By Scott Ronalds

Exchange traded funds (ETFs) have become a popular investment option in Canada, as they offer simplicity, low fees and market-like returns. Yet, there are important tradeoffs with these products that investors should be aware of.

In an updated paper, we compare the experience of an ETF investor (Jake) to that of a Steadyhand client (Julie). Both investors have an asset mix of 50% stocks / 50% bonds. There are notable differences between the two experiences. The paper focuses on four areas: administration, communication, advice and most importantly, returns (as of December 31, 2013).

Our comparison covers the period from 2008-2013. Over the last six years, Jake and Julie have seen all kinds of markets. There are few precedents for the drama and market declines of 2008, while the recovery since the crisis has been very strong. Julie’s portfolio has grown from a starting value of $250,000 to roughly $364,000, while Jake’s has grown to $324,000.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.