Investors looking for a cheap and easy way to gain exposure to the Canadian stock market may be best suited buying an Exchange Traded Fund (ETF) such as the iShares TSX 60 ETF (TSX:XIU).
This will allow investors to gain a fully diversified portfolio of the best Canadian companies out there. In this article, I’m going to discuss why I believe this approach to be superior to that of creating one’s own portfolio from scratch.
First, an ETF automatically buys or sells stock on the basis of capital inflows or outflows, and does so at scale, reducing a given investor’s trading costs. For retail investors, trading costs can be substantial, so picking up an ETF with a management expense ratio of just a few basis points such as XIU is a great economical option.
Buying the entire TSX 60 in individual components and rebalancing as necessary is as time consuming as it is expensive, so leaving this for the pros to take care of at almost zero cost is a great deal for the average investor.
Second, this ETF only tracks the largest (and therefore typically the best) companies traded on the TSX), providing less in the way of risk when one compares these stocks to small caps over time.
Large caps have continued to outperform over this past decade and throughout the coronavirus pandemic, so this ETF may actually be a safer way to access growth and income over time than other ETFs tracking the entire TSX.
Invest wisely, my friends.
