Do you have $10,000 sitting around in cash these days? If you have a six-month emergency fund stashed, bills paid, and spending accounted for, consider socking it away for the future by investing it.
Now, investment options are numerous, and the advice available online can be overwhelming and potentially biased in some cases, so take everything you see with a grain of salt.
Hence, it is crucial to base your investment decisions on your risk tolerance and financial objectives, considering both potential losses and the intended use of the investment returns.
I can’t tell you what to do, but I can walk you through how I would personally invest $10,000 lying around. Spoiler: it involves high diversification and a low-cost exchange-traded fund, or ETF.
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My guidelines
Personally, when I invest big lump sums, I have a few rules I strictly adhere to:
- Diversify as much as possible across market cap sizes, sectors, and geographies.
- Keep fees and expenses as low as possible.
- Invest it all at once; don’t try and time the market.
That’s it. These simple rules keep me from making dumb mistakes, going all-in on a poor stock pick, or causing drags on my future expected returns.
$10,000 is not chump change. Invested properly, that money can compound potently over time. Therefore, keeping these controllable sources of risk in check is paramount.
My ETF pick
With this in mind, I’d be most inclined to invest a $10,000 lump sum in an instrument that tracks the total market cap-weighted global stock market. Why? Well, I personally want to avoid betting on individual stocks, industries, market cap sizes, styles, or countries completely.
Therefore, my ETF of choice would be something along the lines of iShares Core MSCI All Country World ex Canada Index ETF (TSX:XAW), which offers exposure to thousands of stocks across all global markets, excluding Canada, at a relatively low expense ratio of 0.22%.
XAW provides a high level of diversification, with approximately 60% of its holdings in the U.S., reflecting the country’s strong recent performance. If the composition of the global stock market evolves, XAW will adjust accordingly, making it an efficient, low-cost, passive approach to indexing the world at all times.
I like XAW because it excludes Canadian stocks. To scratch that stock-picking urge, I can bet on a few select Canadian stocks without worrying about my overall returns differing too much from the world. For some great Canadian dividend stock picks, take a look at the Fool’s suggestions below!
