When I first started investing I had no idea what I was doing. Technically, I was “educated” since I had sat through (and passed) some business courses, you know the usual finance, accounting, marketing classes you get in post secondary.
I knew how to read a balance sheet and could in theory tell you what was “good” and what was “bad” but something that I figured out right away in the investing world is that not all things make sense.
There are things like the sentiment of the market, the overall feeling of a recession or a bull run coming and predicting future growth of certain companies, especially in sectors like tech that completely throw off your standard valuation metrics.
If you’re someone who has no desire to invest hours and hours of your precious time into learning to read a companies cash flow statement, balance sheet and keep up to date with the news surrounding these companies maybe there’s a better option for you out there – and the best part? It’s free and easy to do!
Commission Free ETF’s
The investing method that I’m referring to above is investing in these little things called “ETF’s”, or exchange traded funds. These funds mimic either an index or an industry and collect a larger basket of stocks that you can buy all at once to help diversify your risk and ride along with the market.
For most investors this will be viewed as safer, and for the most part you will also see greater returns sticking to these funds than trying to be a stock picker on your own – especially if you don’t have the fortitude to stick with some of your individual stock picks and panic sell during downturns, or even worse pick speculative/loser stocks that go to $0 or close enough.
Trading fee’s? None.
For the sake of this post I will show you a mock portfolio based off the commission free ETF’s found over at ScotiBanks iTrade platform, since that is the trading platform I use.
The Portfolio:
BONDS: The 2 bond funds I would use personally would be the CLF , which gives you exposure to Canadian government bonds. While the interest on them right now is a fairly conservative 2.28% these are a valuable long term holding for any investor.
The second bond ETF I would use would be the CBO , a 1-5 year corporate bond ETF with bond exposure to some of Canada’s largest businesses, namely the banks and utility companies nation wide.
EQUITIES:
–HXS: The HXS is your S&P 500 mirroring ETF, this is widely referred to as “the market” when you hear people talking about beating the market or what the market as a whole is doing. In reality it’s 500 of the largest companies in the United States, which is always a great place to begin investing.
–XEU: This fund will give you some great exposure to developed markets across Europe, some examples are the United Kingdom, France, Switzerland, Germany, Italy etc. the list goes on. This is an easy way to get invested in some of the worlds largest companies all in one broad stroke, and with a yield of around 3+ % you can also receive some nice dividend payments to hold these companies.
–XEC: The final equity holding would be our exposure to the emerging markets worldwide. This one fund gives you exposure to over 1500 companies from countries such as China, Thailand, South Korea, India and Brazil to name a handful. This fund has a lower yield than the others, but it makes up for it with it’s potential growth in some of these more undeveloped markets.
Roundup: So there’s our choices, 2 variations of bonds and 3 different equity funds to give you exposure across Asia, Europe and North America.
The best part of these funds is that they are all commission free, meaning when you purchase them there are no trading fees so get out there and purchase them often. If possible, a person could purchase small increments of these funds weekly or monthly through automated banking.
How to divide my funds?
This question will vary for the individual. If you’re new to investing it wouldn’t be a bad idea to just stick 20% of your cash into each fund and end up with a 40% bond and 60% equity portfolio. This likely won’t get you the best overall returns but what it will do is dampen the fluctuations in your account and allow you to sleep easy at night knowing you’re not likely to lose a huge chunk of your nest egg even in a significant downturn.
For those risk seeking investors, you can switch to say 90% equities and 10% into the bond’s and just divide up equally under those terms ie. 30% to each equity fund, 5% to each bond fund. There are any number of ways to divide this up based on personal preferences.
One thing to note is this can be used as a starter portfolio that you later change out of. If you just want to get the ball rolling this portfolio will get you along the right track and if at a later date you transfer out into individual stocks or decide you want to swap out an ETF then that is up to the personal investor, this is just an idea of a fairly safe, well diversified portfolio for a novice investor.
As with any form of investing we should note that it is still possible to lose upwards of 30+% whenever you are invested in equities if you are extremely risk averse then you may want to go nearly/all bonds with your investments.
That’s all we have for today, we hope that you found this post useful. If you have any questions or comments leave them below and as always, please speak to an investment professional before acting on any of the above ideas. We are simply sharing how we began investing and what has worked for us leading us to where we are today.
Thanks for stopping by,
FIC.