Every investor has to start somewhere. That is why I never look down on someone who only has $1,000 to invest. In fact, if you are already thinking about investing that money instead of spending it, you are ahead of a lot of people.
Better yet, if your first instinct is to buy an exchange-traded fund (ETF) instead of trying to pick individual stocks, you are already taking a smart step. The challenge is that there are a lot of ETFs out there.
Some are useful tools, while others are gimmicks designed more to generate fees than help investors build wealth. Recently, we have even seen leveraged single-stock ETFs popping up, which can be extremely risky for beginners.
So, if you have $1,000 sitting in a Tax-Free Savings Account (TFSA), and aside from eventually adding another $6,000 to max out your contribution for the year, here is one beginner-friendly ETF worth considering.
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BMO S&P 500 Index ETF
One of the simplest and most effective ETFs for new investors is BMO S&P 500 Index ETF (TSX:ZSP).
This fund tracks the S&P 500, which is widely considered the most important stock market index in the world. It holds 500 large companies based in the United States.
These companies are not chosen randomly. To be included in the index, a company must meet strict requirements for size, liquidity, and profitability. The index committee also ensures that the companies represent the broader U.S. economy.
Because of this process, the S&P 500 tends to include the most established and financially stable corporations. Many of the world’s best-known businesses are inside the index, including leaders in technology, healthcare, consumer products, finance, and industrial manufacturing.
The index also has a built-in advantage known as a self-cleansing effect. Companies that shrink or become unprofitable eventually get removed, while stronger companies take their place.
Another feature is market-cap weighting, which means larger and more successful companies naturally represent a larger portion of the index. This creates a momentum effect where the market’s strongest performers have a bigger impact on returns.
These characteristics help explain why the S&P 500 has historically been difficult for active managers to beat over long periods.
Why it works for beginners
Beyond the quality of the index itself, ZSP also has several structural advantages that make it appealing for new investors.
First, it provides diversification across all 11 sectors of the economy, from technology and healthcare to financials, energy, and consumer goods.
Second, it is very inexpensive. The ETF charges a 0.09% management expense ratio, meaning you pay about $9 per year for every $10,000 invested.
Third, because it trades on the Toronto Stock Exchange, you do not need to convert your money into U.S. dollars to buy it. That makes it simple and convenient for Canadian investors.
Most importantly, it requires almost no maintenance. You can simply buy shares regularly, reinvest the dividends, and hold them for the long term. For many investors, that kind of simplicity is exactly what works best.
