An introduction to ETFs
If you're new to investing you may not know what an ETF is. Bruce Sellery examines the pros and cons of these investments.
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If you're new to investing you may not know what an ETF is. Bruce Sellery examines the pros and cons of these investments.
My wife and I have about $50,000 to invest. I have been reading about ETFs and I want to know if you can purchase them inside an RRSP?
Answer
It wasn’t so long ago that a cell phone was as rare as a slender billed vulture—and about as large as one too. But the cell phone has kinda caught on and now no one under the age of twenty can imagine life before its ubiquity.
ETFs or exchange traded funds have caught on too, though not quite as broadly. More and more people like you are reading about them and considering adding them into their portfolios. And for good reason: they are a low cost way to match the performance of a given index and are super simple to buy and sell.
To answer your question directly—you absolutely can purchase ETFs inside of an RRSP. An RRSP is simply a basket that can hold lots of different things—ETFs, mutual funds, stocks, bonds, cash etc.
Let’s look more closely at what the term ETF means, starting with the “fund” part of an exchange traded fund. An ETF is a fund that is comprised of a variety of securities. Often those securities track the performance of an index like the TSX 60. “Exchange traded” means that you can buy and sell an ETF on a stock exchange, just like a stock.
There are a number of advantages and disadvantages when you compare ETFs to mutual funds. I go into these in greater detail in my book Moolala, but here is a quick overview.
Advantages of ETFs:
Disadvantages of ETFs:
Some investors use ETFs to trade actively. But most use them for what’s called passive investing: simply buying and holding the index for a long period of time. If that is what you’re thinking of doing, check out the Couch Potato approach for an easy way to start.
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