What’s the Best Way to Invest in Stocks Without Any Experience? Start With This Index Fund

This Index Fund is up significantly in the last five years, and could easily continue to rise with exposure to so many sectors and equities.

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New investors certainly have a lot to consider before jumping into this market. They need goals, a budget, a meeting with their financial advisor, all before sinking a penny into their Tax-Free Savings Account (TFSA) or other investment account.

But let’s say you’ve done the heavy lifting and you’re now ready to start looking into investing. That means choosing something easy that can create a safe base for your portfolio. And if so, then I certainly have the one for you.

Choose an Index ETF

If you’re new to investing with zero experience, an index fund exchange traded fund (ETF) can be a great option. These funds provide several reasons to get into them, so we’ll first go over a few before getting into one particular option.

An Index ETF provides investors with diversification. You can hold a number of securities, all in one basket, spreading out your investment risk across multiple companies and sectors. This can help mitigate the impact of a single company’s performance, and keep your overall portfolio going upwards.

What’s more, these ETFs are low cost. Their expense ratios are paid out as fees charged by the fund, but are quite minimal, usually around 0.5% or even lower! This is a major advantage over actively managed funds, which can have far higher fees.

And again, ETFs are great to create a base for your portfolio. They can provide investors with long-term performance, and an index tends to perform well over the long term, with smaller increases in the short term as well. In fact, they can even match or indeed exceed actively managed funds.

One to consider

If you’re a new investor, then one I would consider is the Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC). Some of the reasons are listed above. The company offers a diverse strategy, tracking the Financial Times Stock Exchange (FTSE) Global All Cap ex Canada China A Inclusion Index.

This means it holds a variety of stocks around the developing and emerging markets around the world, but not Canada. This helps to spread your risk outside of Canada, reducing exposure to this market where investors tend to invest heavily.

And again, it has a very low management expense ratio (MER) at just 0.27% as of writing. So you’re boosting your long-term income, while keeping costs very low. Especially considering it also provides you with higher returns and a dividend yield currently at 1.66%.

What you could get

So let’s look at historical performance to see what investors could achieve over the next several years. VXC ETF has grown shares from $36.50 to $56 over the last five years. That’s compound annual share growth (CAGR) of 8.93% in that time! And a total of 53%. That’s incredible growth for a passive investing Index Fund.

So let’s say you were to invest $5,000 and see that income rise again. Here is what that could achieve in the next five years.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
VXC – now$5689$1.10$97.90quarterly$5,000
VXC – 5 years$85.6089$1.10$97.90quarterly$7,618.4

Now you have a total of $2,618.40 in returns, as well as dividend income of $97.90 per year. After five years, that’s $489.50! In total, you’ll then have created passive income of $3,107.90 from this one incredibly safe investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in the Vanguard FTSE Global All Cap Ex Canada Index ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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