One of the biggest risks facing younger investors today is financial nihilism. When housing costs seem increasingly unaffordable, wages struggle to keep pace with living expenses, and traditional milestones feel out of reach, it’s tempting to conclude that ordinary investing simply won’t make a difference.
That mindset can lead people toward speculative shortcuts, including sports gambling, lottery tickets, penny stocks, and aggressive options trading. The appeal is understandable. Why bother earning a modest return when there’s a chance, however small, of multiplying your money overnight?
But I think the power of compound returns remains widely underestimated. Consistently investing relatively small amounts, reinvesting distributions, and allowing your portfolio to grow over time can still produce meaningful wealth. You don’t need to identify the next Nvidia or correctly time every market downturn.
Even with the rising cost of living and wages struggling to keep pace, ownership of productive assets remains one of the most accessible ways to participate in economic growth. A low-cost, diversified exchange-traded fund (ETF) can help you do exactly that. Here’s an example of how the numbers worked historically.
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Why I’d start with XEQT
For most Canadians investing over a long time horizon, I think the iShares Core Equity ETF Portfolio (TSX: XEQT) is an excellent starting point for an investment portfolio.
XEQT is an all-in-one asset allocation ETF that provides exposure to thousands of publicly traded companies across Canada, the United States, international developed markets, and emerging markets.
The ETF maintains a 100% equity allocation and automatically rebalances its underlying holdings to keep the portfolio aligned with its target weights. Its management expense ratio (MER) is 0.19%, meaning a $10,000 investment costs about $19 annually in fund expenses.
I don’t think XEQT is perfect. Its Canadian allocation is substantially higher than Canada’s share of global stock market capitalization, and its all-equity structure can experience significant drawdowns during bear markets.
But for investors with a long time horizon, a high tolerance for volatility, and the discipline to keep contributing, I think it’s an excellent all-around choice. More importantly, it eliminates much of the complexity that discourages people from investing.
You don’t need to research individual stocks, decide which sectors will outperform, or constantly rebalance your portfolio. You can simply buy the ETF regularly and let the underlying businesses do the work.
What $500 a month could have become
To illustrate the potential, I ran a historical backtest using Portfolio Visualizer covering January 2020 through September 2026. The assumptions were as follows.
You started with a $500 investment in XEQT, contributed another $500 every month, and reinvested every quarterly distribution. That’s $6,000 in annual contributions, below the current $7,000 annual TFSA contribution limit.
For this example, we’ll assume all investments were held inside a TFSA, so there were no Canadian taxes on dividends or capital gains. Most importantly, you never panic-sold or stopped investing in XEQT every month on schedule.
By September 2026, the portfolio would have grown to $72,476. Portfolio Visualizer reported a time-weighted rate of return (TWRR) of 13.9% and a money-weighted rate of return (MWRR) of 16.8%.
The time-weighted return isolates the investment’s performance from the effects of deposits and withdrawals. It provides a useful measure of how the underlying strategy performed over the period.
The money-weighted return, by contrast, accounts for the timing and size of your actual contributions. Because you were adding money throughout the period, including during market downturns, the timing of those purchases were a positive influence.
And remember, this wasn’t a strategy involving stock picking, leverage, options, or market timing. It was simply a diversified equity ETF, regular contributions, reinvested distributions, and patience.
Of course, XEQT won’t necessarily deliver annualized returns anywhere near these levels going forward. Historical performance is no guarantee of future results, and future bear markets could be longer or more severe.
But I think the example demonstrates why starting small remains worthwhile. Investing in XEQT can help you develop the habit of consistently acquiring productive assets and giving compounding enough time to work.
