Since canadians keep 51% of their portfolios in cash, they can switch to etfs and keep mutual funds
According to the BMO, do-it-yourself investors made two mistakes that gave them the opportunity to achieve higher returns: putting too much of their portfolios into cash rather than diversifying as they thought.
On Friday, BMO launched a new range of etfs designed to replace the stock and fixed-income options these investors are making, but to work with them so that they can plug holes in their strategies.
The new asset allocation ETF – the BMO conservative ETF, the BMO balanced ETF and the BMO growth ETF – are similar to standard mutual funds and offer investors three options, depending on the risk they wish to take. They are made up of other BMO etfs that give investors access not only to Canadian and us indices but also to international and emerging market indices. Each ETF also includes Canadian fixed income, Canadian government bonds and U.S. corporate bonds.
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Mark Raes, head of ETF products at BMO, isn’t trying to change the way investors think about picking their own stocks. ‘that’s good,’ he said. The bank envisions that a typical self-service investor portfolio of 50 per cent would still include individual stock options. One way to achieve the ideal balance, he says, is to add the other half to one of the new products.
“One of the thingswe like to do as individuals is pick stocks, pick lists, pick risks, and that usually means we end up over-concentrating,” says Mark Raes, head of product at BMO ETFs. What these new etfs can do is supplement some of the stock or ETF options in your portfolio to give you a fuller exposure to the market. “”
The Canadian portfolio is heavily weighted toward fixed income stocks, Raes said, while also supporting Canadian and blue-chip U.S. stocks over international stocks. Do-it-yourself investors may simply stick with the holdings they are most familiar with, but that strategy puts them at risk of a portfolio collapse if markets in Canada and the U.S. falter. A preference for blue chips could also mean that investors are not exposed to multiple sectors, particularly those that are defensively strong enough to reduce correction losses.
Finding that balance may not require investors to reduce their positions in other stocks. Canadians keep 51% of their portfolios in cash, according to Pollara Strategic Insights. Maintaining such a high proportion of portfolio cash does not help balance the books unless they are saving for short-term goals.
Do-it-yourself investors may simply stick with their most familiar holdings, but this strategy makes it possible for them to see their portfolios facing downturns in Canada and the U.S.
In reiss’s case, it’s akin to leaving money on the table.
“If you look at people who are investing in retirement goals and want to own a home, they need to put the money to work for the long term and then keep the cash for the long term to make it harder to achieve those goals,” he said.
Raes acknowledges that etfs may be similar to mutual funds, but a key difference is that investors pay a management fee of 0.18 per cent, while mutual funds pay 3 per cent.
That doesn’t mean that BMO is moving away from mutual funds, which have significantly overspent on ETF sales in 2018.Raes thinks it’s still in the market and that it’s “alive and well.” “” against this trend, some investors are still more aware that mutual funds are actively managed and that their managers can make industry or currency decisions based on where they see market trends.” ” People who invest in asset allocation etfs cannot enjoy the same service.
“If a traditional mutual fund investor wants to switch to etfs, we want to make sure we have a good solution,” he says.