Everything You Wanted to Know About ETFs (But Were Afraid to Ask)
April 24, 2022 | Written by: Sohail Afzal
When it comes to saving for the future, many Canadians are turning to exchange-traded funds (ETFs). ETFs have become incredibly popular in Canada in recent years, and for a good reason – they offer various benefits that other investment options don’t. In this article, we will discuss what ETFs are, why they are so popular, and the different types of ETFs available. We will also look at some of the top Canadian ETFs on the market today.
What is an Exchange-Traded Fund (ETF)?
So, what is an ETF? Simply put, an ETF is a type of investment fund that owns a basket of assets (usually stocks or bonds) and trades on a stock exchange. ETFs are popular because they offer investors a number of advantages – they are tax-efficient, offer diversification, and are relatively low-cost.
What are the Seven Types of ETFs?
There are seven main types of ETFs:
- Equity ETFs
- Fixed Income ETFs
- Commodity ETFs
- Currency ETFs
- Leveraged ETFs
- Inverse ETFs
- Alternative Strategy ETFs
The most popular type of ETF in Canada is the equity ETF, which invests in a basket of stocks. However, there are several other types of ETFs available that can offer different benefits. For example, fixed income ETFs invest in bonds and can provide stability and income. Alternatively, you can use commodity ETFs to hedge against inflation or as a way to speculate on the price movements of commodities like oil or gold.
What are the Top Canadian ETFs?
Now that we know more about ETFs let’s take a look at some of the top Canadian ETFs. According to Morningstar Canada, the following are the top five ETFs in Canada as of June 2019:
- iShares S&P/TSX 60 Index ETF (XIU.TO)
- BMO S&P 500 Index ETF (ZSP.TO)
- Vanguard FTSE Canada All Cap Index ETF (VCN.TO)
- iShares Core MSCI EAFE IMI Index ETF (XEF.TO)
- BMO Aggregate Bond Index ETF (ZAG.TO)
Why are ETFs so Popular in Canada?
ETFs have become increasingly popular in recent years, and there are a number of reasons for this. First, ETFs offer investors a way to diversify their portfolios – by investing in an ETF. You can gain enhanced exposure to a wide variety of assets without having to purchase each one individually. Second, ETFs are relatively low-cost – most ETFs have lower management fees than actively-managed funds. Finally, ETFs are tax-efficient – since they are not actively traded, they are not subject to capital gains taxes.
Who Can Take Advantage of an ETF?
ETFs can be a great investment option for just about anyone. However, they may be especially well-suited for investors looking to diversify their portfolios or those looking for a low-cost investment option. If you’re thinking about investing in an ETF, be sure to speak with your accounting firm or financial advisor to get started.
As you can see, there is a lot to know about ETFs. However, they can be a great investment option for many Canadians. If you’re thinking about investing in an ETF, be sure to do your research and speak with a financial advisor to get started.
Things to Consider Before Investing in ETFs
Now that you know more about ETFs, you may be wondering if they are right for you. Here are a few things to consider before investing in an ETF:
- Your investment goals: What are you hoping to achieve by investing in an ETF?
- Your risk tolerance: How much risk are you willing to take on?
- Your time horizon: When do you plan on selling your shares?
- The costs: What are the management fees and other costs associated with the ETF?
Once you have considered these factors, you will be better positioned to decide whether an ETF is right for you. If you have any questions, be sure to speak with your accounting firm or financial advisor.
How to Choose the Best ETF in Canada?
There are several factors to consider when choosing an ETF, including your investment goals, risk tolerance, and time horizon. You will also need to compare the costs of different ETFs. Once you have considered these factors, you will be better positioned to choose the best ETF for you. If you have any questions, be sure to speak with your accounting firm or financial advisor.
ETFs can offer investors many advantages – they are tax-efficient, offer diversification, and are relatively low-cost. However, there are a few things to consider before investing in an ETF, such as your investment goals, risk tolerance, and time horizon. Be sure to speak with your accounting firm or financial advisor to get started.
ETFs can be a great investment option for many Canadians. However, it’s important to do your research and speak with a financial advisor before making any decisions. ETFs are a great option for many investors with their many benefits, but they may not be right for everyone.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.