2 Low-Cost Index ETFs for Beginner Investors

Index ETFs are a great choice for novice investors, eliminating stress and bad investment habits.

| More on:

For beginner investors, passive investing using exchange-traded funds (ETFs), can be a less stressful and more hands-off alternative to stock picking. Investing passively using ETFs also eliminates bad investing habits like panic-selling or chasing “hot” stocks.

A great option is the index fund, which tracks a diversified portfolio of stocks selected according to preset rules. Today, I’ll be reviewing two low-cost ETFs from Vanguard and iShares that investors can count on as the core of their long-term investment portfolios.

Vanguard S&P 500 Index ETF

A high-risk, high-reward index favoured by many investors is the S&P 500 Index. The S&P 500 tracks 500 large-cap U.S. equities. It’s regarded as a benchmark for U.S. stock market performance by retail and institutional investors alike, and has returned a 10% annualized since 1957 with dividends reinvested. Even Warren Buffet endorses it, having selected it as the investment of choice for his sprawling estate.

Canadian investors can buy the Vanguard S&P 500 Index ETF (TSX:VFV). With $6.5 billion in assets under management (AUM), VFV is the most popular S&P 500 ETF listed on Canadian exchanges, and for good reason too. The ETF is very cheap, with a management expense ratio (MER) of just 0.08%. This works out to around $8 in annual fees for a $10,000 investment.

iShares S&P/TSX 60 Index ETF

Canadians who want to invest in the domestic stock market can do so via the S&P/TSX 60 Index, which can be thought of as the Canadian S&P 500. This index is comprised of 60 large cap, blue-chip Canadian stocks from mostly the financial and energy sectors. Like the S&P 500, it’s regarded as a benchmark for Canadian stock market performance by retail and institutional investors alike.

A great option here is the iShares S&P/TSX 60 Index ETF (TSX:XIU). XIU has a massive $11 billion assets under management (AUM), making it the most popular Canadian ETF of all time. In fact, XIU was the first ever Canadian ETF to debut way back on September 28th, 1999. The ETF is relatively cheap, with a management expense ratio (MER) of 0.20%, or $20 in annual fees for a $10,000 investment.

The Foolish takeaway

Regardless of your final choice, both VFV and XIU are fantastic low-cost, simple investments. For beginners, either ETF is a great choice for getting your feet wet while you research stocks to pick. For extra diversification, buying both ETFs could be a great way to mitigate risk if the U.S. or Canadian market performs poorly. Either way, if you decide to buy, it’s a good idea to make consistent deposits, reinvest dividends, and stay the course when the markets get rocky!

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.

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.

More on Stocks for Beginners

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

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 »

Piggy bank with word TFSA for tax-free savings accounts.
Stocks for Beginners

2 Top TSX Growth Stocks to Stash in a TFSA for Life

These two growth stocks may not be the top in the last month, but in the last few years, they…

Read more »

people relax on mountain ledge
Dividend Stocks

Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn't have to be risky, or without growth. And in the case of this one, the growth…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn a $15,000 TFSA Into $171,000

$15,000 may not seem like a lot, but over time that amount can balloon into serious cash.

Read more »

A worker uses a double monitor computer screen in an office.
Stocks for Beginners

Why I’d Buy Fairfax Financial Stock Even at Today’s Prices

Fairfax stock just keeps edging higher. But is it now too expensive, or can investors just look forward to even…

Read more »