It's getting easier and easier to invest in the stock market. It might not feel that way to you, but trust me on this one - it's true. It used to be that you needed a stock broker or a financial advisor to pick some stocks for you and they would charge an arm and a leg to buy those stocks. Which meant you also needed a lot of money. Not anymore. Three great developments have changed this:
- Mutual funds
- Online brokers
- ETFs
Mutual funds made is easy for "average" folks to get into the market. Even with a small amount of money - like $100 - you get exposure to dozens of stocks with one investment. Instant diversification!
Online brokers let you invest and manage your own money, eliminating the need for a stock broker or financial advisor. Using an online broker is pretty straight-forward once you get used to it, and the costs are very reasonable.
ETFs - or exchange-traded funds - are the most recent gifts to average investors. An ETF is much the same as a mutual fund but is a lot cheaper. Like a mutual fund, you get instant diversification with exposure to hundreds (not just dozens) of stocks in one investment. Unlike a mutual fund, the fees are very low because a traditional ETF doesn't require a lot of work behind the scenes. You can read more about this in my Active vs. Passive Investing article.
Narrow down the choices
There are hundreds of ETFs available in Canada - so how do you choose? You can quickly narrow down the list by choosing those that follow a market index. A market index is a list of companies that are representative of a market. All you need are 4-5 ETFs that mirror the major markets indices: like the S&P 500 (U.S.), S&P/TSX Composite (Canada), and the MSCI EAFE (Europe, Asia and the Far East). Throw a bond ETF in there and you're pretty much all set.
The Catch
There is an important caveat to buying ETFs (if you were a cynic, you'd say there is a catch*): you can pretty much only buy ETFs through online brokers. You can't buy them at the bank, and most financial advisors don't sell them. You'll need to open and account and place your own trades. Not a huge deal, but it does require some time, effort and desire.
A good alternative to ETFs is index mutual funds. These are similar to ETFs in that they track an index. They are much cheaper than actively-managed mutual funds, but more expensive than ETFs. They are slightly easier to buy, but still not as easy it should be.
Getting some help
If you want to invest your money using ETFs and are motivated to learn how, I can help. With my DIY Investor Package, I can teach you everything you need to know about ETFs, how to pick them, and how to buy them. I can help you get your accounts opened, transfer money in, and even help you place your first trades. Once you are set up, it's easy sailing.
If you want to learn more about getting invested, get in touch with me, Anita, at Clarity. Remember, I don't sell any products or have any ties to financial institutions. I just want to teach you how to invest.
*The perceived "catch" is that these great, cheap products aren't as widely available as more expensive/more profitable mutual funds, which you can buy in any bank branch. It's a fair comment.
