When it comes to the stock market, many investors are active. They spend hours poring over financial filings, listening to earnings reports, and keeping up to date with the latest news on their stock portfolio.
That being said, “laziness is a virtue,” or so I’m told. Other investors are passive — they buy and hold a portfolio of exchange-traded funds, or ETFs, re-balancing periodically as needed.
If you’re the lazy kind of investor (like me), the second approach might be a better idea. By using ETFs, investors can grow their portfolios without doing any research. Let’s see how this works.
Why an ETF?
If you wanted to invest lazily, you can’t really afford to keep up with a concentrated portfolio of stocks. For maximum safety, you’ll need to buy hundreds, if not thousands of stocks, covering all 11 stock market sectors, small-, mid-, and large-cap stocks, and stocks from U.S., Canadian, and international markets.
This is really hard and time consuming. The amount of trading required alone is enough to drive away most investors. You’ll also have to collect and reinvest all the dividends, convert currencies, and re-balance the portfolio periodically. It’s basically a full-time job at that point.
By buying a broad-market index ETF, you gain instant access to a basket of hundreds, if not thousands of stocks based on preset rules. The cost? A management expense ratio (MER), which is a percentage deducted from your investment annually. The good news is, fees are getting lower and lower every day.
The laziest ETF of them all
As a lazy investor, my choice of ETF is iShares Core Equity ETF Portfolio (TSX:XEQT). XEQT costs around $24 per share but holds over 9,359 stocks from U.S., Canadian, and international markets. The ETF costs a low MER of 0.20%, or $20 in annual fees for a $10,000 investment.
XEQT is basically an all-in-one stock portfolio that trades under its own ticker. When you buy XEQT, the fund manager takes your money and invests it in a variety of underlying index ETFs. It’s as lazy and complete as investing gets. An investor who buys XEQT only needs to
- Buy more XEQT periodically; and
- Reinvest the quarterly dividends.
That’s it. There’s no need to worry about which stocks will do better, when to buy or sell a stock, or do any sort of fundamental research. The extreme diversification offered by the ETF lets investors stay hands off. After all, you’re basically investing in the entire world’s stock market. This is as safe as it gets.
A great way to use XEQT as the core of your portfolio (as its name suggests), while adding some Canadian stocks to scratch that stock-picking itch (and The Fool has some great recommendations for those)!
