What are ETFs and what are the best ETFs to buy? This article is written for (novice) investors who want to successfully ETF investing. With tips and explanations about ETF investing, such as: which ETFs are smart to buy? What are the best ETFs at all? And more, like about the risks in ETF investing, the pros and cons and practical tips to increase returns. After this article, you'll know all about investing in ETFs to get off to a good start.
What are ETFs?
Before we dive into the depths, it's good to dwell on what ETFs are. Do you already know exactly what ETFs are? How they work? It is important to understand what you are investing your money in to assess risk.
What is an ETF? This is an investment product which stands for Exchanged-Traded Fund. This is a large equity fund that is publicly traded. How this works, and what advantages and disadvantages it gives, we will explain later in this article. For now, it suffices to know what an ETF is. An ETF tracks the price development of several stocks. An ETF is often described as a basket full of stocks. Instead of buying one stock, an Exchanged-Traded Fund allows you to buy several stocks at once. The management of ETFs are passive. They do not actively trade stocks, but “follow” the price. That's why ETFs are also called tracker(s). In essence, an ETF is an investment product to quickly spread a lot of risk. ETFs are passive stock funds by nature. They track a set of stocks. These can be 10 or 9,000. The larger the ETF, the more risk diversification. What are ETFs for us as individuals? Simple: a way to start investing without needing much knowledge. ETFs are inexpensive and offer a lot of risk diversification. In exchange for this service, we pay an annual fee to management. This ranges from 1% to 0.05%. Anything under 0.5% is significantly cheaper than unlisted stock funds.
Which ETFs to buy? And what are the best Exchange Traded Funds?
In essence, an ETF is of relatively lower risk. However, there are exceptions. Such as risky trackers that work with levers. These types of risky ETFs are not suitable for beginners. Avoid them at all times as a beginner.
As a beginner investor, there are excellent ETFs that offer (global) diversification.
An example of a spread ETF is the Vanguard Total World Stock ETF. You can think of this as a safety net containing more than 9,000 (!) stocks. In other words, investing in this fund means you are indirectly investing money in 9000 companies worldwide. The ETF is a tracker that follows the price of all 9000 stocks. We call this a way of “investing in the global economy.” Global funds are perfect for significant risk diversification within the stock market. It is one of the safest ways for retail investors to participate in stocks.
Note that there are even safer investments such as bond ETFs. There are also real estate ETFs. Read our articles on investing in real estate about these. We now know what ETFs are. We know they can offer a lot of diversification. Yet global equity funds, which offer the lowest risk as a tracker, are not among the best ETFs. The best ETFs try to make a selection of the best stocks. One that separates the wheat from the chaff. After all, a great ETF also contains many rotten apples. Eliminate these and the better companies remain. In the long run, the best ETFs offer higher returns. The downside? They also provide more price fluctuations (volatility). Keep your emotions in check and this type of ETF gives higher returns.
This depends on your personal financial situation and risk profile. We do not give personal investment advice. However, we can offer an overview of good trackers. A combination of both global trackers and more specific trackers. We call these specific trackers theme ETFs. They follow one theme, such as technology, sustainability, small cap stocks or just dividend stocks. It is the theme ETFs that offer higher returns. Often on a long term of 3 - 5 years. Depending on the theme, this can be shorter or longer term. And so theme ETFs require a more active investment strategy than global trackers (which track the “global economy”).
What are the risks in ETF investing?
ETF investing is popular. ETF investing for novice investors is almost always better than investing in stocks. The latter can potentially lead to (much) higher returns, but it also has more risks. Moreover, it requires more time and knowledge.
This is not to say that ETF investing is risk-free. There are indeed risks, but the big advantage is that these risks are less intense compared to individual stocks.
