The term Robo Advisor is thrown around a lot, and can scare some new investors. Typically, a Robo Advisor asks you questions about your investment goals, takes your preferences based on your answers, invests your money primarily in ETFs, and re-balances your portfolio based on market fluctuations. Today I’m going to share my WealthSimple review, an easy to use and well known Robo Advisor that I’ve just started using.
If you find information on this guide useful and decide to try out WealthSimple, use my referral link to save up to $50 in fees over your first 12 months.
What is WealthSimple
WealthSimple is a Robo Advisor, which maintains a portfolio of ETFs based on an algorithm. Much like other index portfolio’s, WealthSimple creates a portfolio of stocks and bonds based on your risk assessment, and much like Tangerine Investment Funds, and the TD e-Series portfolio, allocates more to bonds the lower your risk tolerance is and more to stocks, the higher your risk tolerance is.
WealthSimple uses a passive approach to investing, and follows Modern Portfolio Theory (MPT). As per Investopedia, MPT makes the assumption that investors are risk-averse, meaning they prefer a less risky portfolio to a riskier one for a given level of return. This implies than an investor will take on more risk only if he or she is expecting more reward.
Essentially, WealthSimple Robo Advisor follows the idea that the longer you plan to hold your investments, the more risk you can take on by being able to wait out the dips. It follows a similar passive index investment strategy as using TD e-Series, and Tangerine Investment Funds.
What you can buy
Based on a series of questions that the WealthSimple Robo Advisor asks you when you sign up, it will recommend 1 of 3 portfolios to you:
- Conservative (less risky)
- Growth (more risky)
Again, these work in the same way as the portfolios for TD e-Series and Tangerine Investment Funds. The more risk you can accept, the more of your portfolio that gets invested in stocks. The less risk you are willing to accept, the more of your portfolio that goes into bonds.
Socially Responsible and Halal Investing
WealthSimple also offers portfolios that are constructed based on investing in socially responsible companies and initiatives, as well as a portfolio that is based on Islamic investing principles. I won’t go into too much detail of those here, but know that they are available to those that are interested.
What are you investing in?
Even if you are letting the WealthSimple Robo Advisor take the reins, most people want to know what they are going to be invested in. From the WealthSimple website, here is a guide on how the different portfolios are constructed:
As with other passive portfolios, WealthSimple varies it’s asset targets between stocks and bonds based on your level or allowable risk. You can see the breakdown here of the bond variation associated with your chosen risk level.
To go even further, WealthSimple provides details of exactly what index funds are allocated to each portfolio, including some well known ETFs. You can see a detailed description on the WealthSimple website.
What are the fee’s and how are they calculated?
The all important question: how much will the WealthSimple Robo Advisor charge me (and how does this compare)?
For those investing under $100,000, the breakdown is as follows:
- 0.5% WealthSimple investing fee
- Approximately 0.2% MER fee
The different funds and ETFs have varying MER fees but can be estimated to be around 0.2%. This means that holding a WealthSimple Robo Advisor investment fund costs about 0.7% annually. The 0.5% fee you will be charged monthly, and will see come out of your investment account. The 0.2% MER fees are automatically built into the fund prices, so you will not notice those fees come out.
Better yet, if you sign up using a referral code, get $10,000 managed for free for 1 year – which will save you $50 in fees over the year!
How do WealthSimple fees compare to other passive investments?
The WealthSimple Robo Advisor fees are actually quite reasonable and comparable to other passive investment platforms:
|Passive Investment Method||Yearly Fee|
|Buying individual ETF’s through an online exchange||0.12% – .016%|
|TD e-Series||0.3% – 0.5%|
|WealthSimple Robo Advisor||0.7%|
|Tangerine Investment Funds||1.07% – 1.09%|
Essentially, the more work that you do yourself, the cheaper the fees are. When you compare WealthSimple to Tangerine Investment Funds, you can see that they both rebalance and choose your funds for you, but using WealthSimple Robo Advisor saves you 0.37% a year – which can add up over time.
You can also save an additional 0.5% in fees on $10,000 worth of investments over the first 12 months when you sign up using a referral link, making WealthSimple an even better passive investment platform when just getting started.
Fee Cost Example
Some people find it helpful to see an example of the fees you would be charged, and exactly how much you are paying for these investments. Let’s use a $20,000 investment as our example:
|MER fees |
|$20,000||$100 per year charged as $8.33 per month||$40 per year (built into the price, so you’ll never see the fee)||$140 a year|
In short, it cost about $140 a year to invest $20,000. That is pretty good overall. In this example, you could also bring your first year down to only $90 in fees by using the referral link when signing up.
Are there any other costs
WealthSimple does not charge any account fees or require you to keep a minimum balance in your accounts. You can get started for free and invest as much or as little as you want. If you invest over $100,000 with WealthSimple, they lower their investment fee to 0.4%.
Another important question: what kind of returns can I expect? I’ve said it before, and I’ll said it again, previous performance does not always predict future performance. But over the long-term, index investing always provides profits if you can wait out recessions and market drops. Let’s take a look at the previous performance of the 3 portfolios:
|Investment Portfolio|| 1 Year|
The above table goes from inception (Aug 20, 2014) up until Nov 30, 2018.
Are they a good fit for you?
Much like the Tangerine Investment Funds, the WealthSimple Robo Advisor service is good for people who want to keep their investment fees low, while also being able to invest their money simply, by not having to pick exactly which funds they are investing in, and letting the service re-balance their portfolio over time.
If you want more control over exactly which indexes and ETFs you are invested in, and want to keep your fees as low as possible, then I would advise going for TD e-Series, or purchasing your own ETFs through on online broker.
Where can I buy them?
You can sign up for a free account at WealthSimple to get started. Keep following letstalkaboutmoney.ca for a future post that will guide you on exactly how to buy funds through WealthSimple, including how to answer questions to get the portfolio you want, and how to connect your bank to WealthSimple to make purchasing investments a breeze.