If you’re new to investing, chances are you might feel overwhelmed with deciding on what to invest in. The biggest challenge is if you don’t have a lot of money to invest and don’t want to put all your money into one stock. Regardless of the quality of the stock, all it takes is a bad earnings report or a bad news day and the stock could go over a cliff.
For that reason, diversification is important, but investing in many different stocks will require a lot more money. If you have several small investments, it’ll also be hard to make a strong enough return to offset all the commissions you’ll incur along the way.
The best way to get around this is to look at exchange-traded funds (ETFs). With an ETF, you can hold several, perhaps dozens, of stocks without having to own each individually. You also won’t get hit with big fees either. If I were starting to invest, then that’s certainly the route I would take today.
ETFs offer a good way to invest in stocks that aren’t listed on the TSX
If you don’t want to convert your funds into U.S. dollars and still want to invest in stocks that are only on the NASDAQ or NYSE, ETFs can help you do that. The iShares NASDAQ 100 Index Fund Canadian Dollar Hedged (TSX:XQQ) ETF provides you with a great way to mirror the top stocks on the NASDAQ.
With a tiny management expense ratio of just 0.39%, the small fees to manage the fund won’t chip away at the strong capital appreciation that you will earn. It’s a bargain price to pay to effectively have a portfolio of the brightest stars on the NASDAQ. The ETF’s top five holdings are made up of Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Facebook Inc. (NASDAQ:FB), and Alphabet Inc. (NASDAQ:GOOGL)(NASDAQ:GOOG), which make up over 40% of the total portfolio.
As you can see, you can generate a wide distribution of tech stocks fairly easily that could achieve significant growth. Amazon alone would cost you north of $1,500 to own, and this way you can benefit from its increase in value without having to put all or most of your money into that one stock.
The one negative is that you’re putting your money all into tech stocks. However, there are many different types of ETFs that you can choose from. For instance, if you want to earn a good dividend and invest in Canadian REITs, the BMO Equal Weight REITS Index ETF (TSX:ZRE) is a great option that will pay you 5% per year.
You’ll also have a broad spectrum of REITS, ranging from industrial investments like Pure Industrial Real Estate Trust (TSX:AAR.UN), which makes up the largest holding, to Northview Apartment REIT (TSX:NVU.UN), Dream Global REIT (TSX:DRG.UN), and many others, which will help round out your real estate portfolio, while contributing some solid income along the way.
There are many different ways for you to diversify, even with a small amount money. Gone are the days where you need to buy several stocks to minimize your exposure to the market. Low-fee ETFs offer you a great way to invest in what you want without having to incur significant fees along the way.
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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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Fool contributor David Jagielski has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (C shares), Amazon, Apple, and Facebook. Tom Gardner owns shares of Alphabet (C shares) and Facebook. The Motley Fool owns shares of Alphabet (C shares), Amazon, Apple, and Facebook and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, short March 2018 $200 calls on Facebook, and long March 2018 $170 puts on Facebook. Dream Global is a recommendation of Dividend Investor Canada.