Smart Investor: Wealthsimple’s Meager Returns

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Wealthsimple has done a lot to democratize investing, especially among young people. Unfortunately, the returns on its flagship product aren’t there.

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The Power Corporation subsidiary was one of the first in Canada to offer a robo-advisor, and today it manages no less than $25 billion.

Robot what? “Robo-advisors typically ask you to answer a few questions to determine your level of risk tolerance, then use proprietary algorithms to allocate your money to appropriate investments and make necessary adjustments as your situation and the market change. Wealthsimple website.

Depending on your investor profile, Wealthsimple will offer you one of its seven portfolios and slightly tailor them to your specific situation.

ETF package

Each portfolio consists of five to ten index exchange-traded funds (ETFs). Total management fees range from 0.63% to 0.75% – with 0.5% going directly to Wealthsimple and the rest to the ETF managers.

So how are Wealthsimple portfolios doing?

One of the most popular is the “Bold” portfolio, which is approximately 80% stocks, 17.5% bonds and 2.5% gold. As of September 30, its 3-year annualized return was a paltry 2.8%. In five years it is barely better: 3.8%.

How does this compare to the performance of an allocation ETF composed of 80% stocks and 20% bonds? With fees of just 0.24%, Vanguard’s VGRO has annualized returns of 5.4% over three years and 5.6% over five years.

Note, however, that the Diapason Maximum Growth Category A portfolio, offered in Desjardins funds (also 80% stocks and 20% bonds), underperformed Wealthsimple with returns of 1.8% over three years and 3.1% over five years… It must be said that the fees for this mutual fund exceed 2.3%, which is an enormous value.

Not enough exposure in the United States

When I asked Wealthsimple to explain its poor performance, the firm initially responded that the goal of its portfolios was to “experience good performance at different times.”

To be more specific, the lower returns of Wealthsimple’s portfolios in recent years can be explained primarily by their lower exposure to US and Canadian stocks, which have generally outperformed other markets.

Wealthsimple has particularly suffered from its large exposure to emerging markets, which have experienced weak returns for several years. Its “Audacieux” portfolio accounts for 14% of these securities, compared to 6% for VGRO.

In short, nothing is simple in the wonderful world of investments. Even with index funds, your portfolio performance can vary greatly depending on your asset allocation choices.

Returns about 80/20 portfolios
Supplier Product Returns. 2023 Returns. year. 3 years Returns. year. 5 years
Wealth simple A bold wallet 4.4% 2.8% 3.8%
Vanguard Growth ETF Portfolio (VGRO) 6.0% 5.4% 5.6%
RBC Select Growth Portfolio 3.2% 3.2% 4.1%
Gardens Diapason maximum growth portfolio 3.5% 1.8% 3.1%
Notes: Fee-free returns, data as of September 30, 2023. Sources: Wealthsimple, Vanguard, Morningstar.

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