ETFs For Canadians For Dummies

Description

Break into the exciting Canadian market for exchange-traded funds Exchange-traded funds (ETFs) are an increasingly popular part of the investing landscape, being less volatile than individual stocks, cheaper than most mutual funds, and subject to minimal taxation. ETFs For Canadians For Dummies will guide you through the process of investing in ETFs in Canada, a smaller and sometimes riskier market. You’ll get the most up-to-date information on the ETF investing landscape, and we’ll help you figure out how to navigate the fast-changing marketplace. This book makes it all easy to understand, and offers updated info on the available ETFs, investment and tax laws, and market projections. Invest your money wisely in the Canadian ETF marketMaximize your profits when you trade on the stock marketDiscover how investing in Canada is different from investing elsewhereLearn how to invest online with the latest apps and other tools This is the book for Canadian investors who want to diversify their investment portfolio and break into exchange traded funds. With the help of Dummies, anyone can learn to invest in ETFs. Title Page Copyright Page Introduction Since the First Edition. . . About This Book Foolish Assumptions Icons Used in This Book Beyond the Book Where to Go from Here Part 1 The ABCs of ETFs Chapter 1 No Longer the New Kid on the Block In the Beginning Enter the traders Moving south of the border Fulfilling a Dream Goodbye, ridiculously high mutual fund fees Hello, building blocks for a better portfolio Will you miss the court papers? Not Quite as Popular as the Latest Teen Idol, but Getting There Moving from Bay Street to Main Street Mutual funds versus ETFs Ready for Prime Time The proof of the pudding The major players Commercialization is tainting a good thing Chapter 2 What the Heck Is an ETF, Anyway? Understanding the Nature of the Beast Choosing between the Classic and the New Indexes Preferring ETFs over Individual Stocks Distinguishing ETFs from Mutual Funds Why the Big Boys Prefer ETFs Trading in large lots Savouring the versatility Why Individual Investors Are Learning to Love ETFs The cost advantage: How low can you go? Why ETFs are cheaper An unfair race The CRA’s loss, your gain No tax calories Market makers and croupiers What you see is what you get Style drift: An epidemic ETFs are the cure Transparency also discourages dishonesty Getting the Professional Edge Consider a few impressive numbers You can do what they do! Choosing Passive versus Active Investing The index advantage The allure of active management Why the race is getting harder to measure . . . and what to do about it Deciding whether ETFs Belong in Your Life Calculating commissions Moving money in a flash Understanding tracking error Making a sometimes tricky choice Chapter 3 Getting to Know the Players Creating an Account for Your ETFs Answering a zillion questions Placing an order to buy Trading ETFs like a pro Introducing the Shops What to look for A price structure like none other TD Direct Investing BMO InvestorLine Scotia iTrade RBC Direct Investing CIBC Investor’s Edge Virtual Brokers Qtrade Investor Questrade Wealthsimple Trade Other online brokers Presenting the Suppliers It’s okay to mix and match — with caution BlackRock/RBC iShares BMO ETFs Vanguard Investments Canada Horizons Exchange Traded Funds CI Investments Mackenzie Investments TD Asset Management Fidelity Investments A few U.S. ETF providers State Street Global Advisor’s SPDRs Invesco Charles Schwab Familiarizing Yourself with the Indexers S&P Dow Jones Indices MSCI FTSE/Russell CRSP Bloomberg Morningstar Meeting the Intermediaries Toronto Stock Exchange NEO Exchange NYSE Arca NASDAQ BATS Part 2 Building the Stock (Equity) Side of Your Portfolio Chapter 4 Costs, Diversification, Risk, and Some Other Things You Need