Investing in stocks can seem hard, especially if you’re just starting out. The common perception is that it involves hours of poring over financial statements, following earnings reports, and diving deep into market analysis. While this approach works for some, it’s not the only way to invest in the stock market.
Imagine an alternative where you can sidestep the intricate details of individual stock analysis. This is where ETFs (Exchange-Traded Funds) come into play.
An ETF can hold hundreds of diversified stocks from all 11 sectors and span across global markets. This type of investment offloads the hard work, allowing you to benefit from a wide range of stocks without the need to analyze each one individually.
If you, like many others, prefer a more hands-off approach to investing – one that lets you automate your investments while you focus on what truly matters to you – ETFs could be the perfect solution.
In this guide, I’ll introduce you to three ETFs and share some easy tips to help you start your journey towards financial independence through smart, stress-free investing.
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Start with U.S. stocks
Beginning your investment journey with U.S. stocks is a strategic move, primarily because the U.S. stock market is the largest in the world by market capitalization.
The U.S. market is particularly notable for housing some of the most innovative companies globally, especially in sectors like technology and healthcare. These industries are often at the forefront of growth and innovation, making them attractive to investors seeking long-term growth opportunities.
To easily access U.S. stocks, one practical option is BMO S&P 500 Index ETF (TSX: ZSP). This ETF tracks the S&P 500 Index, which is widely regarded as a good benchmark for the U.S. stock market.
One of the appealing aspects of ZSP is its low expense ratio of just 0.09%. This makes it a cost-effective way to gain exposure to a broad swath of the U.S. market. Given the significance of the U.S. market in the global economy, a reasonable allocation to U.S. stocks in your portfolio could be around 60%.
Diversify internationally
While the U.S. stock market is a powerhouse, it’s not always prudent to bet solely on its performance over the long term. Diversification is key in investing, and this means looking beyond the U.S.
An excellent region to consider for diversification is the EAFE, which stands for Europe, Australasia, and Far East. This region is home to a variety of robust economies and industries, including renowned automotive manufacturers, luxury brands, pharmaceutical companies, and many others.
For exposure to the EAFE region, BMO MSCI EAFE Index ETF (TSX: ZEA) is an ideal choice, holding over 700 stocks for a 0.22% expense ratio.
The countries included in its holdings are Japan, the United Kingdom, France, Germany, Australia, Switzerland, the Netherlands, Denmark, and Sweden, among others. Allocating around 20% of your portfolio to ZEA makes for a fair balanced plan.
Finish with Canadian stocks
Allocating the final 20% of your portfolio to Canadian stocks allows you to tap into the country’s strong financial and energy sectors, among others. These industries are pillars of the Canadian economy and offer a distinct set of investment opportunities.
A great ETF to consider for this portion of your portfolio is BMO S&P/TSX Capped Composite Index ETF (TSX: ZCN), which charges an ultra-low 0.06% expense ratio.
Additionally, as of January 5, 2024, ZCN offers a strong dividend yield of 3.29%. However, if you want higher dividend potential, consider checking out some of the Fool’s recommendations below!
