A dad recently got in touch with me to ask about the best way for his two young adult kids to invest a modest inheritance.
That got me thinking about sports betting and the celebration of individual expertise, a theme that extends into stock-picking. If you’re smart, the reasoning goes, you can make big money.
This dad plans to set his kids up with online brokerage accounts where they can manage their own investments. His question: What to buy, blue-chip stocks or exchange-traded funds?
Investing in blue chips and other stocks is not betting, but it does require people to make decisions that have a significant chance of going wrong. It happens that we have quite a number of widely held blue chips in the investing doghouse right now – BCE Inc. (BCE-T), Enbridge Inc. (ENB-T), Bank of Nova Scotia (BNS-T), Emera Inc. (EMA-T) and TC Energy Corp. (TRP-T) are some examples. Many investors have to be second-guessing their decision to buy and hold these stocks.
Investing in ETFs neutralizes the risk of faulty stock-picking by giving investors the benefit of diversification. All the above stocks would be in the portfolio of a broad-based Canadian equity ETF, but their share of the total portfolio would be 1 to 3 per cent each at most.
The S&P/TSX composite index has averaged 7.7 per cent annually over the 10 years to March 31, and just under 10 per cent for the past five years. These are strong returns by historical standards, but they seem kind of blah compared to the doubles and triples or better that some stocks deliver.
Even blue chips can outperform at times – Canadian Natural Resources (CNQ-T) and Imperial Oil (IMO-T) are both up solidly this year. These two stocks combined account for roughly 4 per cent of the S&P/TSX composite index, so you’re likely getting some benefit from their recent surge if you hold a Canadian equity ETF.
Sports betting is sold on the promise of making money, but also on the idea of offering extra excitement and involvement compared to just watching a sporting event. Stock-picking is similar – you feel like you’re playing at a higher level compared to investing in diversified ETFs or mutual funds.
Stock-picking works for some investors, but ETFs tracking mainstream indexes are the best approach for most investors. As for sports betting, I don’t get it. It seems a pure waste of money.
Have you recently sold your home?
For the next season of the Stress Test personal finance podcast, we are looking for someone who has made the tough decision to sell a home as a result of soaring mortgage costs. Households across the country are paying hundreds of dollars more in mortgage payments as a result of rate hikes. We want to tell the stories of the hardest hit people – the ones who chose to sell. If you’re open to talking with us, please contact Globe and Mail personal finance editor Roma Luciw at rluciw@globeandmail.com.
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Rob’s personal finance reading list
This is the average mortgage payment
Staggering numbers on how much homeowners in cities across Canada are spending monthly on their mortgages. The bargain spot is Saint John, N.B.
More houses, more investors
It’s widely expected that building more homes will help satisfy demand and limit price increases. But it turns out that a lot of the people grabbing up newly built homes are investors, not first-time buyers.
Underneath the bunker
Toronto Life on preparing for sundry catastrophes, including blackouts, extreme heat and, of course, pandemics. For gearheads, a few strategic purchases are highlighted. Now, for a disaster-prepping theme song – I nominate Underneath the Bunker, by R.E.M.
Gold is golden
A look at why gold prices have jumped, and the role gold can play in a diversified portfolio. A key point in this article is that we’re in an “everything rally” right now. All kinds of assets are rising in price.
Ask Rob
Q: Can Canadians participate in Nvidia Corp. (NVDA) and other Nasdaq shares through Canadian Depositary Receipts and exchange-traded funds?
A: CDRs are a way of investing in popular U.S. stocks in a version listed on the Cboe Canada exchange. Investors holding CDRs benefit from currency hedging and receive dividends. CDRs are affordable because they typically trade in fractions of the underlying U.S. stock. Nvidia is among the stocks available as a CDR. You can also get exposure to Nvidia and other U.S. tech stocks through ETFs tracking the S&P 500 or Nasdaq 100 indexes. Nvidia accounts for about 5 per cent of the S&P 500 these days.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Tools, explainers, guides and charts
A non-profit credit counselling agency looks at the pros and cons of debt consolidation loans and declaring bankruptcy.
The Money-Free Zone
Jazz meets art punk in a new album titled The Messthetics and James Brandon Lewis. The Messthetics include members of the hardcore band Fugazi, which means there’s a muscular aspect to this music. I really like the song Boatly – it starts slow and builds to a finale that showcases this band’s power.
Watch this
Another snapshot of life in shrinkflation nation, this one documenting a discrepancy between the published weight of a package of bacon and its actual weight on a scale.
On social media
A forum where investors discuss the various options for parking cash.
In case you missed these Globe and Mail personal finance-related stories
- There are good ways to make life more affordable for Canadians. Cutting the carbon tax isn’t one of them
- Mary, 46, worries that being a renter will hurt her retirement plans. How much should she be concerned?
- My adviser is trying to move me to a fee-based account. What should I do?
- What’s the maximum you can save for retirement?
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You're not bad at money – you're suffering from money shame • Retirement might look different for Gen Z and millennials. Here's how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle