How I’d Invest in a TFSA Today if I Were Starting Over

I would absolutely put my entire TFSA in this single ETF if I had to start over.

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As a stock market enthusiast, I often revisit my Tax-Free Savings Account (TFSA) and regret the poor choices I made in my younger days, such as investing in penny stocks and weed stocks. These mistakes serve as a valuable lesson on the importance of diversification.

Sure, speculative assets like these can lead to mind-blowing double-digit returns. Though more often than not they incur high volatility and leave investors with heavy losses. It’s worth remembering that sound investing is a marathon, not a sprint. Chasing high returns can often lead to ruin.

If I had to start over today with my TFSA investments, I would hold a globally diverse, low-cost exchange-traded fund (ETF) instead. Here’s why this approach would be beneficial for most Canadian investors, along with a low-cost ETF pick for kick-starting this strategy.

Why diversify this much?

Diversification involves investing in a wide range of stocks from various sectors, market capitalization sizes, and geographical locations. For example, I may add Canadian and international stocks to complement a U.S. stock portfolio, and small caps to round out large caps.

Diversification helps reduce the risk of a single stock, sector, or country performing poorly and impacting your entire portfolio. Additionally, including safer, low-risk assets such as high-quality bonds or even cash in your portfolio can reduce its overall volatility.

Why you should invest in ETFs

Diversification requires picking a lot of stocks. It can be challenging to build a well-diversified portfolio by purchasing individual stocks in the dozens, if not hundreds. An ETF offers a simple solution by holding hundreds or thousands of stocks and bonds in a single ticker.

If I were starting over with my TFSA today, my top ETF pick would be the iShares Core Growth ETF Portfolio (TSX:XGRO), which holds over 20,000 stocks and bonds from U.S., Canadian, and international markets with a low 0.20% expense ratio.

By buying XGRO, I no longer have to worry about earnings reports or timing the market. This ETF allows investors to invest in the world’s stock market with a Canadian home-country bias. With XGRO, investing can be boiled down to buying more, reinvesting dividends, and holding long term.

XGRO was intended to be an all-in-one “core” portfolio holding. While you can experience good success investing in nothing but XGRO, a way to take it to the next level is by adding a few high-conviction stock picks. A great choice here would be Canadian dividend stocks, for which the Fool has some great suggestions down below!

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 Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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