Why You Should Know About ETFs

There are plenty of successful investors out there that have profited from investing in stocks without having any professional financial background and there are many investors in the market that have a financial profession but lost money from investing. While no one can predict the market, like no one can predict the future, the secret to investing in stocks is that you have to inform yourself as much as possible and reduce risk to the best of your knowledge.

If you don’t trust yourself but still want to invest, seek advice from i.e. a stockbroker, a consultant or ask a financial advisor at your bank for financial advice. Still, keep in mind that the stock market is risky for everyone, also for financial stakeholders, although you ask them for advice they are still paid to follow your decisions. Nevertheless, choosing not to invest is like keeping money in a box untouched, which is losing value (because you could have invested the money) while you are waiting to get robbed. At some banks keeping all your savings in the bank can even cost you, this could vary from cents to thousands that you lose each year, just because you transferred all the money you worked hard for to your savings accounts. While there is no doubt that you should save as much as you can, preferably more than 3 years of salary, it is also evident that you cannot expect your money to grow with interest rates being low. 

Instead, watch your money grow over time by investing in ETFs, also known as Exchange Traded Funds. Just like stocks ETFs are bought and sold through the stock market. These could be bond ETFs, industry ETFs, commodity ETFs, currency ETFs. In simple terms, shares of borrowed stocks are held in a trust to mimic a particular index. These shares, also known as creation units, are then representing bundles of those borrowed shares. Then the trust issues the ETF shares, which are then sold to the public via the stock market.

Simply stated, by buying one ETF you own a basket of stocks, without having to invest in individual stocks. This is especially great for amateur investors, finance newbies, or those who want to reduce market risk. In fact, you can never beat the market, one day FAANG stocks: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) are green while real estate stocks are red. Moreover, investing in stocks when you are unfamiliar with financial reports will leave you restless and will cost you, which is why diversifying your investments is a preferred strategy. Also, you will never know what sociological, technological, economic, and political change will happen in the world, no human has that foresight. 

All of the above portray the benefits of ETFs but keep in mind there are always risks involved when you invest in the stock market and ETFs also have disadvantages. Like with any financial decision, always do research best to your knowledge, read the news, and seek information when you can from stoke brokers and financial advisors. If you want to test your trading skills without making an actual monetary investment try an online stock markets simulator, Investopedia’s Stock Simulator for instance is a free simulator.


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