If you were in the 19th-20th century, you hardly had any choice for investments. However, in today’s modern era, we have many choices. Not only do we have developments in technologies now, but also in investment vehicles. ETF is one such investment avenue where you can invest. If diversification and lower fees thereby maximizing the returns are your investment objective, then an all-in-one ETF in Canada is for you.
If we look at the investment options that we have at our disposal, there is a bunch of variables like individual stocks, fixed income securities, or individual ETFs. But that comes with an onus of maintaining the optimal asset allocation and rebalancing the portfolio according to changing market conditions. This all seems inevitable when it comes to investing, but you can benefit from all these if you invest in an all-in-one ETF in Canada.
Advantages of All-in-One ETF in Canada
If you want to be an Astute DIY investor, then these are must-know benefits.
Team of Professionals to Take Care of Your Investments
Professionals work as a doctor to your portfolio. They try to heal your portfolio during bad times. And, an average investor with limited knowledge can benefit from it.
ETFs are also passively managed by tracking benchmark indices like the S&P 500, where the need for a fund manager is least. However, when ETFs are actively managed, an experienced team of professionals helps you achieve your return.
Fees are as important as returns when you consider investing in any asset class. Lower fees act as a catalyst to stupendous returns in the long run. Power of compounding is also applicable to fees. Higher the tenure, higher the fees paid over a longer period.
Compared to e other investment vehicles like mutual funds where the fees are2% or more, ETFs have lower fees. Take an example of Fidelity’s All-in-one Growth ETF. They charge fees of around 0.37%. That’s a whopping 1.63 percentage points difference. In the long run, these higher fees can be a dent in your returns. Invest in an all-in-one ETF in Canada and enjoy higher returns with lower fees.
Enjoy the Perks of Automatic Rebalancing
Rebalancing is the strategy to stick to your optimum asset weights according to your risk profile and investment objectives. If the investor has 50/50 weights of equities/fixed income in their portfolio, then they need to rebalance if the weight of any increases or decreases. Either the investor can sell some stocks or buy more funds to bring it to the original weight.
Investing in all-in-one ETFs in Canada just happens to rebalance the portfolio annually and other times according to changing market conditions. So, you can free up yourself from the tedious task of rebalancing and let your investments earn returns for you.
Ease in Investing
Even though it’s a tad new asset class, it offers the same benefit and ease of investing as stocks or other fixed-income securities. Firstly, you can purchase ETFs from your brokerage account the same way you purchase stocks. Just know the brokerage and commissions charged by your broker to invest in ETFs. Secondly, ETFs trade on stock exchanges like stocks with fluctuation in prices throughout the day, giving you an opportunity to buy at your price.
You don’t necessarily need to trade; you can invest a regular amount at a regular frequency to maximize your returns. This way you can control your costs, and new-age trading platforms alleviate the challenges faced earlier.
Diversification is the Star
As Warren Buffet rightly points out: “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing”.
Diversification acts as insurance against some of the bad investment decisions. It is a risk management strategy, employed by every sane investor to mitigate the downside which is the upside of putting this into practice in the first place.
As the saying goes, “Don’t put all your eggs in one basket”. The concentration of the portfolio in any asset class/segment kills the investment returns if there is any major correction in that particular asset class. Diversifying should protect you from bad investments or sudden market correction in any asset class.
Investing in an all-in-one ETF in Canada provides you the benefit of diversification which acts as a cushion during bad times. If we continue with Fidelity’s All-in-one ETF illustration, it provides a sublime diversification benefit with offerings ranging to 14 different ETFs, comprising many stocks and ETFs. Imagine if you were to achieve these diversification goals on your own, seems to be an arduous task!
Different Types of ETF Portfolios
Every asset class has its own characteristics and nitty-gritty, so do the investors. Your parents or children won’t share the same thought process when it comes to investing. This is because every investor has their own investment objectives, risk appetite, and investment horizon.
Hence, to accommodate all this intangible stuff, All-in-one ETFs in Canada are designed in a way to fit in investors’ profiles based on the above factors. Below are the types to fit in various types of investors.
Hybrid means the mixture of two. In this case, this portfolio invests 3/5th of the sum in stocks and the rest in fixed-income securities. If we look at the construction of this portfolio, it has a notch higher risk than all or majority of portfolios invested in fixed income securities.
Investors of this profile should be ready to endure a higher level of risk and in turn, can expect a long-term capital appreciation with the flavor of some volatility.
If you happen to be a risk-taking investor then this is just the perfect investment for you. This portfolio invests 4/5th or all of its funds in equities. The upside to it is you enjoy inflation-beating returns easily but come with a downside of higher volatility.
It’s said that if you invest for a long time, you can see the effects of compounding.
This is generally suitable for investors who are retirees and want a stable income from their investments. Customized for investors having a low-risk tolerance and wanting to detach themselves from market fluctuations, preserving their capital and earning single-digit returns.
Asset allocation is the opposite of what we saw in growth portfolios.
All is already known to you by now, know yourself and invest in an ETF suitable to you. It will help you take the leverage of enjoying rebalancing and diversification benefits. I hope this article has helped you understand the basics of all-in-one ETF in Canada. Before investing, always research the instruments you are diving into. All the best!