Buy a globally diversified ETF (like XEQT, VEQT, or a balanced option like XBAL if you prefer less volatility)
Set up automatic investing from your paycheck
That’s it – you’re now invested in the global economy
Want to know why this works? Keep reading below.
Why I use XEQT as the example throughout: I recommend the asset allocation ETFs from iShares (XEQT, XGRO, XBAL), Vanguard (VEQT, VGRO, VBAL), and BMO (ZEQT, ZGRO, ZBAL) pretty much equally. The differences between them are minimal. I use XEQT as my example simply because explaining concepts through one specific ticker is easier than overwhelming you with choices. Do not let picking between these become a reason to delay getting started.
📌 Quick Start Tip
Ready to jump in? I personally use both Questrade and Wealthsimple for my own investments. When you’re ready to open an account, check out my referral links to receive bonuses of $50 (Questrade) and up to $25 (Wealthsimple).
Welcome to the Investing for Beginners Cheatsheet!
This guide summarizes advice from licensed financial advisors, helping you understand and implement academically-backed investment approaches. Whether you’re new to investing, have bought some stocks or ETFs, or are looking to refine your strategy, you’ll find valuable insights here.
Key sections for different investors:
New to investing? Want to understand the strategy? Start from the beginning.
This guide aims to provide you with a solid understanding of academic research on effective investing. Armed with this knowledge, you’ll be better equipped to develop an investment strategy that aligns with your personal goals and risk tolerance, whether that involves a simple, diversified approach or a more active strategy.
For more comprehensive information, check out the resources at the end of this post. My YouTube channel demonstrates how to put these theories into practice.
Getting started: Understanding investing and opening your account
Why should I invest and is investing risky?
The growth of the global economy
Investing is about getting in on the global economy’s growth. Technological leaps, increasing population, and inflation contribute to economic growth, which has been ongoing for decades.
Take a look at the graph below of the Vanguard Total World Stock Index Fund ETF. The ups and downs on the graph are part of the journey, but the overall direction is clear: upward.
And that’s where you want to be: growing with the economy.
Navigating Market Volatility
Investing in the stock market can feel risky, especially during market dips. Think of it like being the house in a casino. You don’t win every hand, but over time, you end up ahead.
A common concern is:
“What if the stock market drops the day I buy? I’m going to regret it so bad!”
This initial dip can feel discouraging, but a tough break on day one doesn’t spell disaster. It’s all about the odds. Say you’ve got a bet that’s 90% likely to win. You take it, right? But if that 10% chance happens and you lose, was betting a mistake? No. Given a do-over, you’d take that bet again because playing those odds is how you win in the long run.
The Rigged Coin: Why Bad Outcomes Aren’t Mistakes in Investing
I’ve always wondered about the best analogy to explain why bad outcomes don’t necessarily mean bad decisions. We can point to long-term investing graphs or quote sayings like “time in the market beats timing the market,” but I think one of the biggest hurdles for people is the fear of investing right before a market drop. To get past that, I believe a basic understanding of statistics and expected value is key.
Here’s the best analogy I’ve come up with: Imagine a rigged coin that lands on heads 55% of the time and tails 45%. Now, suppose a friend offers to bet on tails against you. If you’re aiming to maximize expected value, you take that bet every single time. The math checks out: expected value is (0.55 × 1) + (0.45 × -1) = 0.1. On average, you’d earn 10 cents per bet.
The smartest play is to keep betting against your friend for as long as they’re willing to play. Sure, you might hit a losing streak, but that doesn’t make any of those bets mistakes. Waiting for the market to “do something” (like holding off until tails flips a few times) would be like passing up a good opportunity for no reason.
For index investors who buy into ideas like market efficiency, this analogy clicks. It’s not about avoiding downturns; it’s about consistently making the choice with the best odds over time.
The market dipping on your first day is just today’s news. What matters is the big picture. It’s about the odds being tilted in your favor over time. Investing is a marathon, not a sprint. Short sprints can be wild, but it’s the marathon that gets you across the finish line.