to Know Risk Is Not Just a Board Game The trade-off of all trade-offs (safety versus return) So just how risky are ETFs? Smart Risk, Foolish Risk How Risk Is Measured Standard deviation: The king of all risk measurement tools Predicting a range of returns Making side-by-side comparisons Beta: Assessing price swings in relation to the market The Sharpe, Treynor, and Sortino ratios: Measures of what you get for your risk Modern Portfolio Theory Tasting the extreme positivity of negative correlation Settling for limited correlation Reaching for the elusive Efficient Frontier Ignoring the rumours that MPT is dead Mixing and Matching Your Stock ETFs Filling in your style box Buying by industry sector Avoiding slicing and dicing your portfolio to death Chapter 5 Large Growth: Muscular Money Makers Style Review What makes large cap large? How does growth differ from value? Putting these terms to use Big and Brawny Contrary to all appearances . . . Let history serve as only a rough guide ETF Options Galore Strictly large cap or blend? “Everything” investment options Large-cap blends Large-cap growth and value options Blended options for large-cap exposure iShares S&P/TSX 60 Index Fund (XIU) S&P/TSX Capped Composite Index Fund (XIC) Vanguard FTSE Canada All Cap Index ETF (VCN) Vanguard Growth ETF (VUG) Vanguard Mega Cap 300 Growth ETF (MGK) Schwab U.S. Large-Cap Growth ETF (SCHG) iShares Morningstar Large-Cap Growth ETF (ILCG) Nuveen ESG Large-Cap Growth ETF (NULG) Chapter 6 Large Value: Counterintuitive Cash Cows Recognizing Value Looking for the Best Value Buys Making an ETF selection iShares Dow Jones Canada Select Value Index Fund ETF (XCV) iShares Canadian Fundamental Index ETF (CRQ) and Invesco FTSE RAFI Canadian Index ETF (PXC) Vanguard Value ETF (VTV) Vanguard Mega Cap 300 Value Index ETF (MGV) iShares Morningstar Value ETF (ILCV) Chapter 7 Small Growth: Sweet-Sounding Start-Ups Getting Real about Small-Cap Investments Your Choices for Small Growth Small-cap blend funds iShares S&P/TSX SmallCap Index ETF Fund (XCS) iShares S&P/TSX Completion Index Fund (XMD) Strictly small-cap growth funds iShares Morningstar Small-Cap Growth ETF (ISCG) Chapter 8 Small Value: Diminutive Dazzlers It’s Been Quite a Ride Latching on for fun and profit But keeping your balance iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (CDZ) iShares Morningstar Small-Cap Value Index (ISCV) Vanguard Small-Cap Value ETF (VBR) What about the Mid Caps? Chapter 9 Beyond Canada: ETFs without Borders The Ups and Downs of Different Markets around the World Low correlation is the name of the game Remember what happened to Japan Your Best Mix of Domestic, American, and International Why putting 97 percent of your portfolio in foreign stocks is too much Why ETFs are a great tool for international investing Not All Foreign Nations — or Stocks — Are Created Equal The Best Foreign ETFs for Your Portfolio A number of brands to choose from U.S. equity ETFs All the world’s your apple: ETFs that cover the planet International ETFs: From the North Sea to the Land of the Rising Sun Vanguard FTSE Developed All Cap ex North America Index ETF (VIU) iShares Core MSCI EAFE IMI Index ETF (XEF) International funds with U.S. exposure iShares Core MSCI ALL Country World ex Canada Index ETF (XAW) Vanguard FTSE Global All Cap ex Canada Index ETF (VXC) Vanguard FTSE Emerging Markets All Cap Index ETF (VEE) BMO MSCI Emerging Markets Index ETF (ZEM) iShares Core MSCI Emerging Markets IMI Index ETF (XEC) Small-cap international: Yes, you want it Vanguard FTSE All-World ex-US Small Cap Index (VSS) iShares International Developed Small Cap Value Factor ETF (ISVL) Chapter 10 Sector Investing: ETFs According to Industry Selecting Stocks by Sector, Not Style Speculating on the Next Hot Industry Sizzling and sinking Momentum riders and bottom feeders Doing Sector Investing