Stumble into a $20,000 windfall somehow? Assuming you didn’t find it in unmarked duffle bags out in the desert, you should figure out what to do with it. If you have your debt paid off and a healthy emergency fund stashed away, investing it long-term could be a good idea.
However, what do you pick? The “analysis paralysis” of selecting the ideal investment can be overwhelming. The way I beat it is by making the broadest bet I can. When it comes to stocks, that means betting on the global market, which always goes up over the long term.
However, buying thousands of individual stocks until you’re diversified globally isn’t exactly feasible. The solution? An exchange-traded fund, or ETF. Here’s my top pick for today.
Why invest globally?
My framework for investing globally is based on “regret minimization.” I’d hate to sink all my money into a single sector or geography only to see it underperform for an extended period of time. This feeling causes many investors to panic-sell and chase whichever asset is hot at the moment.
The stock market is a wild ride, and most investors can’t consistently beat it. So, I invest assuming I have no clue which stock, industry, market cap, sector, style, or country will come out on top. I’m fine with receiving the average return of the global market over the long run.
Therefore, I prefer to diversify my portfolio broadly, investing my money in all sectors and geographies based on their current market cap size. For instance, right now, U.S. stocks are 60% of the world by market-cap weight, so that’s how much of my portfolio is allocated to them.
The only exception is Canadian stocks, which I overweight slightly as a home-country bias. This has historically reduced volatility, lowered currency risk, and improved tax-efficiency. Anywhere from a 10%–25% weighting to Canadian stocks is good in my books, but YMMV (your mileage may vary).
My ETF of Choice
For my $20,000 windfall, I’d choose the iShares Core MSCI All Country World ex Canada Index ETF (TSX:XAW) as a passive set-it-and-forget-it investment. With a 0.22% expense ratio, you get exposure to over 9,000 stocks from every market except Canada via six underlying ETFs.
XAW is super diversified. Right now, 60% of the ETF is held in U.S. stocks, which have been on a tear for the last two decades. As the global stock market shifts, XAW adapts, offering a low-cost, passive way to ride the wave. If China somehow takes over in the next decade, XAW will reflect that accordingly.
I pick XAW because I know many investors love Canadian dividend stocks. Since XAW excludes Canadian stocks, it’s an excellent foundation for your portfolio. For some stellar Canadian dividend stocks to pair with XAW, check out the Fool’s recommendations below!