To illustrate this, check out my video How I Handle Red Days: Investing in XEQT and VFV, where I talk about staying calm during market downturns and why good decisions do not always show immediate positive results.
How market prices actually work
There is no intrinsic price to anything on the stock market. The price you see on your screen is simply the lowest price a seller is willing to accept at that moment. And that price can change any second, because sellers can decide at any time they no longer want to sell at a certain price.
For highly traded stocks like Apple or Nvidia, there are tons of buyers and sellers at any given moment. The price you see represents what the market, in aggregate, thinks that company or asset is worth. It is millions of people voting with their money.
Here is the key insight: if a price were somehow “wrong” (say, a stock was clearly too cheap), wealthy funds would immediately buy from all willing sellers, pushing the price to a new spot. This happens constantly and almost instantly.
Why it’s hard to beat the market
Understanding how prices work explains why beating the market is so difficult.
💡 Key Insight
Stock picking is not about finding the best company. It is about finding a company that is better than what the market already expects. If everyone agrees Apple is a great company, that expectation is already reflected in the price.
To profit from picking Apple, you would need to believe it is even better than what millions of other investors already think.
In other words, doing well at stock picking is not about picking the best company if the rest of the market also thinks it is the best. Your edge has to come from knowing something the market does not, or interpreting information better than everyone else. That is an incredibly hard game to win, especially when you are competing against professionals who do this full-time.
This is why index investing makes sense for most people. Instead of trying to outsmart the market, you just own the whole thing.
🎯 From One of the Greats
Even the late Charlie Munger, considered one of the greatest active investors of all time, acknowledged how difficult stock picking really is: “You have got to somehow recognize a good business before it’s recognizable as a good business. That’s very hard to do. Some people get good at it, but not many.”
His solution? “It’s not difficult to just buy an index and sit on your ass. That’s the great default position.” Watch the clip
Understanding compounding in investing
Compounding is when your investment grows exponentially over time because you earn returns not just on your initial investment, but also on the returns themselves. Think of it like a snowball rolling downhill.
But here’s where many beginners get confused: compounding works differently depending on what you’re investing in.
With GICs and savings accounts, compounding is straightforward. You deposit money, earn interest, that interest earns more interest, and your balance grows predictably. Your principal is safe and the math is simple.
With stocks and ETFs, it’s more nuanced. Your investment can compound through price appreciation and dividend reinvestment, but unlike a savings account, there’s no guarantee. If the stock price drops, you could lose money even while reinvesting dividends. The compounding only works in your favor when total returns are positive over time.
A common misconception: some beginners think that reinvesting dividends to accumulate more shares automatically leads to wealth growth. But more shares at a lower price does not mean more money. What matters is your total return, not your share count. I wrote a separate Share Count Guide that digs into this if you want to understand the math.
This is why you’ll hear people say “time in the market beats timing the market.” The longer you stay invested in a diversified portfolio, the more likely you are to benefit from compounding growth. Starting early and investing consistently matters more than trying to optimize the perfect entry point.
For a deeper dive into how compounding actually works (and common misconceptions about dividend yields), check out this video:
What do I need to get started?
One key component is a brokerage account. Each of them has their own pros and cons (in fact I use 3!), but here are the most popular ones:
Note: This link includes my referral code automatically. If prompted during signup, use referral code: ZJE11W
Already have a Wealthsimple account? You might still be eligible for the referral bonus! Here’s what you need to know:
If you signed up for a Wealthsimple Self-directed Investing, Crypto, Managed Investing, or Cash account within the last 30 days, you can still apply a referral code.
To add the referral code:
Sign into the Wealthsimple app on your mobile device
Tap the gift icon at the top of the screen
Tap “Invite friends”
Enter the referral code: ZJE11W
If you don’t see an ‘Enter referral code’ option, your account may have been open for longer than 30 days.
Which type of account should I open first?
This question is going to require way more nuance than a short answer as the answer is going to differ depending on the individual.
However, for most people starting out, the answer is the TFSA because it is the most flexible (you can withdraw your money at anytime without triggering any tax events).
The main advantage of an RRSP is the deferral of taxes. You pay more taxes when you have a higher income, so if you assume you will make more money in the future, deferring taxes is more valuable to you later on.