These are risks in ETF investing:
Market risk: this is the biggest risk in ETF investing. Stock markets go with peaks and troughs. In some cases, the overall market can collapse, such as during the financial crisis
Entry point: as a novice investor, you can make the mistake of going “all-in” at the wrong time. Below we provide tips to avoid this
Geographic risk: the risk that one continent outperforms the other (e.g. only ETFs with USA equities vs. ETF with European equities)
Currency risk: buying ETFs with dollar or euro currencies can lead to losses when exchange rates are unfavorable
Interest rate risk: increase in interest rate has adverse impact on business growth. As a result, ETFs may not grow as fast
With theme ETFs: wrong selection of themes can lead to substantial losses
Importantly, ETF investing offers lower risk but is not without risk.
Individual investment risk leads to the biggest losses. This is the risk that one stock performs particularly poorly or even goes bankrupt. Equity investors face this risk. As an ETF investor, this risk is avoided because you deliberately choose multiple stocks.
Depending on your preference, ETFs that offer 100+ stocks are enough. You could also buy one global ETF. Our tip is to make a selection of complementary ETFs that reduce the above risks. Another tip is to invest in real estate, commodities, bonds, and other investment markets in addition to stocks.
Later in this article, we provide tips for lower risk ETF investing. We also give tips on how to achieve higher returns. Read more.
Where to invest in ETFs? The best investment platforms
Don't have an brokeraccount yet? With ETF investing, two things are very important, namely (1) costs and (2) supply. The lower the cost in ETF investing, the higher the return. A tracker has two costs. The first are transaction costs when buying and selling. The second is the annual management fee (expense ratio). Regarding transaction costs, it is good to choose low-cost investment platforms. There are even investment platforms where we buy ETFs with no transaction fees. Finally, supply is important. We want to buy the best ETFs. The greater the offer of an investment platform, the more likely they are to offer the equity funds we want.
Tips for investing in dividend ETFs
Want to invest specifically in dividends? That too is possible with a tracker. A dividend ETF includes several stocks that pay (higher than average) dividends. Again, you have many types: from global trackers to small themed ETFs.
Tips for investing in commodity ETFs
In addition to “normal” and “dividend” stocks, you also have stocks in commodities. The commodity market (commodities) is another line of business. For example, you can invest in gold mines, oil companies, soybeans, agriculture and so on. Commodity markets are separate from companies. An IT company can perform very poorly, while a gold mining company has its best year ever.
How does an ETF (tracker) work?
We will now go deeper into ETF investing, with tips and explanations on reducing risk and increasing returns. To understand these tips, it's good to understand more about ETF investing. Such as how an ETF works. There are different types of ETFs, but they all work the same way. All they do is track stocks. The trackers that purely track an index fund such as the S&P 500 perform almost the same as this index fund.
Now you may be thinking, why wouldn't I invest directly in the index fund? After all, index funds are one of the more secure ways to invest in the stock market. But the reason is simple. Take the S&P 500 as an example. If you want to buy a share of this index fund directly, you'll spend more than $3,300 per share (at the time of writing). That's a lot of money.
Now take the iShare S&P 500 as an example (pictured). This is an ETF that performs the same as the index fund S&P 500 in terms of return and risk. Only one share of this ETF costs $320. The stock is really not cheaper than the normal index fund, but it is just reduced by a factor of 10. The big advantage of this is that as a novice investor you can also invest in the S&P 500 thanks to investing in ETFs. And here the spread is much greater than with individual stocks. Finally, you have themed ETFs. These can be anything. From 100 U.S. dividend stocks to 25 industrial companies in China for lithium and cobalt. Below I give you specific examples of such theme ETFs.
Why invest in Exchange Traded Funds? The benefits
Investing in ETF offers a number of powerful advantages for novice investors, such as:
ETFs are trackers for passive investing
There is no active trading with ETFs, they move with the market and do not try to do better (or worse)
ETFs are (usually) diversified. That means there are lots of different stocks and/or bonds in them, reducing risk thanks to diversification
ETF investing is cheaper than an active mutual fund like managed investing
ETFs are usually relatively cheap in terms of management fee (ratio). As a result, the net return is higher
Why invest in Exchange Traded funds? There are two reasons:
As a novice investor, it allows you to quickly and inexpensively spread a lot of risk. This is an excellent way for passive investing, investing in the “global economy”
As an advanced investor, you can get higher returns at acceptable risk through themed ETFs
When I started investing at 23, I took too much risk. I invested exclusively in (growth) stocks and in crypto currencies (in 2017). For ten years I was financially free. In recent years, I started to structurally invest more in ETFs. That way I can reduce risk and still get potentially nice returns. I succeed by investing in the best ETFs (from research and analysis).
