Want to diversify your portfolio without going out of the comfort zone of stocks, bonds, or commodities? We have an excellent option for you — exchange traded funds, simply known as ETFs.
If you want to invest in ETFs but don’t know where to begin, this guide is for you. Let’s get in!
First things first, you need to understand what ETFs actually are. ETFs are a collection of other assets. This can include bonds, stocks, and currencies. An ETF trades just like a stock, but pools together money from investors into a basket of different investments. It is like a combo platter of all your favorite meals. With an ETF, you get a little bit of everything.
And what makes ETFs so special? They offer diversification and less risk when compared to buying an individual stock. Since you’re not going all in on a single stock, one unfavorable market move won’t impact your portfolio.
Do some research to get a hold of the technicalities – only then will you learn how to invest in ETFs.
As hinted earlier, ETFs are bought and sold on stock exchanges. This is why you need a brokerage account.
Most online investing platforms and retirement account providers facilitate ETF investing. Most of these platforms offer commission-free trading, but you would need to pay an expense ratio, which is the cost of operating and managing the fund.
You should also compare the investment strategies of different platforms. For instance, SoFi focuses on diversifying your portfolio and low-risk ETFs.
Once you’ve chosen a broker or online investing platform, you will need to complete the Know Your Customer (KYC) process. This usually requires identification and bank details. Once your account is open, transfer money into it so you have funds available for investing.
Next, choose the ETF you wish to invest in. Here are some types:
Index ETFs – track a specific market index, like the S&P 500.
Sector ETFs – track individual industries and sectors such as oil, energy, technology, financial services, real estate, or healthcare.
Commodity ETFs – track commodities, including gold, silver, crude oil, or natural gas.
Bond ETFs – buy and sell various types of bonds, such as government, corporate, or high-yield bonds.
Foreign Market ETFs – track non-US markets, such as
When choosing ETFs, use the following criteria:
Lastly, log in to your brokerage account to place a trade. Enter the ticker symbol and the number of shares you want to buy.
You can also specify the order type. For instance, do you want to buy or sell immediately at the current price? Or set a maximum purchase price or minimum selling price? Consider your financial goals to make a decision.
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