If you’re currently sitting on the sidelines with cash, having done your research but still feeling uncertain about how to start investing in the stock market, fear not — I’m here to help you get started.
Investing can seem intimidating at first, but with the right approach and a bit of guidance, it becomes a manageable and rewarding endeavour. Today, I’m going to outline three concrete steps to start investing in stocks, complemented by three corresponding exchange-traded fund (ETF) picks to get you started.
Quick note: it’s important to note that this guide is for those who are comfortable with the inherent risks of stock investing and are looking at it as a long-term endeavour. Additionally, it’s assumed that you already have a brokerage account set up and possess a basic understanding of investing concepts.
Start with U.S. stocks at 60%
Starting your investment journey with U.S. stocks is a wise decision, given that the U.S. market is currently the largest and one of the most dynamic in the world.
Allocating a significant portion of your portfolio, say about 60%, to U.S. stocks is a great way to gain broad exposure to a range of sectors and companies that are driving global economic growth.
For this significant portion of your portfolio, iShares Core S&P U.S. Total Market Index ETF (TSX: XUU) is an excellent choice. XUU offers expansive coverage of the U.S. stock market by holding 2,640 stocks from a variety of sectors and sizes, ranging from large blue-chip companies to smaller, high-growth firms.
One of the most appealing aspects of XUU is its affordability. With an expense ratio of just 0.07%, it’s one of the most cost-effective ways to gain comprehensive exposure to the U.S. stock market.
Add 20% international stocks
Diversifying your investment portfolio with international stocks is crucial for achieving a balanced investment strategy. Allocating about 20% of your portfolio to stocks from the EAFE (Europe, Australasia, and Far East) region is an excellent way to broaden your exposure beyond the U.S. market.
For this portion of your portfolio, iShares Core MSCI EAFE IMI Index ETF (TSX: XEF) is a great option. XEF provides access to over 2500 holdings from various countries in the EAFE region, like Japan, Germany, France, the United Kingdom, and Australia.
XEF comes with an expense ratio of 0.22%, which is slightly higher than that of XUU. This increase in cost is generally expected for international stock ETFs, as holding international stocks typically incurs higher operational costs for funds.
However, the benefits of global diversification that XEF offers can be a valuable addition to your investment portfolio, making it worth the slightly higher expense ratio.
Finish it off with 20% Canadian stocks
Rounding out your investment portfolio with a focus on Canadian stocks is a smart strategy, particularly when considering the benefits of some home-country bias.
Allocating about 20% of your portfolio to Canadian stocks can be beneficial in reducing currency risk and improving tax efficiency. This is especially relevant for Canadian investors, as investing domestically helps mitigate the impact of currency fluctuations and can offer certain tax advantages.
For this portion, iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC) is an excellent choice. It has a decent yield of 2.98% thanks to Canada’s many financial and energy sector stocks.
One of the most appealing features of XIC is its cost efficiency, with an expense ratio of just 0.06%. This makes it one of the most affordable options for gaining exposure to Canadian stocks.
