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How to Buy Index Funds in Canada

If you’ve thought about investing but don’t know where to start, a quick lesson on index funds can help get the ball rolling.

You can begin improving your financial situation today, no matter your starting point. Working with an independent advisor can help minimize that overwhelming feeling and get you on the path to building an investment portfolio today.

What are Index Funds?

Index funds are a type of portfolio built to mimic the composition, security, and performance of the Canadian market index. By mirroring a broad segment of the market, the idea is that the fund will match its performance. This way, you can be diversified within the index without having to buy and rebalance individual stock holdings.

This method is considered a passive investment strategy, meaning the goal is to maximize your returns with minimizing buying and selling. Index funds focus on long-term growth and can be considered an essential asset to retirement planning. The ability to buy index funds in Canada nowadays has become quite straightforward with the rise of online platforms and digital banking. After working with you to create a portfolio that matches your goals, your contributions will be allocated automatically, allowing an easy hands off approach to building your wealth.

Comparing Actively Managed Funds to Index Funds

Active management relies on analyzing, forecasting, and researching what assets to buy and sell within an investment portfolio. Actively managed funds typically come with more complexities and a higher management expense ratio.

Index funds are a form of passive investing and don’t require the same amount of research and analysis services as actively managed funds. Therefore, they have lower fees. Other advantages of index funds can include:

  • Diversification is built right in

  • Long-term growth

  • Ideal for new investors

  • Lower taxes

Though there are many benefits, index funds can be vulnerable to changes in the market and market crashes. Speaking with an independent advisor can tailor a financial strategy right for you.

How to Invest in Index Funds in Canada

Investing in index funds starts with deciding on how you’ll buy your funds. There are plenty of online and in-person options, depending on how comfortable you are with the process. The cost will also vary when deciding on how to invest in index funds. Be aware of investment minimums, account minimums, transaction fees, and service fees.

The cost will also vary when deciding on how to invest in index funds. Be aware of investment minimums, account minimums, transaction fees, and service fees.

1. Select a market index you want the fund to draw from

As index funds mirror various market indexes, you will have to select an index fund for one of these markets that you’d like to focus on, and there are many that you can choose from. Some options include the Canadian TSX, the TSX.V which focuses on Canadian small cap companies, the S&P 500 which is 500 large American companies across a diversified range of industries, or the Dow Jones which consists of 30 large US companies. There are also more global options such as the MSCI indexes which include companies from multiple countries across the world.

This part of the search can be quite overwhelming with the number of options available to investors. Our advisors at DeHaan Private Wealth are happy to help assist with choosing the best index funds for your investment goals.

2. Decide how you will buy your funds

Investing in index funds in Canada starts with deciding on how you’ll buy your funds. You will have to go through a brokerage such as DeHaan Private Wealth or an investment platform, but there are a wide variety of options to choose from, including banks and self managed online brokerages. There are a huge number of investing platforms you can choose from online, depending on the level of your knowledge, your time commitment available, and how involved you want to be in the whole process.

For the serious investor, a dedicated independent advisor is a good option. You will receive expert advice while being able to avoid dealing with the time intensive minutia of investment platforms.

3. Compare the cost of services

The costs associated with buying index funds in Canada will vary greatly across platforms and services. As mentioned, some will have high account minimums (which is the minimum balance required to be kept in the account at all times) or high investment minimums (the amount needed to invest in a particular fund). Also watch out for any commissions, transaction fees, and service fees that may be billed on top.

DeHaan Private Wealth offers competitive pricing and believes in only doing what’s best for our clients. Compared to larger institutions, you only pay for the products and services you use when working with us.

Buying Index Funds in Canada

So the question remains, is investing in index funds a good idea? Index funds are a great option for a low-cost, diversified portfolio. It’s important to remember that index funds are long-term investments, so it’s normal to notice ups and downs in the short term.

Index funds are always the best choice for every investor. Discussing your financial goals with one of our independent advisors can help determine the right types of investments for you.

Work with an Independent Advisor

Experience high-quality service and better rates when you work with an independent advisor.

Dehaan Private Wealth doesn’t have any of our own investment products to sell to you and is under no obligation to use any of the products from some of the top investment firms we partner with.

We’re here to help you save money and make money! Let’s start with a conversation. Learn more about investment planning by contacting an Edmonton financial planner on our team.

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