What is an index fund in Canada?
An index fund is a mutual fund or ETF that mechanically holds every stock in a published index in proportion to its weight. In Canada, all-in-one ETFs like XEQT (iShares) and VEQT (Vanguard) hold roughly 9,000 to 13,500 stocks globally, with management expense ratios of 0.20% to 0.24%. The average Canadian equity mutual fund charges 2% or more in MER. According to SPIVA Canada (S&P’s scorecard), over 10 years more than 85% of Canadian equity active funds underperform their benchmark.
Invest $20,000 a year for 30 years. In XEQT at 0.20% MER and a 7% gross return, you end with about $1.88 million. In the average Canadian equity mutual fund at 2.1% MER with the same gross return, you end closer to $1.35 million. The $530,000 gap is not market alpha, it is fees compounding.
Owning five overlapping Canadian ETFs (XIC, XIU, XEI, ZCN, VCN) thinking you are diversified. You are not. You own the same 60 Canadian large-caps five times over. One all-in-one global ETF replaces the lot.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.