'Investing 101' | General financial discussion | Discussion forum

I like that BCSC puts ETFs first in their list here https://www.investright.org/understand-investing/types-of-investments/common-investments/ There is a lot of history about 'stock investing', both through individual stocks and through high cost mutual funds, that no longer applies with ETFs .

There is no need whatsoever today to even look at a single stock, or a boutique slice of the equity markets, when there are low cost broad based index ETFs available to diversify holdings and mitigate both risk and volatility by buying the haystack. The older generations are unlikely to change their views but our Millennials, Gen-Z and perhaps even our Gen-Xers have completely different opportunities today to invest with more confidence and more predictable results.

ETFs are of all colors which have become a problem. 15-20 years ago, they were plain vanilla holders of the stocks in the representative index, either in whole or enough of a representative sample to actually track the index.

All of those still exist and are the elephants in the room but another 1000 or more ETFs have been spawned by FIs looking to create a niche for themselves with hedging strategies, e.g. to the loonie, with puts and options, derivatives, etc. Not unlike the tarnished mutual fund industry except with lower MERs.

Thus, one has to look 'under the hood' at their prospectus (or fund facts at least) to know whether they stay true to the indices they represent or are 'boutique' ETFs, hooks looking for fish.

Almost all of my ETFs are holders of the actual stocks in the index they track, e.g. all 500 stocks in the S&P500, and results track the index. Nothing with derivatives, hedging, puts, options, sector biases, etc. An entire equity portfolio of $100k, or $10M, can consist of as little as one ETF, or more generally, 3-5 ETFs to spread the joy between a few sponsors such as Blackrock or Vanguard.

One can create one's own ETF by owning directly the individual stocks that make up the TSX60 and/or the DJ30.

Dean said
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This is one of the Best basic summaries on Investing that I've seen in a very Long Time . . .

Link ➡ https://www.investright.org/introduction-to-investing-in-british-columbia/

It makes for a very good first-tool for anyone (young or old), about to take their first steps into Investing.

Share as you see fit.

Dean

  

This is just a list of ingredients; there is no recipe to make it into a coherent portfolio.

For young people I would recommend a book. Something like “Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs”.

AltaRed said

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The real purpose of ETFs is to keep the cover on the black box, not look inside and simply accept index returns less an MER of maybe 0.05-0.1%. A small price to pay to keep one's hands off the switches, and most importantly, to provide a vehicle for investors who do not have the temperament or inclination to be stock pickers.

Also, one can't easily track indices with 60, 300, or 500 names accurately directly with modest portfolios.

Just owning the same 60, 300, or 500 names in an index isn't going to produce the same returns unless one also matches the weights of those names in the index.

Microsoft currently has a weight around 6.3% in the S&P 500. That works out to be about 1.47 shares for a US$10,000 tracking of the S&P 500. How is one going to get that 0.47 share? If one rounds down to 1 share, then the weighting will be 4.5%. If one rounds up to 2 shares, then the weighting will be 8.6%.

The dividends also need to be reinvested with matching weights with the same challenges.