Exchange-traded funds (ETFs) are like a “variety pack” of investments that can help diversify your portfolio without purchasing individual securities.
Think of ETFs as a variety pack of stocks, bonds and other investments that can add diversification to your portfolio without the same price tag as purchasing the investments individually. ETFs trade on major stock exchanges throughout the day, and the investments in them track specific market , or commodities (such as oil).
ETFs provide access to a wide variety of sectors and indices, as well as investment types (stocks, bonds and cash).
ETF fees are usually represented as a Management Expense Ratio (MER), which is often lower than the fees on other investment types.
ETFs have the same liquidity as other securities that trade on major exchanges.
ETF shares, or units, can be bought and sold on a stock exchange throughout the trading day, just like stocks. They are a one-stop shop for purchasing an underlying asset or asset class.
An ETF's underlying securities are largely determined by the investment objective of the ETF. Some common underlying assets include stocks, bonds, commodities and currencies.
ETFs are open-ended, meaning units can be created or redeemed based on investor demand. This process is managed by market makers. A market maker is a trader at a bank or brokerage tasked with making firm bids or offers to ensure liquidity is maintained in the market.
An ETF listed for trading on a Designated Stock Exchange (DSE) is a qualified investment for registered plans. A DSE includes the TSX and other Canadian and U.S. exchanges. You can find a list of DSEs by visiting www.canada.ca and searching "designated stock exchanges."
Exchange-traded funds (ETFs) provide the risks and rewards of the underlying market:
Like stocks, exchange-traded funds are bought and sold on major stock exchanges throughout the trading day, so there is a cost to trade them. At RBC Direct Investing, you’ll pay just $9.95 flat CDN or US per online and mobile tradeDisclaimer 2 with no minimum balance or trading activity required. When you make 150+ trades per quarter, you’ll pay only $6.95 flat CDN or US per online and mobile equity trade.
Learn what makes ETFs a popular choice for investors and get inspiration for your portfolio with our guide to ETFs.
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