These days, an independent investor can manage his or her portfolio with a few clicks and be the master of his or her own financial destiny. Far from being marginal, nearly a quarter of Quebec investors now do independent investiting.
With that said, independent investor or not, the world of investments always comes with some risks. Exchange traded funds (ETFs) can turn out to be a good avenue for ensuring diversification of your portfolio. Here are some advantages to take from ETFs when you’re holding the reins of your own investments.
ETFs are traded on the stock market like a stock. Except instead of throwing all your allocations into one business, you benefit from a basket of securities from which you can diversify your portfolio.
Like market securities, they are highly liquid: you can sell them when you want without penalties associated with withdrawals imposed by investment funds or guaranteed investment certificates.
You’ll also pay lower management fees than those of other funds, since their managers are inclined to invest in the same securities as the benchmark indexes, like the S&P 500.
Also, taxes can put a large dent in the return of certain investment funds, whereas when we invest in ETFs, it is possible to improve your fiscal efficiency thanks to diversification.
It’s also possible to reduce the volatility normally associated with stocks by investing in ETFs that are concentrated in more “conservative” sectors, such as public services or health care.
For those who manage their investments themselves, this diversification of ETFs bears even more importance. Investing in a company’s stocks, like Microsoft, requires an enormous amount of knowledge and time.
Reading annual reports, observations, sector trends… All this to succeed in making an informed decision and at best managing to obtain the same return as the market.
Those people at the top of finances like Warren Buffet and, on a national scale, Dan Bortolotti of the CouchPotato blog, are constantly repeating: if your full-time job isn’t selecting companies to invest in, don’t waste your time trying. Even professionals rarely succeed in hitting a home run and beating the market.
ETFs allow for a more passive management where you can manage the distribution of your stocks in funds that offer a good return, and at a better cost.
Here are the main factors to assess before investing in an exchange traded fund:
In Canada, more than 150 exchange traded funds are centred around revenue production for investors in search of the best returns. Here is a list:
Regardless of the investment vehicle that we choose when looking to manage our own portfolio, we should always remember two fundamental objectives: aim to reduce costs and maximize the diversification of the portfolio.
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