The Best ETFs in Canada for Young Investors

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Exchange Traded Funds (ETFs) are the easiest way for investors to diversify and protect their portfolio. We’ve compiled a shortlist of the best ETFs in Canada for young investors looking to start or grow their investment portfolio.

What are ETFs?

The acronym ETF stands for Exchange Traded Fund and is a type of investment security available to buy and sell on the stock market. An ETF is like a basket of related stocks, usually tracking an investment index. Many ETFs contain over one hundred different stocks and is managed by the ETF portfolio manager for a small fee, usually 0.05% to 0.25%.

When you buy 1 share of an ETF, it’s like you’re buying a tiny piece of every company’s shares within the ETF. This is how you get broad stock market diversification, even if you don’t have a lot of money to invest at once.

Many ETFs pay dividends, which means you’ll earn an income simply for holding them. They are also expected to grow in value with the global stock market, providing you with increased wealth through capital gains.

ETFs are for self-directed investors who manage their own portfolios with a brokerage like Questrade. However, if you’re not keen to do the trading yourself, a robo-advisor like Wealthsimple will also use an ETF-approach to building a portfolio for you. Read more by checking out our post Self-Directed Investing vs Robo-advisor!

The best ETFs in Canada for Young Investors

When it comes to selecting securities for your portfolio, you want to make sure you have the best ETFs in Canada to lay a strong foundation for your long-term investment horizon.

ZAG.TO – BMO Aggregate Bond Index ETF

ZAG.TO, the BMO Aggregate Bond Index ETF, is a diversified ETF holding a mix of provincial, federal, and corporate bonds. Bonds are essential to a balanced investment portfolio because their price typically (but not always) moves in the opposite direction of stocks. Furthermore, they tend to pay higher dividends and pay dividends more frequently than stock ETFs.

ZAG.TO pays a monthly dividend, making it an awesome passive income stream for your portfolio.

XAW.TO – iShares Core MSCI All Country World ex Canada Index ETF

XAW.TO is a global stock market index ETF that excludes Canada. The iShares Core MSCI All Country World ex Canada Index ETF is actually an ETF of ETFs: its main holdings are index ETFs for the S&P 500, emerging markets, and small and mid-cap global companies. XAW.TO pays a bi-annual dividend.

VCN.TO – FTSE Canada All Cap Index ETF

VCN.TO is a Canadian equities ETF that gives you exposure to small, mid, and large-cap companies across Canada. The FTSE Canada All Cap Index ETF contains all the market leaders you’re sure to recognize, like Shopify, RBC, TD Canada Trust, Enbridge and more. VCN.TO pays a quarterly dividend.

How to build a profitable investment portfolio with ETFs

When it really comes down to it, building a profitable investment portfolio is simple. You only need to do the following:

  1. Choose and allocate investment securities according to your investment goals and risk tolerance
  2. Re-invest any dividends and income earned by buying more shares
  3. Rebalance your portfolio as necessary 1-2 times per year

Of course, the above is easier said than done! It takes time and patience to learn how to invest in the stock market.

But what about investing in individual stocks?

You can buy individual common stocks in your portfolio. However, investing in stocks is more expensive and higher risk than buying Exchange Traded Funds!

For example, if you have $10,000 to invest in the stock market, you might only be able to buy shares in 10 or 20 different companies, maybe even less! If you took the same $10,000 and invested in ETFs, you’d gain exposure to hundreds of different companies.

Furthermore, when you buy individual stocks, you need to make the decisions about when to sell them. When you buy ETFs, all trades are managed by the fund manager. It certainly takes a load off your shoulders!

What’s important to remember is that investing in ETFs and stocks doesn’t have to be an either-or decision. You can do both! A great way to build your portfolio is to create a foundation of ETFs, and then selectively add individual stocks to meet your other investment goals.

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