With the Canadian market featuring hundreds of exchange-traded fund (ETF) options, and even more when you consider those available in U.S. dollars, finding the right investment can seem like a challenge.
Yet, among the myriad choices, certain ETFs stand out for their straightforward appeal to investors, particularly beginners. One such ETF is Vanguard FTSE Canada All Cap Index ETF (TSX:VCN).
VCN is a go-to pick for several compelling reasons, earning its place as a top recommendation for those looking to invest in the Canadian market. As we look ahead in 2024, here’s what you need to know before considering VCN for your investment portfolio.
Why I like it: Low fees
One of the few aspects you can truly control when selecting ETFs is the cost associated with them, particularly the management expense ratio (MER).
The MER is a percentage cost that’s deducted from your investment annually, directly impacting your returns. VCN stands out in this regard, charging a mere 0.05% in MER.
To put this in perspective, for every $10,000 invested in VCN, you’re only paying $5 annually in fees. This rate is exceptionally low, especially within the Canadian ETF market, making VCN an absolute bargain.
Moreover, when you pair this with a zero-commission brokerage like Wealthsimple, the cost savings become even more pronounced.
Why I like it: Dividends!
As a total return investor, dividends aren’t my primary focus since any dividends I receive are immediately reinvested. However, I recognize the appeal of dividends, especially for beginners.
The psychological boost of seeing those quarterly payments arrive in your account can be a powerful motivator. It encourages investors to remain disciplined and hold onto their investments through market ups and downs.
VCN stands out not just for its low fees but also for its dividends. With a 12-month yield of 3.01%, VCN offers a compelling dividend payout that is distributed every quarter.
This consistent income stream can be particularly encouraging for new investors, providing tangible evidence of their investment’s performance and helping to foster a long-term investment mindset.
Why I like it: Diversification
While VCN might appear limited in geographical diversification, focusing solely on Canadian stocks, it excels in providing a broad spectrum of sector diversification.
Canada’s economy, known for its strength in financials and energy, naturally leads VCN to have significant allocations in these areas. However, the ETF doesn’t stop there; it also encompasses a healthy mix across industrials, materials, technology, consumer discretionary and staples, utilities, telecoms, and even real estate sectors.
With a total of 172 stocks within its portfolio, VCN offers a comprehensive overview of the Canadian market. Approximately 80% of these are large-cap stocks, reflecting the backbone of Canada’s economy, while the remaining 20% span mid- to small-cap companies, offering a glimpse into the broader, more nuanced aspects of the market.
