How to Invest in ETFs For Beginners | by EJ Syu | Sep, 2022

How beginners beat the pro

Photo by Marga Santoso on Unsplash

First things first, if you’re reading this, I don’t need to preach that an ETF is one of the best personal finance investment vehicles, let alone explain what an ETF is. In fact, after earning a finance degree from a top business school and years of toil at a trading desk, I’m only more convinced that ETFs were the best thing that happened to personal finance after REITs. What is REIT? We’ll talk about that later.

Second, disclaimer: There is no “best” ETF or ETF investing strategy. As with all things in life, it depends.

For me, I’m in the ETF game for the long term. The money I put into ETF investing is what I’m happy to put aside for decades. The ultimate goal for my ETF portfolio is to generate enough passive income to cover my FIRE (Financial Independence Retirement Early) expenses. For this reason, my ETF portfolio is heavily weighted towards developed market stocks with low expense ratios and high dividend yields.

Still, ETF can be used for a million other things: short-term sector speculation, concentrated position hedging, value/growth rotation trading, index arbitrage trading, and much more.

However, my approach is more widespread and beginner-friendly.

Below are some popular ETFs to get you started. As you gain more experience and are ready to take on more challenges, you will

Also Read :  ETFs to handle a bear market

A few more tips before we dive in.

Invest on a schedule. The market is notoriously difficult to time. It is always better to put money into the base on a fixed schedule. The return is caught up with time.

Diversification is key – it’s the only way to reduce risk in your portfolio while delivering better returns.

After all, by far the best investment you can make is investing in your health and your brain.

Have fun investing!

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If you could only buy one ETF, it would be an S&P500 tracking ETF. The S&P500 tracks the largest 500 US stock market caps and has historically outperformed most actively managed mutual funds over the long term. After all, it’s extremely hard to consistently beat the market.

VOO is far from your only option. IVV (iShares Core S&P 500), SPLG (SPDR Portfolio S&P 500 ETF) or SPY (SPDR S&P 500 ETF) are all available to you. The key is to choose the one with the lowest cost ratio possible. The latest expense ratio for VOO is 0.03%, and the same is true for most alternatives. SPY, the largest US ETF in AUM and one of the most traded, comes with an expense ratio of 0.09%.

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Another interesting alternative is a mutual fund, SWPPX (Schwab S&P 500 Index Fund), which, with an expense ratio of 0.02%, is even cheaper than the cheapest S&P500 ETF.

When people want to invest in technology stocks, they think of QQQ, the largest and most traded passive NASDAQ 100 tracking ETF. NASDAQ 100 Consists of 100 of the largest non-financial companies listed on the Nasdaq, also based on market capitalization. Companies like Apple, Amazon, Google, and Meta are all heavily weighted here.

It’s a great addition to any ETF portfolio with its big bull market rewards. Consider that it could lose more even if it rains.

QQQ’s current expense ratio is 20 basis points (0.2%), the second most expensive in this article, although it’s still peanuts compared to what middling mutual funds charge for their often underperforming performance in the United States, which typically ranges between 0 .5% and 0.5% is 1.5%.

Nasdaq website
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If you want to further diversify your portfolio, the next step is to look at the whole world.

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Now it’s time to add a safety net. If you don’t want to “lose” a cent of your money and time, even on paper, you can start here.

With underlying investments in US Treasury inflation-linked bonds within five years of maturity, your money is certainly inflation-linked, but not much more. This is your most risk-averse option.

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For those who like dividends, VYM tracks the FTSE High Dividend Yield Index, which is composed of companies with high dividend yields. A current dividend yield of 3.08% isn’t too shabby, but for some real dividend play, there’s more we can do — REITs.

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REITs (Real Estate Investment Trust) are like mutual funds for real estate. Each REIT operates income-generating real estate and distributes the income generated back to investors. Most REITs, like ETFs, are publicly traded and solve the biggest problem with investing in real estate – liquidity.

REITs operate a wide range of real estate, from residential buildings, hotels, office buildings, shopping malls, hotels to hospitals, data centers and warehouses. REITs are required by law to disclose detailed information about the properties they operate, and investors can assess their investability like a stock.

Beginners who are unsure about which REIT to invest in can still invest in REIT ETFs.

The two ETFs below provide separate exposure to global and US REIT portfolios. A small management fee can eat up some of the dividend yield, but at least you can count on a well-diversified real estate portfolio.

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Yahoo Finance, September 17-2022

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