Are you a new investor who isn’t sure of what to invest in? While it may be tempting to buy shares of high-flying tech stocks, valuations are expensive right now and buying at or near the peak could cause you to incur significant losses along the way.
A safer approach is to consider investing in exchange-traded funds (ETFs) that can give you exposure to a wide range of stocks and minimize your risk in the process.
Below are two ETFs that can give you a good mix of growth and dividend income. They’re great pillars to build around, and you can safely hold them in your portfolio for many years.
Mirroring the S&P 500
The BMO S&P 500 Index ETF (TSX:ZSP) will give you a way to try and mimic the performance of the S&P 500. The fund holds the best stocks you can find on the North American exchanges, including big names like Microsoft and Apple, which make up more than 5% of its total assets.
The ETF also gives you a balanced investment with exposure to tech, healthcare, financial services, telecom, and other sectors. It eliminates the need to pick your own stocks from different industries in an effort to diversify; the ETF effectively does it for you.
And since it’s based on the S&P 500, you know that the returns will generally be strong over the long term. Here’s how closely it’s followed the index over the past five years:
The ETF will also provide you with a modest yield of 1.6%, and it has very minor net expense ratio of 0.08%. Investing in the S&P is one of the safest and most reliable ways to grow your portfolio’s value over the long term.
Invest in REITs for even more dividend income
The S&P 500 ETF is great, but the one area where it’s lacking is dividends. That’s where real estate investment trusts (REITs) come in handy. Since they have to pay out 90% of their profits back to investors, they normally make for some great dividend stocks. And one ETF that holds a lot of them is the BMO Equal Weight REITs Index ETF (TSX:ZRE).
Here, you’ll find some of the top REITs on the TSX, including the Boardwalk Real Estate Investment Trust, which, at 5.6%, is the largest of the fund’s holdings. The disadvantage of this ETF is that it isn’t as diverse as the S&P 500, but it makes up for that with a better payout. Currently, the Equal Weight REITs ETF yields 5.4%.
And while it doesn’t have much diversification across other sectors, it does give investors a broad mix of REITs. It includes REITs that are focused on healthcare, offices, shopping centres, and many other types of spaces. The ETF can give you a strong cross-section of REITS, allowing you to avoid having to sift through individual stocks to see which one is the best investment.
The ETF has struggled this year, falling 19% in 2020, as fears of tenants not paying rent amid the COVID-19 pandemic have made investors fearful of the sector. The REITs in this ETF now average a price-to-earnings multiple of less than seven and a price-to-book ratio of less than one. This fund could prove to be a bargain buy today.
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.