A 2024 resolution for all mutual fund investors: Ask yourself if you would be better off with a move into exchange-traded funds.
ETFs still hold a fraction of the assets invested in mutual funds, but with much more growth momentum. Investors are moving to ETFs primarily because they’re much cheaper to own than mutual funds, but there are other benefits as well. Traditional ETFs simply mirror the returns of well-followed stock and bond indexes, which makes them easy to understand and deploy in a diversified portfolio. ETFs also offer opportunities to explore new market niches like crypto and AI, even if that type of investing is highly speculative and not for everyone.
ETF assets jumped 17 per cent to $367-billion over the 12 months to the end of November, TD Securities reports. Mutual fund net assets were up marginally over that same period to $1.9-trillion. Financial markets performed better as the year progressed, yet TD Securities notes that the pace of people withdrawing money from mutual funds picked up speed.
Mutual funds are still a good option for investors who have very small amounts to invest, who feel comfortable with bank staff or advisers who sell them funds or who have found funds that consistently give them strong returns. There are strong-performing funds, but many are so weighed down by fees that their returns are below comparable ETFs.
A little investing exercise for mutual fund investors: Find out what your returns were last year and over the past five years, and then compare these numbers to a similar ETF. The Globe and Mail ETF Buyer’s Guide includes dozens of funds you can use to compare the returns of mutual funds in six popular categories.
You need an account at a digital broker to invest in ETFs. Quite a few brokers allow clients to buy at least a limited selection of ETFs at no cost. Otherwise, expect to pay up to $9.99 to buy or sell ETFs.
The ETF industry is capitalizing on high levels of investor interest by pumping out new products at a ferocious rate, and not all of these offerings deserve your money. For the best chance of success, stick to the ultra low-cost ETFs that track major Canadian, U.S. and international stock and bond indexes.
Mutual funds were a brilliant innovation – a way of democratizing investing by making it accessible to virtually everyone, as opposed to just the wealthy. Mutual funds still have a role, but a growing number of investors are finding ETFs a better fit.
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Rob’s personal finance reading list
A fresh wind at Air Miles
A review of the problems at Air Miles in the past decade, and a look at its “reinvigorated feel” lately. Special note is made of an option that lets you combine your own cash with miles to book a flight. You no longer must wait until you have enough miles.
Why it feels so exhausting to talk about money
A smart and perfectly timed take by a U.S. money columnist on spending and splurging. Why, no matter how much we spend and buy, is it ever enough?
He’s buying a house with his girlfriend
A Reddit discussion on how to buy a house with a partner, and what happens if things go south? With housing as expensive as it is right now, questions like these have to be coming up a lot.
Get wise to the Wise card
A review of Wise, a multi-currency payment card that lets you pay for purchases in countries around the world at a competitive exchange rate and without the foreign currency fees charged by most credit cards. I wrote about Wise as well last year, and several readers e-mailed to say they tried the card as well and liked it.
Ask Rob
Q: My husband has been diagnosed with Alzheimer’s disease and all our credit cards are in his name. Can I change the credit cards to joint with both our names? The time will come when he will not be able to handle our finances and I know at the moment when I call for information they will only talk to him as the primary and holder.
A: Suggestion: Apply for a credit card in your name. Doing so will help build your credit score, which could become a factor if you borrow money or decide to move into rental accommodations in the future. Lenders check credit scores, and so do some landlords. Also, credit scores may factor into premiums for home and vehicle insurance. Some banks offer joint credit cards, so that option may be possible. On behalf of a reader, I recently asked a big bank if it was possible to have a joint credit card account for two spouses. The answer was no. This bank did say that if your own income isn’t enough to qualify for a card as primary user, your household income may be considered. Other banks do offer joint cards.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Tools, explainers, guides and charts
The federal government’s Retirement Hub offers basic information about the Canada Pension Plan and Old Age Security, including how to apply and the benefits of delaying the start of these programs to receive higher payouts.
The Money-Free Zone
Pure candy for a cold January – Vanishing Girl, by The Dukes of Stratosphear. The Dukes were a psychedelic pop side project for members of the British new wave band XTC.
Watch this
A must-watch Instagram video that nails high grocery prices.
On social media
A thread on X from a veteran mortgage broker on what’s ahead for real estate in 2024.
What I’ve been writing about
- Considering annuities for retirement income? Here’s where to get quotes
- Given the soft saving and quiet quitting trends, how financially cooked is Gen Z?
- What keeps a financial planner up at night? ‘People withdrawing all of their savings to meet their new mortgage needs’
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You're not bad at money – you're suffering from money shame • Retirement might look different for Gen Z and millennials. Here's how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
Rob Carrick