Exchange-Traded Funds (ETFs): Don’t Fall for These Misconceptions

ETF Misconceptions

While the popularity of Exchange-Traded Funds (ETFs) continues to grow, a number of ETF misconceptions have evolved. It is important to understand these ETF misconceptions before investing in ETFs.

Misconception #1: ETFs are So Simple, You Don’t Need Professional Advice

There are now close to 1000 ETFs available in Canada alone. With the recent proliferation in the number and variations of the financial instrument, it is becoming more difficult, not easier, to differentiate between many of them.

It is most important to obtain the advice of an objective and trusted financial professional in determining the appropriateness of any investment vehicle to meet your investment needs.

Misconception #2: ETFs are Passive Investments

The first ETFs were developed as passive investments to track specific investment market indices. Today, nearly 30 years later, ETFs have grown to include actively managed investment strategies with specific structural and style criteria.

These need to be fully understood just like any actively managed portfolio.

Misconception #3: ETFs are All Low Cost

Early ETFs were passive portfolios that tracked specific market indexes and carried relatively low fees. Today, while most remain passively managed the actively managed ETFs can have management fees around 1%.

Therefore, for similarly actively managed investment portfolios there is often no fee advantage for ETFs relative to a similar client dedicated portfolio.

Misconception #4: ETFs are All Low Risk

ETFs are often lauded for the diversification that they offer to investors—but just because an ETF contains a basket of underlying positions, it doesn’t mean that it is a low risk or well diversified investment. ETF’s can be very specialized, investing in specific sectors or track restricted sub-indices.

ETFs may provide limited to no downside protection when the market drops. You may need the advice of an objective and trusted financial professional to ensure you are appropriately diversified.

Avoid ETF Misconceptions

No single investment vehicle is best for every investor. Once you have a better knowledge of ETFs and a clear understanding of the misconceptions that surround them, you will be better equipped to know if ETFs should be part of your overall investment strategy and satisfy your risk tolerance, time horizon and investment objectives.

If you are looking for more advanced, private and personalized investment management services, Bloom Investment Counsel, Inc. has the experience and can help you and your family protect, preserve and grow wealth without risking future security and legacy goals.

Established in 1985, Bloom Investment Counsel, Inc. is a Toronto-based independent, privately-owned boutique investment management firm with over 37 years of experience managing in excess of $2.5B in assets over the years. We are dedicated to providing and actively managing personalized portfolios for wealthy individuals, family offices, foundations, corporations, institutions, and trusts.

Since our inception, we specialize in one thing and strive to be the best at it—investing in income-generating investments, specifically dividend-paying stocks, which provides clients capital for the present day, if desired, while continuing to preserve and build wealth for the future.

Learn about our actively managed, personalized dividend-paying portfolios by visiting our website at www.bloominvestmentcounsel.com or speak directly with us by calling +1-416-861-9941 or emailing us at info@bloominvestmentcounsel.com


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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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