ETFs or Exchange Traded Funds are a combination of stock market investments and mutual fund investments only externally.
ETFs emerged in the 1980s and were quickly dubbed as a solution for those who no longer wanted to invest in mutual funds, and they are.
Basically, where a mutual fund where you saved your money invested in various forms such as bonds, stocks, bank deposits, monetary instruments and others, ETFs choose to invest more in stocks-indices-bonds but at much lower costs.
Basically, ETFs are a relatively easy form to trade, enjoying the same investment regime as shares, but at a lower cost (you pay one commission, not several if you buy different shares).
Instead of investing directly in certain shares of a company that can be relatively high risk, you choose to invest in an ETF with shares from a particular economy or several sectors in its composition.
Characteristics of ETFs
The cost is lower if you invest in ETFs instead of individual stocks;
- Being passively managed, the management cost is not very high;
- Lower risks for trading world-renowned stocks;
- You can trade very easily in international stocks;
- Special for medium and long-term investments;
- Less expensive than investing in mutual funds;
They are quite identical to open-ended mutual funds because the net present value is calculated at the end of each trading session.
As above, they are similar to stock market indices in that they involve the development of a portfolio of shares in a particular economy or sector.
You can invest very easily in any country, sector, economy, industry.
Dividends on shares held are paid directly into your personal account.
Who can invest in ETFs
You can invest in ETFs quite easily if you want to. The good thing is that you don't need to have much knowledge and you don't need to be as active as with shares.
If you're a keen investor, investing in stocks is for you. If you're a passive one without much time, then ETFs might suit you.
How many types are ETFs
ETFs can be categorised into several types.
- Sector ETFs. E.g. financial ETFs, telecom, IT technology, healthcare, energy, real estate and many others.
- ETFs by sub-sectors: ETFs in software, timber, construction, phasing, infrastructure, media, etc.
- ]]ETFs by regions: ETFs in North America, Europe, Africa, Emerging Markets, etc.
- d. ETFs by country: ETFs from the US, Spain, Germany, Switzerland, etc.
- e. ETFs by asset class: ETFs in equities, alternatives, commodities, real estate, etc.
- d. ETFs by capitalization: small-cap, large-cap and multi-cap ETFs.
- If you want to see what the ETF classification looks like, you can check this list. Basically there you will see a limited set of 80 ETFs. Once you make your account thousands of possibilities in which you can trade.
How to Invest in ETFs
Investing in ETFs is a lot like investing in mutual funds or stocks.
First, you should choose a company/broker that has ETF investments under its management.
There are many brokers you need to contact to trade.
The good thing for beginners is that by owning an ETF, investors can short sell and trade on margin. Another advantage would also be the amount that is locked in by an ETF, which is much lower than with mutual funds.
Basically, ETFs are easy for those just starting. You just need to look out for good options, like you can see information about the best gold ETF available and start with your investment.
You don't need more than an account and a few clicks + money in your bank account.
My recommendations, as with mutual funds are:
- Investing is done with patience and analysis!
- Don't invest money you don't have!
- Don't borrow to invest. Save to invest.
Don't invest to make short-term money. NO, ETFs are not designed for short-term investing. Only invest in ETFs if you want long-term compounding.