The TSX today remains a stressful place for many investors. The volatility that continues to weigh on the minds of investors hasn’t gone away. And it’s leaving many out of the opportunities in the market.
If you’re one of these stressed investors, then there is an answer to your woes. Invest in safe exchange-traded funds (ETFs).
ETFs: Safety in volatility
In an interview with Jonathan Needham, vice president and director, and Lead of ETF Distribution at TD Asset Management, the director pointed out that ETFs have remained popular during volatile economic environments. This mainly comes down to the diversification provided by these ETFs, which provide strong, risk-adjusted returns for investors. This allows investors to continue receiving positive returns and reach long-term goals.
And just like stocks, investors have the flexibility to see how their investments are doing in real time, along with the flexibility to trade an ETF at any time of day.
“Most importantly, with ETFs, investors can gain instant diversification to a portfolio of different securities,” Needham said. “And the power of buying a basket of securities versus betting on a single horse is certainly a lot smoother ride for that investor, especially during a volatile economic environment.”
Getting professional
That diversification certainly counts. But the reason it’s so successful is because there is a team of professionals managing how each ETF invests. Instead of managing a portfolio of equities, an ETF can provide you with the security of knowing that your money is being managed professionally.
This doesn’t mean you don’t have a choice in how you invest in an ETF. Instead, you can look at themes, asset classes, industries, geographic regions, and even highly specialized strategies that can align with an investor’s own beliefs. From there, investors can receive a basket of assets based on what they feel is important to their own personal financial growth. Moreover, it’s far less expensive than going with a broker.
“Compared to other investment funds, ETFs tend to have lower management fees and operating costs. Lower fees mean more of your savings are invested, which — with the benefits of compounding — can improve your return,” Needham said.
Make it easy
As mentioned, choosing an ETF doesn’t mean you have no choice. In fact, there are thousands of ETFs out there to choose from. Yet when it comes to finding the best one, perhaps go with the simplest.
One option to consider is investing in the S&P 500 through a high-yield, low-cost ETF. These types of ETFs are exactly what Warren Buffett, financial guru and billionaire, has long recommended to investors. Over time, returns on the S&P 500 have been enormous, and there are Canadian ETFs that can allow you to get in on that action.
One example is Vanguard S&P 500 Index ETF, with a 1.24% dividend yield and year-to-date returns of 16.25% as of writing. This provides you with the top companies on the S&P 500 today, along with passive income through dividends.
Bottom line
This easy solution is exactly what Needham points to, as ETFs continue to be a strong driver for investors looking for a low cost and easy access to the markets — all while counting on professional help rather than trusting your gut instincts.
“The ease of use is ETF’s biggest draw for consumers — investors can easily build a diverse and robust portfolio with a low cost of entry and transparent reports,” Needham said. “Adjustments, on the margin, depending on the market environment we are in or going into, can also help to improve outcomes for clients, not to mention the experience or better put, emotions or bad behaviours that investors can sometimes display during market volatility.”
