Allocating cash and rebalancing your Questrade portfolio are important aspects for when managing a portfolio of index Exchange Traded Funds (ETFs). Ensuring that you stay close to your target allocations once or twice a year will help you take advantage of global market fluctuations, and stay on-top of your investment portfolio to ensure that it is balanced over the long term. It’s important to know how to allocate (or invest) new cash contributions into the underweight assets in your portfolio.
To make rebalancing and managing my portfolio as easy as possible, I use an automated tool developed by Passiv. It helps me calculate how much of each fund I need to buy/sell to meet or maintain my portfolio’s target allocations. It also submits trades automatically on my behalf, saving me the hassle of having to go to Questrade and place them myself. Needless to say this tool comes in very handy, so let’s take a deeper look at rebalancing your Questrade portfolio using Passiv.
Why re-balance your Questrade portfolio?
A person will rebalance their portfolio based on their target percentage allocation in all of the different funds they hold to ensure they retain a diversified portfolio. For example, in my personal portfolio of Questrade ETFs, my personal target is:
- 25% in a Canadian stock index ETF (Vanguard FTSE Canada All Cap Index ETF – VCN.TO)
- 50% in the US and International stock index ETF (iShares Core MSCI All Country World ex Canada Index ETF – XAW.TO)
- 25% in the Canadian bond index ETF (BMO Aggregate Bond Index ETF – ZAG.TO)
This gives me a moderately aggressive portfolio, while still leaving a quarter in the less volatile bond market. To learn more about passive index investing and what funds you can buy, see my previous article on what ETFs are, how much it costs to buy them, and where you can buy them.
Over the year, your various index funds will go up and down, and when they stray enough from your target, it’s time to rebalance – sell from the funds that are doing well, and re-invest them into the ones that are lagging behind. Or better yet, use your dividends or additional contributions to top up the funds that are lagging behind.
What is Passiv?
Passiv is a tool that automates the whole rebalancing process. You can tell it what percentage of each fund you want to make up your portfolio, and Passiv will tell you how close you are to those allocations, what trades you need to make to get closer to those allocations, and even make the trades for you with 1-click.
It has two account levels:
- Free community user account – the free account tells you how close you are to your target allocations and what trades to make to rebalance as close as possible to those targets. In the free account, you’ll need to login to your Questrade account and manually make each of the trades Passiv suggests.
- The Elite member user account – will do all of the above, while also making all of the trades for you in one-click.
The Elite account typically costs $79/year for Questrade clients, but at this time Questrade is sponsoring users for a free year of the Elite account when creating a new Passiv account!
Additional management features
The Passiv Elite membership also has some additional features that help manage your portfolio on an on-going basis:
- You can manage multiple accounts with Passiv Elite to consolidate your investment information and get a holistic overview of your household wealth.
- Setup alerts when cash comes in, or your portfolio drifts away from your allocation targets.
- You can exclude stocks and ETFs from your balanced portfolio.
- Keep currencies separated, so that it’s easier to do Norbert’s Gambit
Access and security
Security is important, and Passiv outlines their security protocols here. Passiv works with brokerages (such as Questrade) directly and uses their APIs in order to keep your information safe and secure. This ensures that you are not breaching brokerage terms & conditions. Passiv never gets access to your login credentials, nor do they share your information with any third parties. You can also remove access from Passiv at any time.
To use the Passiv management tools, Passiv uses the Questrade API, which will ask for one of two types of permission:
- Read access to retrieve balances, positions and orders as well as delayed, real-time market data. This is the access needed for the free and Elite account to be able to read the data from your account to calculate targets and what trades are needed to properly rebalance.
- Place, modify and cancel order access. This is the access needed for an Elite account to allow Passiv to make all of your rebalancing trades with 1-click.
Questrade themselves have partnered with Passiv, as you can see on the Questrade website , and fully endorse Passiv’s use to rebalance and manage your portfolio.
Step-by-Step: How to rebalance your Questrade portfolio through Passiv
We’ll now look step-by-step at how to rebalance your Questrade portfolio through Passiv with their Elite membership one-click trades.
1. Sign-up with Passiv and login
The first step is to sign-up with Passiv at: https://getpassiv.com/app/register/
It’s a simple sign-up form that only requires your email address and name. Once you’re signed up, you can begin the rebalancing process.
2. Connect Passiv to Questrade
As mentioned earlier in the article, you’ll need to connect Passiv to your Questrade account. Again, this is a secure process, and endorsed by Questrade. Login to your dashboard. The dashboard should show you the connection wizard automatically if you don’t have any connections already set up. If it doesn’t, you can select the “Add a Connection” button.
Passiv works with a variety of online brokerages, but this article is going to focus on using Passiv with Questrade. Select “Connect Questrade” from the list of brokerages.