If I can do it, so can you!
How to invest in ETF? Monthly deposits or all at once (lump sum)?
First of all, the question is how you will invest in ETFs in terms of time period. You will have to decide whether to invest large sums of money once in a while, or opt for monthly deposits (with small amounts). Whatever you do: invest only with money that you can lose 100%. The advantage with large one-time deposits is that you can get in at favorable times. Buy in a dip so you get higher returns. This is the “buy the dip” tactic. The downside to this is that as a (novice) investor we often cannot time the market well. Even professional investors struggle with this. In case you are 100% sure that you are buying at a good time, it is best to opt for large one-time deposits. An example of such an entry moment is after the 2009 economic crisis. That's when you buy in a huge dip. More recently, there was the dip during corona time. The disadvantage is waiting for a big dip. Sometimes this dip comes only after 5 or even 10 years. This is why many investors choose another tactic, that of structurally investing monthly with a smaller amount. The advantage is that you spread the risk of timing over time. The potential disadvantage is lower returns than if you enter immediately (lump sum). Of course, you can combine both tactics. By depositing monthly and saving for a big dip at the same time.
Note that with monthly deposits, transaction costs are often higher. With this tactic, it's best to invest through low-cost online brokers.
ETF investing for higher returns (and higher risk)
If you can handle some risk, and are going to invest with money you can miss anyway, there are interesting ETFs with high returns. The best tip for this is by investing in ETFs that are in growth sectors and markets. Investing in ETFs within growth sectors can be interesting for more advanced investors. An example of such a good ETF is RBOT or CIBR. These are ETFs that invest in 100 stocks within automation and robotics, and the latter in cybersecurity. But there are many more, think healthcare, online sales, the green sector for sustainability, et cetera. An added benefit is that such ETFs often contain interesting growth stocks. Growth stocks typically carry high risk, but on the other hand offer the opportunity for higher returns. These are small companies today that will become the future Facebook, Amazon and Apple in 10 or 20 years. A small investment of 1,000 euros in such a company can lead to 0 euros, or to tens of thousands of euros.
ETF investing for passive income
The harsh reality is that very many professional investors underperform the average stock market represented by index funds. The annual average return of an index fund like the S&P 500, Dow Jones or Nasdaq is often higher than the individual performance of mutual funds and individual investors. Of course, there are exceptions. But these are people who are in it full-time. If you are a novice investor who really doesn't know a thing about it, then you are better off just investing in the stock market through index funds. I'm not saying you can't outperform the average stock market. It is certainly possible, but only if you really immerse yourself in it. That takes years of effort. However, it is a super cool and educational learning process that will also benefit you within the business world (think business analysis, thinking in terms of returns and ROI, future thinking, et cetera). In short, if you have little understanding of investing and don't want to worry about it, your best bet is to invest in a complementary mix of ETFs. Buy additional each month with money you can spare. Leave this money tied up for at least 10 to 20 years. This is how you can get rich slowly!
Tips for lower risk investing in ETFs
Finally, here are two effective tips for lowering risk when investing in ETFs. The first when investing in ETF is to always invest for the long term. Make a combination of ETF for index funds and growth markets that are booming over the next 10 to 20 years. If you think a little logically, you probably know which sectors are going to (or continue to) do well over the long term. Consider, for example, the food industry. People continue to eat, and population growth is increasing (especially in Africa and Asia then). The industry of automation is also growing all the time. Or how about the healthcare industry with the alarming trend of an aging population? The trick is to make long-term investments in ETFs linked to growing markets or growing index funds. Put together a portfolio of complementary equity funds. This trick of diversification always works. For example, you may have found the “golden” growth market with 100% certainty. But you don't put 100% of your money on a “golden” horse that you are 100% sure is going to win the race, do you? After all, you are never 100% sure, that is the sad truth. That's why the tip is to spread out. Spread your money across multiple ETFs based on your risk profile.
