ETF Popularity Is Booming, And You Should Be A Part Of It

I've always been an avid stock-picker. I love security analysis, annual reports, balance sheets. It's a hobby for me. But for some, the task can be too daunting. They either run to their fund advisor and pay them an exorbitant amount of fees or leave their money in a high-interest savings account earning less than 1 percent. But there is a solution for those who don't have the knowledge or time to make their own investment decisions. The Exchange Traded Fund, or ETF, is a great way to be given instant market diversity and the ability to trade an entire market as if it were an individual stock.

ETF Popularity is skyrocketing

Every single year, the money invested into ETFs is not only beating previous years records, it's shattering them. More and more investors are buying into the trend. Bring in Robo-advisors like Wealthsimple, who literally make investing your money as easy as answering a simple questionnaire, and it doesn't feel like the popularity is going to fade anytime soon.

People are tired of paying high fees. It's the main reason I pulled all my money out of my mutual funds and instead moved to Questrade to manage my own investments for simply the cost of commissions. Mutual fund popularity is fading fast, and I think we can attribute it to the ETF boom.

Why You Should Invest In ETFs 

The price 

Whether you are a seasoned investor or someone just looking to get into the markets, ETFs should be on your radar. If you are currently invested in a mutual fund, you're probably paying upwards of 2.4% for the pleasure. An ETF, on the other hand, could only cost you 0.45%. Now I don't know about you, but if I had a $100 000 investment portfolio, $450 a year sounds a whole lot better than $2400.

This isn't to say that fees are the be all end all when it comes to choosing an investment strategy. There are some mutual funds that have consistently crushed the market. After it's all said and done, take away the fees you are paying to the fund and you still may end up with an excellent yearly return. But in most situations, this isn't the case.

The flexibility

If you enjoy watching your capital grow(or shrink), you'll enjoy the flexibility that an ETF offers. When you invest in a fund, the price stays stagnant all day. A mutual funds price is set at the end of a trading day, often when the market is closed. An ETF however, trades just like a regular stock. You can see the price fluctuate during the day, and can even dabble in trading ETFs if you dare.

Most brokerages offer free commissions on the purchase of ETFs. This can allow new investors to get into the market without paying a dime. Now, these brokerages often have a limited freebie list, but it's definitely worth noting. It's also imperative that you take note of extra fees your brokerage may charge you to hold the ETF and to sell.

ETFs are tax efficient

When you invest in an ETF, often the holdings within the ETF don't change very often. When a fund manager tinkers with their holdings, it often requires selling securities. When they do this, it can create capital gains for the shareholders. At this point, they will be subject to taxes on those gains. With an ETF, because their holdings stay relatively untouched, taxes never really come into play until you sell the ETF itself.

All in all, you should at least consider ETFs

If you're a beginning investor, individual stock picking may be too cumbersome for you to handle. You like the idea of picking individual stocks and leading yourself down the path to riches but are smart enough to know you probably don't have the skills to get there yet. In this case, you may want to purchase ETFs yourself or invest in a Robo-advisor that will do all the heavy lifting for you. You'll save time, money and most of all, stress.

I debated making the switch to ETFs a while ago. With the emergence of my website Stocktrades, I am simply running out of time during the day to be checking and balancing my 20+ stock portfolio. But I enjoy it too much to make the switch. If individual stock picking is more of a hobby than a chore, you may be better off where you're at right now. That isn't to say you can't have a combination of both, and I've had my eyes on a few ETFs I am looking to add to my portfolio. I will update you when I do!