If you’re new to investing, you have probably heard of Exchange-traded Funds or ETFs. In fact, you may have considered investing in it. Thus, you may wonder how it gets done.
As a beginner, you may wonder how to invest in ETF? ETFs offer great opportunities, and investing in them is quite simple. You simply need a brokerage account, choose an ETF to invest in, and let the ETF do all the hard work for you. Of course, that only goes as far as the steps. In essence, you still need to learn more about it.
Investing in ETFs may seem complicated, just like other platforms. Still, there’s a reason why many people recommend such a fund for beginners. As you go on, you’ll learn that investing in such is relatively straightforward than you imagined.
In this article, we’ll cover some of the questions you probably wonder about ETFs. This way, it will help you learn more about how to invest in it.
Anyway, if you want to learn more about the ETF world, we can recommend you to check out ETFino.
But now, let’s get into it!
What are ETFs?
An Exchange-traded Fund or ETF is a type of security involving a basket of securities. Thus, it can be a collection of stocks that often track an underlying index.
Still, they can invest in any number of industry sectors. Or, they can use different kinds of strategies.
In practice, both ETFs and ETNs are quite the same. They track an underlying asset, and they have lower expense ratios than actively managed mutual funds.
Moreover, both the ETF and ETF can trade on the significant stock changes just like stocks.
How do I start investing in ETFs?
Investing in ETFs can be as simple as three steps. If you want to invest in such, you may consider learning these things. Let’s take a look at each.
Open and set up a brokerage account.
A brokerage account is necessary before you can buy and sell ETFs. Most online brokers offer commission-free stock and ETF trades. Thus, the opening cost shouldn’t bother you.
The best course of action is to compare each broker’s features and platform. If you’re a beginner, you may want to choose a broker that offers an extensive range of educational features.
Choose your ETF.
If you’re new to ETFs, you may find it overwhelming to see a bunch of options. However, below is a rundown of the top-performing ETFs you can consider.
- Invesco QQQ Trust (Top tech ETF)
- Vanguard S&P 500 ETF (Top S&P 500 ETF)
- Vanguard High Dividend Yield (Top high-dividend ETF)
- Invesco Dynamic Leisure and Entertainment ETF (Top entertainment & leisure ETF)
- VanEck Vector Gold Miners ETF (Top gold ETF)
- Vanguard Small-Cap ETF (Top small-cap ETF)
- ProShares VIX Short-Term Futures ETF (Top VIX ETF)
The above ETFs perform well in their sectors. Still, it would depend on your preference, whichever kind of ETF suits your goals.
Let your ETFs do the hard work for you.
ETFs are generally designed to be maintenance-free investments. In essence, it will do the hard work for you.
It can be tempting to check your portfolio often. However, it’s not a good idea, as it may lead to poor judgment and decision-making.
For this reason, you may want to consider some advice. For instance, once you buy your ETFs, it would be best to leave them alone and let them do what they’re intended to do.
As long as you do so, it will produce tremendous investment growth over long periods.
Are ETFs a good investment?
ETFs are a good investment in many ways. Still, like all other investments, it does carry some unique risks.
ETFs provide low-cost access to a variety of asset classes, industry sectors, and international markets. Still, it’s not a fail-proof investment, so you still need to proceed with caution.
ETFs are great investment platforms for both beginners and experienced investors. It offers diversification while it trades like a stock.
Still, like all other investments, it comes with its risks. For this reason, further research and understanding are essential to achieve the best results out it.
How do you make money on ETFs?
If you plan on using ETFs to make money, you can do so in two ways.
Like shares, ETFs can make money through dividends. Simply put, it is the distribution of some of a particular company’s earnings to its shareholders.
If one of the stocks in our ETF earned some money, you could receive a part of it in the form of cash or additional stock.
Another way to make money from ETFs is by selling your units at a higher price than what you paid.
In any way, it’s possible to make money from ETFs, and many investors do it. Since ETF is tradeable throughout the day, it can be a great starting option for any investor.
Are ETFs safer than stocks?
ETFs work very similar to stocks, but it offers lesser risks. Thus, if you feel torn between the two, you can consider the following reasons.
Of course, while they tend to be safer investments, some may still offer better than average gains. On the other hand, others may not help investors see returns at all.
Just like stocks, ETFs come with risks as well. Of course, they tend to seem like safer investments.
Still, many other kinds of investments offer better than average gains. Others may not help investors see returns at all.
Nevertheless, the ETFs’ diversification tends to be a significant factor to be a less-risky move.
Even if one of the companies crashes, the securities basket won’t get affected, unlike investing in a single stock.
In general, your risk tolerance can be a significant factor in deciding which might be the better fit for you.
Thus, it would be better to understand better how ETFs work and see if it suits your goals and preferences.
What is the downside of ETFs?
While ETFs offer great investment opportunities, it still has its downsides. Thus, it would be best to be aware of these things as it won’t be surprising for you once you get into it.
ETFs have lesser returns than individual stocks.
ETFs are diverse assortments of stocks. Thus, they don’t offer that much of a return potential than individual stocks.
As always, remember that lesser risks come with lesser returns. If you want higher rewards, you should be prepared for higher risks.
ETFs may be low-cost but not free.
While ETFs are famous for being a low-cost investment, it’s still not free. Thus, even with ETFs, you will still need to spend some money.
For instance, if you buy a portfolio of individual stocks on your own, you won’t have to pay any management fees. However, since you will buy a basket of stocks, you may have to pay some fees.
As always, investments come with downsides. However, for a smart investor, these downsides shouldn’t be reason enough to hold back.
It’s more on understanding such downsides and navigating your way through it.
Summary
If you plan on investing in ETFs, the steps can be relatively straightforward. In a nutshell, all you need is to set up a brokerage account, purchase your ETF of choice, and let it do the work.
Of course, each step comes with further research. Moreover, it entails understanding for you to learn and decide which suits your goals.
ETFs are great investment opportunities. However, like all other kinds, it comes with its risks. For this reason, further research and understanding are essential to achieve the best results out of it.
Moreover, it’s not something that will make you rich in just a short time. It can be a great stepping stone to more significant investments or help you begin your investing journey.
