US stocks are quite expensive compared with equities in other world markets. Here’s a way to take it slow and easy with your US investing.
Stocks in the US, particularly those in the technology sector, currently suffer from high valuations. That can make them particularly vulnerable to a market setback.
Rather than plunging into the US market with large investments right now, then, you may be better off investing smaller amounts of money gradually over time. That way, if markets do correct, you’ll have the opportunity to buy equities at lower prices.
Exchange-traded funds, or ETFs, are a popular vehicle for investing in markets, but are less attractive if you want to invest small amounts and you have to pay brokerage fees to buy and sell ETFs. That’s where securities like TD US Index Fund-e (Fund code: TDB952(NL)) come in handy. You need only $100 to start investing in this fund. And there is no minimum for subsequent investments. In fact, you can set up a pre-authorized purchase plan with as little as $25.
Growth from large-cap US stocks
The fund’s investment objective is to provide long-term growth of capital by tracking the performance of a broad US equity market index that measures the investment return of large-capitalization US stocks. That index is currently the S&P 500.
The fund, then, gives you one-step exposure to large, well-established US companies. At the same time, its expenses are low. Its management expense ratio is 0.33 per cent (0.50 per cent for the currency neutral version of the fund).
The unhedged version of the fund also gives you currency diversification. For several years now, we’ve recommended the hedged version of the fund. That way, if the Canadian dollar rose against the US dollar, your returns would not be hurt by the devalued US dollar.
Now, with the Canadian dollar much higher than it was in recent years, the opposite may occur. Should the Canadian dollar decline against the greenback, it would be more of an advantage to hold the unhedged version of the fund, as your returns would benefit from a strengthening US dollar. Consequently, we now recommend the unhedged version of this fund.
The fund’s top holdings include Apple Inc., 3.8 per cent; Microsoft Inc., 3.8 per cent; Amazon.com Inc., 2.8 per cent; Alphabet Inc., 2.8 per cent; Facebook Inc., 1.6 per cent; Tesla Inc., 1.0 per cent; JPMorgan Chase & Co., 1.0 per cent; Johnson & Johnson, 0.9 per cent; and UnitedHealth Group, 0.8 per cent. About 31 per cent of the fund is invested in technology stocks.
TD US Index Fund-e is a buy if you want to track the returns of the S&P 500 Index, are looking mainly for growth, and can tolerate moderate stock-market volatility.
This is an edited version of an article that was originally published for subscribers in the July 16, 2021 issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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