Robo-advisors vs ETFs: which one should you choose in 2021?

ETFs are all the rage right now in Canada, and there are a few different ways you can buy them. You can buy them yourself using a trading platform (the cheaper way), or you can use a robo-advisor (the easier way)

Most robo-advisors charge at least a 0.40% fee on top of the management expense ratio (MER), so your total yearly cost should be around 0.55%-0.70%.

So are robo-advisors worth it? I’ve thoroughly tested out both methods, and I’ll break it all down here in this robo-advisors vs ETFs comparison.

Robo-Advisors vs ETFs

Overview of buying ETF methods

MethodDifficulty of Setting UpFees (All-In)Customizable
Robo-AdvisorExtremely Easy0.55% – 0.7% / YearNo
All-In-One ETF PortfoliosEasy0.20% – 0.30% / YearNo
Portfolio of Multiple ETFsMedium0.13% – 0.20% / YearYes

Before jumping into the different ways to buy ETFs, here’s a table summary of the three different methods we will go over:

Robo-Advisors for buying ETFs

Robo-advisors construct these ETF portfolios for you without you having to do much at all. You just hand over your money to the company, and they’ll do the rest.

Buying ETFs with Robo-Advisors

Buying ETFs with Robo-Advisors

Difficulty of setting up: Extremely Easy
Fees (All-In): 0.55% – 0.70% / Year
Customizable: No

Although robo-advisors are extremely easy to use, it comes at a cost, and it’s quite a bit pricier than building your own ETF portfolios, usually more than twice as expensive per year.

Still, it’s a lot better than buying a mutual fund in Canada, which has some of the highest fees in the world.  If you don’t want to deal with investing and just want to let a company handle everything, consider a robo-advisor.

Here’s a link to who I think are the best robo-advisors in Canada.

Buying ETFs Directly With a Trading Platform

I personally prefer buying ETFs directly with a trading platform such as Wealthsimple Trade. But this isn’t necessarily the right method for everyone. I’ll go over the pros and cons of each way.

For each of these methods, you’ll have to know your risks and goals, so fill out this questionnaire before beginning

1. Buy an All-In-One ETF Portfolio

Buy an All-In-One ETF Portfolio

Difficulty of setting up: Easy
Fees (All-In): 0.20% – 0.30% / Year
Customizable: No

All-In-One portfolios are also known as asset allocation ETFs, or one decision ETFs. This is the easiest way to buy ETFs with a trading platform. You just need to buy one ETF for your entire account, and you can set it and forget it.

All-in-one ETFs are meant to be a simple solution and they have exploded in popularity since Vanguard first introduced it a few years ago.

My favourite companies to buy all-in-one ETFs are Vanguard, and iShares, where MERs range from around 0.20% to 0.25%.

All-In-One ETF portfolios are an excellent substitute for robo-advisors, as they are very easy to use, and much cheaper. The main downside that I see, is that it’s not that flexible, and you’re stuck with whatever is in the fund. You can’t really customize it.

I do a full in-depth walkthrough of specific all-in-one ETFs in this article here.

2. Build a portfolio of multiple ETFs

Build a portfolio of multiple ETFs

Difficulty of setting up: Medium
Fees (All-In): 0.13% – 0.20% / Year
Customizable: Yes

This is the cheapest way to construct your own ETF portfolio. You can choose several ETFs, and build your portfolio using these multiple ETFs.

It requires a bit more work and maintenance, as you’ll have to figure out what ETFs to include in this method. You’ll also need to reevaluate your portfolio and rebalance it in the future by buying and selling some ETFs.

It also comes with the advantage of being able to customize your ETF holding to exactly how you’d like it.

This is the main method that I use, and it doesn’t take that much time, maybe about half an hour for me every few months.

Here’s an overview on How to Buy ETFs in Canada, which goes into this topic in a bit more detail.

My Strategy for Investing in ETFs

I have tried robo-advisors in the past, but after I learned how to make my own ETF portfolios, I’ve reduced my holdings in them.

I currently buy all-in-one ETF portfolios for my smaller accounts (less than $20,000) and construct my own ETF portfolios in all my other accounts. My total cost of investing per year is under 0.20%, and I’m extremely happy with that number.

How To Buy ETFs in Canada

You can purchase ETFs in Canada through most Canadian brokerage platforms that offer stock and ETF trading. My top choices are Wealthsimple Trade and Questrade.

ImageProduct TitleFeaturesPrice
Editor's Choice
Wealthsimple Trade
Wealthsimple Trade
  • ETF buys and sells have $0 trading fees
  • Desktop and mobile trading
  • Reputable Brand
  • Beautiful Design
Get $50 Signup Bonus
Reliable Pick
Questrade
Questrade
  • ETF buys have $0 trading fees
  • Desktop and mobile trading
  • Most types of accounts available
Get $50 Free Stock Trades

To learn more, check out my full breakdown of the best trading platforms in Canada here.

ETFs or Robo-Advisors – Which should you choose?

All three methods outlined don’t take too much time, and provide you with diversification to hundreds, or even thousands of stocks from potentially around the world. If you don’t want to take the time to learn about investing or to manage your investments, then a robo-advisor could be a good option for you.

If you are willing to take some time to learn a little bit about investing directly in ETFs, in the long-run, I think building your own portfolio could be more rewarding for you.

Whether you choose to buy an all-in-one ETF portfolio, or build your own portfolio, it doesn’t matter too much.

The long-term cost savings can lead to a lifetime of satisfaction in knowing that you are getting this amazing diversification of investments at such a low cost.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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