Right Calculating your optimal sector mix Seeking risk adjustment with high- and low-volatility sectors Knowing where the style grid comes through Combining strategies to optimize your portfolio Seeking low correlations for added diversification Perusing Sector Choices RBC iShares iShares U.S. BMO ETFs Vanguard ETFs TD Asset Management Horizons ETFs Sector funds from down south Select Sector SPDRs: State Street Global Advisors (Part I) SPDRs: State Street Global Advisors (Part II) Invesco Fidelity Chapter 11 Real Estate Investment Trusts: Becoming a Virtual Landlord Considering Four Distinguishing Characteristics of REITs Limited correlation to the broad markets Unusually high dividends Special status among financial pros Connection to tangible property Calculating a Proper REIT Allocation Judging from the past Splitting the baby: Domestic and international REIT funds Picking REIT ETFs for Your Portfolio Canadian domestic REIT ETFs Vanguard FTSE Canadian Capped REIT Index ETF (VRE) BMO Equal Weight REITs Index ETF (ZRE) iShares S&P/TSX Capped REIT Index ETF (XRE) Mackenzie Developed Markets Real Estate Index ETF (QRET) U.S. REIT ETFs Schwab U.S. REIT ETF (SCHH) Fidelity MSCI Real Estate Index ETF (FREL) Vanguard REIT Index ETF (VNQ) International and Global REIT funds Vanguard Global ex-U.S. Real Estate ETF (VNQI) Xtrackers International Real Estate ETF (HAUZ) iShares Global REIT ETF (REET) Chapter 12 Dividend Funds: The Search for Steady Money Your High-Dividend ETF Options iShares Canadian Select Dividend Index ETF (XDV) iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ) iShares SP/TSX Composite High Dividend Index ETF (XEI) Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) BMO Canadian Dividend ETF (ZDV) Investing in non-Canadian dividend funds Promise of Riches or Smoke and Mirrors? Part 3 Adding Bonds (Fixed Income) to Your Portfolio Chapter 13 For Your Interest: The World of Bond ETFs Tracing the Track Record of Bonds Portfolio protection when you need it most History may or may not repeat Tapping into Bonds in Various Ways Finding strength in numbers Considering bond fund costs Determining the Optimal Fixed Income Allocation 60/40? 50/50? Finding a split that makes sense Meet Joe, age 67, with a little more than $600,000 in the bank Meet Betsy and Mike, age 36, with $30,000 in the bank Chapter 14 Your Basic Bonds: Government Bonds and Corporates Buying Broad-Based Funds iShares Core Canadian Universe Bond Index ETF (XBB) BMO Aggregate Bond Index ETF (ZAG) Vanguard Canadian Aggregate Bond Index ETF (VAB.TO) Keeping It Short iShares Core Canadian Short Term Bond Index ETF (XSB) Vanguard Canadian Short-Term Bond Index ETF (VSB.TO) Banking on Business: Corporate Bond ETFs iShares 1–5 Year Laddered Corporate Bond Index Fund (CBO) BMO Short Corporate Bond Index ETF (ZCS) Investing in the U.S. BNY Mellon Core Bond ETF (BKAG) Vanguard Total Bond Market ETF (BND) Vanguard Short-Term Bond ETF (BSV) Chapter 15 Moving Beyond Basics into International and Target-Date Bond ETFs Diversifying with Foreign Bonds Vanguard Total International Bond ETF (BNDX) iShares International Treasury Bond ETF (IGOV) SPDR FTSE International Government Inflation-Protected Bond ETF (WIP) Invesco International Corporate Bond ETF (PICB) Investing in Emerging-Market Bonds: High Risk, High Return Vanguard Emerging Markets Government Bond ETF (VWOB) SPDR Bloomberg Barclays Emerging Markets USD Bond ETF (EMHC) Part 4 Specialized ETFs Chapter 16 All That Glitters: Gold, Silver, and Other Commodities Canada and Commodities Gold, Gold, Gold! Midas touch or fool’s gold? A vastly improved way to buy the precious metal Silver: The Second Metal Quick silver on the move If you must . . . Oil and Gas: Truly Volatile Commodities Oily business No experience necessary The sad saga of contango (Somewhat) Safer Commodity Plays General commodity