December 08, 2007 at 1:00 pm by Tom Lydon
In response to a column on do-it-yourself investing, John Heinzl of the Toronto Globe and Mail, received criticisms and a few questions, one of them concerning exchange traded funds (ETFs). Since his previous column focused primarily on stocks, a reader wanted to know about ETFs.
He cites them as a good place to start, as they offer instant diversification at a relatively low cost. Two drawbacks he mentions are that even small fees can lower your returns and you’re stuck with all the stocks in the index your ETF follows. This is a good time to reiterate that knowing what you own and doing research before you buy is important.
A couple other tips he offers to the do-it-yourself investor:
- One size doesn’t fit all. Depending on your age or life stage, you might want a different asset mix from someone significantly younger or older.
- While having ten stocks is a low number, it will go a long way in reducing risk. The more, the merrier — but only up to a point. As Heinzl says, the more you own, the more time you spend monitoring. This is another argument in favor of ETFs, incidentally!
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