When you’re investing, it’s natural to think about how much money you’ll make in the future. But what you might not realize is that successful investing also can mean having more peace of mind for your present investment decisions.
Personally, I have tried both active and passive investing strategies. In the past, I used to look down on passive investing because it sounds lazy, and not that smart. However, the more I do research on ETFs vs stock picking, including historical return, opportunity cost, time commitment, the more I believe that ETF is the best strategy for me and many other individual investors with a long-term horizon.
I am a big believer in diversification, and ETFs are a good way to gain exposure to different asset classes.
What is ETF?
Those who are new to investing may not be familiar with ETFs and what they mean. ETF stands for Exchange-Traded Fund and is an instrument of investment that tracks an index, a commodity, bonds, or a basket of assets. To put it Ưsimply, ETFs can give investors instant diversification and an easy way to invest in the markets while minimizing the risk on their portfolios.
Differences between Mutual Funds and ETFs
Mutual Funds are organizations that pool together money from multiple people and invest it into stocks, bonds or other securities. ETFs are baskets of shares that trade on the stock market. These baskets follow stricter selection criteria to narrow down which stocks the fund invests in. One key factor is cost–ETFs are generally less expensive than mutual funds
Typical mutual fund fees are about 1.1% per year, but can be higher or lower depending on the type of funds you invest in. The idea behind ETFs is that the trade-offs between benefits and costs are quite different from other investments. ETFs often have management fees of 0.09% to 0.35%.
Why do you want to invest in ETFs
There are many reasons why you should start investing in ETFs. The first one is because it’s a low-cost investment vehicle. Investing in ETFs doesn’t require dealing with individual stocks, so there are lower opportunities for error. Another reason to invest in ETFs is so that the money flows directly into stocks, bonds, or other investments without requiring you to take any time to maintain your portfolio.
ETFs are a great way to balance risk and reward by diversifying assets across countries or sectors. ETFs have outperformed the S&P 500 since 2008.
ETFs allow investors to trade stocks and other securities continuously. They can also be traded throughout the day and you don’t have to worry about the hour-to-hour fluctuations in the market prices and their own holdings.
Also. An ETF gives you the ability to invest in a single portfolio. It gives you “exposure” to one often diverse basket of securities, meaning all your eggs are not one basket–meaning that in the event of a steep decline in one or two asset classes, your portfolio can still be expected to have higher returns. If you’re saving for retirement with an eye toward building up a stomach for volatility, then put investments inside your ETFs.
Investing a small amount per day could yield a big return
People often overestimate their net worth and think they will need huge amounts of money, but the reality is you can still be very successful and live a fulfilling life on a more modest investment return. If your investment portfolio only earns 3% each year, that’s certainly not substantial, but it’s also not insignificant. Compound interest applies no matter how little you invest.
Starting to invest is one of the most important decisions you’ll ever make in your life. Some say that investing is hard, but it doesn’t have to be. Remind yourself that just $4.54 per day can lead to $260,410 over 35 years at 6% average annual return on investments (much better than many used car loan finance rates). If you’re not convinced, here are some other reasons why you should start investing.
Why investing in ETF is best for your retirement plan
With the rise of ETFs, large-scale institutional investors have found a better way to reduce their exposure to systemic risk. ETFs have made it possible for people who work in retirement plans, such as 401k or IRAs, to diversify their investments. They provide an easy and cost-effective way for a retirement plan participant to invest internationally, giving them a lot more opportunity to grow capital alongside the markets.
The Average Joe Investor has been hearing a lot about ETFs in the news and the fear is that they need to keep a close eye on what’s going on in the market. I can assure you that investing in an ETF, for retirement-related reasons, allows you to sleep easy at night knowing your money is being invested wisely. Not only do ETFs lower or eliminate your trading fees but they also help you avoid doing research on which sectors to take a position in. And add growth potential with rebalancing portfolios when stocks go down.
My favourite books on ETFs investing
If you want to know more about ETF and why it could be the best investing strategy, I recommend you to read these two books (click to view on Amazon). They are well written, simple, easy to understand with crisp figures behind any statements.
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