Allow me to be very transparent, right from the start. I’ve had a non-registered investment account with BMO Investorline for decades. They’ve recently introduced a list of exchange-traded funds that can be purchased for free. Let me tell you say it again. Commission-free investing is fantastic!
I suspect that this move to providing commission-free purchases is in response to newcomers such as Questrade and WealthSimple. I don’t have an account with Questrade or WealthSimple, but it’s my understanding that their platforms both allow investors to buy ETFs for free.
This is wonderful. Commissions on investments through brokerages can run from $4.95 to $9.95. If you don’t have to pay them, then you can invest your former commission fee. Remember! The sooner you invest your money, the sooner it can start compounding for you. One of your goals during your accumulation phase is to invest your money as soon as you can. Investing without commissions allows you to do that.
For my part, I buy units in my preferred ETFs every month. Luckily, my paycheque is bi-weekly. That means, money shows up in my account every 2 weeks. I siphon off a chunk for investing. Every other paycheque, or every 4 weeks, I take my investment-money and buy more units in my preferred ETF. At the same time, my ETFs pay me dividends every month. While all of my ETFs are on the dividend re-investment plan (DRIP), there’s usually a little bit of dividend money left over after I’ve received my new DRIP-units.
For example, my ETF might pay me $100 in dividends. If my ETF is trading at $15/unit, then I only receive 6 DRIP-units valued at $90 (=$15 x 6). That leave $10 in dividends sitting in my account. Four weeks later, the same thing happens. I receive another $100 in dividends and my ETF is still trading at $15/unit. Again, my DRIP feature kicks into action and buys me 6 more units, leaving another $10 worth of dividends in my account. (For the ease of calculation, assume that my ETF’s trading price stays the same. In real life, the price of my ETFs fluctuates from month to month.)
Wait a minute – hold the phone! Now, I have $20 in “leftover” dividends. Yet the cost of each unit is still only $15. Since there’s no commission to buy, I simply do a trade for 1 unit at $15. There’s still $5 leftover in my account, since $20-$15=$5, but who cares? I’ve done all that I can to get as much of my money working for me as soon as possible.
This is why commission-free investing is fantastic! More of my money can be invested sooner. The more units I have, the more dividends I earn the following month. This is self-reinforcing cycle that increases my passive cashflow, via DRIP-units and commission-free units. As I’ve said before, passive cashflow is awesome. You work once – you invest money earned from your blood, sweat and tears – that investment pays you dividends. So long as you don’t spend them, those dividends earn you more dividends as they compound over time. What’s not to love about this process? Now that you know about it, you can create the same system for yourself.
Earn it once, invest it until retirement. Dividend ETfs have been the bedrock of my investment portfolio for the past 10+ years. Happily, I can report that my dividends hit the 5-figure mark years ago. At this point, I expect that they will be a very nice supplement to my other retirement income when my employer and I part ways. Up until a few years ago, commission fees constrained how often I reinvested my “leftover” dividends. Today, those fees no longer a concern. Whenever I have enough money in my account to buy a unit in one of my ETFs, I’m investing it immediately. The sooner my money’s invested, the sooner it can start to compound and to increase my passive cashflow.
Ever since commission-free investing has been available, I have done my best to take advantage of it. You should take advantage of it too!