Canadian investors with $10,000 on hand likely want a solid core stock for their portfolio. This would be a stock that they can set and forget, without the worry that they’re going to suddenly lose that $10,000 overnight.
In that case, one stock likely isn’t going to cut it. Which is why we’re going to discuss how exchange-traded funds (ETF) are likely a better option – and ones that can create an enormous amount of passive income.
Why ETFs
There are many advantages to investing in an ETF, especially as a core investment for any portfolio. ETFs typically hold a diversified portfolio of assets, such as stocks, bonds, or commodities. By investing in a single ETF, investors gain exposure to a wide range of securities, reducing the risk associated with holding individual stocks or bonds.
Furthermore, ETFs often have lower expense ratios compared to actively managed mutual funds. This is because ETFs are passively managed and aim to replicate the performance of a particular index, such as the S&P 500. Lower expenses mean higher returns for investors over the long term.
Finally, unlike mutual funds or guaranteed investment certificates (GIC), ETFs trade on major stock exchanges. This means they can be bought and sold throughout the trading day at market prices. This provides investors with flexibility and liquidity, allowing them to enter and exit positions quickly without facing significant transaction costs.
An ETF to consider
If you’re like most Canadians, it’s likely that you invest a lot in Canadian companies. Which is why I would recommend considering the iShares Core MSCI All Country World ex Canada Index ETF (TSX:XAW) in this case.
This ETF aims to replicate the performance of the MSCI ACWI ex Canada IMI Index, which represents the performance of large-, mid-, and small-cap stocks across developed and emerging markets excluding Canada. This index covers approximately 99% of the global equity market capitalization outside Canada.
The ETF provides exposure to thousands of stocks from countries around the world, including the United States, Europe, Japan, the Asia-Pacific region, and emerging markets such as China, India, Brazil, and South Korea. By investing in XAW, Canadian investors gain access to a broad and diversified basket of global equities. And with a low expense ratio, you’re holding onto as much cash as possible.
Bottom line
While the yield may not be high, investors are still gaining a surging amount of passive income through returns. Shares of XAW ETF are already up 12% year to date. If the momentum continues in the last half of the year, here is what your investment might look like.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| XAW – now | $40.63 | 246 | $1.24 | $305.04 | Quarterly | $10,000 |
| XAW – 12% | $45.51 | 246 | $1.24 | $305.04 | Quarterly | $11,195.46 |
So now you’ve created $1,195.46 in returns and $305.04 in dividends. That’s total passive income of $1,500.50 in under a year! Hold even longer, and this core asset could provide you with enormous passive income that you’ll have the rest of your life.
