Investing can be as easy or as difficult as you’d like to make it for yourself. Building a long-term winning investment portfolio doesn’t need to be overly complicated. It certainly can be, though. That being said, there are great options for investors who are looking for a hands-off approach.
Ingredients of a winning portfolio
There’s no getting around the fact that your time horizon will largely impact your portfolio’s ability to generate returns. If your time horizon is only one year, you’ll likely want to be much more conservative with your investing strategy to minimize the chance of earning losses. On the contrary, investors with time horizons of decades or longer can take on more risk, which potentially means a much higher upside.
Once your time horizon has been established, you can begin thinking about the types of investments you plan on holding. When it comes to building a balanced portfolio, diversification and growth potential should both be top of mind.
Having a well-diversified portfolio will go a long way to reducing risk and lowering volatility levels. Growth potential, however, is what will allow you to benefit from the magic of compound interest. It’s through patient buy-and-hold investing that a seemingly low initial investment can grow into a sizable nest egg.
Why own exchange-traded-funds?
Choosing individual stocks to invest in can be a daunting task. Fortunately, investors looking to get into the stock market don’t necessarily need to go down that road. Exchange-traded funds (ETFs) offer an excellent entry into the stock market. The fund acts as a basket of different holdings, which could be individual stocks.
A major benefit of owning an ETF is the diversification. Owning a broad index fund can provide exposure to a range of different industries spread across the globe.
What I’d consider the only downside to an ETF is the cost associated with it. More often than not, though, that cost is well worth it.
Aside from a potential trading fee, the only cost associated with an individual stock is the price itself. Contrary to that, ETFs charge a management fee. This additional fee is there to cover the operational expenses of a company like Vanguard, which does the heavy lifting of packaging an ETF for investors.
While choosing an ETF may be easier than an individual stock, there is still no shortage of ETFs to choose from on the TSX.
With that in mind, here’s a top ETF to get you started.
Vanguard S&P 500 ETF
For both a rookie and seasoned investor, you cannot go wrong with Vanguard S&P 500 ETF (TSX:VFV). This Vanguard fund is designed to very closely mimic the performance of the U.S.-based S&P 500. The management fee is also incredibly low, at just 0.08%.
While the fund itself may be tracking American companies, it’s important to keep in mind that many of those companies have an international presence. As a result, shareholders of the Vanguard S&P 500 ETF will gain exposure to far more than just the U.S. economy.
The U.S. stock market has also been one of the top-performing across the globe for years.
The Vanguard S&P 500 ETF has returned more than 80% over the past five years, and that’s not even including dividends either.
Foolish bottom line
It’s easy to become overwhelmed when you’re first starting in the investing world. Do yourself a favour and put a top ETF like the Vanguard S&P 500 ETF high up on your watch list. That is the type of investment that you can confidently add to consistently for many years.
