If 2023 wasn’t your best year in the stock market, despite the major indexes showing green, the start of the new year is the perfect opportunity for a financial re-evaluation.
It’s common for investors, especially those new to the market, to find that their portfolios haven’t performed as well as they hoped. Often, this under-performance can be attributed to a few key factors.
Many times, the root cause of not meeting market returns can be traced back to three main issues: a lack of sufficient diversification, excessive trading leading to high fees, and the attempt to time the market.
In this guide, I’ll outline some straightforward and effective strategies to help beginners turn the page in 2024 and set the stage for successful investing. I’ll also leave you with two ETF picks to put it in play.
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Start with a low-cost diversified core
For the core of your investment portfolio – let’s say about 80% – it’s crucial to focus on something highly diversified. A great option for this role is the BMO All-Equity ETF (TSX: ZEQT).
ZEQT is an all-in-one ETF that encompasses thousands of stocks from the U.S., Canadian, and international markets. This comprehensive coverage means that by investing in ZEQT, you’re getting a complete, globally diversified stock portfolio.
Another appealing aspect of ZEQT is its affordability, with an expense ratio of just 0.20%. Keeping costs low is an important part of maximizing your long-term investment returns, and ZEQT offers a cost-effective way to gain broad market exposure.
By allocating a significant portion of your portfolio to ZEQT, you’re essentially betting on the global economy as a whole, rather than trying to pick individual winners.
Finish by adding some stability to it
While ZEQT offers great exposure to the stock market, it’s important to remember that it’s 100% stocks and can be subject to volatility. To bring more balance and stability to your portfolio, consider allocating around 20% to lower-risk ETFs.
A good option for this purpose is the BMO Money Market Fund ETF Series (TSX: ZMMK). ZMMK is distinct from ZEQT in that it doesn’t hold stocks. Instead, it invests in fixed income securities like promissory notes, treasury bills, and commercial paper.
These types of investments typically offer lower returns compared to stocks, but they come with the advantage of monthly income and significantly lower volatility. In other words, ZMMK’s value doesn’t fluctuate as much as stock-based ETFs.
You can use ZMMK as a buffer to smooth out the ups and downs in your portfolio. Additionally, holding a portion of your investments in ZMMK can give you the flexibility to rebalance during market dips, potentially buying more of ZEQT when prices are lower.
