What The Eff is An ETF: Why are robots taking over investing and what should I do about it?

By Nest Wealth on May 22, 2018

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    We chat face-to-face with a lot of people in what we’d like to call our “target demographic” to get their current perception of robo-advisors. It helps us stay real and grounded. Joe, who lives in the Greater Toronto Area of Ontario shared his personal view—and this is one of our favourites, because it’s extremely common for us to hear!

    Joe uses traditional mutual funds to invest for his future. He believes in the powers of his financial advisor not only for the returns, but because of the longstanding history they share. It brings him a sense of relief knowing he has a real person to talk to that can help him understand where the hell his money is going.

    His thoughts on robo-advisors? “Robots are managing my money and I don’t know if I’m okay with that”. We’re no stranger to this belief and that’s because, like we said earlier, we hear it...a lot. But that also means we have to defend it a lot, too.

    So here’s what we want you (and Joe) to know about robo-advisors.

    Robots Aren’t Actually Managing Your Money

    It’s true. Despite our industry name, we take the robots out of “robo”-advising. How do we do that? Kind of like online dating. We’ll start by getting to know you and your goals, then we’ll match you to a personalized portfolio based on your investing style. A match made in investment heaven!

    Unlike other digital advisors, we don’t do portfolio labels. Your portfolio is curated based on who you are and what your life goals are. Using our passive investing approach, our investment portfolios are constructed using seven different ETFs that represent seven asset classes. You’ll own a different proportion of each of these ETFs based on your risk score, which takes into account what you’re saving for, when you’ll need the money, and how reactive you are to market ups and downs.

    If you want to understand more about passive and active investing, you can read our previous blog post that uncovers these two investment approaches in more detail.

    So, What The Eff Is An ETF Anyway?

    Canadians pay among the highest fees in the world for mutual fund management. Fees alone average at about 2.35%. But there’s a quality alternative that will cost you a fraction of the price. If you’re thinking what the eff is an ETF, chances are a lot of other people are also asking the same question. And luckily, we’re here to address the elephant in the room that is ETFs.

    What’s an ETF? An exchange-traded fund (ETF) is an investment fund that’s traded on a stock exchange, like a stock, but holds a basket of investments, like a mutual fund. Most ETFs track broad, well-established indices like the S&P 500 or TSX. They tend to have much lower fees than traditional mutual funds. You can learn more about Nest Wealth’s ETF selection by visiting us here.

    More Advisors Are Switching To Robo, Too!

    With more and more Canadians demanding advice-based investing for less, a lot of advisors are feeling the pressure. Last week we discussed how we’re mending the gap for investment professionals as well.

    What was first thought of as a threat, was later revealed to be an opportunity. How are wealth managers using robo-technology for their business? The technology helps streamline their operational processes, without needing to build the technology.

    As discussed, it’s a robo solution that gives advisors the ability to maintain their practice with the convenience of an intuitive tool that ultimately helps them lower their costs and improves their client’s online experience.

    Sounds Pretty Cool. But What Should I Do About It?

    Honestly, it’s completely up to you! We’re writing to you so that you can ask better quality questions about your current investment strategy. With low-capped management fees and low-cost ETFs, we’re making sophisticated wealth more accessible to Canadians—without the sophisticated price tag.

    That’s because we’re here to make investing better in Canada, for everyone (that’s actually our mandate).  

    So, whether you’re comfortable with how you are currently investing or looking to find out why so many Canadians are making the switch to digital advisors, that’s okay. But it’s important to understand your options so you can make the best investment decision for your future.

    Every dollar counts!

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