During a bull market, deciding where to invest can feel overwhelming, especially when it seems like prices are skyrocketing daily. It’s tempting to try to time the market and hold onto cash, waiting for the next dip.
Instead of playing the waiting game, if I had $10,000 right now, I’d consider putting it to work in global stocks. Let me introduce you to an exchange-traded fund (ETF) that could serve this purpose well.
Why invest globally?
Investing solely in Canadian dividend stocks might seem like a safe, tax-efficient choice, but it limits your investment horizon significantly.
By focusing just on the TSX, you’re heavily exposed to only a couple of sectors – financials and energy – which can be risky. Plus, by market cap weight, you’re only tapping into about 3% of the world’s equity markets.
Think about what you’re missing out on: thousands of stocks from the U.S., major developed markets like Japan, Germany, and the UK, and emerging markets such as China, India, and Brazil.
Diversification is key because it helps mitigate risk – no single market consistently outperforms, and without global exposure, you could face extended periods of stagnant returns if Canada underperforms.
The best global ETF
For a comprehensive and affordable global exposure, I like the iShares Core MSCI All Country World ex Canada Index ETF (TSX: XAW).
This ETF encapsulates what its name suggests – providing a diversified portfolio by holding over 8,700 stocks from all 11 market sectors across small, mid, and large-cap companies, but crucially, it excludes Canadian stocks.
This makes XAW a perfect complement to your Canadian equity holdings, ensuring there’s no redundancy or overlap in your investment strategy.
Currently, XAW allocates about 64% of its portfolio to U.S. stocks, with the remainder spread across a mix of international markets, both developed and emerging.
But despite its extensive coverage, the ETF is cost-effective with a management expense ratio (MER) of only 0.22%, which translates to about $22 annually per $10,000 invested – an affordable fee for such expansive global access.
