For investors who choose not to pick their own stocks, going down the ETF route can be a pretty wise idea. And with management expense ratios (MERs) moving lower in recent years, I’d argue that the set-and-forget kinds of investors can fare incredibly well, even compared to the professional money managers out there.
Additionally, with more active ETFs out there, which also go for competitive MERs, Canadian ETF investors really do have a lot of choice as they consider the pros and cons of having active management involved. Either way, I think it’s a fantastic time to be a new investor, with the wide selection of low-cost investment products out there. And while those expensive 2–3% MER mutual funds are still out there, I do think that their days could be numbered as MERs on ETFs get cheaper, while the selection (active and passive) gets better over time.
Either way, here are a few Canadian ETFs that could make sense to own if you’re just getting started with your TFSA (Tax-Free Savings Account) portfolio and would like to build your wealth over the course of the next few decades.
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Vanguard S&P 500 Index ETF
First up, we have a TSX-traded Vanguard ETF that allows Canadians an affordable and very accessible way (it doesn’t get more convenient than betting on the S&P 500 without having to swap your loonies for greenbacks) to invest in stocks or ETFs on the U.S.-traded exchanges. The Vanguard S&P 500 Index ETF (TSX: VFV) is pretty simple security that does the job well and cheaply.
While the 0.09% MER is a bit pricier than the U.S.-traded comparable, I’d say that the difference is rather minimal unless, of course, you’re thinking about plowing a six-figure sum into the ETF, in which case every basis point matters! Either way, I think smaller investors who aren’t big fans of the current exchange rate (the loonie is currently at US$0.71) and would rather explore U.S.-traded securities when the loonie is closer to US$0.80 (maybe one day! But probably not anytime soon) could opt for this ETF.
So, if you want to bet on America as many Canadians do, the VFV is a fantastic one-stop-shop option that one can systematically buy every quarter, month, or even biweekly.
Vanguard FTSE Canada All Cap Index ETF
Up next, we have the Vanguard FTSE Canada All Cap Index ETF (TSX: VCN). It’s another cheap Vanguard ETF, but one that invests in the Canadian stock market. These days, Canadian stocks have been pretty intriguing, as we enter the final stretch (two months to go in the year), as the TSX looks to top the S&P 500. Though momentum has slowed, I like the valuation and the 2.4% dividend yield. Though, I do admit it would have been nice to lock in a yield that was at or even slightly above 3%.
If we get a correction sometime soon, maybe investors will get that chance to pounce. In the meantime, averaging into the VCN ETF just makes sense if you’re looking to bet on Canada’s relative outperformance or would like an ETF to balance your U.S. exposure (think the VFV ETF). Together, the VFV and VCN seem like a powerful one-two punch! VFV for the growth and AI exposure, and VCN for the yield and relative value!