The ideal investment strategy for beginning investors is no longer a mystery, thanks to academic research. It revolves around two well-established principles:
Market Efficiency: Generally, the market operates efficiently, suggesting that it’s prudent to behave as though accurately predicting stock performance is not feasible. Beginners, in particular, should be wary of seeking specific stock recommendations from public forums.
Positive Market Returns: The expectation of positive returns from the global stock market holds true at any moment, underscoring that the most opportune time to invest is always now. Investing today is marginally better than waiting until tomorrow.
Consequently, the most effective approach for the majority is to cultivate a globally diversified portfolio and contribute to it on a regular basis.
This rationale informs my preference for XEQT, a globally diversified ETF. I make investments whenever feasible to harness the power of compounding growth.
In contrast, when considering individual stocks or narrowly focused investments, the clarity of positive market returns becomes murkier. Unlike the broad market, which tends to move upward over time, individual assets can be far more volatile and unpredictable. This uncertainty reinforces the value of a diversified approach, as it mitigates the risk of trying to pinpoint the ‘right’ time to invest in a single stock or sector, where the expected return isn’t as well-defined.
For the time period between January 1990 and December 2020, the best performing 0.25% of companies accounted for half of global net wealth creation, while the best performing 2.39% of companies accounted for all net global wealth creation.
It’s been shown that it is even hard for experts to identify these companies ahead of time which is why global diversification (having exposure to a lot of the market) is recommended for most people (non-beginners too!).
The worst scenario is when a lot of beginners copy individual stocks recommended by social media influencers. TTCF is one of those stocks.
Start with a solid ETF and expand further if you wish. Too many beginners make the mistake of doing it the other way. They often mimic 15-20 stocks they’ve heard about from various sources, leading to a situation where they hold assets they lack a comprehensive understanding of.
For those who have already invested in individual stocks: While stock picking can be exciting, research shows that even professional fund managers struggle to consistently outperform the market. Consider gradually transitioning to a more diversified approach using ETFs, particularly all-in-one ETFs, which offer instant diversification and professional management.
Which ETF should I start with?
Asset Allocation ETFs, also known as All-in-Ones, are often recommended as one-stop solutions for many investors. However, the right choice depends on your specific situation:
For long-term investing (like retirement savings for younger investors):
A more aggressive allocation of 100% stocks (e.g., VEQT, XEQT, ZEQT) could be appropriate, regardless of time horizon.
The focus here is on maximizing long-term growth rather than preserving a specific amount.
For specific short to medium-term goals (like a house down payment):
If you’re far from your goal: Consider being more aggressive (e.g., 100% stocks) to maximize growth. You don’t have a specific amount to preserve yet, so focus on the highest expected value strategy.
As you get closer to your goal and have accumulated a significant portion of your target amount: Gradually shift to more conservative allocations to preserve your progress.
Only when you’re very close to needing the money (within 5 years or so) should you consider more conservative options like VCIP or VCNS.
General advice:
The appropriate ETF depends more on your personal risk tolerance, financial goals, and how close you are to reaching those goals rather than arbitrary time frames.
Regular reassessment of your portfolio allocation is important as your situation changes.
Important Note: For those who are close to retirement or already retired, your situation is more complex and beyond the scope of this beginner’s cheatsheet. We strongly recommend seeking advice from a qualified financial advisor to develop a strategy tailored to your specific needs and circumstances.
📌 Don’t Overthink It
The difference between similar ETFs from different providers (like Vanguard’s VEQT vs iShares’ XEQT) is usually minimal. Choosing any of them and starting to invest earlier is often more beneficial than delaying while trying to pick the “perfect” fund.
How to check if your portfolio is diversified
Whether you’re building your own portfolio or second-guessing what you already own, here’s how to evaluate diversification.
Step 1: Look at Geographic Allocation Most beginners focus on individual stock names but miss the bigger picture. While there are different ways to think about diversification, geographic allocation is one of the most effective and straightforward approaches.
