ETFs (Exchange-Traded Funds) make it all too easy to get started investing. For those new investors who are a bit anxious about getting started, either because of not knowing what to buy, how many names to buy, or whether it’s still worth the while to diversify with a limited sum and fairly high commissions (assuming your brokerage charges per trade), ETFs can be a far better way to get started initially.
Just like every building needs a strong foundation, I’m of the belief that every robust portfolio needs one, which can be most easily constructed by means of index ETFs (one that follows the S&P 500 or maybe even the TSX Index).
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ETFs are perfect for just getting started
Any way you look at it, ETFs are a fantastic, cost-effective tool that can help beginner investors get right into the fast lane when it comes to compounding wealth. With various Vanguard ETFs boasting Management Expense Ratios (MERs) below the 0.1% mark, perhaps it’s no mystery as to why such funds are go-tos for market newcomers who just want to get a bit of skin in the game, rather than looking to beat the market from the get-go.
If you can’t beat the market (and that’s hard for beginners who can’t yet read financials), it’s usually best to join them, especially if you’re just getting started and want to participate in the growth in America and Canada today, rather than waiting until you can analyze a balance sheet, income statement, and statement of cash flows.
The best part about sticking with ETFs is that you never have to graduate to become a DIY stock picker if you don’t want to. In fact, staying the course with a boring ETF that follows the S&P 500 might just be the simplest way to go for those who just don’t have time to analyze a bunch of stocks.
In due time, though, I do think that having both a passive ETF portfolio and a portfolio of individually picked names can make a lot of sense, especially when your demands change. Perhaps you want to shift gears from picking value names to scoring higher yields or want to go heavier on the growth plays if you can develop the stomach.
The VFV: Canada’s most popular S&P 500 ETF for a reason
Whether it’s simplicity, instant diversification, absurd cost efficiency (at least when it comes to index ETFs), or ease of access, it should be no mystery why ETFs are a terrific way for Canadians to get started on the investment track.
In my view, the Vanguard S&P 500 Index ETF (TSX: VFV), which boasts a 0.09% MER, is all it takes to get going for a new investor or a seasoned one looking to add to the equity side of the portfolio. It’s one of the cheapest options, one of the most effective for those looking to bet on the U.S. market, and it’s about as liquid as it gets for Canadian ETFs.
With the VFV sliding 1.5% on Thursday’s turbulent session, as AI stocks led the way lower, I do think that there’s reason to consider taking advantage of the mild dip today, rather than waiting things out. At the end of the day, timing the market isn’t the optimal route to a huge nest egg; it’s more about time in the market, and that includes holding on for the occasional ride lower.
Some argue that the S&P 500 isn’t diversified enough to buy on its own. While true to some extent, given the exposure to mega-cap tech, I’m in the camp that believes a larger share of wealth in the Mag Seven names isn’t a bad thing, especially given their huge moats and cash flows.
