In recent years, there has been an explosive growth in Exchange Trade Funds as an investment alternative and Robo Advisors as a form of investment advice. A lot of the growth in both these investment options has been due to heightened awareness of fees associated with Mutual Fund Investing. As with most things in life though, you get what you pay for, so it is important to understand how both these forms of investing work. The onus for a large part of the investment decision lies with the account holder.
Exchange Traded Funds (or ETF) have been around for years, but in recent years have seen significant growth, both in range of options and assets. In short, ETF are investments that track and align with specific indexes, such as the TSX, S&P, S&P 500, etc.. There is no active asset management. In recent years, the number of indexes available has grown considerably to include foreign index, small cap, and other asset types (ie resources, etc). Some ETF today will also layer on asset management disciplines so they don’t exactly mirror indexes. As with any investment, the more specific the investment being tracked, the fees will also increase. Largely though, ETF are what is considered ‘passive’ investing or investments without professional asset management to oversee the holdings.
Robo Advisors such as Wealthsimple, and many others have grown as an investment advisory delivery option. These are online investment options that have limited client advice services. In most cases, an investor questionnaire is completed online and based on the answers provided and objectives stated, an investment portfolio is recommended of a basket of investments. In many cases, the investments are a series of ETF with lower management fees. Given Robo Advisory services are automated services, fees tend to be less than fees when using the services of an advisor.
While both ETF and Robo Advisory services offer lower fees, it is important to note that there are less advisory services provided so the onus falls largely on the investor. Given we have busy professional and family lives, we may not have either the time or expertise to actively follow our investments which can have long term effects on our investing results. Furthermore, investing can be very emotional, which can have detrimental effects on our long term investment returns. Investments all perform differently in different market conditions, so regular monitoring of holdings and making corresponding adjustments are important to both protect your savings and investments and maximizing your returns. Before making decisions, it is always best to explore the many options available to find a solution that best suits your needs and circumstances.
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