index funds Invesco DB Commodity Index Tracking Fund (DBC) iPath commodity ETNs Actively managed, or quasi-actively managed, commodity funds Awaiting new developments Indirect Participation in the Commodity Market Tapping into commodity companies Oil and gas ETFs Mining ETFs Materials or natural resources ETFs Tapping into commodity-rich countries Chapter 17 Investing for a Better World What Are “Sustainable Investing” and “ESG”? The ambiguity of sustainable investing Are companies with better ESG ratings more profitable? Is ESG investing creating a better world? Will investing in ESG funds make you rich? Fence-sitters, make a decision Which Sustainable ETFs Are Best for Your Portfolio? iShares ESG Aware MSCI Canada Index ETF (XESG) BMO MSCI Canada ESG Leaders Index ETF (ESGA) TD Morningstar ESG Canada Equity Index ETF (TMEC) Desjardins RI Canada Low CO2 Index ETF (DRMC) BMO MSCI USA ESG Leaders Index ETF (ESGY) iShares ESG ETF Portfolios (GCNS, GBAL, GGRO, GEQT) VanEck Green Bond ETF (GRNB) Chapter 18 Going Active with ETFs Understanding the (Moderate) Rise of Active Management in Canada Deciding Whether to Get Active Getting Practical Looking at Some of the Most Popular Actively Managed ETFs TD Active Global Enhanced Dividend ETF (TGED.TO) BMO Core Plus Bond Fund (ZCPB) Horizons Active Preferred Share ETF (HPR) Horizons Active Ultra-Short Term Investment Grade Bond ETF (HFR) ARK Innovation ETF (ARKK) PIMCO Enhanced Short Maturity Active ETF (MINT) KraneShares Global Carbon Strategy ETF (KRBN) Chapter 19 All-In-One ETFs: For the Ultimate Lazy Portfolio Buying into the World’s Stock Markets in a Flash Putting the World’s Bond Markets at Your Fingertips Buying Stocks and Bonds in One Shot iShares asset allocation funds Plain-vanilla funds Funds with a twist of ESG Vanguard asset allocation funds BMO asset allocation funds Multi-asset funds that change as you age Chapter 20 Proceed-with- Caution ETFs Funds That (Supposedly) Thrive When the Market Takes a Dive Entering an upside-down world Boasting a track record like none other Funds That Double the Thrill of Investing (for Better or Worse) Crazy math: Comparing leveraged funds to traditional ETFs The continuing sad saga of DIG and DUG “Buffer” or “Defined-Outcome” ETFs Alphabet Soup: MLPs, SPACs, and IPOs One-Horse Towns: Investing in Narrow ETFs Funds for Crypto- or Other Currencies Cannabis ETFs: The Highs (and Not So Highs) of a Budding Industry Copycat ETFs Part 5 Putting It All Together Chapter 21 Sample ETF Portfolio Menus Deciding How Much Risk Can You Handle While Still Sleeping at Night A few things that just don’t matter The irony of risk and return The 25x rule Other risk/return considerations The limitations of risk questionnaires Making Plans for Optimal Investing Incorporating Modern Portfolio Theory into your investment decisions Minimizing your costs Striving for tax efficiency Timing your investments (just a touch) Finding the Perfect Portfolio Fit Considering the simplest of the simple The all-in-one Bringing in balance A well-rounded portfolio Bring on the dividends Get more aggressive Racing towards riches: A portfolio that may require a crash helmet Sticking to the middle of the road Taking the safer road: Less oomph, less swing Chapter 22 Exercising Patience: The Key to Any Investment Success The Tale of the Average Investor (A Tragicomedy in One Act) Returns that fall way short of the indexes ETFs can make failure even easier! The lure of quick riches “Investment Pornography” in Your Mailbox Welcome to the wild, wacky world of investment advice YouTube: Where teenagers in baseball caps explain the “secrets” of ETF trading Patience Pays, Literally Talk about unpredictability A short history of the market’s resiliency Chapter 23 Exceptions to the Rule (Ain’t There Always) Rebalancing to Keep Your Portfolio Fit How rebalancing works How