More investors are considering exchange-traded funds when determining what investments to include in a retirement savings portfolio, according to a report issued by the BMO Wealth Institute.
While the report notes that the demand for ETFs is growing worldwide, they remain one of the least understood investment vehicles among Canadians, with only 19 per cent of Canadian investors claim to be knowledgeable about ETFs compared to traditional investments such as guaranteed investment certificates (GICs) (58 per cent) and mutual funds (55 per cent).
However, once told about the benefits of ETFs, 60 per cent report that they would add them to their portfolios.
“ETFs have only been around for the last 20 years so it’s understandable that Canadians are still in the process of familiarising themselves with them,” says Chris Buttigieg, senior manager, wealth planning strategy, BMO Financial Group. “Due to their many benefits, ETFs are a great fit not only for a portfolio in general, but specifically for accumulating wealth for retirement.”
Previous studies from BMO have indicated that Canadians are concerned about having enough money for retirement. Therefore it is critical to have a financial plan with a retirement component, as well as a portfolio with a mix of investments that reflect an investor’s risk tolerance, time horizon and liquidity needs.
The report identifies the key benefits ETFs provide, including:
• Access to a diversified basket of stocks, bonds or commodities
• Low management fees
• Easy buying and selling, as they are traded like a stock on the stock exchange
• Transparency of holdings, so that investors can always can see what they own
• A targeted investment approach by being associated with broad markets as well as particular regions, markets, sectors or themes
• Tax efficiencies due to lower portfolio turnover