them are leveraged, volatile and risky. Is there nothing left but dumpster-diving a falling market for the odd stock that manages to buck the downtrend? Thanks.



Gail Bebee: I haven't found a way to overcome the risk-return relationship that exists in the marketplace. If you want to take on some higher risk for a better fixed (or almost fixed) income return, you could look at something like:

  • -the Claymore preferred shares ETF (CPD), pay outs around 5% which mostly qualifies for the dividend tax credit (effectively increasing your after tax yield)
  • -a real estate ETF, the iShares REIT ETF (XRE) with about a 7% distribution which will consist of a combination of income and return of capital
  • -established Canadian companies paying dividends eligible for the dividend tax credit e.g. BCE with a yield of around 5.5% or one of the Canadian banks.


Malaya: I am in the process of transferring my investments from Dominion Securities, and would like to know, how do I keep track of the book value of my stock holdings for income tax purposes.





Gail Bebee: I have transferred stocks between discount brokers and the book value was reflected in the new account. If the book value does not transfer, you could call your new broker and ask to have the book values added to your account. In any event, keep the statements from your old account. These will have the book value for tax purposes.



John: I'm considering buying ETF's. Do you have any suggestion on which company is better: ishares, Claymore, BMO's new funds?



Gail Bebee: Each ETF company tires to map out a distinct space with their ETFs. So, it depends on what you are looking for. I would start by asking what kind of investment I want to buy and then seeing what each company has on offer.





John: I've been using Scotia iTrade (formerly E*Trade Canada) for quite some time and am fairly comfortable doing that. One of the few negatives I encounter is what to do with cash inside my RRSP accounts. The only option viable option I've found is to use money market funds but there are very few of them in which one can park small (< $5,000) amounts and even those few that are available have very low yields. And you incur a fee if you withdraw the funds in less than 3 months. Do you have any alternatives to suggest?



Gail Bebee: You could consider one of the high interest daily savings accounts such as CIBC's Renaissance or Manulife High Interest Savings Accounts which can be bought in your discount brokerage account. The CIBC account has a minimum of $1000, Manulife's is probably the same. Both currently pay 0.75%, not much but better than nothing. Regarding money market funds in discount brokerage accounts - I don't think early redemption fees apply to no load MM funds. RBC Direct confirmed this for their accounts. Check with your discount broker to confirm their policy.



Jimmy: It seems only iTrade allow you to trade for $9.99 flat if your assets with them are $50,000 or higher or you do 30 trades a quarter. All discount brokers give you this rate if you trade 30 or more times a quarter, but the others require you to have $100,000 in assets or 30 trades. Why does iTrade have a lower threshold?

Gail Bebee: It's marketing and nothing more I think.



Joe: I like the idea of buying bonds directly because I can ladder them to suit my needs and also I can reduce risk by investing with the idea of holding them to maturity. Alas, I find that my discount broker (TD Waterhouse) has a limited offering and the markup for retail purchasers is high. Any suggestions as to how a small investor can access bond market in an efficient way. (I am not interested in ETF Bond funds because I want to hold bonds to maturity.)



Gail Bebee: Well, I've found the same issues with buying bonds directly. No easy answers here. My conclusion was to go with bond ETFs.



Shari MacNeill: When I sell a US stock can I keep the proceeds in a $US account with the online broker. I hate having to pay to transfer funds to Canadian currency and then pay to pay transfer fees again when I buy another US stock.



Gail Bebee: You should be able to hold U.S dollars in Canadian non-registered accounts. RRSP accounts, mostly not. Questrade and virtual brokers allow you to hold U.S. dollars in your RRSP.



Susan: I have $US from when I lived in the US, but now reside in Canada permanently. Would you transfer the funds into $CAN and invest here, or keep it in US funds and buy US Stocks?



Gail Bebee: This is a whither goes the currency exchange rate question. That is a big unknown. If you plan to stay in Canada and will be needing the money eventually in Canadian dollars, you might consider converting to Canuck bucks. If you do want to continue to invest in U.S stocks, I suggest leaving the funds in U.S. dollars moving them to your Canadian account and buying U.S. stocks in your Canadian non-registered account.



Irv: How do the typical costs of owning mutual funds compare online versus an account manager?



