When I started trading stocks, I did a lot of my learning in different online chatrooms where traders with their handles would list the stocks they were watching and their likely entry and exit points.
Some days, there was little action, and it was hard to find hot stocks. When this happened, the play in the chat room would be to ‘buy the market.’ This meant trading the market ETF (exchange-traded fund). As a very short day trade, ‘trading the market’ is always the dodgiest pursuit (we’re talking going UP and DOWN all day), but I found that for the long-term, this is the way to go for most investors.
Trying to create a portfolio that outperforms the market is a very involved commitment. Picking stocks means searching, researching, and analysis. If you can find some great picks to give your stock portfolio the boost it needs to look better than the market, then keep up the good work.
For the busy investor who recognizes the trouble involved with outperforming the market, market ETFs are a great choice. The commission and MER fees are lower than they are for mutual funds. Additionally, they’re liquid like stocks and you buy them the same way as you would for stocks through your brokerage account. As ETFs are funds that offer the diversification of the different stocks in a market index, you also receive the dividends those stocks pay out in the form of distributions. Add all these benefits to market performance, and you’ve got something good going here!
Below are some ETFs that trade in the TSX. For your research convenience, you can click on their links to access their Fact Sheets and learn more about their distributions and stock holdings.
The following is a list of Canadian market index ETFs. There are a lot more, but these ones have higher volume than most of the other market ETFs in the TSX.
- Vanguard FTSE Canada All Cap Index (Ticker: VCN)
- iShares Core S&P/TSX Capped Composite Index (XIC)
- iShares S&P/TSX 60 Index (XIU)
- BMO S&P/TSX Capped Composite ETF (ZCN)
A well-diversified, balanced fund portfolio should have some foreign holdings from the US and globally. Here are few US market ETFs:
- Vanguard US Total Market Index ETF (VUN)
- Vanguard US Total Market Index ETF CAD-hedged (VUS)
- S&P 500 Index ETF CAD- hedged (XSP)
The global index ETFs generally have lower trading volume, but in this situation with fewer choices, that’s all right. Here are some to check out:
- Vanguard FTSE Developed All Cap ex U.S. Index ETF CAD-hedged (VEF)
- Vanguard FTSE Developed All Cap ex U.S. Index ETF (VDU)
- Vanguard FTSE Global All Cap ex Canada Index ETF (VXC)
These are just some of the ETFs. There are hundreds to thousands of others available at different prices.
As you’ve read previously in Stock Picking 3, there are also sector ETFs. There are ETFs for pretty much any investment objective you can think of. There are ETFs with fixed-income assets such as bonds and T-bills, ones that cover specific industries, commodities, and foreign currencies. Please keep in mind that some of the more specialized ETFs require more research and management of the assets in the fund, so they’ll have higher MERs than the market index ETFs.
When I was still newish to investing, my portfolio consisted entirely of mutual funds. It was well-diversified, but I know now that I could’ve done better financially had I invested in ETFs because of the significantly lower MERs and commissions. BUT–I didn’t know what an ETF was back then or even how to open a brokerage account, so it didn’t matter. In the last 10+ years, ETFs have been growing so much in popularity and variety that now you could achieve a well-diversified portfolio consisting only of different types of ETFs.
I don’t own any market ETFs as I like to pick stocks and I especially like picking cheaper stocks. But personally, if I were to invest in ETFs, I’d wait until the new year once it’s clearer where the markets are going with interest rates (will they go up or stay the same?), quantitative easing, and a new US president.