Investing for the Uninterested
By: Henry Skye
Tags: Money, Beginner, Investing, Etf

There are different strategies of investing, but I will only tell you about the one which is in my opinion the easiest. Investing with ETFs, Exchange Traded Funds.

A very strong case for ETFs is that it the best strategy when you’re not having much knowledge about investing. Another advantage that ETFs have over normal investment in stocks? The return is most of the time the same as when you succeed in stock picking, but often enough stock picking is not successful, while ETFs that replicate the market are never not successful in the long run. This is what history has shown us. Since the beginning, the stock market has in the long run always outperformed the inflation rate. Additionally, to be successful in investing with normal company stocks, you need to know about company which stock you want to buy. But because we don’t want to spend so much time and energy on the stock market, we will focus on ETFs.

Not every ETF is the same though and there are some key differences.

To keep it easy, ETFs are a bundle of a lot of stocks. So when buying an ETF, you buy a tiny fraction of each share in that whole bundle. This is literally true for physical ETFs. There is another type, synthetic ETFs but since they are a bit more complicated and critiqued regularly, I’m leaving them out.

Before you start investing in them you need to know a few things. Firstly you should know what kind of ETF you want to invest in. There are different themes ETFs have. If you are more on the ecological side of things, you might consider buying ETFs that replicate companies that act ecologically sustainable. If you just want to replicate the whole market and don’t care about any specifications, other ETFs are best for you.

After deciding on the theme of the ETF you need to decide if you want to invest a certain amount of money regularly like monthly, quarterly or yearly, or irregularly. If you want to invest regularly a savings plan is probably the best fit for you. Luckily they are most often pretty cheap and every bank or broker offers them. With a savings plan, a fixed amount of money gets taken from your bank account and invested in the ETF(s) you chose without having to do anything. This is the most convenient way of investing.

When choosing ETFs for investing, you need to check for the costs involved. The costs of ETFs have two components to it. Firstly it is the fee you pay your broker (your bank) for buying and selling your ETFs (or parts of them). Some banks also collect fees just for being able to invest (in other words getting a portfolio), but I don’t recommend using those, the only reason being that it is a waste of money you could invest instead. There are enough free brokers out there, just use Google to get a comparison of the ones available in your country to choose the right one for you. The other cost arises in form of the TER, the Total Expanse Ratio. This is the money you have to pay the maker of the ETF yearly. This can differ wildly between ETFs so you need to be careful. Another important marker of an ETF is the investment volume and the time it has been on the market. The volume should be at least 100 million Dollars and is should be on the market for at least a year. These are some guidelines to guide you away from any unnecessary risk.