Why is ETF Investing so Popular?

Exchange Traded Funds (ETFs) have become a staple of modern portfolio investment strategies, especially for the DIY trader. Learn what sets them apart from other stocks, bonds, and funds.

What is an ETF?

Exchange-traded funds (ETFs) are everywhere you look in the modern investment market, and with good reason. ETFs offer low management fees, variety, and flexibility, making them a great choice for many DIY investors. According to the Canadian ETF association, there are now more than 450 ETFs available to choose from on the TSX alone.

The amount of articles advocating the use of ETF portfolios is staggering, but whether you’re new to DIY investing or a seasoned pro, it’s natural to wonder: What makes them so popular in the first place?

The SPDR

First, a little history. ETFs date back to 1993, with the launch of a fund tracking the Standard & Poor’s 500 index (S&P 500). The ETF’s full name was a “Standard & Poor depositary receipt”, or “SPDR” for short, with the acronym naturally leading to the now common nickname, “Spider”. SPDRs are still used on the market today, more than 20 years later.

Right now you’re probably thinking, “it’s a shame the first ETF didn’t have a more adorable nickname.”

We agree, but sadly, here we are.

Not a Mutual Fund, but Not a Stock

Mutual funds essentially act as a collection of securities. So do ETFs. The difference lies in the fact that ETFs trade on a stock exchange like any other company, with price changing according to daily changes in supply and demand. That’s actually the simplest way to explain ETFs: A basket of assets that trades like a stock.

The benefit? ETFs offer more diversification than individual securities, but more trading flexibility than traditional mutual funds.

ETF Strategy

As popular as ETFs are, it’s important to note that they aren’t necessarily better or worse than mutual funds or stocks.

However, if you’re looking to get started, Credential Direct is lucky enough to have a great ETF resource to offer. Check out the Seven Steps to the Perfect ETF Portfolio, a learning session hosted by Dan Bortolotti, creator of Canadian Couch Potato and veteran financial journalist. It’s a great listen that’ll really help you understand the steps and strategies behind ETF investing.

If you’d like to do additional reading, MoneySense’s ETF All-Stars 2017 feature is a solid resource that compares the performance and fees of some of the market’s best options. And when you’re ready to invest, we’re here. We offer a low, flat fee of $8.88 per trade, we’re committed to serving our community, and we’re always happy to answer any and all questions.

The information contained in this post was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This post is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities. On-line brokerage is offered through Credential Direct, a division of Credential Qtrade Securities Inc., operating as a separate business unit. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently, and past performance may not be repeated. Credential Qtrade Securities Inc. is a Member of the Canadian Investor Protection Fund.

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