Equity investing can be confusing especially if you are a new investor. You can either buy individual stocks or invest passively via an exchange-traded fund (ETF). Purchasing individual stocks is always an attractive option as it allows you to generate exponential returns and beat the broader markets.

But equity investing carries certain risks as you need to analyze a company’s financial statements, evaluate its management team and understand the industry’s key trends and drivers, making it a time-consuming process. Further, you need to focus on diversification which means you might have to buy stocks that are part of an unfamiliar industry.

Buying and selling stocks can also be an expensive process after accounting for commissions and management fees of online brokers.

Alternatively, passive investing or ETF investing is often recommended by industry experts, as it provides you with diversified exposure to a variety of asset classes, lowering your risk significantly.

What is an exchange-traded fund?

Generally, an exchange-traded fund tracks the performance of an index such as the S&P 500. It can also provide you with exposure to a particular sector such as technology, cannabis, or healthcare. Investors looking for further diversification can look to buy ETFs that hold international stocks or other asset classes such as bonds, gold, and commodities.

In short, an ETF allows you to allocate your hard-earned savings across a group of companies that you don’t have to buy and track yourselves. This saves the investor time as well as money. As ETFs track an underlying asset, they have a very low management fee compared to other actively managed investment products.

However, even when it comes to ETF investing, you can consider multiple options that suit your investment style and that will help you achieve your financial goals.

For example, Warren Buffett has been a staunch advocate of the S&P 500 ETF. Last year, when markets were extremely volatile, the Oracle of Omaha explained, “For most people, the best thing to do is to own the S&P 500 index fund.”

This index gives investors exposure to 500 of the largest companies south of the border. These companies include tech giants such as Apple, Amazon, Alphabet, and Microsoft as well as fintech companies such as Visa and electric vehicle giant Tesla.

Canadians can look to buy ETFs such as the Vanguard S&P 500 or VFV that tracks the performance of the S&P 500. Other Canadian ETFs trading on the TSX that track the S&P 500 include the Blackrock iShares S&P 500 Index (XSP), the BMO S&P 500 Index (ZSP), and the Horizons S&P 500 Index (HXS).

There are multiple other funds that you can invest in

While the S&P 500 is one of the most popular indexes in the world, Canadians can also look at funds across sectors. For example, if you want to buy tech stocks in Canada, the iShares S&P/TSX Capped Information Technology Index or XIT is a good option.

In case you want to gain exposure to Canadian blue-chip stocks or the largest companies in the country, you can look at the iShares S&P/TSX 60 Index ETF.

In case you have a higher risk exposure and want to invest in the cannabis sector, the Horizons Marijuana Life Science ETF or HMMJ is worth a look.

The Canadian ETF landscape continues to evolve and the number of products it offers is increasing at a rapid clip. You can also have exposure to cryptocurrency ETFs and further diversify your holdings which will help you create long-term wealth.

If you’re ready to start investing in ETFs, check out this list of the 5 Best Online Brokers for ETFs Investing or use this online broker comparing tool to find the best solution for you.