5 ETFs to Start a College Grad’s Retirement Fund

New investors should consider buying the iShares S&P/TSX Capped Composite Index (TSX:XIC), iShares Canadian Universe Bond Index Fund (TSX:XBB), and the iShares S&P/TSX Capped REIT Index Fund (TSX:XRE).

| More on:
The Motley Fool

A recent lunch with a friend who just graduated from college turned into a conversation about how to start investing for what will be her retirement in—gulp—about 50 years.

Nerdy? Yes. Smart? Definitely. Like so many of her peers, it’s not easy to look out on the financial landscape beyond next week, let alone decades from now. But the sooner young investors get started, the better to take maximum advantage of compounding.

That said, building a diversified portfolio when you’re starting out is tough. That’s why I love exchange traded funds (ETFs). These nifty little products allow you to quickly diversify your portfolio, while paying rock bottom fees.

This is also the reason why I own so many myself. So, in the spirit of our discussion, I came up with five great ETFs for new college grads.

Stock

Net Assets

Five-Year Return

MER

iShares S&P/TSX Capped Composite Index $2.11B 7.17% 0.05%
iShares MSCI World Index $336.21M 14.45% 0.46%
iShares Canadian Universe Bond Index $1.88B 5.71% 0.33%
iShares S&P/TSX Capped REIT Index $1.32B 12.92% 0.60%
iShares Gold Bullion ETF $242.40M 0.95% 0.55%

Source: Blackrock Asset Management Canada

Stocks are a way for individuals to own parts of businesses. A share of stock represents a proportional share of ownership in a company. As the value of the company changes, the value of the share in that company rises and falls. Yes, stocks are volatile. However, no other asset class has offered better returns in the long haul than equities.

The iShares S&P/TSX Capped Composite Index (TSX:XIC) is the best way to get started. In one shot, you can buy a basket of Canada’s largest companies. This fund holds many businesses that I’m sure you’ve heard of, including TelusBlackBerry, and the Royal Bank of Canada.

Unfortunately, Canada’s stock market is heavily centred on the mining, energy, and financial sectors. To diversify, you will want to go abroad. The iShares MSCI World Index Fund (TSX:XWD) gives you international exposure without renewing your passport.

Bonds come in various forms. They’re known as fixed-income securities because the amount of income the bond generates each year is “fixed,” or set, when the bond is sold. While bond returns are significantly lower than equities, they tend to zig when the stock market zags.

That gives many people (myself included) the stomach to hold on during those days when the TSX plunges by 500 points. The iShares Canadian Universe Bond Index Fund (TSX:XBB) is a cheap and easy way to own the entire asset class. It consists of top-quality bonds issued by corporations, provinces, and the Government of Canada.

Real estate investment trusts, or REITs, give you all the benefits of owning rental properties, but without any of the hassle. These firms buy real estate, collect rent from tenants, and pass on the income to investors. For new graduates who do not own a house, these are a great way to get your feet wet in real estate.

The iShares S&P/TSX Capped REIT Index Fund (TSX:XRE) is an affordable way to break in. The ETF owns a basket of the 14 largest REITs in Canada. This allows you to quickly diversify your portfolio with different geographies and property types.

Finally, the most controversial name on this list is gold. As regular readers are probably aware, I’m not a big fan of storing much of my wealth in shiny pieces of yellow metal. Sure, you can fondle it, but commodities do little to grow your real wealth over the long haul, especially compared to owning a piece of a productive business.

That said, gold has almost no correlation to any other asset class. Historically, having a sizable chunk of your portfolio in gold has done a great job at reducing volatility without eating into returns all that much. Owning ETFs like the iShares Gold Bullion Fund (TSX:CGL) is a convenient way to get in.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul owns shares of iSHARES CAPPED COMP INDEX FUND and iSHARES SP TSX CAPPED REIT INDEX FD.

More on Stocks for Beginners

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

3 Top Canadian Stocks for Beginners in 2022

2022 is the perfect year to begin investing in Canadian stocks! Markets are down and stocks are cheap. Here are…

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Stocks for Beginners

Buy the Dip: 2 Insanely Cheap Growth Stocks to Buy Today!

Many Canadian growth stocks are looking insanely cheap today. Here are two stocks that have long histories of making investors…

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

Chalk outline of two arrows pointing in opposite directions
Stocks for Beginners

How to Save Thousands Per Year With Your RRSP

If you can hit your RRSP contribution limit each year, you could save thousands in taxes that could help boost…

Read more »

Portrait of woman having fun in the street.
Stocks for Beginners

New Investors: 3 Dividend Stocks to Buy Soon

Are there too many stocks to choose from? New investors can start their research in these solid dividend stocks!

Read more »

edit Sale sign, value, discount
Stocks for Beginners

5 Amazing Stocks That Are on Sale Today

After the recent stock market correction, tonnes of top-quality stocks are on sale today. Here are five amazing stocks to…

Read more »

stock analysis
Stocks for Beginners

2 Simple Strategies That Canadian Investors Can Use to Start Investing in Stocks

Here are two of the simplest and best investing strategies for Canadians to start investing in stocks today.

Read more »

Target. Stand out from the crowd
Stocks for Beginners

Top 2 Dividend Stocks for Beginners

Dividend stocks like BCE (TSX:BCE)(NYSE:BCE) are ideal for beginners.

Read more »