If you’d like to follow along with our Workshop, please click the below banner to open an account with Wealthsimple. While our Workshop is free, we use affiliate links to support the site so that we can keep offering this for free. Plus, if you open an account with this link, your first $10,000 will be managed for free!
OK so we’ve opened our accounts, we’ve set up (and tweaked) our portfolio allocations, and our ETF makeup has been picked out for us. So what’s our next step?
Let’s get some money invested!
Linking Your Bank Accounts with Wealthsimple
The first step in getting your accounts funded is to link your bank account.
In the back-end, WealthSimple uses a third party financial data aggregator company called Flinks to perform the link between the app and your bank account. They do this so that you’re not actually giving WealthSimple your banking password, and is a similar setup to how Personal Capital uses Yodlee to handle all their bank authentication.
There’s also a link at the bottom of that window allowing you to perform the link the old fashioned way: with a transit number and a void check. So that’s another way of doing it if that’s what your prefer.
Once you’ve set up your bank account link, you can then choose to transfer money in either as a one-time event or as a scheduled amount weekly, bi-weekly, or monthly. In this case, we’re going to do a $1000 one-time transfer
After a few business days, our money has arrived.
If we click the “View holdings” link on the right tab, we can see our actual ETFs that we now own.
Note that WealthSimple automatically deploys it into our target portfolio for us. As we can see, as soon as our cash hits the accounts we are already rebalanced and invested. And as dividends come in, they also get automatically reinvested.
It’s important to note that generally with Robo-Advisors, you give up a certain amount of day-to-day control over your money. If you wanted to, for example, stay in cash for a bit because you think stock markets are going to dip in the next few days, you can’t do that. If you wanted to keep your dividends in cash rather than have it immediately get re-invested, you can’t do that.
This is a bit of a double-edged sword, and part of Robo-Advisors’ selling point that using a Robo-Advisor is “set it and forget it.” Once you set up your portfolio and bank account links, you don’t have to worry about maintaining it anymore. Their app just takes care of it all for you.
And while this may be great for people who for whatever reason don’t have the time or the energy to sit around and micro-optimize their portfolios, this also by definition means you’re giving up some control over your money.
Automated Funding with Wealthsimple
That being said, the value of having WealthSimple take care of things for you really comes into play when you see the kind of automated funding options they offer.
To set one of these up we go to Funding -> Automated
Auto-Deposit is just like what it sounds. You can set up a fixed amount to be deposited into your account every week, 2 weeks, or month. Pretty simple, and good for people with a steady predictable income.
Overflow is really interesting. Here’s how it works. You link it to your account, and you set a target balance for how much you’d like to keep in that account. Then, every month, WealthSimple checks the balance and automatically deposits any money over and above that target balance so any excess gets automatically invested for retirement.
It’s clever. I like it. We often advise people that they should keep some cash in an emergency fund equal to about 6 months of living expenses and then invest the rest, and this feature seems tailor made for that setup. You calculate how much your emergency fund should be, set that as your target balance, and that’s it! Every time you get paid into that account, at the end of the month anything you don’t spend gets invested while making sure your emergency fund never gets depleted.
Also, it’s nice to know that before each transfer WealthSimple emails you the day before with a reminder giving you an option to pause or cancel that month’s transfer, in case there’s a big purchase coming up.
Roundup is the last automated funding feature, but this one seems kinda goofy to me. You basically link WealthSimple to your credit card, and for every transaction you make, WealthSimple “rounds up” your purchase to the nearest dollar amount, and transfers that amount from your checking account each month.
So you basically end up investing some random amount equal to approximately $0.5 x # of credit card transactions you make per month. I’m really not sure why anyone would want that, or who it’s trying to help, but hey whatever. You don’t have to use it.
Rebalancing, Dividends, and Withdrawals
As mentioned before, using WealthSimple (or any Robo-Advisor) means giving up a certain degree of control over the day-to-day operations of your portfolio. This can be a good thing or a bad thing depending on who you are, and there are three area where this has an impact that you should be aware of.
The first is Rebalancing. We typically rebalance our portfolios once a year, selling our winners and buying the losers to restore our target portfolio allocation. This does involve a bit of spreadsheet calculations, though we’ve created a spreadsheet that you can download here to do this for you. WealthSimple does that for you automatically now. Whenever you add money, or when markets have caused your ETF percentages to drift too far off target, WealthSimple will do all the calculations and execute the trades to restore your pre-determined portfolio targets. This is mostly a good thing, unless you’re one of those weirdos like us who actually enjoy rebalancing.
The second is Dividends. Because none of the target portfolios have a cash target, any time a dividend gets paid their rebalancing engine will kick in and use that cash to buy more ETFs. For the most part, this is a good thing since for the vast majority of you who are in the accumulation phase of your retirement journey. When you get a dividend, you generally want that reinvested so it can help your portfolio compound and grow.
However, for those of you like me who are retired and need those dividends sitting as cash to live, this would irk me big time. I don’t want those dividends reinvested, and as of right now I can’t see a way to turn off that behaviour.
And finally, the third area is Withdrawals. When you make a withdrawal, the rebalancing engine kicks in and sells off assets in order to raise the funds you need, but again you have no control over what assets get sold off and at what price. This is, again, not an issue for the vast majority of you since you generally don’t need to make withdrawals while you’re working, but I have a pretty specific strategy for managing my withdrawals, and I’m not convinced that WealthSimple will allow me the control I need to do it.
So that’s it for this week. We’ve discussed how to open an account, how to set up your portfolio, and how to set up ways to automatically put money into it. Next week, we’ll discuss my overall analysis of Robo-Advisors and how I think they fit into the FIRE space.
How much does it cost to participate in the Investment Workshop? NOTHING. Because that's how we roll. All we ask is that you sign-up using the following affiliate links to keep it free forever:
Or, prefer to use a Robo Advisor? Check out Wealthsimple, and get your first $10,000 managed for free!
Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.