When to buy and sell ETFs
The timing of when you buy and sell ETFs is less important than buying and selling stocks because of the spread. Still, you can get just a little more return if you buy or sell ETFs at the right time. With our ETF trading signals you receive a weekly overview of buying and selling moments of a top selection of ETFs. Want to receive buy and sell signals for your own ETFs (and stocks)? Then read more about our Trading Algorthm.
ETFs
ETF Investing
What are ETFs and what are the best ETFs to buy? This article is written for (novice) investors who want to successfully ETF investing. With tips and explanations about ETF investing, such as: which ETFs are smart to buy? What are the best ETFs at all? And more, like about the risks in ETF investing, the pros and cons and practical tips to increase returns. After this article, you'll know all about investing in ETFs to get off to a good start.
What are ETFs?
Before we dive into the depths, it's good to dwell on what ETFs are. Do you already know exactly what ETFs are? How they work? It is important to understand what you are investing your money in to assess risk.
What is an ETF? This is an investment product which stands for Exchanged-Traded Fund. This is a large equity fund that is publicly traded. How this works, and what advantages and disadvantages it gives, we will explain later in this article. For now, it suffices to know what an ETF is. An ETF tracks the price development of several stocks. An ETF is often described as a basket full of stocks. Instead of buying one stock, an Exchanged-Traded Fund allows you to buy several stocks at once. The management of ETFs are passive. They do not actively trade stocks, but “follow” the price. That's why ETFs are also called tracker(s). In essence, an ETF is an investment product to quickly spread a lot of risk. ETFs are passive stock funds by nature. They track a set of stocks. These can be 10 or 9,000. The larger the ETF, the more risk diversification. What are ETFs for us as individuals? Simple: a way to start investing without needing much knowledge. ETFs are inexpensive and offer a lot of risk diversification. In exchange for this service, we pay an annual fee to management. This ranges from 1% to 0.05%. Anything under 0.5% is significantly cheaper than unlisted stock funds.
Want to master the basics? You can download our E-Book - Profitable Investing in ETFS for free.
Which ETFs to buy? And what are the best Exchange Traded Funds?
In essence, an ETF is of relatively lower risk. However, there are exceptions. Such as risky trackers that work with levers. These types of risky ETFs are not suitable for beginners. Avoid them at all times as a beginner.
As a beginner investor, there are excellent ETFs that offer (global) diversification.
An example of a spread ETF is the Vanguard Total World Stock ETF. You can think of this as a safety net containing more than 9,000 (!) stocks. In other words, investing in this fund means you are indirectly investing money in 9000 companies worldwide. The ETF is a tracker that follows the price of all 9000 stocks. We call this a way of “investing in the global economy.” Global funds are perfect for significant risk diversification within the stock market. It is one of the safest ways for retail investors to participate in stocks.
Note that there are even safer investments such as bond ETFs. There are also real estate ETFs. Read our articles on investing in real estate about these. We now know what ETFs are. We know they can offer a lot of diversification. Yet global equity funds, which offer the lowest risk as a tracker, are not among the best ETFs. The best ETFs try to make a selection of the best stocks. One that separates the wheat from the chaff. After all, a great ETF also contains many rotten apples. Eliminate these and the better companies remain. In the long run, the best ETFs offer higher returns. The downside? They also provide more price fluctuations (volatility). Keep your emotions in check and this type of ETF gives higher returns.
Which ETFs to buy at eToro (or another broker)?
This depends on your personal financial situation and risk profile. We do not give personal investment advice. However, we can offer an overview of good trackers. A combination of both global trackers and more specific trackers. We call these specific trackers theme ETFs. They follow one theme, such as technology, sustainability, small cap stocks or just dividend stocks. It is the theme ETFs that offer higher returns. Often on a long term of 3 - 5 years. Depending on the theme, this can be shorter or longer term. And so theme ETFs require a more active investment strategy than global trackers (which track the “global economy”).
What are the risks in ETF investing?
