[Note: This post was updated in May 2014 when the ING Direct Streetwise Funds changed their name to the Tangerine Investment Funds.]
The growing popularity of index investing has a lot to do with the increasing number of ETFs available, and that’s largely a good thing. ETFs generally have lower management expense ratios (MERs) than index mutual funds in Canada, so they are usually the best choice for large portfolios, especially if you make infrequent lump-sum contributions.
But ETFs carry additional costs that are often ignored by beginning investors. Trading commissions are the most obvious: it typically costs $10 to buy or sell ETFs, while index mutual funds can be traded for free. Some brokerages do offer a limited selection of commission-free ETFs, and a few independents offer trades for less than $10. But at the other end of the spectrum, bank brokerages may offer low commissions only on larger accounts: investors with less than $50,000 may pay as much as $29 per trade.
Are index funds or ETFs right for you?
All of which is to say that as marvelous as ETFs are, they are often inferior to index mutual funds for investors with small accounts.