Why Are ETFs Popular With New Investors And Should You Invest In Them?
ETF or Exchange-traded Funds (ETF) have become the buzz word to US stock market investors due to its appeal for those testing the waters or aiming to invest for long-term gains.
Traded on the stock market just like regular shares, ETFs have historically produced stable, long-term gains which certainly adds to its appeal.
According to Rakuten Trade’s digital educator Hooi Mun Keong, since Rakuten Trade opened up its access to trade US markets, they’ve noticed that when it comes to ETF trading, their clients tend to favor the top 10 ETFs. They see this same trend happening month on month.
With the growing popularity of ETFs among beginner investors, Rakuten Trade is highlighting the following pointers if you are thinking of buying ETFs.
Low entry price
For investors, ETFs are an ideal opportunity to get into multiple stocks at once that may not be within a lower price range.
The rule of thumb when it comes to investing in ETFs is to buy consistently over timing the market.
As they are considered long-term investments, one can simply invest in these on a set schedule and allow them to grow over time.
This growth in capital is tax-free in Malaysia and by buying ETFs routinely the highs and lows in ETF buying costs are also averaged out.
1. SPDR S&P 500 ETF Trust (SPY): USD 392.24
2. Vanguard S&P 500 ETF (VOO): USD 360.55
3. Vanguard Total World Stock ETF (VT): USD 87.51
4. Ark Innovation ETF (ARKK): USD 45.79
5. iShares China Large- Cap ETF (FXI): USD 31.97
*Prices at 19 July 2022
Spreading the risk
As ETFs are not tied to the rise and fall of a single company, but rather a selection of companies, buying an ETF automatically spreads the risk.
It is generally considered a good practice to invest in a mix of ETFs to lower your portfolio risk. Since the expense is minimal, this would be a good strategy for a beginner.
Post pandemic, new investors find this more appealing and enables the diversification of their investments into specific sectors or within a broader market.
For example, ARKK’s Next Generation Internet ETF focuses on the U.S. companies that are pioneering developments in Internet technology, like Tesla.
The only notable downside of buying ETFs is the lack of ownership in individual stocks. This would exclude you from the benefits of direct holding; for example, if a stock were to announce corporate activities like dividends.
While ETFs remain foreign to most beginner investors, they are the demographic who stand to benefit the most from such investments.
It reduces the need to pick individual stocks to trade, and instead gives beginner and cautious investors an investment portfolio exposure to a range of stocks at an affordable price.
When you own an ETF, you own a small part of a large portfolio comprising of a wide selection of stocks.
At the cost of not being able to handpick the stocks, you can ensure that you receive possible gains from multiple shares, while investing less than the amount the individual share would cost.