Given limited available funds, how can a high school or university student gain diversified exposure to financial markets? One answer to that question is ETFs.
Exchange-traded funds, otherwise referred to as ETFs, are investments that bundle multiple assets into a single product that trades on an exchange (Gaby, n.d.). The assets underlying an ETF could include stocks, bonds, commodities, or a combination of multiple asset classes (Gaby, n.d.). Purchasing an ETF is the same as purchasing stock in a company. That is, there will be a ticker symbol associated with a given ETF listed on a public exchange (e.g., the TSX) and it can be bought and sold by investors throughout a trading day.
Figure 1.1 (Liew)
Although ETFs vary drastically in management style, the most popular are passive, index-tracking ETFs that give investors exposure to hundreds of companies (Johnson, 2025). That means younger investors without access to a meaningful amount of disposable income can gain exposure to entire national economies or given sectors at the cost of a single share of an ETF.
Due to the accessibility of ETFs and the role they play in expanding the options of retail investors, the industry has grown tremendously. According to Mackenzie Investments, the Canadian ETF industry reached $519bn in AUM last year with record inflows of $76bn. Mackenzie also forecasts growth of 15-20% during 2025 due in part to growing interest from retail investors (Gonzales, 2025).
ETF Investing Strategies
Now that you know a little bit about what they are, it is worth exploring how ETFs are used.
Starting with the all-ETF portfolio, this strategy is especially useful for those likely reading who want to build diversified portfolios but have limited funds to do so. Building an all-ETF portfolio starts with choosing the right ETFs. That means knowing which sectors and countries you want exposure to and then finding the best ETF within those parameters. The qualities of an ETF worth investing in include high daily average trading volumes, low management expense ratios, and top holdings within the ETF that align with the exposure you want to create for yourself (Norris, 2024).
This strategy is complemented by Eugene Fama’s Three-Factor Model, which explains how allocation to certain types of asset classes correlates to higher returns over time given higher risk exposure (Norris, 2024). For our purposes, the theory complements the idea that those with longer time horizons – younger Canadians, for example – should be exposed to assets with higher risk (i.e., stocks vs. bonds). As Emily Norris of Investopedia puts it, “More than 90% of a portfolio’s return is determined by allocation rather than selection and timing.” (Norris, 2024) That is to say, an all-ETF portfolio should be constructed such that it allocates the investor’s capital to assets that complement a given comfortability with risk. Younger Canadians should typically be more comfortable with risk and would use ETFs to gain exposure to stocks that complement that tolerance (i.e., total market ETFs or small-cap-focused ETFs).
Once invested, this strategy calls for regular monitoring of your portfolio to ensure that tracking errors are low. Tracking error is the difference between an ETF’s performance and the performance of the underlying index it’s tracking (Norris, 2024).
Another strategy that pairs well with the use of ETFs is dollar-cost averaging (DCA). DCA involves regularly buying a fixed-dollar amount of an asset (i.e., shares of an ETF) regardless of the cost of the asset (Picardo, 2024). This will result in an investor purchasing more shares of an ETF when prices fall and fewer when prices rise, lowering the average price of your exposure. DCA investing is great for those looking to build a position in the market and can be especially rewarding for those who stick with the strategy long-term.
For more advanced traders, ETFs are also used in a variety of strategies that require skilled analysis. This can include betting on seasonal trends, sector rotation, swing trading, hedging, and short selling (Picardo, 2024). Since this is an introduction to ETFs aimed at inexperienced investors, we will avoid getting into detail about these strategies, but it is important to be aware of the versatility of ETFs in general.
Risks Associated With ETFs
Although good for diversification, ETFs come with their own set of risks that investors should be aware of. To start, liquidity should be top of mind when purchasing a share of an ETF.
In finance, liquidity refers to being able to quickly and easily get out of a position without affecting the price of the asset being traded (Beers, 2024). For ETF trading, the easiest way to combat this risk is to ensure that the average trading volume is high and that bid/ask spreads are low (Beers, 2024). Check out VOO on Yahoo Finance for an example of a highly liquid ETF.
Liquidity also signals the likelihood of fund closure. Highly liquid ETFs are less likely to shut down than ETFs that are not being actively traded (Jackson, n.d.). In the event of an ETF closure, the fund holder will be compensated in cash, totalling the dollar amount their position was worth before the closure.
The type of ETF you choose to invest in will also determine the volatility you will be exposed to – volatility being the degree to which the asset experiences large price swings relative to movements in the overall market (Jackson, n.d.). Choosing broader, less concentrated ETFs will reduce the volatility you are subject to. For example, an ETF focused on the tech industry will be more volatile than one that tracks the S&P 500.
Similarly, it is important to note that you are exposed to the same risks facing the underlying assets encompassed within the ETF. This could entail facing political risks associated with specific countries or enduring the challenges faced by a specific industry. This means that although ETFs can facilitate passive investing, it does not mean you eliminate the inherent risk associated with choosing one market over another.
The number and severity of risks associated with ETFs increase with the complexity of your investing strategy. By no means is the list of risks discussed above comprehensive, it is merely an introduction to the more common risks associated with simple ETF strategies. As with all things CYIS discusses, none of this is financial advice and doing your own due diligence before investing your money into any type of asset is crucial.
Final Thoughts
The main takeaway from this topic is that financial innovation has reached a point where there are no longer insurmountable barriers to getting started with investing. That is, if you are motivated to invest but lack the funds necessary to build a sophisticated portfolio, ETFs are one way to gain exposure to financial markets.
The variety of ETFs and the numerous ways in which they can be used means that beginner investors can use these financial products to construct portfolios that align with their goals. Since the ETFs bundle assets under one ticker, investors without the means to purchase multiple stocks can rely on ETFs to diversify their holdings in a way otherwise unattainable.
ETFs are not the only means by which young investors can gain exposure to financial markets; they are merely a tool that should be on every young investor’s radar. If this is the first time you are reading about ETFs, I encourage you to continue your exploration of the topic so that you can consider these investment products when making decisions about your portfolio.
I firmly believe that getting in the habit of investing early is crucial to setting yourself up for success and making your eventual retirement drastically easier to accomplish and much more comfortable. It is because of this belief that I choose to preach about the use cases of ETFs for younger Canadians.
Works Cited
Beers, B. (2024, January 22). 10 ETF Concerns That Investors Shouldn’t Overlook. Investopedia. https://www.investopedia.com/articles/mutualfund/07/etf_downside.asp
Gaby, P. (n.d.). What’s an ETF? KOHO. Retrieved January 24, 2025, from https://www.koho.ca/learn/what-is-an-etf/
Gonzales, F. (2025, January 23). Mackenzie Investments projects ETF growth beyond $519bn in 2025.https://www.wealthprofessional.ca/investments/etfs/mackenzie-investments-projects-etf-growth-beyond-519bn-in-2025/388143Jackson, C. (n.d.).
Are ETFs A Risky Investment? What You Need To Know. KOHO. Retrieved January 24, 2025, from https://www.koho.ca/learn/are-etfs-risky-investment/Johnson, S. (2025, January 23).
ETFs increase efficiency of markets, new study shows. Financial Times. https://www.ft.com/content/e23897c4-0d9d-4b6a-9c43-590870e4eb5eNorris, E. (2024, January 21).
Building an All-ETF Portfolio. Investopedia. https://www.investopedia.com/articles/exchangetradedfunds/11/building-an-etf-portfolio.aspPicardo, E. (2024, February 20).
7 Best ETF Trading Strategies for Beginners. Investopedia. https://www.investopedia.com/articles/investing/090115/7-best-etf-trading-strategies-beginners.asp
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