Three building blocks
- A stock is a small slice of ownership in one company.
- A bond is a loan to a government or company that pays you interest.
- An ETF (exchange-traded fund) is a basket holding many stocks, bonds or both. You buy and sell it like a single stock.
Index funds: owning the list
An index is just a list of companies, such as the largest companies in Canada. An index ETF doesn't try to pick winners. It holds what's on the list and aims to match that market's return, minus a small fee.
An actively managed fund pays professionals to try to beat the market. That is hard to do after fees. S&P's SPIVA scorecard found that over the 10 years to the end of 2025, 98.8% of Canadian equity funds did worse than the S&P/TSX Composite Index.
That figure describes the past. It doesn't promise index funds will do well in any given year, and it doesn't mean every active fund is a poor choice.
All-in-one ETFs
An all-in-one (or asset allocation) ETF holds a global mix of stock and bond ETFs inside a single fund and rebalances itself. They are usually labelled by how much is in stocks, such as 100%, 80% or 60%. More in stocks means more growth potential and bigger swings.
Diversified does not mean safe
A basket protects you from one company failing. It doesn't protect you from the whole market falling. Between late 2007 and early 2009, the U.S. S&P 500 index fell by more than half before recovering over the following years. Anyone holding stocks should expect drops like that at some point.
How to see what's inside
Every ETF sold in Canada has a short document called ETF Facts (for mutual funds, it's Fund Facts). It's free on the fund company's website. Five things to find:
- What it invests in. One or two sentences.
- Top 10 investments. And what share of the fund they make up.
- MER. The yearly fee. Lesson 4 covers this.
- Risk rating. Low to high.
- Year-by-year returns. Look at the worst year, not just the average.
Planted North never tells you which fund to buy. The goal here is that you can read any fund's label and understand what you'd own.
Do this before the next lesson
- Pick one fund: something you already hold, or one you have heard about.
- Search its name plus "ETF Facts" or "Fund Facts" and open the PDF.
- Find three things: the top 10 investments, the MER, and its worst year.
What does a broad index ETF try to do?
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Where this comes from
- S&P Dow Jones Indices: SPIVA Canada Year-End 2025 (Canadian Equity funds vs S&P/TSX Composite, 10 years: 98.82% underperformed)
- Canadian Securities Administrators: ETF Facts, interactive sample
- S&P 500 decline: price index, October 2007 peak to March 2009 low (S&P Dow Jones Indices)