The promise of ETFs is accessibility. Low cost, transparent, liquid, and easy to understand. But simplicity of structure does not guarantee simplicity of outcome. On a recent episode of Views from the Desk, BMO ETFs' podcast1, host Zayla Saunders, Vice President, Direct Distribution, BMO ETFs, and co-host Hilly Cutler, Director, Portfolio Consulting, sat down with Erika Toth, Director and Head of ETF and Portfolio Consulting at BMO Global Asset Management, to name, diagnose, and dismantle the most consequential mistakes ETF investors make. The conversation was systematic, candid, and grounded in data. It deserves close attention.
The Performance Chase and Why It Always Ends the Same Way
The first and most persistent mistake Toth identifies is gravitational: investors pull money toward whatever has worked most recently. "Investors tend to gravitate towards performance," she says, "and they tend to double down on what's been doing really well and what's been working." The problem is structural. Market leadership rotates. Toth traces the recent history with precision: the prior decade saw emerging market equities dominate, followed by a lost decade for U.S. equities after the tech bubble and the global financial crisis, followed in turn by a decade of U.S. equity dominance. And then, 2025: Canadian equities finished on top.
The antidote is disciplined diversification, structured as a core-and-satellite allocation. "You wanna own a little bit of all of the broad equity markets," Toth notes. Core holdings, she explains, could consist of broad equity index ETFs or asset allocation funds, with sector, thematic, or individual stock positions reserved for the satellite, preventing concentration risk from accumulating quietly beneath the surface.
Timing the Market: Two Correct Decisions Required
The instinct to wait for a better entry point is understandable. It is also, consistently, costly. Toth frames the problem with precision: "The risk of waiting for that perfect entry point is that you can stay sitting in cash as the market continues to go up." Timing the market, she adds, "the challenge is that investors have 2 correct decisions to make, right? When to exit and then when to reenter."
The COVID episode provides the sharpest illustration. In 2020, the TSX Composite fell as much as 37% intra-year, yet finished the calendar year up approximately 2.2%. An investor who exited in April missed the recovery entirely. One who exited in January and re-entered in November participated in only about a third of the rebound. "March 2020 to end of 2025 last year," Toth says, "the market was up over 150%."
The cost of missing just the best few days is even more sobering. Using 25 years of TSX history, Toth shows that missing the five best days would have reduced a $100,000 starting investment to just over $480,000, against nearly $750,000 for the fully invested investor. Missing the ten best days brought the result down further, to just over $360,000. "That's 5 days we're talking about," she says. "Missing the 10 best days, you're looking at just over $360,000 versus just under $750,000." Cutler adds the corollary: "Those largest down days that you're trying to miss, our largest up days usually coincide very closely to one another."
Asset Allocation: The Decision That Explains Almost Everything
The fourth mistake Toth isolates is perhaps the most underappreciated: neglecting the overall asset mix in favor of obsessing over individual ETF selection. "What's much more important than that is getting the overall asset mix right," she says. "The asset mix is what's going to determine your portfolio's overall level of risk, but also your long-term returns."
Cutler reinforces the point from his consulting work: "Research will show that that explains 97% of the risk of the portfolio." To make the stakes concrete, Toth compares three BMO asset allocation ETFs over a five-year period ending last month. ZCON (40/60 equity/bond) returned 5.18%, compounding a $10,000 investment to $12,821. ZBAL (60/40) returned just over 8%, reaching $14,637. ZGRO (80/20) returned 10.88%, finishing at $16,674. "That's almost 4 grand difference between the conservative and the growth," she observes. The takeaway is not that investors should chase ZGRO, but that they must understand what they can actually tolerate and stay in.
On home country bias, a productive exchange between Toth and Cutler lands somewhere practical. Research Cutler conducted at a prior firm found that portfolio volatility was lowest when Canadian equity allocation sat between 20% and 40% of total equity, with 30% as a reasonable midpoint. Toth confirms: "Very common to see Canadian equity weight, let's say between somewhere in the neighborhood of 25, 30, sometimes even 40%."