ETF investing is popular. ETF investing for novice investors is almost always better than investing in stocks. The latter can potentially lead to (much) higher returns, but it also has more risks. Moreover, it requires more time and knowledge.
This is not to say that ETF investing is risk-free. There are indeed risks, but the big advantage is that these risks are less intense compared to individual stocks.
These are risks in ETF investing:
Individual investment risk leads to the biggest losses. This is the risk that one stock performs particularly poorly or even goes bankrupt. Equity investors face this risk. As an ETF investor, this risk is avoided because you deliberately choose multiple stocks.
Depending on your preference, ETFs that offer 100+ stocks are enough. You could also buy one global ETF. Our tip is to make a selection of complementary ETFs that reduce the above risks. Another tip is to invest in real estate, commodities, bonds, and other investment markets in addition to stocks.
Later in this article, we provide tips for lower risk ETF investing. We also give tips on how to achieve higher returns. Read more.
Where to invest in ETFs? The best investment platforms
Don't have an brokeraccount yet? With ETF investing, two things are very important, namely (1) costs and (2) supply. The lower the cost in ETF investing, the higher the return. A tracker has two costs. The first are transaction costs when buying and selling. The second is the annual management fee (expense ratio). Regarding transaction costs, it is good to choose low-cost investment platforms. There are even investment platforms where we buy ETFs with no transaction fees. Finally, supply is important. We want to buy the best ETFs. The greater the offer of an investment platform, the more likely they are to offer the equity funds we want.
Tips for investing in dividend ETFs
Want to invest specifically in dividends? That too is possible with a tracker. A dividend ETF includes several stocks that pay (higher than average) dividends. Again, you have many types: from global trackers to small themed ETFs.
Tips for investing in commodity ETFs
In addition to “normal” and “dividend” stocks, you also have stocks in commodities. The commodity market (commodities) is another line of business. For example, you can invest in gold mines, oil companies, soybeans, agriculture and so on. Commodity markets are separate from companies. An IT company can perform very poorly, while a gold mining company has its best year ever.
How does an ETF (tracker) work?
We will now go deeper into ETF investing, with tips and explanations on reducing risk and increasing returns. To understand these tips, it's good to understand more about ETF investing. Such as how an ETF works. There are different types of ETFs, but they all work the same way. All they do is track stocks. The trackers that purely track an index fund such as the S&P 500 perform almost the same as this index fund.
Now you may be thinking, why wouldn't I invest directly in the index fund? After all, index funds are one of the more secure ways to invest in the stock market. But the reason is simple. Take the S&P 500 as an example. If you want to buy a share of this index fund directly, you'll spend more than $3,300 per share (at the time of writing). That's a lot of money.
Now take the iShare S&P 500 as an example (pictured). This is an ETF that performs the same as the index fund S&P 500 in terms of return and risk. Only one share of this ETF costs $320. The stock is really not cheaper than the normal index fund, but it is just reduced by a factor of 10. The big advantage of this is that as a novice investor you can also invest in the S&P 500 thanks to investing in ETFs. And here the spread is much greater than with individual stocks. Finally, you have themed ETFs. These can be anything. From 100 U.S. dividend stocks to 25 industrial companies in China for lithium and cobalt. Below I give you specific examples of such theme ETFs.
Why invest in Exchange Traded Funds? The benefits
Investing in ETF offers a number of powerful advantages for novice investors, such as:
Why invest in Exchange Traded funds? There are two reasons:
As a novice investor, it allows you to quickly and inexpensively spread a lot of risk. This is an excellent way for passive investing, investing in the “global economy”
As an advanced investor, you can get higher returns at acceptable risk through themed ETFs
When I started investing at 23, I took too much risk. I invested exclusively in (growth) stocks and in crypto currencies (in 2017). For ten years I was financially free. In recent years, I started to structurally invest more in ETFs. That way I can reduce risk and still get potentially nice returns. I succeed by investing in the best ETFs (from research and analysis).
If I can do it, so can you!
How to invest in ETF? Monthly deposits or all at once (lump sum)?
