When you’re new to investing, it’s easy to get caught up in the rush to pick the next big stock and get rich quick.
However, for those without much experience, sticking to three core principles can make the investment journey much smoother and potentially more rewarding:
- Stay broadly diversified.
- Keep fees and turnover low.
- Invest consistently and reinvest dividends.
Sound straightforward? That’s because it is. Let’s explore why these principles matter and an exchange-traded fund (ETF) that could put it in play.
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What beginners should focus on
I recommended just these three principles because they simplify the investment process to achieve the market’s long-term average annualized return, which typically ranges from 9-10% before inflation and 6-7% after.
This might not seem substantial, but thanks to the power of compounding, it can lead to significant wealth accumulation over time.
If you decide to pick individual stocks instead, you’ll face a slew of additional decisions that can complicate your investment strategy:
- Which countries’ stocks should I buy? Diversifying geographically can reduce risk but also complicates decision-making.
- Is the stock undervalued right now? This requires understanding financial metrics and market conditions.
- Should I buy small, mid, or large caps? Each has different risk and growth potential.
- Which sector should I pick stocks from? Sector performance can vary greatly and affect stock success.
- When should I sell the stock? Timing the market increases the risk and complexity of investing.
Each additional decision introduces more room for error and requires more of your time. If investing isn’t your passion or if you’d rather not dedicate significant time to managing your portfolio, it’s wise to avoid the complexity of stock picking.
The ETF to buy
BMO All-Equity ETF (TSX:ZEQT) is an excellent choice for a set-and-forget investment strategy.
It’s incredibly diversified, holding thousands of stocks from the U.S., Canada, and other international markets. This ETF is managed on your behalf and comes with a low management expense ratio of just 0.20%.
If your brokerage offers dividend reinvestment and automated contributions, you can truly put your investment in ZEQT on autopilot.
By enabling these features, you can continuously reinvest your dividends into additional shares of the ETF and contribute funds regularly, enhancing the compounding effect and easing the management of your portfolio.
