Investing for Beginners – ETFs

Investing for Beginners – Exchange-Traded Funds (ETFs)

Are you having trouble trying to pick a specific stock or bond that you think will do well in the future and provide a good return on your money? Are you finding it difficult to try and figure out if you will invest in healthcare or energy? These are all reasonable questions to be asking yourself! I understand how you are feeling, there are a lot of options to pick from and although some will provide a substantial benefit to your portfolio, others will bring it crashing down. So how do you pick the right one? Well, I have a solution for you! You don’t actually need to pick the “right” one, you can actually pick them all! An Exchange-Traded Fund (ETF) is an investment fund that gives you the opportunity to purchase a large pool of individual stocks and/or bonds in a single purchase. This means that you can purchase a single ETF and you can buy 1000’s of stocks without having to worry about picking the perfect one and reducing the fear of having chosen the wrong one by spreading out your money over multiple companies. 

Exchange-Traded Funds (ETFs) – Easy Difficulty 

ETFs come in a variety of forms: some of them track specific stock indexes like the S&P 500 – which is the 500 largest companies that are currently listed on the New York Stock Exchange based on their market capitalizations – different commodities (like wheat), bonds and even Real Estate. There is an ETF for every single type of asset class that you can think of and it allows investors to be able to grab a section of a specific market rather than having to purchase each of the stocks of a specific asset class. Basically, an ETF makes your life a lot easier by allowing you to only buy a single holding that has many underlying holdings rather than having to buy each one individually. ETFs are very similar to Mutual Funds but the main difference is that ETFs have a lower MER (Management Expense Ratio) than Mutual funds which means that the cost associated to holding an ETF is much lower than what it would cost for a similar Mutual Fund and there are no extra fees associated to the ETF when you actually sell (besides capital gains).

The reason why ETFs are the best investment option is that they provide ownership of a bunch of different assets into a single share that is very easily traded on a stock market. Rather than trading a single stock that could increase or decrease drastically on news specific to that stock, an ETF provides less volatility as a single stock in an ETF filled with 100’s of stocks would not cause much of a shift in the ETF as they would be worth less than 1%. This works both ways though, if a single stock in the ETF were to outperform the market, it would only increase the ETF by a small amount compared to if you held the specific stock outright, its value would increase drastically. ETFs are also known to be the easiest investment option available to investors as they have built-in safeguards since they are not tied to one specific company.

Besides being able to make capital gains – similar to how you make capital gains when you sell your stocks – ETF investors also benefit from the profits that are distributed in the underlying ETF assets such as the dividends that are paid out and the capital appreciation received every year. ETFs provide both the potential for capital gains and dividends – if the ETF provides dividend payments – and are worth a large portion of your portfolio as they are much safer than stocks and provide a strong return.

ETFs are a very good option for people who are new to investing and are looking for higher returns without needing to know a lot about finance. They are also good for investors who get worried when the stock market drops as ETFs provide a large section of the market so that any individual drop does not affect your portfolio as much as if you had invested in stocks. Overall, ETFs are the easiest way to invest in the market as they do not require a lot of your time, they provide strong returns and provide peace of mind as they do not fluctuate as much as stocks. If you are a beginner, it is definitely worth looking at ETFs that track the S&P 500 or the full American market as these ETFs are known to consistently, year over year, provide returns of 7%.

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