First of all, the question is how you will invest in ETFs in terms of time period. You will have to decide whether to invest large sums of money once in a while, or opt for monthly deposits (with small amounts). Whatever you do: invest only with money that you can lose 100%. The advantage with large one-time deposits is that you can get in at favorable times. Buy in a dip so you get higher returns. This is the “buy the dip” tactic. The downside to this is that as a (novice) investor we often cannot time the market well. Even professional investors struggle with this. In case you are 100% sure that you are buying at a good time, it is best to opt for large one-time deposits. An example of such an entry moment is after the 2009 economic crisis. That's when you buy in a huge dip. More recently, there was the dip during corona time. The disadvantage is waiting for a big dip. Sometimes this dip comes only after 5 or even 10 years. This is why many investors choose another tactic, that of structurally investing monthly with a smaller amount. The advantage is that you spread the risk of timing over time. The potential disadvantage is lower returns than if you enter immediately (lump sum). Of course, you can combine both tactics. By depositing monthly and saving for a big dip at the same time.
Note that with monthly deposits, transaction costs are often higher. With this tactic, it's best to invest through low-cost online brokers.
ETF investing for higher returns (and higher risk)
If you can handle some risk, and are going to invest with money you can miss anyway, there are interesting ETFs with high returns. The best tip for this is by investing in ETFs that are in growth sectors and markets. Investing in ETFs within growth sectors can be interesting for more advanced investors. An example of such a good ETF is RBOT or CIBR. These are ETFs that invest in 100 stocks within automation and robotics, and the latter in cybersecurity. But there are many more, think healthcare, online sales, the green sector for sustainability, et cetera. An added benefit is that such ETFs often contain interesting growth stocks. Growth stocks typically carry high risk, but on the other hand offer the opportunity for higher returns. These are small companies today that will become the future Facebook, Amazon and Apple in 10 or 20 years. A small investment of 1,000 euros in such a company can lead to 0 euros, or to tens of thousands of euros.
ETF investing for passive income
The harsh reality is that very many professional investors underperform the average stock market represented by index funds. The annual average return of an index fund like the S&P 500, Dow Jones or Nasdaq is often higher than the individual performance of mutual funds and individual investors. Of course, there are exceptions. But these are people who are in it full-time. If you are a novice investor who really doesn't know a thing about it, then you are better off just investing in the stock market through index funds. I'm not saying you can't outperform the average stock market. It is certainly possible, but only if you really immerse yourself in it. That takes years of effort. However, it is a super cool and educational learning process that will also benefit you within the business world (think business analysis, thinking in terms of returns and ROI, future thinking, et cetera). In short, if you have little understanding of investing and don't want to worry about it, your best bet is to invest in a complementary mix of ETFs. Buy additional each month with money you can spare. Leave this money tied up for at least 10 to 20 years. This is how you can get rich slowly!
Tips for lower risk investing in ETFs
Finally, here are two effective tips for lowering risk when investing in ETFs. The first when investing in ETF is to always invest for the long term. Make a combination of ETF for index funds and growth markets that are booming over the next 10 to 20 years. If you think a little logically, you probably know which sectors are going to (or continue to) do well over the long term. Consider, for example, the food industry. People continue to eat, and population growth is increasing (especially in Africa and Asia then). The industry of automation is also growing all the time. Or how about the healthcare industry with the alarming trend of an aging population? The trick is to make long-term investments in ETFs linked to growing markets or growing index funds. Put together a portfolio of complementary equity funds. This trick of diversification always works. For example, you may have found the “golden” growth market with 100% certainty. But you don't put 100% of your money on a “golden” horse that you are 100% sure is going to win the race, do you? After all, you are never 100% sure, that is the sad truth. That's why the tip is to spread out. Spread your money across multiple ETFs based on your risk profile.
When to buy and sell ETFs
The timing of when you buy and sell ETFs is less important than buying and selling stocks because of the spread. Still, you can get just a little more return if you buy or sell ETFs at the right time. With our ETF trading signals you receive a weekly overview of buying and selling moments of a top selection of ETFs. Want to receive buy and sell signals for your own ETFs (and stocks)? Then read more about our Trading Algorthm.
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