Investing in stocks without any experience can seem challenging, and relying solely on individual stock picks isn’t the best strategy for beginners.
Diversification is key to managing risk and ensuring your investments can grow over the long term, despite short-term market fluctuations.
A straightforward way to achieve this is through an index fund, which offers broad market exposure and a simpler path to investing.
Here, I’ll introduce a specific index ETF that is well-suited for those new to investing, explaining how it functions and why it’s a solid starting point.
My ideal index ETF
If you’re just starting out in investing, placing the majority of your portfolio (80-90%) into Shares Core MSCI All Country World ex Canada Index ETF (TSX:XAW) can be a prudent strategy.
This ETF is designed to replicate the performance of the MSCI ACWI ex Canada IMI, a comprehensive index comprising over 8,700 stocks from across the globe. The way XAW accomplishes its broad market exposure is quite smart – it invests in six other index ETFs.
This method provides investors with a diversified portfolio spanning the U.S., as well as developed markets like Japan and Germany, and emerging markets such as China and India, all through a single transaction.
Concerning costs, XAW is quite affordable with a management expense ratio (MER) of just 0.22%. This means if you invest $10,000 in XAW, the annual fees would only amount to $22.
Why did I pick XAW?
I don’t believe there’s inherently anything wrong with stock picking for beginners, especially if it’s limited to a selection of blue-chip Canadian dividend payers.
The key is to ensure that the majority of your portfolio is anchored in a broad-market index fund. This is precisely where XAW shines as an investment choice.
It’s specifically designed to exclude Canadian stocks, making it the ideal complement to a portfolio that includes a few carefully chosen TSX-listed companies.
Choosing XAW allows you to maintain global diversification across the bulk of your investments while actively managing a smaller portion of your portfolio with 3 to 6 TSX stocks (and if you need some ideas for picks, the Fool has some excellent suggestions below!)
