Investing in the stock market can seem daunting, especially if you’re just starting out with a modest amount of capital. Fortunately, exchange-traded funds (ETFs) have made it easier than ever to build a diversified investment portfolio, even with as little as $100.
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Understanding ETFs: A Simple Investment Solution
ETFs are essentially “baskets” of stocks that follow specific rules, often based on a stock market index. When you purchase a share of an ETF, you gain proportional exposure to all the stocks contained within that ETF. This means you can achieve diversification across various sectors and companies without needing to pick and buy individual stocks yourself.
Top ETFs for Beginners: Affordable and Diversified
For those new to investing, two top ETFs listed on the Toronto Stock Exchange (TSX) provide a great starting point. You can invest in both of these ETFs for less than $100 combined, making them an ideal choice for beginners looking to build a diversified portfolio with a small investment.
Canadian Market ETF: iShares Core S&P/TSX Capped Composite Index ETF (TSX)
The iShares Core S&P/TSX Capped Composite Index ETF (TSX) is a fantastic option for gaining exposure to the Canadian stock market. Priced around $36 per share, this ETF allows you to invest in a broad selection of 227 Canadian stocks, primarily focusing on larger companies.
- Yield: XIC offers a respectable yield of 2.92%, paid out quarterly.
- Sector Exposure: The ETF is heavily weighted towards financials, energy, industrials, and materials, including banks, oil companies, railways, and mining operations.
- Performance: Over the past decade, XIC has delivered a solid annualized return of 7.3%.
- Expense Ratio: With a very low expense ratio of just 0.06%, XIC is both cost-effective and accessible.
U.S. Market ETF: iShares Core S&P 500 Index ETF (TSX)
For exposure to the American market, consider the iShares Core S&P 500 Index ETF (TSX), which trades at approximately $46 per share. This ETF covers 500 large- and medium-sized U.S. companies, offering broad market exposure.
- Yield: XUS has a lower dividend yield of 0.98%, but its growth potential is significant.
- Sector Exposure: Unlike XIC, XUS has a notable concentration in sectors like technology, healthcare, and consumer discretionary, which are less prevalent in Canada.
- Performance: XUS has achieved an impressive annualized return of 15.03% over the last decade.
- Expense Ratio: With an expense ratio of 0.10%, XUS remains an affordable option for investors.
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By investing in ETFs such as the iShares Core S&P/TSX Capped Composite Index ETF (TSX) and the iShares Core S&P 500 Index ETF (TSX), beginners can easily build a diversified investment portfolio with a modest amount of capital. With their low expense ratios, solid performance, and broad market exposure, these ETFs provide an excellent foundation for new investors aiming to grow their wealth over time.