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ETF Investing in Canada [2024] | Top 3 Picks

ETF Investing in Canada [2024] | Top 3 Picks
Diana Paluteder

Summary: Exchange-traded funds (or ETFs) trade on the stock market just like stocks. As such, they can be purchased using a brokerage account such as Interactive Brokers. In short, you’ll need to sign up with a regulated online broker to invest in ETFs in Canada. Keep reading as we lay out the process step by step. 

Best Platform for Worldwide Stock Trading & Investing

  • Highly trusted multi-asset broker with clients in over 200 countries

  • Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

  • Low commissions starting at $0 with no platform fees or account minimums

  • Easily fund your account and trade assets in 26 currencies

  • IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

What is an ETF?

How to buy ETFs in Canada: Step-by-Step 

You’ll need an account with an online stock broker to invest in ETFs in Canada. To begin your investing journey, follow the steps outlined below. 

Step 1: Select a broker and open an account

While venturing into the stock market might seem intimidating, getting started is actually as straightforward as opening a bank account. 

To securely invest in ETFs in Canada, we recommend Interactive Brokers (IBKR), which offers: 

  • Commission-free stock and ETF trading;
  • Trade stocks on 90+ market centers;
  • Fractional stock trading;
  • Earn extra income on fully paid shares;
  • Lowest financing rates for margin accounts in the industry;
  • No account minimum. 

Best Platform for Worldwide Stock Trading & Investing

  • Highly trusted multi-asset broker with clients in over 200 countries

  • Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

  • Low commissions starting at $0 with no platform fees or account minimums

  • Easily fund your account and trade assets in 26 currencies

  • IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

What to consider when choosing a broker?

When choosing a broker to invest in ETFs in Canada, it’s advisable to take into account the following aspects:

  • Cost: Brokerage fees are costs levied by brokers to execute your trades. Ensure you understand the fee structure, including commission rates, spreads, inactivity, account maintenance fees, and any hidden charges. Fortunately, most online brokers nowadays offer commission-free ETF and stock trading;
  • Regulation and security: Make sure the broker you opt for is fully authorized by the relevant financial bodies in Canada and that they have implemented appropriate measures to protect your data and funds;
  • Convenience: If you’re new to investing in the stock market, a user-friendly platform with an easy-to-navigate interface is advisable. A section with investing tips and tricks might also come in handy. And if you like to keep an eye on your investments at all times, look for a platform that offers a mobile solution; 
  • Fractional shares: Fractional shares allow investors to buy ETFs based on the cash amount rather than the number of shares and are particularly useful for cash-strapped investors who want to build a diversified portfolio or set up a dollar-cost averaging strategy. 

Step 2: Decide on a strategy

Various categories of ETFs exhibit distinct risk and return characteristics, particularly with regard to asset classes. For instance, stocks often demonstrate greater volatility compared to bonds. However, they generally deliver stronger performance over longer timeframes. Establishing the appropriate proportions of each asset within your portfolio is termed asset allocation.

If you are buying ETFs yourself with an online broker, it is up to you to choose which ETFs you purchase and in what proportion.

For instance, if you have a moderate risk tolerance and intend to maintain your investments over an extended period—say, 10, 20 years, or more—you might opt for a balanced portfolio, which commonly comprises 60% stocks and 40% bonds. Alternatively, if your risk tolerance surpasses the norm and your investment horizon is comparable, you could opt for a growth portfolio that could be entirely allocated to stocks.

In short, when shaping your investment strategy, consider the following factors: 

  • Risk tolerance: What degree of portfolio volatility and potential losses can you endure before reconsidering your investment strategy? 
  • Time horizon: How long can you maintain your investments before needing the funds? The longer your investment time horizon, the riskier a portfolio will tend to be. Age also plays a role here. If you are nearing retirement age, your time horizon is inherently ‘short-term;’ 
  • Goals: What are you investing for (e.g., retirement, down payment on a house, vacation, etc)? Your goals will determine your strategy.

Step 3: Research ETFs

Now that you’ve decided on an investment strategy, the next step involves researching ETFs that best align with that strategy. 

You’ll want to keep the following factors in mind: 

  • Underlying index or assets: Examine the index or assets the ETF tracks. Is it a well-known benchmark? Does it cover the desired market segment or asset class? Make sure the underlying index reflects your investment preferences;
  • Expense ratio: Compare the expense ratios of different ETFs. Lower expenses can contribute to higher returns over time, so choose an ETF with competitive fees;
  • Performance history: While past performance doesn’t guarantee future results, reviewing an ETF’s historical performance can provide insights into how it has fared during various market conditions.
  • Ethical criteria:  Integrating environmental, social, and governance (ESG) considerations can not only reflect your values but also contribute to a more conscientious and forward-looking investment strategy;
  • Market outlook: Assess current market conditions and trends. Certain ETFs may be better suited for specific market environments.

