Canadian investors cannot be blamed for wanting to hold on to their cash right now instead of investing in TSX stocks. The market is still weak, with the Bank of Canada recently increasing the interest rate yet again. We all need to have a little extra money around for more costs and less saving.
Even so, if you’ve been saving for a while and putting aside cash to invest on a consistent basis, right now is certainly a great time to invest. The market is down around 10% as of writing from 52-week highs on the TSX today. This leaves the opportunity to get in on some of the best long-term deals out there.
Buy a bank
Honestly, I say it a lot, but there’s a reason to invest in these TSX stocks. If you have $1,000 you’re looking to invest, I would consider one of the Big Six banks. However, if you’re only going to invest in one, make it one that’s sure to have a strong recovery.
For me, a solid option is Toronto-Dominion Bank (TSX:TD). Yes, right now TD stock is exposed to the United States and the weak economy there as well. But, as Warren Buffett states, you can bet on American businesses. There will be a recovery, and when it happens TD stock has great exposure across the country. It is, after all, one of the top 10 banks in the country.
So, right now, with TD stock down 6.5% in the last year, 8% year to date, and trading at 10.19 times earnings, it’s a great time to buy — especially as it’s also the second-largest bank in Canada, offering a dividend yield at 4.8%.
It’s also important to consider that in the last few decades, TD stock as well as other Canadian banking TSX stocks have had provisions for loan losses. This allowed them to return to pre-drop prices within a year of hitting lows. TD stock is now up 96% in the last decade alone.
Grab a TSX ETF
Warren Buffett has also recommended in the past to buy the big companies on the market. Now, he was talking about the S&P 500. You can certainly do that, but the Canadian market is also a good bet as well. For this, you’ll want to find a low-cost TSX index fund among TSX Stocks.
When I say low cost, I don’t just mean share price. Low cost in this case means low fees. If you’re gaining 8% interest on a stock, but then 1% of that is taken away from fees, then that’s cash being eaten away. So, consider a low-cost TSX fund like iShares S&P/TSX 60 Index ETF (TSX:XIU).
The XIU ETF focuses on the top 60 companies on the TSX today, with shares up 4.82% in the last year, and up 2% year to date. It fluctuates as the TSX fluctuates, but mainly climbs upwards except during downturns. Plus, since it’s not actively managed and simply follows the top 60 stocks, there is a 0.18% management expense ratio! That would mean of the $1,000 invested, you pay $1.80; meanwhile, you’ll receive a 3.31% dividend yield as of writing. So, it’s well worth the investment.
With shares where they are, it’s a great time to consider jumping in on the TSX and buying through thick and thin, mainly thin, as Buffett likes to say. As you continue to invest more into this TSX ETF and the TSX climbs higher, you’re sure to see that $1,000 turn into more and more cash in your pocket.