often to rebalance Rebalancing for retirees Contemplating Tactical Asset Allocation Understanding the all-important P/E ratio Applying the ratio to your portfolio Buying unloved assets Harvesting Tax Losses, and the CRA’s Oh-So-Tricky “Superficial Loss Rule” What the heck is “substantially identical” anyway? Revamping Your Portfolio with Life Changes: Marriage, Divorce, and Babies Betsy and Mark: A fairly typical couple One year later Yet one year later Are Options an Option for You? Understanding puts and calls Calls: Options to buy Puts: Options to sell Using options to make gains without risk Insuring yourself against big, bad bears Seeming almost too good to be true Weighing options strategies against the diversified ETF portfolio Factoring in time and hassle Chapter 24 Using ETFs to Fund Your Golden Years Aiming for Economic Self-Sufficiency Taking the basic steps Choosing the right vessels Why your choice of vessels matters — a whole lot What should go where? TFSAs versus RRSPs The RRSP The TFSA Taxes Now or Taxes Later? (Or, What’s Better?) Ushering Your Portfolio into Retirement Readiness 15+ years and counting Less than 15 years to retirement Withdrawing Funds to Replace Your Paycheque Don’t obsess over maintaining principal or drawing from dividends As always, watch the fees Take your minimum required distributions RRSP, TFSA, or regular (taxable) brokerage account: Which to tap first? Chapter 25 Marrying ETFs and Non-ETFs to Make an Optimal Portfolio Tinkering with an Existing Stock or Mutual Fund Portfolio Improving your diversification Minimizing your investment costs Using ETFs to tax harvest Looking Beyond the Well-Rounded ETF Portfolio Adding mutual funds: The most popular of all investment vehicles Do Consider Annuities, Preferably Fixed Part 6 The Part of Tens Chapter 26 Ten FAQs about ETFs Are ETFs Appropriate for Individual Investors? Are ETFs Risky? Do I Need a Financial Professional to Set Up and Monitor an ETF Portfolio? How Much Money Do I Need to Invest in ETFs? Thousands of ETFs Exist to Choose from, So Where Do I Start? Where Is the Best Place for Me to Buy ETFs? Is There an Especially Good or Bad Time to Buy ETFs? Do ETFs Have Any Disadvantages? Does It Matter Which Exchange My ETF Is Traded On? Which ETFs Are Best in My RRSP, and Which Are Best in a Non-registered Account? Chapter 27 Ten Mistakes Most Investors (Even Smart Ones) Make Paying Too Much for an Investment Failing to Properly Diversify Taking On Inappropriate Risks Selling Out When the Going Gets Tough Paying Too Much Attention to Recent Performance Not Saving Enough for Retirement Having Unrealistic Expectations of Market Returns Discounting the Damaging Effect of Inflation Not Following the RRSP Rules Failing to Incorporate Investments into a Broader Financial Plan Chapter 28 Ten Forecasts about the Future of ETFs and Personal Investing ETF Assets Will Continue to Grow . . . for Better or for Worse More Players May Enter the Field, but Only a Few ETF Investors Will Have No Need for Anything but ETFs ETF Investors Will Have More, and Better, Options The Markets Will (Unfortunately) See Greater Correlation than in the Past Asset Class Returns Will Revert towards Their Historic Means The Pandemic Will Change a Lot, but Not Everything Inflation Will Remain Tame Private Pensions (of Sorts) May Emerge from the Rubble Hype Will Prevail Part 7 Appendixes Appendix A Great Web Resources to Help You Invest in ETFs Independent, ETF-Specific Websites Websites of ETF Providers The biggies Some of the other players The U.S. market Some of the other players Retirement Calculators Financial Supermarkets Stock Exchanges Specialty Websites Where to Find a Financial Planner Regulatory Agencies The People Who Create the Indexes Good Places to Go for General Financial News, Advice, and Education Yours Truly Appendix B Glossary Index EULA