The biggest deterrent to investing in ETFs has to be the process of choosing the funds from among the thousand or more listed on Canadian and U.S. stock exchanges.
You only need four funds to build a diversified portfolio. Add a couple more and you can cover all the bases, while emphasizing a theme or two as well. Need help finding a funds to meet your needs? Consider this list of ETFs chosen as favourites by a new newsletter called The Best ETFs For Canadian Investors (published by The Successful Investor Inc.)
The Successful Investor people aren't big on holding bonds right now for two reasons – low interest rates keep their interest payouts low, and the risk of rising rates could depress their future value. Still, it's sensible for investors to hedge their stock market holdings with bonds. XSB is the more conservative choice because it holds short-term bonds, which are somewhat less vulnerable to rising rates. Both funds have low management expense ratios in the 0.12 per cent range.
Canadian Equity – iShares Canadian Select Dividend Index ETF (XDV)
Focuses on the highest yielding stocks that also deliver dividend sustainability and growth. Blue chip financial stocks dominate the portfolio; the management expense ratio is 0.55 per cent.
U.S. Equity – Vanguard S&P 500 Index ETF (VFV)
A tiny MER of 0.08 per cent for a fund that tracks 500 of the biggest U.S. companies. Tech stocks, sadly under-represented in the Canadian market, account for one-quarter of the portfolio.
Theme ETF Number One – Global X Social Media ETF (SOCL-Q)
Suggested for aggressive investors who want exposure to the world's largest social media companies. Holdings are spread across the United States, China, Japan, Germany and the Netherlands. The MER is 0.65 per cent.
Theme ETF Number Two – iShares S&P/TSX Capped REIT Index ETF (XRE)
Broad Canadian market ETFs typically include exposure to real estate – this fund is a way to add more. Covers REITs in sectors like malls, industrial properties, office space and rental housing. The MER is 0.61 per cent.