How To Start Investing : #ETF

Have you ever wondered — How do I start investing in stocks?

There are increasing loads of information out there to guide you into making your first investment in stocks. It then requires time to whittle it down to what is required and tailored to each individual’s need.

Now this article will jump straight to #ETFs as we will discuss other aspects down the line.

ETF — stands for Exchange-Ttaded Fund. It is an investment vehicle that tracks an index, a sector, commodity or other type of assets (cryptos,SPACS). It can be traded — sold or purchased — on a stock exchange; the same way we trade the stocks of a company.

WHY ETFs ?

The answer is why NOT. As a beginner, you will be tempted to do research on numerous companies and surely you will see countless tags of next Apple, Tesla, Amazon, or key words like dynamite returns , cryptos, etc. You will be lured into believing a Dollar invested will return millions. Whilst some of these are true, the chances are slim.

ETFs saves you the stress of picking companies individually as it is a combination of various stocks put into one basket for a way cheaper price than you holding those individual stocks.

Another advantage of ETF is that it is less volatile than holding individual stocks. Imagine Stock ABC going down while stock DEF going way up. If you hold ABC as an individual stock, then your portfolio will be down and vice versa for DEF. Now imagine having both in an ETF, then there will be a balance between the stock going down and the one going up.

Illustration of how ETFs work :

A stock is compared to a single house, while the ETF is view like an apartment complex. The complex has various capacities — 1 bed, 2 beds and 3 beds. Imagine there was flood at both the house and the apartment. It is quite likely the entire apartment will not be flooded and the single house will be under water. The owners of the apartment will surely have something to salvage from this disaster. Certainly, not all residents will be affected, thus they still have some cashflow.

For beginners, ETF is a good way to manage the volatility in the stock exchange before you dip your feet in the waters of stock picking.