As young people embark on a lifetime of saving and investing, they need to understand the role of ETFs in the investment landscape. If we want to serve our clients’ children, we must be comfortable teaching the basics of investing.
I had the opportunity over the summer to hire Meghan McCarthy, a third-year finance student at Bishop’s University, as an intern. She told me she was curious about ETFs and didn’t really understand how they differed from mutual funds.
Here, I share her questions and my answers to help you understand what young investors need to know about ETFs.
The RESP my husband and I set up over 25 years ago has been instrumental in funding my children’s school expenses, in no small part thanks to my ETF portfolio investment strategy.
When I created my portfolios over 10 years ago, I used them across my family accounts for our investments. The children were still young and I adopted a dynamic investment profile for their RESPs. Since it would be several years before I intended to withdraw money from the account and I had the flexibility to wait out any market corrections, I was comfortable using a 100 per cent equities portfolio.
In my own money management practice, I experimented with many investment styles over the years before adopting an ETF strategy following the great financial crisis. As I explained in my last article, I found the simple fact that most active managers do not outperform their benchmark index very compellingly. From that point on, I worked with unwavering conviction to build portfolio models based on an ETF strategy.
I did not immediately embrace ETFs in the aftermath of the financial crisis. Few investors were familiar with them at the time and the selection was limited. But, as more financial data became available, I decided to create discretionary portfolios using primarily ETFs after realizing that the majority of the managed products did not beat their benchmarks over time.
In Canada, if you own publicly traded securities outside of a registered account that have increased in value since you purchased them, and you donate them in-kind to charity, you’ll realize even more tax savings than you would with a cash gift.
My personal experience tells me that using ETFs to create a charitable trust can allow you to give in a tax-efficient, strategic manner on a regular basis.