For years now, we’ve heard ETFs are a fantastic deal for passive investors. Most of the attention is given to fees, which are very important. But there are other reasons why ETFs are such an impressive innovation.
Purchase for free
In an attempt to separate themselves from the pack in a very competitive discount brokerage sector in Canada, many online brokers have made buying a selection of ETFs commission free. Investors only pay when they sell. Others have gone even further, saying all ETFs are free to buy.
This is a huge advantage to regular folks who dollar-cost average. Without free trades, these ETF investors would have much higher total costs.
Specialty products
While specialty ETFs do cost more than more popular funds, they’re still a fraction of the price of a niche mutual fund.
Say someone was bullish on energy. For a management fee of just 0.62% annually, an investor can get access to ten of Canada’s largest energy companies by buying the iShares S&P TSX Capped Energy ETF (TSX:XEG). Most energy mutual funds have a management fee of more than 2% with a lot of overlap in top holdings. It’s obvious which is the better deal.
Ability to switch
It is much easier for investors to switch from bonds to stocks and vice versa using ETFs.
Many bearish investors will hide in bond ETFs, content to collect a small amount of interest in exchange for liquidity. It takes just moments for someone to sell and re-position their portfolio into a new investment.
