BMO Financial Group

BMO Financial Group

November 06, 2013 06:00 ET

BMO Wealth Institute Special Report: Using Exchange-Traded Funds to Grow Retirement Savings

- Only one-fifth of Canadian investors are knowledgeable about ETFs

- However, sixty per cent would add ETFs to their portfolio after learning about their benefits

TORONTO, ONTARIO--(Marketwired - Nov. 6, 2013) - According to a special report issued today by the BMO Wealth Institute, more investors are considering exchange traded funds (ETFs) when determining what investments to include in a retirement savings portfolio.

While the report notes that the demand for ETFs is growing worldwide, they remain one of the least understood investment vehicles among Canadians:

  • Only 19 per cent of Canadian investors claim to be knowledgeable about ETFs compared to traditional investments such as guaranteed investment certificates (GICs) (58 per cent) and mutual funds (55 per cent).
  • However, once told about the benefits of ETFs, 60 per cent report that they would add them to their portfolios.

"Exchange traded funds have only been around for the last twenty years so it's understandable that Canadians are still in the process of familiarizing themselves with them," said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Financial Group. "Due to their many benefits, ETFs are a great fit not only for a portfolio in general, but specifically for accumulating wealth for retirement."

Mr. Buttigieg noted that previous studies from BMO have indicated that Canadians are concerned about having enough money for retirement. Therefore it is critical to have a financial plan with a retirement component, as well as a portfolio with a mix of investments that reflect an investor's risk tolerance, time horizon and liquidity needs.

Why Opt for ETFs?

The report identifies the key benefits ETFs provide, including:

  • Access to a diversified basket of stocks, bonds or commodities
  • Low management fees
  • Easy buying and selling, as they are traded like a stock on the stock exchange
  • Transparency of holdings, so that investors can always can see what they own
  • A targeted investment approach by being associated with broad markets as well as particular regions, markets, sectors or themes
  • Tax efficiencies due to lower portfolio turnover

The report provides insights into how Canadian investors can leverage ETFs to make the most of their portfolios now and into retirement:

Focus on asset allocation: ETFs provide low-cost access to indices, allowing exposure to the desired asset classes and resulting in appropriate asset allocation.

Hold multiple asset classes: ETFs represent every asset class, cover international markets, and provide exposure to every sector of the market, allowing investors to create a broadly diversified investment portfolio with a small number of ETFs, at a low cost.

Rebalance: Since ETFs come as a basket of stocks, bonds or commodities, dealing with groups of holdings in a single transaction simplifies the rebalancing process and reduces risk.

Diversify: ETFs can play a key role in diversification. For example, the BMO Mid Corporate ETF (a fixed-income ETF) holds more than 120 corporate bonds so the risk is diversified.

Defer taxes: Low-cost corporate class mutual funds that hold ETFs allow investors to move from one portfolio to the next without triggering any tax until their money is withdrawn.

About the BMO Wealth Institute

The BMO Wealth Institute provides insights and strategies around wealth planning and financial decisions. The Institute's team of professionals have deep expertise around all aspects of wealth planning including retirement, estate, tax and insurance.

To view a copy of the full report, please visit:

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About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $549 billion as at July 31, 2013, and more than 46,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.

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