Exchange-Traded Fund (ETF)

An ETF, or Exchange-Traded Fund, is a collection of investments bundled together into a single product that you can buy and sell on a stock exchange. When you buy one share of an ETF, you’re getting a small piece of everything inside it. That might be hundreds or even thousands of individual stocks or bonds.

For example, an ETF tracking the S&P/TSX Composite gives you exposure to the largest companies in Canada, all in one purchase. Instead of buying shares of Royal Bank, Shopify, and Enbridge separately, the ETF holds them all.

How ETFs differ from mutual funds

Both ETFs and mutual funds can hold the same types of investments. The main differences are practical. ETFs trade throughout the day on the stock exchange, just like a stock. Mutual funds are priced once at the end of each trading day. Many broad index ETFs have very low fees compared to traditional mutual funds, but the “ETF” label alone doesn’t guarantee low cost or low risk. There are 3x leveraged single-stock ETFs, high-fee active ETFs, and complex strategy products that carry as much risk (and cost) as anything else on the market. The wrapper doesn’t tell you what’s inside.

Why it matters

Low-cost index ETFs have made investing more accessible and affordable for everyday Canadians. You can buy them through any Canadian brokerage (Wealthsimple, Questrade, your bank’s self-directed platform) and build a diversified portfolio with just a few purchases.

Example

Say you have $10,000 to invest and you buy shares of XEQT at $27 per share. You’d get about 370 shares. With that single purchase, you now own a slice of over 9,000 companies across Canada, the U.S., Europe, and Asia. The MER is 0.20%, which means you’d pay roughly $20 per year in fees. A comparable mutual fund from a big bank might charge 2.0%, which would cost you $200 per year on the same balance.

If you’re just getting started, a single all-in-one ETF like XEQT or VGRO can give you global diversification in one holding. It’s not the only approach, but it’s a reasonable starting point that many Canadian investors use. Just remember: always check the MER, the strategy, and the holdings before you buy any ETF. The name on the label matters less than what’s inside it. For a deeper look, check out our ETFs vs. mutual funds guide and our piece on why not all ETFs are created equal.