ShareOwner: A Better Way to Buy ETFs? Part 1

Several weeks ago, a reader named Steve wrote to me about using Canadian ShareOwner Investments to build a Couch Potato portfolio with exchange-traded funds. I had no experience with this service, so I asked Steve to report back after he did his research, and he kindly followed up. In today’s post I’ll describe how ShareOwner works, and early next week I’ll pass along Steve’s assessment of its pros and cons.

ShareOwner Investments (formerly the Canadian Shareowner’s Association) is a dealer that allows investors to trade stocks and ETFs in both registered and taxable accounts. But unlike a discount brokerage, ShareOwner uses a dollar-based trading platform that enables you to buy and sell small amounts, and to own fractional shares. For example, you can place an order for $500 worth of a stock or an ETF, and if it’s trading at $27.36, you’d receive 18.2749 shares. ShareOwner also reinvests all dividends including partial shares, something traditional DRIPs don’t allow.

The other important feature of ShareOwner’s platform is that you can place a single order covering as many securities as you want. If you have $1,000 to invest, you can order $50 worth of 20 different stocks or ETFs, all for a single trading commission of $40.

ShareOwner can do this because it makes large “co-op purchases” of the stocks and ETFs in its inventory at specified times. (The schedule is not based on market timing: orders for ABC Company might be executed every Thursday, for example, while orders for XYZ Company might take place on the fourth Wednesday of every month.) Once a month, each client receives his or her allotment of these bulk purchases, including fractional shares down to four decimal points. In this sense, ShareOwner makes buying stocks more like buying mutual funds.

The platform was designed as a cheap and easy way to build a diversified stock portfolio, but it’s also ideal for ETF investors. One drawback of ETFs has always been that it is cost-prohibitive to trade small amounts. Commissions make monthly contributions — and even annual rebalancing — too expensive for many investors. Imagine that you’ve decided to set up a Couch Potato portfolio with the following asset allocation:

20%     Canadian equities
20%     US equities
20%     International equities
5%       Emerging markets equities
5%       Real estate
20%     Short-term bonds
10%     Real-return bonds

Building an ETF portfolio like this through a big-bank discount brokerage would incur seven trading commissions totaling more than $200. I use the rule of thumb that a trading commission should not exceed 1% of the purchase or sale. So if you’re paying $29 commissions, your trades should be at least $3,000 or so. The cost of adding money and rebalancing, even once a year, is so high that you’d likely be better off using index mutual funds unless your account is at least $60,000. (If you’re paying $9.95 per trade you could pull it off with less, but it would still be unwieldy.)

Now consider the same portfolio in a ShareOwner account. You’d build it by placing one $40 order that includes all seven ETFs. Using my 1% rule, you’d need only $4,000 to make this cost-effective. After subtracting the $40 fee you’d have $3,960, which you’d allocate like this:

Dollar amount Current price Number of shares
iShares S&P/TSX Composite (XIC) 20% $792 17.96 44.0980
SPDR S&P 500 (SPY) 20% $792 107.55 7.3640
Vanguard Europe Pacific (VEA) 20% $792 29.03 27.2821
Vanguard Emerging Markets (VWO) 5% $198 36.38 5.4426
iShares S&P/TSX Capped REIT (XRE) 5% $198 11.56 17.1280
iShares DEX Short-Term Bond (XSB) 20% $792 28.97 27.3386
iShares DEX Real-Return Bond (XRB) 10% $396 20.79 19.0476
$3,960

Once or twice a year (or as often as you want) you can add a few thousand dollars and rebalance the whole portfolio in one fell swoop. In the meantime, all of your distributions get automatically reinvested rather than lying around in cash.

ShareOwner is a unique service that promises to make buying ETFs even easier and cheaper for small investors. In my next post, we’ll look at its strengths and weaknesses so you can decide whether it would be the right vehicle for your Couch Potato portfolio. Until then, If you’ve used ShareOwner, please let us know your thoughts in the comment section.

Dollar Current Number
Amount Price of shares
iShares Canadian Composite (XIC) 20% $792 17.96 44.0980
SPDR S&P 500 (SPY) 20% $792 107.55 7.3640
Vanguard Europe Pacific (VEA) 20% $792 29.03 27.2821
Vanguard Emerging Markets (VWO) 5% $198 36.38 5.4426
iShares S&P/TSX Capped REIT Sector (XRE) 5% $198 11.56 17.1280
iShares DEX Short-Term Bond (XSB) 20% $792 28.97 27.3386
iShares DEX Real-Return Bond (XRB) 10% $396 20.79 19.0476
$3,960

14 Responses to ShareOwner: A Better Way to Buy ETFs? Part 1

  1. simms May 20, 2010 at 10:52 pm #

    This is an interesting concept but the article fails to mention how the company nickels and dimes you on RRSP and TFSAs every year (to the tune of $129/yr) as well as charges $12-48 for withdrawl of your own money. Assuming one “trade”/month @ $40/month and the fees, that’s easily over $600/year.

