Investing for the Couch Potato

THE BRIEF

Do you have limited time to invest? No idea what you’re doing? Afraid you’ll mess up? You’re not alone.

• Passive investors are better off holding Exchange-Traded Funds (ETFs) vs Mutual Funds.
• Top-performing ETFs in the past decade… Internet, biotech, and aerospace.

THE EXPLANATION

The most widely used passive investment tool is an exchange-traded fund (ETF):

• An ETF is a basket of securities (stocks, bonds, and commodities) that can be bought and sold like a stock. An investment in an ETF will give the investor a diversified portfolio of various assets.
• The largest ETF in the world, SPDR S&P 500 ETF (Ticker: SPY), holds shares of the largest 500 US companies. 
• ETFs are a low-cost alternative to mutual funds. Mutual funds are actively managed by fund managers which leads to higher annual fees for the investor.

How does one of Canada’s largest mutual funds (RBC Select Balanced Portfolio) compare to the largest ETF in the world?

PRO TIP: The next time a financial advisor tries to sell you on a mutual fund, have them direct you to the nearest ETF. 

THE ACTION

ETFs can be bought on most trading platforms. Open your trading platform (i.e. Scotia iTRADE, Robinhood, Questrade), search the desired ETF ticker (i.e. SPY) and buy/sell like you would with other stocks.

PRO TIP: Investors can diversify even further by investing in multiple ETFs that hold assets in different sectors (i.e. buying the SPY along with an internet-focused ETF).