How to Buy ETFs | Investing in Exchange-Traded Funds Explained

August 23, 2022 | Editorial Team

How to Buy ETFs

If you have any knowledge of trading and investments, you have likely heard of mutual funds and stocks. Exchange-Traded Funds (ETFs), however, may be a newer concept. ETFs are similar to mutual funds , and they are also bought on exchanges. ETFs trade like a stock, but they offer more diversity. They can contain a variety of investment types such as stocks, bonds, commodities.

ETFs (see ‘Best ETFs Canada‘) also tend to be cheaper and have a higher earning potential than mutual funds and stocks. This makes them a great long-term option for investors. So, if buying ETFs sounds more appealing to you than a mutual fund or a stock, you’ve come to the right place! We are here to guide you through buying an ETF as well as answer any questions you may have about them.

How to Buy an ETF

Open a Brokerage Account

The first step in buying ETFs is to open a brokerage account. This is not a hard step and can be done completely online. Online brokers in Canada, such as Questrade and Qtrade, are a good place to start. Look for the ‘contact us’ section on their websites to talk to a broker or customer service – or read our Qtrade vs Questrade review.

Another type of account you could open is a passively managed brokerage account. A financial advisor or a robo-advisor would then manage your account. This takes away the work of investing from you and puts it on someone you can trust. For their service, there is typically an annual fee on managed accounts.

Regardless of the account type you pick, you should look into what fees and requirements are necessary when opening a brokerage account. You don’t want to end up spending more of your funds on brokerage fees than you’re actually earning.

Our recommendation:

Find and Compare ETFs with Screening Tools

Once you have your brokerage account, you can start finding and comparing ETFs. Over 400 ETFs, such as those from the SP 500, can be bought in Canada, so how do you find the best one for you long term? The easiest way to find and compare ETFs is with screening tools. Screener tools can help narrow down the search based on criteria.

Here are some of the criteria you should consider when searching for ETFs.

  • Commission fees: check if you need to pay a commission fee to the broker to buy and sell the ETF.
  • Expense ratios: Look for an ETF with a low-cost expense ratio, typically below 0.15%. This will help you receive a higher ROI.
  • Volume: shows how popular an ETF is.
  • Performance: how the ETF has been performing in the past.
  • Holdings: displays which companies the fund invests in.
  • Trading prices: the current price of the ETF.

Place the Trade

The last step in buying an ETF is to place the trade. Whichever broker you went with (see ‘Interactive Broker vs Questrade’ post) will have a trading section. This is where you can buy or sell your ETFs. To find the ETFs you want to buy, you need to know their identifier, known as a ticker symbol.

Search for the ETF you want, such as one from SP 500. Then, you will need to input how many shares you want to purchase. You will also need to choose an order type from a market order, limit order, stop-limit order, or stop order.

Once you input all of the information, you are ready to place the trade!

Exchange-Traded Fund FAQs

How is an ETF Different From a Stock?

Trading ETFs is similar to trading stocks, but they do function differently. Purchasing a stock gets you one share of the company. Purchasing an ETF is more diversified as it is made up of several bonds, stocks, and commodities. Thus when you buy an ETF, you get a piece of each asset, not just one single share.

Are ETFs Safer Than Stocks?

ETFs can be safer than stocks, but there is no guarantee. As you only get one share of a company with stock, your investment will be based solely on that company. If they do poorly, your stock will go down. ETFs, however, are more diversified, so they have more opportunities to earn funds. Even if one of your ETFs’ stocks does poorly, the rest should be able to make up for your losses.

Are ETFs Good for Beginners?

New investors may be hesitant to buy and sell ETFs without prior experience. Fortunately, ETFs are great for beginners. ETFs can be less expensive than stocks and mutual funds. ETFs also tend to be less risky because they are more diversified. You have more of a chance to earn funds from multiple avenues with an ETF than a single one with a stock or mutual fund.

If you aren’t ready to purchase ETFs yourself, you could even get a robo-advisor to manage your funds for you. They can help you set up a strong, diversified portfolio and run it for you until you are ready to take over for yourself (if you want to).

Do ETFs Pay Dividends?

As stocks pay dividends, many people wonder if ETFs do as well. The ETF will pay out any dividend that comes from the stocks within the ETF. The issuer of the ETF will receive the dividend and typically pay it out to investors quarterly. How much the investors receive of the dividends is based on the number of shares they have. Payment is usually made in cash or shares of the ETF.

If the companies within the ETF don’t offer dividends, that ETF won’t have anything to pay out.

Can you Sell an ETF at Any Time?

ETFs are just as easy to sell as stocks are. ETFs can be bought or sold as you wish throughout the trading day. The trading day is from 9:30 a.m. to 4 p.m. EST. Being able to buy or sell ETFs at any time allows investors to benefit from intraday price fluctuations. This is different from mutual funds, as they can only be purchased at the end of the trading day.

The Bottom Line

Purchasing exchange-traded funds, better known as ETFs, is one of the best ways to increase your savings fund. ETFs are becoming more popular in Canada. Many investors have switched from simply purchasing a stock or mutual fund as they see the benefit in having a diversified ETF.

Having a diversified portfolio gives you more of a chance to increase your wealth. For example, if a company failed, your entire stock in that company would take a hit. With an ETF, the other assets within it could make up for the loss. This means that trading ETFs tends to be safer than trading stock.

The ETF industry in Canada has 478 ETFs from 20 providers. Together, ETFs have over $122.9 billion in assets in Canada alone. So, what are you waiting for? Use our guide today to help you take advantage of these assets. We want to help you grow your savings fund practically overnight. The first step is to find the perfect broker, so start searching! As we mentioned before, Questrade and Qtrade are great options.