I have been following Suze Orman for years and she is always recommending ETFs (exchange traded funds) and when pressed for a fund to pick she always says Vanguard. Vanguard is available in Canada now on the TSE (Toronto Stock Exchange) and I am considering making a purchase.
What I don’t understand is what is the difference between and ETFs and the mutual funds that every financial institution tries to sell me.
ETFs are shares in a stock or bond fund. The ETF managers pick shares or bonds to hold in the fund and make changes in the holdings when they feel something isn’t performing as well as expected. Isn’t that just what the mutual fund managers with the big banks and the pension fund managers that run my work pension do?
What is the difference between an ETF and a mutual fund?
Mutual funds are many of us pooling our money to increase holdings and spread risk among a large number of stocks and bonds – just like an ETF right? Wikipedia does not have a page on the difference. Google has 1,330,000 entries on the difference but most of them are trying to sell me something.
Here is the definition of a mutual fund from TD Canada Trust.
“A mutual fund is an investment that pools money from many individuals and invests it according to the fund’s stated objectives.
Professional money managers make investment decisions on behalf of fund investors, buying and selling investments such as money market investments, bonds and stocks.”
Here is a definition of an ETF from Wikipedia
“An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index.”
Can you see the big difference?
More research is needed and I am very open for suggestions. Besides, I only have $47.00 cash in my trading account so it will be a while before purchases are made. I just googled Vanguard funds available in Canada and there are many to choose from – REITS, bonds, S&P, dividend, emerging and sub categories of each of those. Keeping my money in an incredibly low paying savings account would not give me much of a return but it would give my brain a lot of free time.
I wonder if I email Ms Orman if she would pick a Vanguard ETF for me? I wonder if she makes her selections using a dart board? I wonder if I would have ended up with Shopper’s Drug Mart in my portfolio if I had used a dart board?
January No Spend update
I have spent no money because it was just too cold to go out this weekend and my son had the car (he WILL be putting gas in it). Free work dinner tonight so I only have 11 more days to worry about food. I have lots of breakfast food so I jut might have breakfast twice each day. I had pancakes for lunch yesterday and I am supplementing the dog food with big bowls of warm oatmeal because we got a lot of pancake mix and oatmeal for free.