ETF News

Exchange-Traded Funds (ETFs) are increasingly popular with investors, and the momentum picked up especially in the last decade. ETFs are fairly easy to invest in and are rather straightforward financial instruments. They are an adequate entry point into the stock market for many new personal investors. So, how can you buy ETFs in Canada? 

ETFs make investing easy

ETFs, in a similar fashion to mutual funds, allow investors to buy a basket of securities in a single trade and at a relatively low cost. Most ETFs invest in stocks and bonds, but commodities and crypto assets are also available to ETF investors. Some ETFs, also known as “asset allocation” combine different asset classes in a single fund and offer investors very easy access to a diversified portfolio.

ETFs vs Mutual Funds: What’s the difference?

A key difference between ETFs and mutual funds is how they trade. Investors must buy mutual funds either through a brokerage or directly from the issuer. They are priced only once per day, at the end of the trading day.

On the other hand, ETFs trade like stocks on a stock exchange. They have continuous pricing throughout the trading day. They are also available as fractional shares which allow investors to buy based on their desired dollar amount, irrelevant of the ETF share price. For more on the difference between ETFs and mutual funds.

How can you buy ETFs in Canada on your own?

So how exactly does one buy an ETF? First, you need to open an account with a brokerage platform, then you must find suitable investments using an ETF screener, and then you can finally place the trades.

Step 1: Buy ETFs through a Brokerage/Trading Platform

There are plenty of online brokerage services in Canada that you can pick from. An example of an online brokerage/trading platform in Canada is Questrade. Most platforms come in all shapes and sizes. You will find web, mobile, and desktop apps.. 

You can opt for either a full-service or discount brokerage. The former are high-touch expensive services. While the latter is mostly online platforms permitting traders to make their own decisions at lower fees.

Once you select a platform, you will have to log in, create a profile, and then link your accounts (RRSP, TFSA, etc...). 

Step 2:  Choose your Registered Accounts

The most common types you can choose from are Registered Retirement Savings Plan (RRSP), Tax-Free Saving Account (TFSA), and a personal account. It’s advisable to start using the personal account only after maxing out your RRSP and TFSA.

After finalizing the profile, you must fund the account. You can do so by linking your bank account to your brokerage account and transferring the funds. Setting up automatic withdrawals at pre-specified schedules is not uncommon. 

Now that your account is funded, it is time to buy ETFs following the baby steps below:

• Hand pick ETFs suitable for you
• Search for its ticker on the platform
• Select the number of shares or the amount of money you want to invest in
• Click buy

Step 3: Pick your ETFs by using an ETF Screener

A screener is a set of online tools that helps investors find stocks and ETFs. As the name suggests, it allows you to screen through and pick your ETF of choice according to your criteria. You can even compare ETFs head-to-head.

The NEO ETF Screener lists, at the time of writing, 1259 ETFs trading on Canadian Exchanges where data is provided by Trackinsight. A screener is a crucial tool in selecting ETFs as it narrows down the choices according to pre-specified criteria. The NEO ETF Screener allows investors to dissect the Canadian ETF universe by their exposure per theme, asset class, geography, and sector.

Using the criteria below can be beneficial when comparing ETFs:

• Expense Ratio: Constitutes the fees that the fund charges you. They can eat up your return. The lower the fees, the lower the expense ratio the better. 
• Volume: An indicator of any ETF’s popularity. It indicates the number of shares traded over a given period.
• Holdings: Give you an insight on what companies and sectors the ETF invested in.
• Performance: An indicator of how well the ETF performed over a given period.
• Prices: Represent the current trading prices in the market for a particular ETF.

How can you invest in ETFs with professional help?

If you would rather not make the investment decisions yourself, you can also make use of a robo-advisor or employ a traditional financial advisor.

Option 1: Buy ETFs through a Financial Advisor

A financial advisor is a qualified individual capable of financially advising you. They provide advisory and management services in return for a fee. 

Taking this path, you must first open a brokerage account on your own. A financial advisor, once employed, can take the driver’s seat, and manage investments for you.

Option 2: Buy ETFs through a robo-advisor

Robo-advisors are relatively new to the investment management space. As the name suggests, they provide advisory services in using algorithms. They carry out their services in a cost-efficient way with minimal human intervention. An example of a robo-advisor in Canada is Wealthsimple.

First, start by signing up with an account on the advisor's website. This step requires providing personal and financial information. Then you will need to link the account to your RRSP, TFSA, or any other account.

Afterward, the robo-advisor will take you through some questions. This will enable it to assess your risk tolerance and investment goals. Based on the assessment's results, it will propose an ETF portfolio suitable for your risk profile. A distinct feature of making use of a robo-advisor is that it gets to choose the ETF on your behalf. You don't have a say in selecting specific investments.