Index funds are the foodie equivalent to a tasting menu. This balances your chances of getting stocks that increase in value as you have a little of everything. And index fund mirrors the whole market so when you hear on the news the markets are up chances are your index fund is also up. Rather than worrying about which company to invest in an index fund opens up the whole Canadian market. Need an extra bonus? Index funds are passive so they have lower management fees.
Three things to do right now:
1. Open a low cost investment account (personally I use TD)
2. Check the MER (more on that here) on the finds you are interested in
3. Select an index fund and set up a reoccurring investment into that fund
Still not convinced?
An index fund is a macro investment -> betting on a boom in the whole market. Versus micro -> tied to the fate of a single company.
Investing in an index fund allows you to have a diversified portfolio in one purchase and with very little invested. For $100 or less you can buy into an index fund – with instant market diversification. Your risk is broad so you don’t need to worry about the ups and downs of a specific company. This is a great way to invest in a country you don’t know. Want to invest in South America but don’t know much about companies there? Consider an index fund.
For example, if Apple releases a blockbuster with the latest iPhone the index fund will only increase marginally. On the flip side if Loblaw has a food recall the index fund will have limited losses.
In addition you have minimal fees. Index funds mirror the market so there is less research, trading, and overall management. The MER should be relatively low and your fee to buy into the fund should be non-existent. This means less money deducted before you see your returns.
Want to learn more? Couch potato investing is a real thing!
Information on Specific Index Funds:
TD Direct Investing
TD e-series again full disclosure these are the funds I use.
Vanguard index funds (plus a nice little summary of why they are a great option)