You don’t need a vast portfolio of hand-picked stocks to achieve sufficient diversification. Arguably, many passive investors who also pick stocks do so, not for the diversification benefits, but for a bunch of other reasons, which extend beyond just attempting to beat the market at its own game. Perhaps averaging up the portfolio yield or cranking up the growth prospects are some reasons to entice exchange-traded fund (ETF) investors to add more of a personalized touch to the overall portfolio.
For new investors who’d rather stick with ETFs, though, you really don’t need to complicate things. Of course, there are new sector ETFs, specialty income ETFs, and low-volatility ETFs that might offer more, but whether the extra cost (that’s in the form of the management expense ratio, or MER) is worth it remains the big question.
Either way, more active ETFs, which entail the greatest MER markups, I think, just don’t offer the extra mileage to warrant the higher price of admission. Either way, this piece will look at one index fund that I think is a permanent (or at least semi-permanent) staple for any long-term-focused portfolio.
Whether you’re a new investor who’s just getting started, a young growth investor who’s just starting to feel the effects of compounding, or a retiree who wants their wealth to continue snowballing through their golden years, there is one ETF that deserves a spot in the Canadian investor portfolio (preferably in a TFSA if there’s room).
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The VFV is the king of simplicity
Enter Vanguard S&P 500 Index ETF (TSX: VFV), which strives to keep things simple. It’s a plain S&P 500 ETF with low fees that trades on the TSX Index, allowing easy access for Canadian investors, young and old, seasoned and brand-new.
The shares go for $171 per share and, in some cases, might be free to trade depending on your broker. Of course, rather than trading in and out of the popular ETF, I think hanging on for decades is the move, especially if you’re light on U.S. stocks or the AI titans that could continue to do the lifting for the index. While the VFV isn’t the only variant to keep tabs on, I think it shines brightest for most.
You’re getting the reliability of Vanguard and a 0.09% MER, which is as low as it comes for S&P 500 ETFs. No currency hedging and no U.S. dollar conversions — what you see is what you get.
A great low-cost, go-to option for Canadians
And if you can trade VFV for free, it makes for a terrific buy every month or biweekly if you’ve got extra cash from your paycheque to put to work. Even if you can’t trade VFV for free, it’s still a great go-to option for almost any market condition. And when the S&P 500 plunges into a correction or bear market, sometimes, it’s just easy to buy the market. VFV makes it simple.
You don’t have to go bargain-hunting in the sea of red if you’re overwhelmed and there are too many potential pick-ups you could make.
Sometimes an excess of investment options could cause one to freeze up or even forego the “bargains” to be had, given the slate of fears weighing on the market mood. And that’s why the VFV could make a great bet whenever markets head south, and one doesn’t want to wait and do homework before starting some buying. Because, as we found out in April, V-shaped recoveries can happen very swiftly.
We’ve seen an upward “crash,” so to speak, one that didn’t give investors all too much time to think about what to buy, let alone hesitate amid the rise in volatility. When in doubt, I say buy the market.
