Successful investing involves holding a diversified portfolio of stocks, staying the course, and making consistent contributions. All of this helps take advantage of compound interest, which Albert Einstein described as “the eighth wonder of the world.”
Still, for investors starting out with less money (think $1,000ish), investing can be daunting. Some stocks have high share prices that can be a barrier to entry for new investors. Trying to buy enough shares of different companies to stay diversified can be difficult.
This can be discouraging, but fear not! There is a solution if you’re strapped for cash. With this alternative, even the smallest of investment portfolios can grow strongly.
ETFs are the solution
Thanks to exchange-traded funds (ETFs), investors no longer need vast sums of money to buy dozens of individual stocks. ETFs can hold a basket of up to thousands of various stocks. Some ETFs are basically all-in-one stock portfolios that are managed on your behalf by a professional. They trade on exchanges like any other stock with their own ticker symbol.
This approach is capital efficient. For instance, an ETF might trade at a price of $20 per share yet hold over 1,000 stocks in it. With your $1,000, you can now buy 50 shares of that ETF and gain proportional exposure to all of its underlying companies. This way, you become diversified without needing to buy 1,000 different stocks!
Index ETFs are ideal
ETFs do have a cost, though — the management expense ratio (MER). This is a percentage fee deducted from your investment on an annual basis. For example, an ETF that charges a 0.05% MER would cost an annual fee of 0.05 * $1,000 = $5 on your $1,000 investment.
Keeping this as low as possible is ideal. In general, the ETFs with the lowest MERs are index funds. These are passively managed investments that track an existing stock market index, like the S&P 500. With index funds, fees are low since the fund manager isn’t actively trying to pick stocks, so fund turnover remains at a minimum.
I like the S&P/TSX 60 Index. This index tracks 60 blue-chip, large-cap stocks listed on the TSX. Buying the S&P/TSX 60 is a great way to track the long-term performance of the Canadian stock market while gaining access to a portfolio of dividend stocks.
Why the S&P/TSX 60?
From 2000 to date, the S&P/TSX 60 has returned a compound average growth rate (CAGR) of 6.59% with dividends reinvested. This is a respectable return that could turn your initial $1,000 deposit into six-figures over two decades with modest contributions. Let’s use a real-life example to see this in action.
Imagine you started investing in 2000 as a broke 18-year-old student with just $1,000 to your name. You invest it all in an index fund tracking the S&P/TSX 60. Every month thereafter, you scrounge up $100 and invest it promptly in a disciplined and consistent manner.
After holding the ETF for 22 years, consistently putting in $100 every month, reinvesting all dividends, and never panic selling during crashes (even through the Dot-Com Bubble and the 2008 Great Financial Crisis), you would end up with $126,353.
If you started with more than $1,000, held longer, or contributed more than $100 monthly, your returns would have been even better. With this strategy, maximizing your contribution rate and staying invested is key. Don’t try and time the market!
Do you want to implement this passive, hands-off investing strategy? A great ETF to use is iShares S&P/TSX 60 Index ETF, which has a low MER of just 0.20%. XIU trades at around $30 per share right now, making it accessible to investors with a smaller portfolio.
Before you consider iShares S&P/TSX 60 Index ETF, you’ll want to hear this.
Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in September 2022 … and iShares S&P/TSX 60 Index ETF wasn’t on the list.
The online investing service they’ve run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 21 percentage points. And right now, they think there are 5 stocks that are better buys.
Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
