Passive investors have a lot of ETFs (exchange-traded funds) to choose from on the TSX Index. Undoubtedly, as Canada follows in the footsteps of the U.S., which has a plethora of passive investing options, many beginner investors may be wondering which passive investment they should look to as more options pop up from across the board.
Indeed, passive investing was supposed to be simple, easy, and straightforward. However, with a growing number of “flavours” out there, it can be quite tricky to construct an ETF portfolio. The good news is that you don’t need to have the “perfect” mix of ETF and index funds to do well. In fact, all it takes is one well-diversified ETF — think iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX: XSP) — to do the job.
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The XSP: A hedged way to play the broad S&P 500
Now, I’m a huge fan of index funds, especially the lower-cost ones. They’re getting cheaper with time. And many of them exist on the TSX today. With varying assets under management (AUM), investors may wish to prefer the ones with the highest AUM for maximum liquidity.
In any case, I think XSP shares are among the best in class. Though it’s quite boring to bet on a run-of-the-mill S&P 500 index ETF, I still think it’s one of the wisest ways for new investors to start their investing journey.
The XEG: An easier way to bet on the broader basket of energy plays
I’m not a massive fan of sector-based ETFs. However, when it comes to iShares S&P/TSX Capped Energy Index ETF (TSX: XEG), I have to say I’m quite intrigued. The Canadian market is full of great energy plays, but it can be quite tricky to keep up with every one of them, especially for the ones with smaller market caps.
At writing, XEG shares are flat (down around 4% over the past year) but could receive a bid higher in 2024 as energy plays return to the spotlight. Either way, it’s one of my favourite ways for “lazy” investors to bet on the energy scene.
The Foolish bottom line for passive investors
Passive investors should keep things simple and opt for low-cost ETF solutions to meet their long-term needs. Undoubtedly, index and sector-based funds are incredibly cheap, with a growing number of competitors now available on the Canadian market. As the number of options continues to surge, I expect management expense ratios) to fall, making it as affordable as ever for new investors to kick off their Tax-Free Savings Account or Registered Retirement Savings Plan portfolios.
While it’s always intriguing to start picking your own stocks, I believe that ETFs represent an amazing starting point for investors seeking to gain exposure as they learn about investing as a whole. Index ETFs such as the XSP are among the best starter kits for beginner investors who just don’t know where to start.
Whether you opt to “graduate” from such ETFs to stock-picking or stay within the realm of passive investing, I believe the impressive slate of ETF products sets today’s investors up very nicely for the long haul.
