Which ETFs/Index Funds Are Best?

“Stop searching for the needle—just buy the haystack.” In our first episode of “Office Hours,” a caller David asks a great follow-up: How do you actually do that? Dave breaks down what “buying the haystack” really means, why index investing works, and how Canadians can start implementing it. A must-listen for anyone ready to invest but unsure where to begin.

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Is this David? And where are you calling from?

Yes, this is David. I am calling from Markham, Ontario.

Nice. Nice. You’re not too, too far away. I’m in Waterloo right now. Good to hear from you. Now I’m surprised, by the way, David, you even have a question, because in general most Davids are geniuses. We tend to know everything. So you’re probably just doing this to help others. I assume that you know everything like I do, and you’re just chipping in to make other people feel better about themselves.

I get it. So go ahead and what’s your question?

Thank you. That’s a good theory. Uh, my question was: so I’ve learned from your content on investing that trying to beat the market is very tough to do, and I like the analogy, stop searching for the needle in the haystack and just buy the haystack. However, I’m not entirely sure how to do that. For example, doesdoes that mean investing in an S&P 500 index fund, a total US market fund, an international fund, maybe some combination of all that.

You’ve definitely convinced me on the broad concept, but I’m just not sure I fully understand the specifics of how to implement it.

Okay, if, if you didn’t write that down and read it, you may be the most well-spoken caller I’ve ever had in my 40 years. So I, I hope that you wrote that down and read it. Otherwise, you really are a genius, and I’m right about all Davids. It’s a great question and I, I think you really are seeing investors in North America, particularly in the states, of course, leading the index fund revolution primarily through ETFs

now. People are starting to understand that beating the market is exceptionally difficult. I mean, it really is. 95 to 97% of actively managed funds don’t keep up to the broad market averages according to the data. And that’s just not over the recent five years. That’s over 5, 10, 15, 20, 25, 30 year periods. It’s over rolling five year periods, et cetera, et cetera.

And even the few who do, predicting them ahead of time has proven to be a fool’s errand. It’s just not something we’re very, very good at doing. So you’re seeing more emphasis on index funds, on ETFs that match up to the broad market averages. Your question is a good one, though. You’re sold on the concept. You wanna find the winners, but you know you can’t pick them as individual stocks.

You want to get the whole haystack to make sure they’re in there. But are you buying a Canadian index, like the S&P 60? You’re buying the S&P 500. Are you buying a broader US index that includes a lot of the small cap stocks? Are you buying international? There’s no definitive answer. I mean, we’re trying to project future returns here. But I think for diversification reasons, buying a broadly diversified, international fund makes a tremendous sense. Global fund, and it has the weightings that you feel comfortable with. Could be the 40 to 45% that the US is of market cap weightings throughout the world. You could be more heavily weighted in Canada. It reduces your currency risk a little bit, and you have a home country bias, but you can put together anything you want.

There’s a lot of good reading online. You know, the old Canadian Couch Potato. He’s now doing some other things, but all of his past articles are still online. Phenomenal. I mean, he was the original great writer on index funds in Canada. I like the book, the “Millionaire Teacher” and it walks you through a lot of the thinking here as well.

It’s very, very good. So I would do some reading, pick what you’re comfortable with.

Okay, great. Thank you very much for the answer. I appreciate the insight.