I’m an active investor and because I’m active, that lends itself to picking individual stocks to buy and to the dividend approach! But let’s say I didn’t like this stuff… let’s say personal finance was boring, it scared me, I didn’t like it, I didn’t want to spend time with it — That is the perfect scenario where someone in those shoes may do really well with investing in an ETF or even an index fund! Why? Because investing with ETFs is the “hands-off” approach!
A little disclaimer: Needless to say, I am NOT a professional financial advisor and the contents found here are surely NOT professional financial advice. It goes without saying to do your own research and due diligence. Again, my goal is to hopefully point you in the right direction and spark some interest on the matter, since they are essential to one’s financial independence journey in Canada!
What is an ETF?
Here’s a super cool video by Bloomberg explaining ETF’s in the most simple way! 😉
When you buy an ETF, you are basically buying a BASKET of stocks, instead of just one stock!
Remember that saying “Don’t put your eggs in one basket”? By going the ETF route, your money will be sitting in a diversified basket of stocks!
For example
If you buy the most popular basket in the world — S&P500 — that one basket is comprised of the top 500 companies in the U.S.A. and you’re basically spreading your money across those 500 companies! If one company in the S&P500 dies, then it doesn’t affect your money as much since 499 other companies are still there to pick up the slack! Moreover, once a company isn’t doing well inside that basket, it gets replaced automatically by another company that is emerging and is more successful than the other!
Tesla (TSLA) was probably the latest and most recent addition to the S&P500 and I’m sure you don’t need me to tell you why that company is doing so well! 😉
Anyway, the point is, your money will be well diversified if you went the ETF route instead of individual stocks!
Fellow Canadian blogger Christopher Liew from Wealthawesome.com, shares a good list of the 17 best all-in-one ETFs in Canada!
Quite possibly, my favourites on that list are those offered by one of the best fund managers out there — Vanguard. They have been around for about 45 years and they offer a variety of investment products that help you reach financial freedom!
Check out Vanguard’s all-in-one ETF product page showing the different simple portfolios you can dive into!
The 2-step recipe is simple:
- Choose a “donut” that best fits you, based on your risk level.
- Once you’ve chosen your donut flavor, simply keep buying & investing that same donut portfolio each month until you reach your goal! VOILA!
Yes, it’s that EASY!!
This TURNS OFF “complicated”
and TURNS ON “simple”!
Our Hybrid approach
Even though I love picking my own individual stocks to invest in, believe it or not, I actually do have some ETF’s in my portfolio also!
It’s a hybrid approach on investing for dividends & growth, since I get to diversify and spread my eggs just by owning a few ETFs!
But the ETFs I own still pays me dividends! You see, no matter how big or little that dividend is, I still don’t break my core principles & rules even when investing in ETFs — I only buy things that drip cash!
Here are our 3 favorite ETFs that we own:
XEI.TO
— iShares S&P/TSX Composite High Dividend Index ETF
This basket is comprised of the top Canadian companies in the TSX that pays high dividend yield. Companies held in this ETF are the likes of Royal Bank, Telus, Enbridge, Scotiabank, Manulife, & Suncor Energy just to name a few!
Besides the fact that those companies pay a high dividend yield, what I LOVE most about this ETF is that unlike most other individual stocks that normally take 3 months to pay, this one pays me a dividend EACH MONTH! So if you’re looking to get an income stream that you can use to pay monthly bills, this would be it! We simply own this stock in addition to the individual stocks for that very reason alone!
XAW.TO
— iShares Core MSCI All Country World ex Canada Index ETF
If you wanted to add asset and geographical diversification, this ETF is the way to do it! The problem most of us is facing is that we are heavily weighted in Canadian stocks without much exposure to markets elsewhere in the world. This is called “home bias”. And if you wanted to fix that problem, buy yourself some XAW and look what countries you’re automatically exposed to with just this one ETF:
ZSP.TO
— BMO S&P 500 Index ETF
This one tracks our favorite index in the world, the S&P500. We’ve actually owned this particular ETF inside both our kid’s RESPs for years now and offers great growth over time since it tracks the top 500 companies in the United States! We believe in it so much that we allocate 80% of our kid’s RESP accounts in this very basket! We saw consistent 7-8% returns year over year!
Surely, the options don’t stop there! In 2020, there were 7,602 ETFs available globally! Talk about a variety of options out there! People love to simplify their finances, especially when it comes to making decisions. So with the increasing demand for more “EASY” products like these, I can only see the number of ETFs continue to rise over the next decade!
