Investing 101: 2 Top ETFs for Beginners

Two established dividend-paying ETFs are excellent investment options for newbies.

| More on:
exchange traded funds

Image source: Getty Images

Exchange-traded funds (ETFs) are becoming increasingly popular especially with passive investors. Even beginners can test the waters through ETF investing. Since diversification is the contemporary theme, ETFs enable seasoned and novice investors to capture broad indexes or sectors in one basket.

All ETFs have investment objectives, so prospective investors won’t be clueless when investing. You can also check out the asset allocation first to find out if it aligns with your risk appetite. Each ETF has asset categories, which means the holdings in the portfolio could be stocks, bonds, commodities, and cash.

Banking industry

BMO’s ZEB attempts to replicate the performance of the Solactive Equal Weight Canada Banks Index. The Fund holds or usually maintains the same proportion of the constituent securities of the index. Also, the benchmark index includes Canadian exchange-listed securities in the diversified bank industry.

Besides the exposure to Canadian bank stocks, the asset manager says ZEB is for investors looking for growth solutions. Note that all constituents are subject to market capitalization and liquidity screens. However, each stock in the Index is allocated an equal weight instead of market capitalization weight. Thus, it lessens security specific risk.

ZEB’s asset allocation is 99.24% stocks and 0.76% cash. The stocks are Canada’s Big Six banks. Toronto Dominion Bank has the most weight (17.95%). At $41.01 per share (+5.23%), the ETF pays a decent 2.94% dividend. In the last 10 years, the total return is 241.12% (13.04% CAGR).

Technology & financial

Vanguard’s VGRO seeks to provide long-term capital growth. The fund ($2.71 billion net assets) invests primarily in equity and fixed income securities to achieve its investment objective. Most of the time or under normal market conditions, the asset manager maintains a long-term strategic asset allocation of equity (about 80%) and fixed income (about 20%) securities.

However, Vanguard can reconstitute or rebalance the portfolio asset mix from time to time of it deems necessary. Would-be investors can expect the underlying funds to be index funds that provide exposure to broad-based equity and fixed income markets.

Currently, the geographic allocation is heavy in North America with U.S. and Canadian stocks comprising 43.7% and 29.9% of the total equity portfolio. For fixed income, it’s predominantly Canadian (59.4%) followed by the U.S. (19.3%). On weighted exposure, technology (19.75) and financials (19.3%) are almost dead-even, followed by industrials (12.6%) and consumer discretionary (12.5%).

Seven Canadian stocks and three American stocks are the top 10 equity holdings. The top three are Apple, Microsoft, and Shopify. As of January 26, 2022, VGRO trades at $30.85 per share (-5.46% year-to-date) and pays a modest 1.82% dividend.

No extensive evaluation

ETFs are generally for passive investors who wants to be rid of choosing individual stocks. Since the evaluation isn’t extensive, ETFs are also good for beginners. You only need to the look at the index an ETF seeks to replicate and the asset allocation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns and recommends Shopify. The Motley Fool recommends Apple and Microsoft.

More on Dividend Stocks

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »

how to save money
Dividend Stocks

Got $1,000? The 3 Best Canadian Stocks to Buy Right Now

If you're looking for some cash flow from your $1,000 investment, these are the ideal investments to make.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

A Dividend Giant I’d Buy Over BCE Stock Right Now

Don't get sucked in by BCE's 10% dividend -- the stock is a total yield trap. Buy this instead.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Consider Sienna Senior Living for a Stable Monthly Income

Buying this Canadian dividend stock could help you build a dependable monthly income portfolio for the long term.

Read more »

Female raising hands enjoying vacation, standing on background of blue cloudless sky.
Dividend Stocks

Best Beginner-Friendly Stocks to Buy Now in Canada

These top TSX stocks have delivered attractive long-term returns.

Read more »