Diversification is a great strategy when it comes to investing your hard-earned funds. There are so many pitfalls and so many unknowns out there that can derail your investments in a heartbeat. If you are just starting out and want to build a core portfolio, it is a good idea to choose investments that can both grow your wealth as well as protect you from uncertainty.
Today’s modern technology gives us a number of excellent products for buying investments that may otherwise be difficult to obtain. They may also be tricky if you are not technologically inclined and have no desire to become so. Here are the top three investments I would choose for the coming years to build a core portfolio as a relaxed investor.
Buy an index fund
This is about as boring as it gets, but it can certainly get the job done. Buying an index fund gives you diversification among a number of companies in a variety of industries. Personally, I would get an S&P 500 index to start things off. If you choose one like the Vanguard S&P 500 Index ETF (TSX:VFV) you gain exposure to some of the globe’s top stocks. These are mostly multinational companies based in the United States.
This year proved the value of this ETF. It has recovered its losses from that crazy March month and is looking to power higher. It is also quite cheap with a management expense ratio of 0.09%. The dividend also helps, coming in at 1.25%. Index ETFs like VFV should be core holdings for long-term investors who are starting out. These index ETFs should represent the majority, like 90%, of your investing dollars.
But how do you invest the rest? The easiest answer is to keep it in cash. If you have a very negative view on the economy and have a long time horizon, however, you might want to put a small amount (1-5% of your investing dollars) into one or both of the following options.
Buy gold and silver
Money printing is a potential threat to the economy in the coming years. Owning precious metals is a good way to protect yourself against economic uncertainty, as this past year proved true. Many people say that silver may have more leveraged upside potential than gold, so it might make sense to own some.
If you don’t want to keep silver coins under your mattress, you could try purchasing units of the iShares Silver Bullion ETF. This ETF lets you participate in silver bullion without having to store it at home. The MER fee is high but not outrageous at 0.67%, making this a viable option for people hoping to protect their wealth from uncertainty.
Buy cryptocurrencies
This one’s a little more controversial. I personally believe that the global central bank money printing party could end in a lack of confidence at some point in the future. Note I said could, not will. Cryptocurrencies offer an alternative that was previously unavailable to people, aside from gold.
Crypto offers a lot of benefits to investors. Transactions are cheap, since they cut out a lot of the red tape. It is easy to store. Cryptocurrencies trade around the clock. There are no banker’s hours. Most importantly, they are not controlled by central bankers. Bitcoin is by far the most popular choice, so owning some is a must in my opinion.
If you don’t want to try your hand at buying cryptocurrencies outright, you can buy units of the Bitcoin Fund offered by 3iQ Corp. The fund is traded on the TSX and can be bought and sold as a stock. The MER on this is not cheap at 1.95%, but it is a handy way to participate in Bitcoin without owning the currency itself.
The bottom line
The bulk of your wealth should be tied up in an index ETF such as the VFV, for sure. Most of your wealth accumulation will come from owning the basket of stocks and collecting the dividends. If you feel that there might someday be a consequence to money printing and debt accumulation, consider adding a small position in the silver and Bitcoin funds as alternative investments.
