Most seasoned investors started as confused and terrified beginners in investing. It should be enough to serve as your beacon of hope if you are looking to become a phenomenal investor. However, it doesn’t mean that you should take big steps today if you want nothing but big bucks tomorrow. After all, failure to plan very well is one of the biggest mistakes that many investors tend to make.
As a starter, it is recommended to sidestep some of the complexities of investing for the time being. Once you are through learning the ropes, and have mustered enough confidence, feel free to delve further. However, to avoid ending up rattled during your first few investment forays that could potentially make you turn your back on your potentials, consider launching your career with an exchange-traded fund or ETF.
ETFs are a portfolio or collection of an assortment of assets. Some common examples include stocks, bonds, and commodities. In certain instances, there is a combination of a host of assets. No matter the case, ETFs are considered as a single unit, which means that you can buy and sell all of them sans having to procure the components separately.
If it sounds that uncomplicated, it is because ETFs are rather simple. It is why it’s a great idea for newbies in the world of investments to consider jumpstarting their way to having impressive portfolios by going for ETFs. It can work to their utmost advantage, especially because of the many benefits they bring. Regardless if seasoned or novice, using ETFs as investment vehicles can keep unnecessary complications out of the equation.
Simple Structure
ETFs have simple configurations except for more advanced variations, such as the inverse and leveraged kind, making them great for beginners. To be brilliant at what they do, investors should fully understand their investments. The simplicity of ETFs eliminates barriers that can keep newcomer investors from getting acquainted with the industry.
Lower Risk
The risks involved are what make some inexperienced investors from taking bold steps that could benefit their pockets. Luckily, most ETF investments have lower risks because of the passive management of most of them. Due to this, risky moves, such as aggressive mutual fund management for exceeding the underlying benchmark, can be avoided.
Tax-Friendly
Compared to most other investment products, ETFs are easier on the funds tax-wise. As mentioned above, ETFs are generally managed passively. It is the reason exactly why the buildup of capital gains taxes or CGTs, such as in the case of mutual funds, can be avoided, thus preventing fundholders from getting the shock of their lives annually.
Money-Saving
Having lower taxes is not the only thing that makes ETFs easier on the pocket but also the elimination of commission fees. Such is because, per trade, ETFs allow only one transaction. It helps fend off exorbitant fees that normally come with adding multiple stocks to one’s portfolio. Lowered load fees due to passive management add to the cost-effectiveness.
Sheer Transparency
Daily, financial entities associated with actively traded ETFs have to disclose their list of assets. If you are one of the investors, taking a quick trip to cyberspace allows you to access relevant information. On the other hand, such is not possible with mutual funds as investors can check out pertinent details monthly or quarterly only.
