How to build a low-cost diversified portfolio with Exchange Traded Funds [ETF].
Exchange Traded Funds are a simple low-cost way to help build the foundation of a portfolio. Just a few of these funds can give access to broad exposures of stocks and bonds that meet individual investment goals.
An ETF combines the diversification of a mutual fund with the flexibility of a stock, all with much lower fees than mutual funds. Different ETF track different markets.
Top 5 reasons why people invest in ETFs:
When you buy a share or unit of an ETF, you’re investing in a portfolio that holds a number of different stocks or other investments. This diversification may help smooth out the ups and downs of investing using just one investment. You can also spread your money among ETFs that cover different types of investments, such as bonds or commodities. This allows you to further diversify.
2. Passive management
Most ETFs are designed to track an index, such as the S&P/TSX 60 – this is called passive investing. Passive investing tends to cost the consumer less than active investing, where a portfolio manager actively buys and sells securities to try to outperform the market. While there are advantages to active strategies, passive strategies can outperform active strategies based on cost savings alone.
Most ETFs publish their holdings every day. You can find out what investments your ETF holds, their relative weighting in the fund and if the fund has changed its position in any particular investment. This transparency can help you tell if an ETF is meeting its investment objectives. Since ETFs trade on an exchange, you can easily find the current market price.
4. Ease of buying and selling
You can buy and sell ETFs from an investment company or online brokerage at any time when the stock exchange is open, at the current market price at the time of the transaction. ETFs are traded at the current market price throughout the day. You’ll usually pay a commission when you buy or sell an ETF.
5. Low cost to own
You may pay less to own an ETF than a mutual fund, depending on the fund you buy. Index ETFs, for example, simply track an index, so the portfolio manager doesn’t actively manage the fund, which can mean a lower management expense ratio (MER). Actively managed ETFs and leveraged ETFs have higher MERs than index ETFs, but may have lower MERs than actively managed mutual funds.
Why invest in ETF with LifePlan Investments
Our qualified consultants will take the time to review your current investment account and see if your investments holding have the right asset allocation and are managed according to your risk tolerance.