    With Questrade at $5/trade for your RRSP/TFSA and no account fees annual or otherwise, and free withdrawls, you’re more likely to come out ahead. Used in conjunction with IB at $1/trade, and you could have at least 120 trades/year with this option, or 10 trades/month. Most couch potato portfolios have less components than that, so DRIP benefits aside, this may not be a viable alternative to many DIY investors.

  2. David May 21, 2010 at 4:25 am #

    Great post. Glad to see you speak about Shareowner Investments. In fact, they were how I currently got involved in investing. I read about what they offered and did a longer in-depth look. Soon after, ETFs came along and I took another year researching into ETFs.

    I didn’t think to combine the two, but certainly should have and really feel stupid now that I didn’t. However, I would question your breakdowns of portfolios: I am a big income (dividend) fan when it comes to all my investments. So, I would think that they way Shareowner takes advantage of DRIPs that maximizing your portfolio with income would be the best approach.

    After all, that is its intent!?

  3. David French May 21, 2010 at 5:37 am #

    I have used the Shareowner service – and subscribed to the Canadian Shareowners’ Association services for a number of years.

    The Broker function is excellent for buying, as you describe it. My experience was that the service is not as (cost) effective when it comes to selling!

    In your investigations you might want to check into how they handles sales currently.

    The essence of cost effectiveness is that costs be reasonable to get in … and to get out!!

  4. Canadian Couch Potato May 21, 2010 at 6:57 am #

    Simms: I’ve intentionally left the discussion of fees for the next post, which will discuss the drawbacks of ShareOwener’s cost structure. Stay tuned!

  5. Len Currie May 21, 2010 at 7:28 am #

    Very interesting article as I haven’t heard of this service before. I’m interested in the follow up article as if you wanted to participate in a DRIP program – this is a pretty simple way to get started (may be more $$ however) and to have it all under one account is also nice.

    Perhaps if it gets popular enough, other services will start offering partial buys (which is it’s one huge advantage in my opinion)

  6. Irvine May 21, 2010 at 1:41 pm #

    For me, Canadian Shareowner Investments Inc. is a great service because it offers US dollar account for US securities. This provides me the way to keep US distributions and proceeds from sales in USD, rather than facing fees on currency exchange into a CA dollar account for every activity by every US security.

  7. Jon Wilson May 21, 2010 at 4:32 pm #

    Wow! Now I can tell my friends and co-workers that I own Birkshire Hathaway (BRK) shares. Just won’t tell them I own 0.02 of a share. HA!

    Looks like a good option for folks who have a annual lump sum to invest in a non-registered investment account and they want to diversify quickly and cheaply.

    The registered account fees are a bit on the high side compared to others. Also the commissions could add up if you have monthly constribution to make.

  8. Canadian Couch Potato May 21, 2010 at 5:20 pm #

    Irvine: All discount brokers allow you to hold US securities in US dollars in unregistered accounts, so ShareOwner provides nothing new here. A few brokers (Questrade, QTrade and now RBC Direct Investing) allow this in RRSPs, too.

  9. Patrick May 21, 2010 at 6:32 pm #

    What is IB?

  10. Canadian Couch Potato May 21, 2010 at 8:08 pm #

    Patrick: IB is Interactive Brokers, a discount broker designed for hyperactive traders.

  11. Bob Gibb May 22, 2010 at 9:44 am #

    I know you said you’d discuss fees in a later column but I thought I’d comment on this part of the article:

    The other important feature of ShareOwner’s platform is that you can place a single order covering as many securities as you want. If you have $1,000 to invest, you can order $50 worth of 20 different stocks or ETFs, all for a single trading commission of $40.

    It’s not the number of companies you buy that is important but the total commission you pay. $40 on $1,000 is still 4% whether it’s one or 20 different stocks.

  12. Brian May 23, 2010 at 9:41 am #

    Good post Dan. I’ve also considered SO in the past, but the annual and withdrawl fees turned me away. I’m interested to see if you come to the same conclusion.

  13. gpsguy55 May 24, 2010 at 12:42 am #

    Shareowner is great for buying and holding stocks and ETFs for a longer time frame, not day trading. Their fees have increased over the years but still good value. You can design your own “mutual fund” or “couch potato fund” for a lot less fees than the “wealth management” sales industry. There are other educational advantages to being part of Shareowner as well.
    I look forward to the next segment.

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  1. Canadian ShareOwner Discount Brokerage Review – Not Impressed - June 15, 2010

    [...] ShareOwner: A better way to buy ETFs? Part 1 shows how setting up an ETF portfolio is cost effective for a minimum portfolio of $4,000. [...]

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