Digital investing is finally hitting its stride as a way to make the portfolio-building process cheap, easy and accessible to all investors, including those with accounts too small to interest anyone on the human side of managing money.
Introduced this week, Toronto-Dominion Bank’s new GoalAssist investing app is the latest example. It offers a way to set financial goals and then reach them by investing money in TD’s family of exchange-traded funds at no cost.
GoalAssist is effective investing, demystified. Give it some thought if you’re comfortable investing on a mobile phone or tablet (there’s no website) and like the idea of working toward a financial goal by tossing money into your investments at random moments of opportunity. Novices, you’ll be fine with GoalAssist thanks to its inventory of instructional videos.
Digital investing means using technology to create a low-cost, widely accessible means of building portfolios with ETFs and individual stocks. Robo-advisers pioneered digital investing more than five years ago, but only recently have serious challengers emerged. As well as GoalAssist, there are free stock-trading apps like Wealthsimple Trade in Canada and Robinhood in the U.S. market. Online brokers have one foot in the digital world through their mobile apps, but their web-based services are often creaky relics of the early internet days.
Despite its shortcomings, GoalAssist could be the best digital offering for quickly and cheaply turning anyone into an investor.
Let’s address a logistical shortcoming right away. TD expects a lot of GoalAssist users to be non-TD clients, which raises the question of how they’ll transfer money into their accounts. For TD’s existing customers, this is easily done via online banking.
On TD’s to-do list is adding a feature to GoalAssist that allows users of the app to pull money in from linked outside bank accounts. For now, a non-TD banking client will need to go to the “add bill payee” section of their online banking website or app, select TD Waterhouse and then provide their GoalAssist account number. From there, they can fund their GoalAssist account by choosing TD Waterhouse as a bill payee.
As an investor, the first thing to understand about GoalAssist is that it’s a tool for building wealth the slow and boring way – by putting money away over time. If you want a margin account (for investing with borrowed money), look elsewhere. GoalAssist comes in three flavours – cash account, tax-free savings account and registered retirement savings plan. In all cases, there's no minimum account size.
Another thing to understand is that the business case for GoalAssist is to be a sales outlet for 31 TD ETFs, notably its One-Click balanced ETFs. You can’t buy ETFs from other companies, but it is possible to buy individual stocks listed on major North American exchanges with a commission of $9.99.
The lack of ETF diversity is the price you pay for being able to buy the TD brand of these products at no cost, no matter how big or small your account. Call it a fair trade-off for reasons that go beyond cost, notably the financial planning overlay on GoalAssist’s investing process.
Okay, that overlay has been thinly applied. It has you set a goal, pick an investor profile and then pick ETFs. There’s a glaring lack of guidance on keeping money for short-term goals safe rather than exposing it to financial market risk.
Still, GoalAssist answers the most important investing question. Not what to invest in so much as, are you on track to get where you want to go? When you open the app, you’ll find a dashboard that shows your progress toward your financial goal based on how your investments are doing. This is easily the most engaging feature of GoalAssist.
TD’s selection of individual ETFs includes enough variety to construct a well-diversified portfolio of low-cost index-tracking funds. But never mind them. What you’re best off buying as a GoalAssist client is one of TD’s three One-Click asset allocation ETFs, also called balanced ETFs.
There are three One-Click ETFs, each one a complete and diversified portfolio all on its own. The choices are aggressive (90 per cent stocks, 10 per cent bonds), moderate (60-40) and conservative (30-70). The management expense ratio for these ETFs will be an estimated 0.28 or so, which compares with 0.2 per cent for comparable iShares and BMO products and 0.25 per cent for Vanguard.
In general with ETF fees, lower means better. But in this case, the extra flab on the MER is offset by the lack of trading commissions. Online brokers like TD Direct Investing charge as much as $9.99 just to trade stocks and ETFs, a cost that can add up quickly and eat into returns if you’re making frequent investments.
The digital investing option that most neatly compares with GoalAssist is the robo-adviser, where clients typically pay in the area of 0.5 per cent for portfolio management plus another 0.15 to 0.2 per cent or so for the ETFs used to build portfolios. Robos provide more help than GoalAssist in matching clients to suitably diversified portfolios, but from there the investing experience is roughly similar.
Robos make sure all the components of your portfolio don’t stray much from the blend selected as right for your needs, a process called rebalancing. GoalAssist does the same through its One-Click portfolios.
If GoalAssist’s hand-holding holds no value for you, Wealthsimple Trade offers free trading of ETFs, balanced and otherwise, at no cost and with no restrictions on brand. No-cost ETF purchases are also available through online brokers Questrade and Virtual Brokers (they charge commissions to sell). Qtrade and Scotia iTrade offer a limited menu of commission-free ETFs, and National Bank Direct Brokerage offers free ETF trading for orders of 100 shares and up.
GoalAssist offers another cost advantage over the typical online broker – none of those bloodsucking account maintenance or administration fees that small accounts are too often subjected to.
One more shortcoming with GoalAssist, at least for the time being, is the lack of a feature to set up automatic recurring contributions via electronic transfers from a chequing account. TD says investing automatically isn’t as popular as it used to be, which is unfortunate because it’s one of the bigger success factors over a lifetime of investing.
Some may see GoalAssist’s app-based format for mobile devices as a drawback, but TD says its mobile stock trading volumes are doubling every year. Mobile trading now accounts for one in four trades, up from one in 50 a few years ago. These numbers suggest that the best of digital investing will be found on your phone in the years ahead, not your computer.
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