Step 4: Buy the ETFs

Place your order by following these five steps:

  • Step 1: Fund your account through a bank transfer, debit or credit card, or third-party payment services like PayPal (PYPL);
  • Step 2: Search for your chosen ETFs by their ticker symbol;
  • Step 3: Decide on the order type. You can choose between a market order, filled immediately, or a limit order, fulfilled at your predetermined price point;
  • Step 4: Determine how much you want to invest, whether by the dollar amount or by the number of shares;
  • Step 5: Before clicking ‘Buy’ or ‘Open Trade,’ meticulously review all order details to ensure accuracy. Once satisfied, proceed to submit the order to your broker for execution.

Step 5: Manage your portfolio

To ensure that your investments remain aligned with your financial goals and risk tolerance, follow these key steps:

  • Keep contributing: Set up a dollar-cost averaging strategy whereby you schedule a regular (monthly) payment towards your investment portfolio. This can potentially lower your average cost per share over the long term and help you keep growing your nest egg;
  • Periodic rebalancing:  Adjust your portfolio’s allocation periodically (e.g., annually or semi-annually) to restore the desired balance between asset classes. Sell assets that have outperformed and buy those that have underperformed to maintain your target allocation;
  • Maximise returns: Make the most of your investment returns by reinvesting any distributions received from your ETFs. Reinvesting dividends and interest payments back into the ETF can enhance your potential for compounding growth over time. 

Best Canadian ETFs 

Here are three of the largest and most established ETFs in Canada right now: 

ETF nameIndexInception date 
iShares S&P/TSX 60 Index ETF (TSX: XIU)Tracks the S&P/TSX 60 Index, a market-cap weighted index of 60 blue-chip Canadian stocks.September 28, 1999
BMO S&P 500 Index ETF (TSX: ZSP)Mirrors the S&P 500 index, a market-cap-weighted index of the 500 largest US companies.November 14, 2012
iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC)Follows the S&P/TSX Capped Composite Index, merging the large-cap stocks in the S&P/TSX 60 with hundreds of mid-and small-cap stocks to represent the entire Canadian market. This is a capped index in which no individual stock can exceed a 10% weighting.February 16, 2016

Pros and cons of investing in ETFs in Canada

Pros

Pros

  • Diversification: ETFs provide instant diversification by offering exposure to a broad range of assets, reducing individual stock or sector risk;
  • Liquidity: ETFs trade on stock exchanges throughout the trading day;
  • Low costs: ETFs generally have lower expense ratios compared to actively managed mutual funds;
  • Transparency: Most ETFs disclose their holdings daily, letting investors know exactly what’s in their portfolio;
  • Flexibility: ETFs cover various asset classes, sectors, industries, and investment strategies, allowing investors to tailor their portfolios to specific goals.
Cons

Cons

  • Tracking error: Some ETFs may not perfectly replicate their underlying index’s performance, leading to a tracking error;
  • Market timing risk: Frequent trading of ETFs could lead to market-timing mistakes and potential losses;
  • Limited control: While ETFs offer diversification, investors have limited control over the specific assets held within the fund;
  • Lower potential returns: While ETFs provide diversification and stability, they may offer comparatively lower potential returns than individual stocks.

In conclusion 

In short, to buy ETFs in Canada, follow these five steps:

  1. Register with an online broker;
  2. Set up an investment strategy;
  3. Decide on the ETFs you want to buy;
  4. Buy shares of your desired ETFS;
  5. Periodically review and adjust your portfolio. 

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

FAQs about how to invest in ETFs in Canada

How do I buy ETFs in Canada?

You can buy ETFs by using an online broker like Interactive Brokers. 

What are the best ETFs for beginners?

For beginners, it’s wise to consider broad-market ETFs that track major indices. Look for options that provide exposure to diverse assets like stocks, bonds, or both. These ETFs offer a balanced starting point for building a diversified portfolio. As you gain experience and understanding, you can explore more specialized ETFs based on your investment goals and risk tolerance. Remember, thorough research and aligning with your personal financial objectives are key when selecting ETFs.

How do I sell an ETF in Canada?

Selling an ETF is easy: Sign in to your broker account, navigate to your portfolio, then to the ETF you want to offload, input the number of shares or dollar amount you want to get rid of, and tap sell (whether through a market or a limit order).

Can I invest in US ETFs in Canada?

It is possible to buy ETFs listed in the US and other foreign markets from within Canada through an online broker such as Interactive Brokers. 

Why should I invest in ETFs in Canada?

Investing in ETFs is less expensive, easier, and frequently generates better after-tax outcomes over medium to long-term periods than actively managed portfolios.

Best Platform for Worldwide Stock Trading & Investing

  • Highly trusted multi-asset broker with clients in over 200 countries

  • Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

  • Low commissions starting at $0 with no platform fees or account minimums

  • Easily fund your account and trade assets in 26 currencies

  • IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

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