For example, here’s how XEQT (a globally diversified All-in-One ETF) spreads investments across different countries:
Notice the mix of US (42.39%), Canada (25.29%), and international markets? This global spread is what good diversification looks like.
Want to check your own ETFs? Here’s how to find this information yourself. Let’s use VEE (Vanguard’s Emerging Markets ETF) as an example. Visit the ETF’s webpage and scroll down to the “Market allocation” section:
This shows exactly what you’re looking for – a table breaking down what percentage of the fund is invested in each country.
Step 2: Where to Find This Information For any ETF, look for:
“Holdings” or “Portfolio” section on the fund company’s website
Step 3: A Sensible Baseline Licensed financial advisor Ben Felix suggests that something close to XEQT’s allocation is sensible: roughly 42% US, 25% Canada, and 33% international. He also thinks that roughly equal allocations (around 1/3 domestic, 1/3 US, 1/3 international) work well – the key is being reasonably close to this kind of global spread. Your exact percentages don’t need to match perfectly.
Remember: Perfect is the enemy of good. If you’re reasonably diversified, you’re likely fine.
When is the right time to buy?
In the Why Should I Invest and Is Investing Risky? section, we discussed the positive expected returns of a globally diversified strategy at any given time. This concept, combined with what we learned about market efficiency and how stock trading actually works, supports the wisdom of two investment adages:
“Time in the market is better than timing the market.”
“The best time to invest was yesterday, the next best time is now.”
Research suggests that to maximize returns on average, investing as soon as possible in a diversified strategy is ideal. But if optimizing for the best average return isn’t your sole objective, consider the two common approaches for deploying funds discussed next.
What is lump sum and DCA (Dollar-Cost-Averaging)?
Lump Sum: This approach involves investing a significant amount of money in one transaction. It is ideal for large sums, such as inheritances, aiming for immediate market exposure and long-term growth.
Dollar-Cost Averaging (DCA): This strategy involves investing fixed amounts regularly, regardless of the market price. It helps reduce the impact of market volatility and is particularly suitable for regular income investments, like portions of a paycheck.
Should I lump sum or DCA?
This decision is crucial when you have a significant amount of money that hasn’t been invested yet, often due to a windfall or a break from investing.
For investments from regular paychecks, the choice between investing it all at once or spreading it out over a few days usually doesn’t make a significant difference.
It’s important for investments where you anticipate a positive return. Beginners are advised to be cautious with individual stocks due to their unpredictability.
Research from Vanguard and PWL Capital indicates that for diversified portfolios, lump sum investment tends to outperform DCA over the long term.
Lump sum investing is generally preferable for long-term investment goals. DCA might be better suited for those who prefer lower volatility and a more gradual investment approach.
Limit order or market order?
When you go to buy an ETF, your brokerage will ask you to choose between a “limit order” and a “market order.” Here’s what that means.
Understanding bid and ask
Remember how we discussed that stock prices are just what buyers and sellers agree on? At any moment, there are people ready to buy at a certain price (the “bid”) and people ready to sell at a certain price (the “ask”). The difference between these two prices is called the “bid-ask spread.”
For highly traded ETFs like XEQT, there are tons of market participants, so the spread is usually just a penny or two. For thinly traded securities with fewer buyers and sellers, the spread can be much wider.
What’s the difference?
A market order executes immediately at the best available price. A limit order only executes if the price reaches a level you specify.
For liquid ETFs like XEQT, I recommend market orders. The spread is minimal, and you get immediate execution. This aligns with what we’ve discussed: time in the market matters more than getting the perfect entry price. Don’t let order type become another reason to delay investing.
What about really large orders?
A legitimate concern with market orders is that if you’re buying a massive amount, you could exhaust all the sellers at the current price and be forced to buy some shares at higher prices. However, for XEQT specifically, you’d need to be placing an order of roughly $400,000 or more in a single transaction before this becomes a real concern. If you’re investing amounts like that, you can simply break it into smaller chunks or consider using a limit order. For the vast majority of beginners, this isn’t something you need to worry about.
Beyond your first ETF
What about VFV, HYLD, XEG, HMAX and TEC?
