Investing can be difficult, especially to those just starting out. Even products that are made to be simple-- like ETFs-- can be complicated.
It doesn’t have to be hard. Here’s how to build a simple, yet effective, ETF portfolio.
Every Canadian investor should start with exposure to Canada. The easiest way to do this is through the iShares S&P TSX 60 Index Fund (TSX:XIU), Canada’s largest ETF.
This ETF has exposure to all of Canada’s 60 largest companies, offering decent diversification for the low management fee of just 0.15%. It also offers an attractive dividend yield of 2.8%.
Next is exposure to the United States, the world’s largest economy and home of many of the world’s best companies. This can easily be done through exposure to an ETF that tracks the S&P 500, which is the premier stock index of America’s top companies.
The easy way for investors to do this is buying the iShares S&P 500 Index Fund (TSX:XSP). As a bonus, this fund is Canadian-dollar hedged, meaning investors aren’t punished by negative currency movements between U.S. and Canadian dollars.
Finally, it’s time for fixed income. Canada’s largest ETF is the iShares DEX Universe Bond Index Fund (TSX:XBB), which tracks a wide variety of Canadian bonds. Shares of this ETF pay approximately 2.7% annually and provide portfolio protection compared to stocks.
This portfolio perhaps isn’t ideal. It has very little exposure to Asia, emerging markets, and lots more. But it serves as a “good enough” portfolio, enough to get a rookie investing today. That’s the important part.