Gail Bebee: It depends on the mutual fund and how your account manager is compensated. If you pay an annual fees for advice, your account manager should be buying you so called F class funds, which have a lower MER because the cost of advice is stripped out. Online you shouldn't pay a sales commission but you often pay the same MER as the person with an adviser would. This is a big rip off. RBC and TD online have lower fees for some mutual funds bought online.



Walter: I do all my investing through a major on-line brokerage. The problem is availability of new product. Issues are almost always unavailable since you are at the "bottom of the food chain." Any advice?



Gail Bebee: Yes, we are at the bottom of the food chain. I don't have any advice. But, do you really want to buy an IPO? IPOs don't have the best track record in Canada. A federal government study, SME Financing in Canada 2003, SME stands for small and medium enterprises, reported that Canadian firms have low post-IPO survival rate e.g. of 95 companies with gross IPO proceeds between $1 million and $5 million, only 34 per cent survived over five years and had a positive book return with net assets worth more than the proceeds of the IPO.



Mike: So I'm with CIBC Investors Edge….they don't seem to have a savings account or pay interest on cash in the account. I'm comfortable with Money Market funds but they pay didly…I ended up opening a regular bank savings account to get my 1% interest…but I would rather the money in my investment account. Any suggestions?



Gail Bebee: These days, I don't think any brokers pay interest on cash in your account. The daily high interest savings accounts I mentioned earlier are one thought, but only pay 0.75%. For a little more risk, you could consider a short term government bond ETF such as the Claymore 1-5 year laddered government bond ETF. I think it pays around 2% currently, but that is not guaranteed.



Dan: Should you use stop loss on stocks you own? If so what are some rules of thumbs for setting and managing them?



Gail Bebee: It depends on what kind of investor you are. if you are a trader, then you'll want stop losses. Don't make them too tight ,or you will get sold out when you really didn't want to. It's an art to setting stop loss prices. You need to study the stock volatility and the company's industry to divine when a price change means you should sell. Personally, I focus on buying good stocks and holding them and I do not use stop losses.



Dan: What ETFs are available for parking money that pays a comparable rate to a GIC but has the flexibility to cash out within 24 hours?



Gail Bebee: Claymore has a money market ETF which you could look at. The MER is quite low, so the return should be decent, but the return is not guaranteed like a GIC. I think those high interest savings account funds I mentioned before are a good place to park cash and there should be no trading commissions unlike an ETF. They are CDIC insured.



Vincent Bruzzese: What is the best way to open a RRIF?



Evan: My parents are nearing retirement and other than pensions do not have much of a nest egg. They just received a $100,000 inheritance and are wondering what to do with it to generate some income as well as be accessible should an emergency come up. I'm sure the liquidity requirement will limit options. What should they look into?



Gail Bebee: I wrote an article for GlobeInvestor this week about what to do with your RRSP. I wanted to tell people to look at all the options before deciding on a RRIF as an annuity may be a part of the mix. So, I think paying some money to get the advice of an independent financial planner would be the best first step. As part of the advice, he/she should be able to advise you on the best place for a RRIF based on your personal situation.



Jim: What is a better strategy to buy a Stock that you have been watching and researching? Buy all you want in one shot when the Stock Dips to a price you are comfortable with (one trade fee)? or spreading it over 2-3 trades staggered to try to achieve a better dollar/cost average?



Gail Bebee: I like the idea of doing research and deciding on the price you want to pay for a stock and then buying the stock when it is at your price. But, that's just my thinking. Other people swear by dollar cost averaging into a position. You need to decide what you are comfortable doing.



Claire Neary, Reportonbusiness.com: Thanks for all your time today, Gail. And thanks to our readers for all your questions. Sorry we didn't have time for them all. Before we go, Gail, do you have any final thoughts?



Gail Bebee: Learn the investing basics before plunging into online trading. There is no shortage of information out there. Some online brokers have great educational tools including how-to videos. And don't ever stop learning. Investing like the rest of life is not static.













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Read more:

  • The 11th annual online broker survey
  • Breaking down the brokers
  • Keeping tabs on costs
  • The good, the bad, the ugly
  • Investing with an online brokerage: Tips and tricks
  • Share your online investing tips and tricks




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