Investing 101

ETFs are known for being safer instruments but can also generate good returns without much expense for the investor. For every investment, you will be charged an expense amount, determined by the expense ratio. This is usually much lower relative to investing in other instruments. 

Don’t forget that there are 2 types of ETFs: passive and active ETFs. Passive investments (aka index funds) track a stock index, like the S&P 500, but an active ETF requires manpower for monitoring and rebalancing the underlying securities. As a result, this is more expensive than a passive ETF investment as the expense includes portfolio management fees. 

Unlike mutual funds, ETFs don’t have a minimum investment requirement as they can trade on a per-share/fractional basis. 

## Here are the steps for investing in ETFs:

### Open a brokerage account

You will first need to choose where you want to open a brokerage account. The majority of online brokerages offer commission-free stock and ETF investing. However, it’s good to compare the features of each platform. For example, if you’re a new investor, it might be a good idea to open an account with a brokerage like E*Trade, which offers a wide range of educational materials. 

### Choose your ETFs

Now that you’ve opened your brokerage account, it’s time to invest in some ETFs. As a beginner, investing in passive funds is a good idea as they are cheaper than actively managed ETFs. Additionally, actively managed ETFs don’t always beat their benchmark. 

The most popular ETFs are issued by Vanguard and Charles Schwab as both companies focus on connecting people to the stock market at the lowest cost and ETFs are an efficient way for people to get involved in investing. Some examples are Vanguard S&P 500 ETF, which covers large US companies and Schwab US Mid-cap ETF, which covers mid-sized US companies. 

### Let the ETFs do the rest

ETFs are known for being safe investments that require minimal maintenance. The best thing to do after investing in ETFs is to leave them and let them do the work for you. One of the main reasons why investors underperform against the market over time is because of over-trading. So stop checking your portfolio and let your ETFs produce returns at their own pace. 

ETFs are known for being safer instruments but can also generate good returns without much expense for the investor.

How to Invest in ETFs

Exchange Traded Funds (ETFs)

## TL;DR

- Type of security that tracks another asset but can be traded on stock exchanges
- ETFs can contain one asset or thousands of assets from different industries
- Good source of diversification - low risk, lower return
- Thematic ETFS are popular today 

## What is an ETF?

An Exchange Traded Fund (ETF) is a security that tracks another asset (index, commodity, industry) and can be traded on the stock exchange like any public equity. ETFs can track individual commodities (like gold or timber) but also a large collection of securities (space exploration stocks). Since an ETF has more than one underlying asset, it can be a good source of diversification as an ETF can include hundreds to thousands of stocks. As a result, ETFs have lower risk and a lower expected return. 

A well known ETF is the SPDR S&P 500 ETF which tracks the performance of the S&P 500. Not only can an ETF include commodities and stocks, but also bonds, real estate or other investment securities. Its defining factor is that an ETF can easily trade on a stock exchange since it is a marketable security; hence affected by price fluctuations everyday.  

## Thematic ETFs

Today, a lot of the ETFs trading on American stock exchanges are thematic ETFs: focused on a specific industry or trend. As a result, an investor does not need to do any due diligence and is simplifying buying a trend. By buying one share of an ETF, you are taking a stake in all the companies in the fund and gaining exposure to the overall theme. For example, Cathie Wood’s ARK fund released a lot of thematic ETFs based on a trend such as ARKX. ARKX is a thematic ETF focused on growing space exploration companies like Trimble and Lockheed Martin. As an investor, by owning one share of ARKX, you are fractionally exposed to all the companies in the fund. 

## Benefits and Drawbacks 

The benefit of being exposed to so many companies by purchasing 1 share allows investors to face lower average costs, since they only need to execute one transaction to increase/reduce their exposure to so many companies. Compared to individually investing in each company in the ETF, with only one trade, brokerage fees are also fewer. 

However, the above benefit is valid if an ETF is not being as frequently rebalanced. In the case that you invest in actively managed ETFS, fees are much higher as more trades occur. Additionally, if a thematic ETF is focused on one industry like space exploration, diversification is not as great compared to investing in different asset classes. Lastly, liquidity for ETFs are not as high as common stock since they are less frequently traded. 