If you’re a new investor, right now is a pretty crazy time to get into it. After all, the market has been up and down and all around for the last two years. Throw in a pandemic, and you’re likely not exactly confident about investing.
Which is why today we’re going to go over a great strategy: investing in an index fund. So let’s get into why this can be a great idea for new investors, and one to consider today.
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Warren Buffett does it
Not to say that anyone is perfect, but if there is one person that most investors look up to, it’s Warren Buffett these days. The Oracle of Omaha has been investing in some of the biggest and best companies when they come out of the gate. But this seasoned investor does have solid advice for new investors.
A piece of advice? Invest in the S&P 500. Specifically, choose an exchange-traded fund (ETF) that focuses on the S&P 500, with a low management expense ratio. An added bonus would be to find one of these ETFs that also provides a dividend.
The S&P 500 is filled with some of the top companies in the world, never mind the United States. You therefore get exposure to some of the best and biggest growth stocks, but also some of the most defensive. These included Dividend Aristocrats, as well as Dividend Kings! He’s a man that clearly knows what he’s doing.
Why it’s great for new investors
As a new investor, the major benefit here is that you don’t even have to worry about your investments! You have a team of portfolio managers doing this for you. What’s more, you suddenly gain exposure to a whole laundry list of companies, without having to pay an enormous price.
In fact, you could also find ETFs that provide you with not just exposure, but even more often dividends. There are ETFs that can provide even monthly dividends, while investing in companies that provide quarterly or even annual dividends.
Finally, these ETFs are cheap! Not to worry about investing in companies that can be as high as $1,000 per share or more – most are in the double digits, some even single! So let’s look at one to consider on the TSX today.
An ETF for you
If you’re going to invest in any ETF these days, I would certainly consider the iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX:XSP). XSP ETF focuses on the S&P 500, as you can see, but also is hedged to the Canadian dollar. So investors don’t have to worry about a conversion rate when they sell. Instead, just worry about your shares going up or down.
The ETF also provides a 1.27% dividend yield as of writing, so you get an added bonus of additional income. Furthermore, shares are up 7.5% year-to-date already. Meanwhile, those shares have climbed 26% in the last year alone!
As you can see, investing in the S&P 500 pays. But investing in an S&P 500 ETF pays handsomely. All while paying just $49 per share as of writing.
