I am not an investing professional. I am a normal run of the mill Canadian girl who is learning how to invest and making mistakes along the way. My word is not investment gospel. Do your own research, and play nice in the comments section!
Account open. Funded. Primed and ready to hit the markets. Now I just needed to select my investments…
It was a bit more of a task than I had initially anticipated.
I had a general idea of what I wanted: Index tracking ETFs. I wanted to be able to cover an array of markets in reasonably few investments. Just how many that would be was up for debate.
I had read that Morningstar was a good source for investment information, and that they had an ETF screener, so I signed up for the site. I don’t know if it’s just my computer, but the screener on their site is really slow to load.
Once it did eventually open, it pulled up over 1500 ETFs
I looked through the list of selection criteria available. The options were mind boggling.
% Wide Economic Moat?
1 Year Beta?
I shook my head and closed the list of criteria. The picker automatically pulled up Expense Ratio, Year to Date Market Return, and 1-Year Market Return, so I figured I’d start by running with those. I knocked the maximum Expense Ratio down to 1%. That should knock a few off the top, right?
I was going to need more tools up my sleeve.
I had done some reading and poking around before, but I never actually bookmarked anything to refer back to later. Some sites were good, while others just sounded like they were trying to hawk their own products. These are ones I made a point of saving this go around:
Wall Street Journal – How To Choose an Exchange Traded Fund (ETF)
Charles Schwab – ETF Investment Strategies: How to Pick an ETF (For the flow chart)
Yahoo Finance – Key Criteria to Know Before Buying an ETF
Investopedia – 5 ETF Flaws You Shouldn’t Overlook
For Dummies – Exchange Traded Funds For Dummies Cheat Sheet
I came away from my reading with a few criteria I wanted my ETFs to have:
- Low fees (won’t erode my returns)
- A reasonably large amount of money invested in them (safety in numbers)
- A reasonably large trading volume (easy to sell)
- No appreciable overlap between the funds (no redundancy)
- Passive management (no churning)
- A fund company I recognize (a solid reputation for fund management)
Given that I didn’t want my funds to overlap, I figured I should decide on which areas I actually wanted to invest in. I settled on splitting my money into four funds, equally weighted for the time being:
- A bond fund
- A Canadian index fund
- An American index fund
- An Emerging Markets index fund
I realize I’m missing a solid chunk of the developed world, but this was my starting point. I looked at some of the world funds rather than emerging markets. It seemed like a lot of them were heavily weighted in US stocks, which would be made redundant by also carrying an American index fund. I could have just gone with one of the world funds along with a bond fund in place of the four I chose, but I wouldn’t be able to play with my asset allocation between regions if I did it that way. There’s another reason why I didn’t get the world fund I was eyeing up, but I’ll cover that another day.
These are the four funds I ended up going with:
- XBB – iShares DEX Universe Bond Index Fund
- VCE – Vanguard’s FTSE Canada Index ETF
- VFV – Vanguard’s S&P 500 Index ETF
- VEE – Vanguard’s FTSE Emerging Markets Index ETF
As for whether they were good picks or not, I have yet to find out. I’m sure I’ll figure it out soon enough. I’m going to have to go over what my thought process for each one was before I can lay it out here for you, because I didn’t write it down (are you noticing a trend here?).
It’s a start.
Recommended Reading: The Resources That Helped Me Get Out of Debt