The Yield Trap: Mistaking Income for Quality
Few dynamics produce as much misdirection as the hunt for the highest-yielding ETF. "It's almost like moths flying to the light," Toth says. The example she raises is stark: a U.S. technology ETF boasting a 30% yield that delivered total returns of just over 5% over the prior year. By comparison, BMO's covered call technology ETF, ZWT, was up 22.4% over the same period, and the NASDAQ-100 ETF ZNQ returned over 23%.
The practical decision, Toth argues, comes down to actual cash flow need. She compares ZWB (covered call Canadian banks, yielding approximately 5.25%) against ZEB (equal-weight Canadian banks, yielding approximately 2.35%). "If you're a long-term investor, if you have a few decades in front of you, if you're not using or withdrawing that cash flow, ZEB is typically the better choice because you're not giving up any of your total return in order to generate additional monthly income." Yield only earns its place when there is a real and present need for it.
What It Really Costs: Beyond the MER
The final layer of cost that investors routinely miss sits below the management expense ratio: the trading expense ratio, or TER. "You should be going to the ETF issuer's website and locating the regulatory ETF Facts document," Toth advises, "because that will show the trading expense ratio." Starting in late January next year, the MER and TER will both appear as separate line items on Canadian investment account statements, combined into what will be reported as the fund expense ratio. The bid-ask spread, she adds, sits outside even that figure, making the ETF Facts document the most complete picture of total ownership cost available.
The warning carries weight: "There are some ETFs out there that advertise, you know, a zero management fee, but then when you go on to that ETF Facts document, you might see something upwards of 2%."
On timing trades, the guidance is specific. Investors should avoid the first and last 15 minutes of the trading session, always use limit orders, and trade when the underlying market is open. For global equity ETFs with European exposure, 10:00 AM Eastern is the optimal window. "That's when as many as possible of the underlying markets will be open," Toth explains.
Staying the Course: Discipline as the Competitive Advantage
When Saunders asks which single mistake listeners should address first, Toth's answer is immediate: "Pay yourself first." The habit of regular, automatic investing removes the emotional variable. "Don't overreact to headlines," she adds in her rapid-fire close. "It's taken me over 20 years of experience as an investor to get to that point. So that has to come with a disclaimer. Not easy to tune out the drama."
Asked what investors should prioritize above all, Toth returns to the foundation: "Your asset allocation. Just making sure that that is in line with your investment objectives rather than spending all of your time, you know, trying to pick between 2 or 3 ETFs."
Five Key Takeaways for Advisors and Investors
1. Chasing last year's winner is a structural error, not a coincidence. Market leadership rotates materially across decades. A core-and-satellite framework, with broad diversification at the core, is the disciplined alternative.
2. Time in the market is not a cliche; it is arithmetic. Missing the ten best days in a 25-year period nearly cuts a portfolio in half relative to full investment. The best days cluster around the worst days, making market timing require two consecutive correct calls under maximum emotional pressure.
3. Asset allocation explains the vast majority of portfolio risk and return. Selecting the right equity/bond mix matters far more than identifying the optimal ETF within a category. Matching that mix to genuine risk tolerance and time horizon is the primary task.
4. Yield is a tool, not a signal of quality. The highest-yielding ETF is often sacrificing total return to generate income. Investors should ask whether they actually need that cash flow before accepting the trade-off.
5. Total cost requires reading the ETF Facts document, not just the headline MER. The TER, bid-ask spread, and trading timing all affect realized returns. Advisors should ensure clients understand the full cost picture before making fund selection decisions, especially as regulatory reporting changes bring these figures into account statements beginning early next year.
Footnote:
1 Saunders, Zayla, Hilly Cutler, and Erika Toth. "ETF Investing Mistakes That Could Be Costing You Money." Views from the Desk, BMO ETFs, 31 Aug. 2026, https://www.bmoetfs.ca/articles/podcast-etf-investing-mistakes-that-could-be-costing-you-money-august-31-2026.