If you are starting out and asking others for ETF suggestions, you will often be given a lot to choose from. Many of these will be recommended because of their strong recent performance. However, it’s important to remember that market conditions change constantly, and how an ETF performed in the last 2-3 years might not be a reliable indicator of its future performance.
In my video,Why I Don’t Have VFV | XEQT vs. VFV, I dive into this topic, particularly focusing on the comparison between VFV and XEQT. I discuss why, despite VFV’s strong performance in the U.S. market, a diversified approach like that offered by XEQT might be more advantageous in the long run. This video will help clarify why broader diversification, as opposed to focusing on a few high-performing ETFs, is crucial for a balanced portfolio.
That’s why starting out with an All-in-One ETF that covers all the bases is such a great idea. These ETFs are globally diversified and have exposure to many sectors, making them a robust choice for beginners. For example, XEQT holds around 9,700 stocks from around the world (as of this writing), while VFV focuses on around 500 U.S. companies.
I’ve seen beginners have over 20 ETFs, including an All-in-One, because they are scared they are missing out on a key part of their portfolio. However, an All-in-One ETF can often be a comprehensive solution, simplifying your investment strategy while still ensuring wide exposure to the market.
Remember, investment strategies can vary greatly, and it’s important to reflect on your decisions and adapt as you gain more experience. Different approaches can coexist, much like different strategies in games like chess and poker.
How should I analyze an ETF?
When analyzing an ETF, it’s crucial to:
Examine the underlying holdings: This helps you understand the level of diversification you’re getting.
Be cautious of past performance: While it’s important to ensure the ETF tracks its stated indices, remember that past performance generally has minimal predictive value.
The main reason to invest in an ETF is to understand its holdings and how they align with your investment goals.
The following two videos are examples of how I approach ETF analysis:
Should I invest in dividend or growth stocks?
The Problem with “Dividend vs Growth” Categories
You’ll often hear investors debate whether to focus on “dividend stocks” or “growth stocks,” but this framing is actually pretty misleading. It’s like asking whether you should buy “red cars” or “fast cars” – the color doesn’t tell you much about performance.
How “Growth” Gets Misapplied
When people say “dividend stock,” they’re usually talking about companies that choose to send cash directly to shareholders. But when they say “growth stock,” they often mean any company that doesn’t pay dividends – and that’s where things get confusing.
Just because a company doesn’t pay dividends doesn’t make it a growth stock. You might have a mature, profitable company with a reasonable P/E ratio that simply prefers share buybacks over dividends. Or you could have a value stock that’s temporarily cutting dividends due to market conditions. These aren’t “growth stocks” in the traditional sense – they don’t have the high P/E ratios, rapid revenue expansion, or reinvestment characteristics that actually define growth companies.
What Actually Matters
When you’re comparing, say, Enbridge to Nvidia, you’re really choosing between different industries, business models, and economic exposures. The dividend policy is just one small piece of a much bigger puzzle that includes the company’s fundamentals, sector dynamics, and expected total returns.
This complexity is yet another reason why a globally diversified ETF approach makes sense – you get exposure to profitable companies across all sectors and dividend policies without needing to categorize them.
Frequently Asked Questions
Should I avoid withholding tax completely? I keep hearing about VFV and VOO.
Most beginners hear about 15% withholding tax and greatly overestimate its impact especially when they are starting out.
The 15% only applies to dividends, so if you have a Canadian-listed ETF that gives out 2% in dividends, you are paying 15% * 2 = 0.30% in tax.
To try to eliminate this cost, you would have to hold a US-listed ETF in your RRSP instead. The common example is holding VOO instead of VFV in your RRSP.
However, there are currency costs and delay costs that do not make it clear if it is even worth the retail investor to do. You might also end up with a poorly allocated portfolio because you are basing your stock/ETF selection on one metric.
That’s why in his video on Asset Location, Ben Felix thinks just having the same asset mix across all accounts is going to be more than fine.
This explains why I have 100% XEQT in my TFSA, RRSP, RESP and FHSA.
I already started investing but I’m worried about my allocation. Is my portfolio diversified enough?
