Getting invested in the stock market has never been easier. The development of mutual funds, ETFs, online brokers and robo-advisors has made stock market investing accessible to more people.
But easy doesn't mean simple. The investment industry is competing for your investment dollars so companies continuously introduce new products to entice you - not so different than what Starbucks does with its drink creations. Can you believe that there are over 4,200 mutual funds and ETFs available in Canada from 140 providers? The implicit simplicity of owning an investment fund is being buried under the overwhelming choice. Who can actually sort through all of these options and decide which are the best?
Cut through the complexity
You have to narrow down the choices. For do-it-yourself investors, using ETFs is a cheap and simple way to get invested. Choosing ETFs over mutual funds eliminates 3,298 products leaving you with just 964 choices.
Here are three things that can help pare down the list and decide which ETFs to invest in:
1. Choose ETFs that mirror a broad market index (like the S&P/TSX Composite Index or the S&P 500), instead of a more focussed specialty index.
2. Use unbiased "Recommended ETFs" lists. Let people with knowledge, experience, and time give you a list of suggestions. I like the MoneySense best ETF list.
3. Stick to the bigger ETF providers and choose funds with the lowest fees. In the ETF world, cheaper doesn't mean lower quality.
Don't let the sheer volume of choice overwhelm you and prevent you from investing for yourself. It's quite easy to narrow the list down to a manageable size. From there, choose one ETF from each asset class - Canadian Equity, US Equity, International Equity and Fixed Income - and move on. You can read more about ETFs in a prior Clarity blog post.
Take care of yourself (and your money),
Anita Bruinsma, CFA
Clarity Personal Finance
P.S. Check out the video below. This is week #2 of experimenting with a video blog summarizing the post. Also, visit my new You Tube channel and check out the first few videos I've posted (and subscribe!).
