ZDJ is an index fund that has copied the Dow Jones Industrial Average. ZDJ tracks the Dow Jones, which means when the Dow Jones grows, my ETF will grow; when the Dow Jones falls, the ETF will fall. But what composes the Dow Jones Industrial Average? The Dow Jones is a collection of 30 large American companies that come from a handful of important industries. The Dow Jones includes companies like Apple, American Express, Boeing, Nike and Walt Disney. Clearly the Dow Jones is made up of large, successful and diverse companies. When people say ‘the markets are up’ they are usually referring to the Dow Jones and other indexes like it. However, the success of the Dow Jones depends on the success of the companies that compose it. The Dow Jones is diversified. When Nike falls in price, Walt Disney might go up. It’s all balanced out. Since 1975, the average annual growth of the Dow Jones has been 9.18%. Some years the annual growth has been as high as 38% and as low as -33%. This means that after averaging the ups and downs of the stocks within the Dow Jones, the average growth for those years have been as high as 38% and as low as -33%. Is investing in the Dow Jones risky? Yes because from year to year we cannot predict how it will perform. If the American economy falls into a recession, the Dow Jones will certainly fall. But it might not.
The ZDJ is an interesting investment because it is a Canadian version of the Dow Jones. It is an index fund that holds shares in the same companies as the Dow Jones. It currently costs about $32CDN per share, it pays a dividend and does not cost any American dollars to invest in American companies. I am optimistic that the ETF will continue to grow because, historically, the Dow Jones has grown at an average of 9.18% per year. This means we can expect our money invested in the ETF to grow by approximately 9.18% per year. Odds are that some years it will grow more and some years it will grow less than 9.18%. Comparing these returns to a typical savings account, money is growing at a much faster rate than at the bank. For example, at RBC a High Interest eSavings account will yield 0.500% per year. That’s a high interest account too, not a basic savings account. Therefore, by investing in the ZDJ exchange traded fund, your $300 dollars would grow almost 7 times larger than at the bank.
If you liked this article or have any general questions about investing I would be more than happy to chat! Comments are greatly appreciated!