Are ETFs good for beginners?

Yes. They’re ideal for investors who want diversification, transparency, and low fees without picking individual stocks.

Do ETFs pay dividends?

Yes. Many distribute dividends from the underlying holdings, usually monthly or quarterly.

What’s the difference between ETFs and mutual funds?

ETFs trade like stocks intraday and often have lower fees; mutual funds trade once per day and may have higher costs.

What Is an ETF?

Educational only — not financial advice. Updated 2025.

1. What Is an ETF?

An exchange-traded fund (ETF) is a basket of securities—typically stocks or bonds—that trades on an exchange like a stock. Unlike mutual funds, ETFs trade throughout the day at market prices. They give investors easy access to diversification and professional index tracking without the high fees of active management.

2. How ETFs Work

Most ETFs track an index such as the S&P/TSX Composite or the S&P 500. The fund holds the underlying securities and issues shares that represent fractional ownership of the portfolio. The ETF’s market price typically stays close to its net asset value (NAV) through the create-and-redeem mechanism involving large institutional participants.

3. Benefits of ETFs

Low cost, transparency, and liquidity are the main advantages. Many broad-market ETFs charge expense ratios below 0.10%. They are tax-efficient because fund managers rarely sell holdings, minimizing capital gains distributions.

4. Types of ETFs

Core categories include equity ETFs, bond ETFs, commodity ETFs, and specialty or thematic ETFs. Some track global or sector indexes, while others pursue strategies such as dividends, ESG screening, or factor investing.

5. Risks to Understand

Although diversified, ETFs still carry market risk. Bond ETFs are subject to interest-rate risk, while niche thematic funds can be volatile. Always check liquidity and bid-ask spreads, especially for small or thinly traded funds.

6. How to Buy ETFs

ETFs are purchased through a brokerage account—Questrade, Wealthsimple, Interactive Brokers, or any bank discount broker. Investors typically use limit orders and avoid buying during the first or last 15 minutes of trading to reduce spreads.

7. Building an ETF Portfolio

Beginners often start with one 'all-in-one' ETF that automatically manages allocation between stocks and bonds. Alternatively, combine a Canadian equity ETF, a U.S. equity ETF, an international ETF, and a bond ETF for a simple, globally diversified portfolio.