18yr old just starting out

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My daughters are 18 and 20. I want to get them set up with a TFSA with Questrade and begin investing in a simple ETF. They’re not as passionate about investing as I am, they want to be pretty hands off, at least to start.
My loose plan is getting them going with a simple TSX ETF for their TFSA, and when they graduate school and begin working full time in their fields we make an RRSP and do a couple S&P500 ETF’s.
Any thoughts? Recomendations? I cant decide between a capped composite or not, or if you had any other ideas?
Thanks a lot in advance. Enjoying Stocktrades so far!

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Asked on August 8, 2023 4:33 pm
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Hi Gordon,

Glad you are enjoying Stocktrades! Personally, I prefer composite indexes as it is more reflective of the markets. However, capped certainly has a place if one is seeking to limit volatility because it'll lessen the influence of some of the larger players. This can be a good thing in a bear market, but a bad thing in a bull market. All that said, if I was 18 just starting out and doing it all over, I'd be comfortable with the added risk/volatility of the composite index.

That said, in Canada - if you are talking about broad market indices like the S&P TSX COmposite - the capped and composite indexes effectively track each other as it is rare for stocks to reach a certain % of the overall weighting of the index. I've attached a picture that shows the S&P TSX Capped Composite Index, the S&P TSX Composite Index, and an ETF that tracks the capped...you'll see...rarely any deviation over the past decade. The last time this was an issue is when Nortel Networks ran up exponentially and is actually why the Capped index was introduced in Canada. So, i wouldn't fret to much about that for the broad Canadian index.

With that in mind, one of the top ETFs in the space to track the TSX index is the iShares one (which is the one i referenced in the chart) XIC.TO . I know many like XEI as it has a higher dividend (since it tracks dividend stocks) but you also sacrificed capital gains here. Personally, if i was 18 - i'd take XIC.TO over XEI as I'd mainly be concerned about total returns as i wouldn't need the income at that point in time.

As for the US, IMO the best is SPY - which is the staple to track the S&P 500.

These are probably good starting points if you aren't looking to spend too much time managing their portfolio. These give you broad market exposure and are probably the easiest starting points. From there, you can always branch out depending on their interest or your spare time to invest on their behalf!

Mat

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Posted by Mathieu Litalien
Answered on August 9, 2023 5:21 am