How to Make Money with ETFs

Learn everything you need to know in 'The ETF Investor's Handbook' for FREE from The Successful Investor.

ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.

Topic: ETFs

ETFs to invest in: 5 top tips for better ETF investing

If you’re looking for ETFs to invest in for the best portfolio returns, then start your search with these five tips.

Here are five tips to use when considering ETFs to invest in.

1. The best ETFs to invest in practice “passive management”

Traditional ETFs are “passive” investments that generally have a lower MER (Management Expense Ratio) than conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.

How to Make Money with ETFs

Learn everything you need to know in 'The ETF Investor's Handbook' for FREE from The Successful Investor.

ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.

ETFs practice “passive” fund management, in contrast to the “active” management that conventional mutual funds provide at much higher costs. Traditional ETFs stick with this passive management—they follow the lead of the sponsor of the index (for example, Standard & Poors). Sponsors of stock indexes do from time to time change the stocks that make up the index, but generally only when the market weighting of stocks change. They don’t attempt to pick and choose which stocks they think have the best prospects.

This traditional, passive style also keeps turnover very low, and that in turn keeps trading costs for your ETF investment down.

Learn more about why investors like ETF investments.

2. The best ETFs to invest in provide broad exposure—and lower fees

Investors get the broad market exposure of a traditional mutual fund, plus the ability to trade at will with nominal fees. The best ETFs represent a low-cost, tax-efficient way for investors to make money in the long term.

Investors can buy ETFs via stock exchanges on margin or sell them short. The best ETFs offer well diversified, tax-efficient portfolios with exceptionally low management fees. Investors large and small use ETFs to build well-diversified portfolios.

ETFs have evolved, and competition has increased. Still, you need to be very selective with your ETF holdings.

Discover the guidelines you need for successful ETF investing.

3. Looking for ETFs to invest? Avoid hedged ETFs

Adding more features (sometimes referred to as “wrinkles” or “bells & whistles”) can make investing in ETFs appear attractive to a wider range of investors. But mostly, adding features adds profit opportunities for the sponsoring institution.

For example, consider a typical ETF that gives you exposure to stocks from an emerging market. This may appeal to investors interested in that specific market. But conservative investors may hesitate to buy because they worry about currency movements in the emerging market. So the financial industry has come up with “hedged” ETFs.

Hedging costs will vary, depending on conditions in the foreign-exchange market, and on how an ETF carries out its hedging program. But most important, these fees can double or triple the typical 0.30% to 0.70% ETF management fee.

Discover more about hedged ETF now.

4. ETFs are great options for building in-trust accounts

Exchange-traded funds are some of the best investments to choose as a starting point when building an in-trust account. If you start out with exchange-traded funds, we recommend putting, roughly half of your contributions into a Canadian exchange-traded fund and the remaining half into an exchange-traded fund holding U.S. stocks. ETFs, with their relatively low management fees (MERs), have diminished interest in mutual funds. As well, new commission-disclosure requirements in Canada have forced brokers to reveal all the costs associated with mutual funds and other similar investments. That has begun to increase the appeal of ETFs.

Learn more about the value of ETFs as investments for children.

5. ETFs are cheaper in many ways than mutual funds

Overall, high management fees eat into an investor’s long term profits. That’s especially true with mutual funds. ETFs are among the more benign investment innovations of our time. Unlike other innovations, they don’t load you up with heavy management fees, nor tie you down with heavy redemption charges if you decide to get out before six years have passed. Instead, they give you a lower-cost and more flexible and convenient alternative to mutual funds.

Learn more about the fees for managing ETFs.

Do you like the idea of investing in indexes? Do you worry that ETFs are too closely tied to the performance of stock markets?

The best ETFs have similar characteristics and benefits. What do you like best about ETF investing?


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