You can be a stock picker who picks and chooses your stocks through turbulent markets as well as a passive investor who has a go-to, mechanical (or even automated) investment strategy that involves buying the same ETFs every month. Indeed, it’s exciting to pick your own stocks, especially when the bargains start appearing left, right, and centre.
But, at the same time, it’s also nice to take some of the emotion out of the equation with a slate of diversified ETFs, especially if you’re out of ideas (growth, value, momentum, or hedges). If the market is running hot and valuations are suspect, it may be a good idea to carefully pick and choose individual names. And when the tables turn, or you simply don’t have time to explore new ideas, there’s no shame in putting some of the cash that has been parked away in savings into an index fund or ETF.
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ETF investing is for everyone!
Arguably, I think new investors should have a portfolio for individual stocks and one meant for ETFs. Perhaps pinning the two portfolios against each other is a worthy (and fun) exercise, as one aims to beat the market or, at the very least, do so with their hands-off passive ETF portfolio.
If you’re a stock picker and you’re guilty of overweighting tech, this latest software and AI slump may come as a rude awakening for you. The good news is that it’s never too late to diversify and right your past wrongs. Of course, if you’re comfortable with volatility and concentration in tech, feel free to adjust things as needed. At the end of the day, your allocation is personal.
And sometimes, rules of thumb need not apply. In any case, diversification and rotation out of tech could prove wise, especially if you’re a market newcomer who hasn’t gotten your “market legs” quite yet. Indeed, sector corrections and bear markets can be particularly vicious to those who are less than diversified.
The Vanguard S&P 500 ETF: The case for the boring, obvious investment
Fortunately, there’s an easy solution: simply buy an ETF that’s already diversified! Of late, I’ve been a big buyer of the Vanguard S&P 500 ETF (TSX:VFV), which provides Canadians a quick, cost-effective way to bet on the S&P 500, which has been outperforming much of tech of late.
With shares recently slipping on the back of growing geopolitical tensions and questions about how AI will change software as we know it, I think it’s time to take a closer look at the one-stop-shop ETF while it’s down around 4%.
Sure, it may be boring to just buy the S&P 500. But if you’re looking to keep things “boring” now that the exciting trade is turning into a nightmare, sometimes the old tricks are the best.
And when it comes to the S&P 500 ETFs, just about any TSX-traded one will do. For your RRSP, though, I’d suggest going for a U.S.-traded ETF so you’ll be able to keep the 15% dividend withholding tax that would have been docked from your quarterly dividend payment. In a non-registered account, the TSX-traded version, such as the VFV, is just as good.
Perhaps the biggest reason to stick with the S&P is Warren Buffett’s big vote of confidence in the index. As AI productivity benefits spread more broadly across sectors, perhaps the S&P is also a “good enough” AI trade for those who are wary of the downsides of following the AI CapEx. Either way, it’s just cost-effective and less emotional to stick with index ETFs, especially as others raise doubts about the market’s path forward.
