Build Wealth Canada Podcast (CA)
What Every DIY Investor Should Know Before Buying ETFs in Canada
Why It Matters
Understanding ETF mechanics helps Canadian investors build low‑cost, liquid portfolios that can weather market volatility and avoid hidden fees, a crucial step toward long‑term wealth building. As more investors shift to DIY strategies, mastering order types and liquidity nuances ensures they protect their capital and maximize returns in a rapidly evolving financial landscape.
Key Takeaways
- •Active managers consistently underperform broad market indexes over time
- •ETFs have three liquidity layers beyond simple trading volume
- •Tight bid‑ask spreads indicate high ETF liquidity, especially large‑cap
- •Limit orders prevent swings; market orders work with tight spreads
- •Asset‑allocation ETFs simplify investing versus assembling individual ETFs
Pulse Analysis
DIY investors in Canada face a stark choice: chase active stock picks or embrace passive index exposure. Research such as the SPIVA reports repeatedly shows professional managers lagging broad market returns, especially after fees, because markets efficiently price information. For Canadian investors building low‑cost, tax‑advantaged portfolios, ETFs provide a straightforward path to capture total market performance without the analytical overhead of individual stock selection.
Understanding ETF liquidity is crucial beyond headline trading volume. Canadian ETFs benefit from three liquidity layers: the underlying securities market, the ETF’s own secondary‑market trading, and the creation‑redemption mechanism that lets authorized participants swap ETF shares for the basket of stocks. This structure keeps bid‑ask spreads narrow—often just a penny for large‑cap funds—signalling deep liquidity even when daily volume appears modest. Conversely, niche or foreign‑focused ETFs may exhibit wider spreads due to less liquid constituents, a factor investors should monitor when assessing transaction costs.
Execution strategy further influences outcomes. Limit orders let investors set a price within the spread, shielding against sudden market moves, while market orders are acceptable when spreads are ultra‑tight. Timing trades away from the volatile opening and closing 30‑minute windows also reduces price‑swing risk. Finally, portfolio architecture matters: a single asset‑allocation ETF offers simplicity—one trade for diversified equity and fixed‑income exposure—whereas piecing together individual ETFs allows granular control but requires more management. For most Canadian DIY investors seeking efficiency, the all‑in‑one ETF remains a compelling, low‑cost solution. (Note: the sponsor’s $12 CAD plan translates to roughly $9 USD.)
Episode Description
Today's episode is going to be especially useful if you're a Canadian DIY investor and you want to build an optimized, passive, low-cost portfolio, but you still have questions about some of the practical details.
For example, should you just buy one all-in-one asset allocation ETF, or is there a benefit to buying the underlying ETFs individually? How much should you care about ETF trading volume? What does liquidity actually mean when we're talking about ETFs? Should you use market orders or limit orders when buying ETFs? And if you're an income-focused investor, what are the pros and cons of building your portfolio around dividends?
We also get into the active versus passive investing debate, why it's so difficult for stock pickers and active managers to consistently beat the market over the long term, and how investors can think about risk when comparing traditional bonds with things like low-volatility ETFs.
Also as a Build Wealth Canada listener, we have a brand new free issue of Canadian MoneySaver magazine for you. The issue focuses specifically on ETFs here in Canada, I wrote an article for it as well, and you can get the digital version of the entire magazine for free by going to buildwealthcanada.ca/magazine.
Our Guests:
To help answer these questions, we have two great guests joining us.
First, we have Chris White from Canadian MoneySaver Magazine. Chris is also the Head of Research at 5i Research, and you may have heard him on CBC Radio or BNN Bloomberg.
We're also joined by popular returning guest Danielle Neziol, who is a very experienced and passionate educator when it comes to DIY investing here in Canada, especially index investing using low-cost ETFs, which, by the way, is literally how I invest all of my own money. Danielle is one of the hosts of the ETF Market Insights YouTube channel, she's a frequent speaker at industry events across Canada, and she works at BMO ETFs, one of the largest ETF providers in Canada so she incredible access to some of the best education, best practices, and resources when it comes to DIY investing here in Canada.
Disclaimer:
This content is sponsored by BMO Exchange Traded Funds.
This content is intended for information purposes only. Build Wealth Canada is compensated under this arrangement by BMO Exchange Traded Funds. The views expressed herein are subject to change without notice. The content contained herein is not, and should not be construed as, investment advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual's investment objectives and professional advice should be obtained with respect to any circumstance.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
This podcast is for information purposes only. The information contained herein is not, and should not be construed as investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated and professional advice should be obtained with respect to any circumstance.
ETF and Mutual Fund portfolio holdings are subject to change without notice at any time. Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is no guarantee of future results.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.
Commissions, management fees and expenses all may be associated with investments in exchange-traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF's prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal. BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
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