This is one of the most common questions from new investors. The good news? You don’t need the “perfect” portfolio to succeed.
Licensed financial advisor Ben Felix suggests a sensible baseline: roughly 1/3 domestic, 1/3 US, and 1/3 international stocks. But perfect is the enemy of good – we don’t know what the perfect portfolio is.
If your portfolio is reasonably close to this structure, or if you own an All-in-One ETF like XEQT, you’re most likely going to be fine. The difference between a “good” and “perfect” allocation is usually much smaller than the difference between investing and not investing at all.
I own multiple ETFs that seem to overlap. Is this bad?
Not necessarily! Some overlap is normal and expected. The issue is when you own multiple funds that are essentially the same thing.
For example: VTI (US Total Market) and VOO (S&P 500) overlap significantly, but VTI is broader. That’s fine.
The problem: Owning both VFV and TDB902 (both track S&P 500) just creates extra complexity for no benefit.
Bottom line: A little overlap while building diversification is normal. Holding near-identical funds is just extra work.
Everyone is saying how the market is going to go down. Should I wait or keep investing regularly?
For most long-term investors, keep investing regularly. This is a common concern, especially when facing economic uncertainties like potential tariffs or inflation. But it’s important to remember the principles we discussed earlier about market efficiency and positive expected returns.
These concepts explain why consistently investing in a globally diversified portfolio is generally more effective than trying to time the market. As we explored in the Navigating Market Volatility section, short-term market movements are unpredictable, but the overall trajectory of the global economy tends to be upward over time.
Important qualifier: This advice assumes you’re investing money you won’t need in the short term (at least 5+ years away). If you’re investing for a short-term goal, facing financial instability, or can’t emotionally tolerate potential losses, you might need to adjust your strategy or consider more conservative investments.
💡 Key Insight
When people worry about market drops due to tariffs or other economic news, remember that stock prices are simply what buyers and sellers collectively agree on. These prices already incorporate all publicly available information including global concerns. Unless you have exclusive insights that millions of other investors don’t, your best approach is typically to keep following your investment plan.
History has repeatedly shown that investors who stay the course and continue regular investments through market uncertainty typically outperform those who try to time their entries and exits. Each time you invest, you’re buying at prices that reflect all current concerns about tariffs, inflation, or other economic factors.
Remember, this applies to broad market investments, not individual stocks. The principles discussed in the section above still hold true regardless of current headlines or market fears.
Should I check if the price is higher or lower than average before buying?
No. When you’re investing in a diversified ETF on a regular schedule, checking price charts or comparing to historical averages is just another form of market timing – and it’s not a useful one.
Here’s why: As we discussed in How Market Prices Actually Work, the current price already reflects what millions of investors collectively think the asset is worth right now. That price incorporates all publicly available information, including whether it’s “high” or “low” compared to historical levels.
The problem with waiting for “lower” prices:
If you’re planning to invest monthly in XEQT or VFV, checking whether today’s price is above or below some average assumes you know something the market doesn’t. But as we covered in Why It’s Hard to Beat the Market, that’s incredibly difficult even for professionals.
More importantly, this approach costs you time in the market. Remember the rigged coin analogy? Every day you delay investing because you’re waiting for a “better” price is like refusing to flip the coin that’s weighted in your favor.
What about when prices hit all-time highs?
This particularly confuses beginners – shouldn’t you wait if prices are at record levels? But think about it: in a growing economy, hitting new highs is literally what we expect to happen over time. The market hits all-time highs regularly, and investors who waited for a pullback often missed out on further gains.
The right approach:
For regular monthly investing in diversified ETFs:
Set your investment amount
Invest on a consistent schedule (same day each month works well)
Don’t look at whether it’s “high” or “low”
Just keep going
This aligns with what we discussed in Lump Sum vs DCA – the research shows that consistent investing without trying to time entry points typically produces better results than attempting to optimize purchase timing.
Exception: If you’re making a large one-time investment (like an inheritance), the lump sum vs DCA decision is worth considering. But even then, the question isn’t “is the market high?” – it’s about your risk tolerance and time horizon.
