You may have considered individual U.S. stock picks or mutual funds for exposure to the American market, but there’s a more straightforward, cost-effective solution: exchange-traded funds (ETFs). These diversified, low-cost vehicles provide broad access to U.S. stocks, bypassing the complexities of picking individual stocks or dealing with costly and pricer, often underperforming mutual funds.
Ready to bypass borders and maximize your gains? Let’s dive into the rich world of U.S. stocks through the lens of ETF investing. I’ll be going over some reasons as to why I think ETFs are the best option for investing in U.S. stocks, and provide a top ETF pick of my own.
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Why use an ETF?
While individual stocks and mutual funds have their place, ETFs bring a unique set of advantages when it comes to investing in U.S. equities, especially for Canadians.
One of the most significant benefits of an ETF is the inherent diversification. ETFs typically hold a basket of different securities, including up to thousands of stocks from various sectors. As such, they can spread risk across many companies and sectors, rather than concentrating it in a few, as would be the case with individual stock picks.
Moreover, ETFs usually have lower expense ratios compared to mutual funds, mainly due to the majority possessing a passive management style that tracks a benchmark index. Lower costs mean more of your money stays invested and can compound over time, potentially leading to higher returns in the long run.
Finally, they’re very accessible. ETFs trade on an exchange, with their own ticker symbols. This means you can buy or sell them during regular trading hours as you would with any other stock. There’s little in the way of a learning curve or barriers to entry when it comes to ETF investing.
My ETF of choice
If broad exposure to the U.S. market is what you’re after, iShares Core S&P U.S. Total Market Index ETF (TSX: XUU) is hard to beat. As the name suggests, this ETF aims to track the performance of the entire U.S. equity market, providing exposure to large-, mid-, small-, and micro-cap stocks in all sectors.
XUU provides exposure to virtually the entire U.S. stock market, from the giants of the S&P 500 to the up-and-comers in the small-cap realm. This level of diversification can mitigate company-specific risk and provide investors with a slice of America’s dynamic and innovative economy.
What I like most about XUU is its low management expense ratio (MER) of just 0.08% as of July 2023. This cost efficiency is crucial, as lower fees mean more of your money is working for you. Few ETFs have expense ratios as low as XUU in Canada, making this ETF very competitive in terms of fees.