You’ll be redirected to the Questrade website to login to allow Passiv to access Questrade. Use your regular Questrade login information here.
Questrade has an API (Application Programming Interface) that allows different apps to interact with Questrade. Select the “Take me to the App Hub” button:
Give the access agreement a read through. Reading the fine print can be tedious, but it’s always good to know what you are agreeing to. Once you’ve finished reading, select the agreement checkbox at the bottom and click the “Agree” box. Note, as Passiv is an API partner with Questrade, and users sign off on trades, trades made by Passiv do not breach the API agreement.
The Questrade API will now explain what Passiv is asking for permissions for. For a free community account, it will only ask to read data from your Questrade account. Select the “Allow” button:
3. Create your target portfolio
Now that Passiv has access to read your account info, it’s time to tell it what you want your target portfolio to look like. Select “Portfolio A” from the left hand menu:
You’ll now see an overview of your portfolio. This includes the total value of funds held, as well as any cash you have available to make rebalancing purchases. It’s likely that your current portfolio isn’t exactly at your target allocations, so instead of importing current holdings as a target, you likely want to build your target portfolio manually:
Now it’s time to find the funds that are in your portfolio and add manual targets. Select “Add” at the bottom and find all funds in your portfolio. As I mentioned earlier, this guide focuses on a passive index portfolio, built with 3 ETFs. You can search for them by stock symbol, XAW.TO/VCN.TO/ZAG.TO. Once added, Passiv will calculate what actual amount each fund makes up of your portfolio. Now fill in what your actual targets are in the right side boxes. For me it’s 50% XAW, 25% VCN, 25% ZAG. Make sure you hit the “Save” button at the bottom once you have input your info.
4. Review target accuracy
Now it’s time to review the current accuracy of my portfolio. As you can see below, I have some variation away from my targets, as well as some cash funds that I’ve earned from dividends over the year. Currently, my portfolio is heavy on ZAG, light on VCN, and pretty accurate on XAW:
As you can see above, with the cash I have in my account, Passiv is recommending I buy 2 units of VCN to help balance my portfolio. There are two approaches you can take to rebalancing:
Allocating funds (adding additional cash)
You can top up funds with additional cash, to get those funds closer to their targets. I use dividends earned over the year to do this, accomplishing a re-investing of earnings as well as a rebalance of the portfolio. By only making ETF ‘buy’ orders, I avoid any trade fees as ETF purchases are free through Questrade. Having Passiv allocate cash to your most underweight assets is usually enough to stay on target.
Full Rebalance (sell funds to buy others)
If you don’t want to add additional cash to your investment portfolio, or your target allocations are very far off target, you may instead want to sell funds that are doing well and use the profits to purchase funds that are lagging behind. The down side of this method is that you will incur trade fees from Questrade when selling ETFs. The positive is that it allows you to capitialize on funds that are doing well, in the event that in the future, their growth slows down. If you want Passiv to calculate selling into your rebalancing options, you’ll have to change the setting in “Group Settings” for your portfolio:
5. Update permissions as needed
If you have taken advantage of the Elite plan with Passiv, you’ll have to now add additional privileges for Passiv to complete trades on your behalf. You can see the error you will get below if you try to “Prepare orders” without the proper permissions. Click “Reconnect” to update permissions:
In the same process as before. You’ll login to Questrade and update the API permissions. You can see now the updated permissions of being able to “Place, modify, and cancel order”. Select the “Allow” button:
6. Review and prepare rebalancing orders
After updating permissions, you’ll be transferred back to Passiv. You can see below that my portfolio is 96% accurate, and Passiv is recommending buying 2 units of VCN with the cash I have in my account, to get that accuracy as close to 100% as possible. Click the “Prepare Orders” button if you want to begin making those recommended trades.
7. Finalize trades and confirm orders
You’ll now be shown of summary of the proposed trades, as well as how much cash you will have remaining after the trade. Make sure you look this over once more to ensure the trade information looks correct. If it all looks good, click the “Confirm” button:
Success! You can see below that the orders have been executed, and that with those trades, I am now closer to my target allocation!
And for those who are cautious (me being one of those people), it doesn’t hurt to login to your Questrade trading portal to double check that everything has gone through correctly. As you can see below, when I login, the trade appears exactly how Passiv proposed it.
Purchasing funds outside of target portfolio
If you end up purchasing shares in stocks that aren’t part of your target allocation, you’ll want to make sure to login to Passiv to update your target portfolios to either exclude these stocks from your portfolio, or indicate what the target percentage of that new stock should be.
Your Questrade ETF portfolio is now rebalanced
And as easy as that, your account is now as close to your target allocations as you can make it. I can’t overstate how much easier it is to rebalance a portfolio with being able to skip all of the manual calculations and making multiple trades with 1-click. Good luck!