Tuesday, September 2, 2008

If You Are Just Starting Out, Index Funds Maybe The Way To Go

If you do not have much money, start with something like the TD Canadian Index fund or the TD Canadian Index-e Fund. They both have a MER under 1%. The Index-e must be bought online. The minimum payment is $100.00. The minimum payment amount is important if you are dealing with small sums. When you open a trading account, make sure that you know the rules. My son has a Bank of Montreal Investor Line trading account and minimum purchase for any mutual fund is $1,000. This can make a big difference.

Say you have saved a few thousand dollars for a stock purchase. When you make the stock purchase, you have a few hundred dollars left over. For me, I can just throw the money into a MMF or Index fund as I have a TD Waterhouse Trading Account. For my son, he can leave the extra in his trading account, earning no interest or move it to his chequing account earning some interest. The problem with moving it to his chequing account is that he is likely to spend it. If it were left in his trading account, in a mutual fund, it would be left alone.

If you can afford to make a purchase, you can purchase the iShares CDN Dividend Index Fund (TSX-XDV) or the Claymore CDN Dividend & Income Achievers ETF (TSX-CDZ). The iShares fund is 30 of the largest Canadian dividend paying companies, (see http://ca.ishares.com). The Claymore Dividend & Income Achievers fund reflects the Mergent’s Dividend Achievers list, (see http://www.claymoreinvestments.ca/about.aspx). The Mergent’s list is a list of the best Canadian dividend paying companies that have a history of increasing their dividends. This list is at http://www.dividendachievers.com/.

The value of going with either of these funds is that the purchase price is low, just over $20 a shares. Since you have to buy 100 shares, you can save just over $2,000 to make your first purchase. Most good stocks nowadays are in the $30, $40 and $50 range.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets on web site.

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