Everything you need to know about ETFs

Originally published at: Everything you need to know about ETFs – InvestEngine Insights

Over the last 20 years, few developments in the world of investing have been so impactful as the exchange-traded fund (ETF). As the fastest growing investment type globally, 2021 saw the global ETF market surpass $1 trillion. 

Despite their popularity, not every investor has a clear idea of exactly what ETFs are and what they can do for an investment portfolio. In this piece, we’ll cover everything you need to know to get started.

What is an ETF?

The simplest way of thinking about an ETF is as a basket of stocks. Rather than having a stake in one individual company, an ETF can contain hundreds or even thousands of individual stocks. They are usually made to track a particular index, to reflect the performance of the S&P 500 or the FTSE 100, for example. 

ETFs aren’t issued by individual corporations. Instead, they’re largely sold by financial firms like brokerages. At a glance, ETFs are an easy way for investors to achieve diversification and avoid overreliance on the performance of individual companies. 

With an ETF, the investment is (usually) spread over a diverse array of businesses, asset types, industries and even geographies. This means that the value of the investment is less dependent on the performance of the individual companies that make it up. However, not all ETFs necessarily provide diversity; some highly focused ETFs will track a niche industry, for example.

Can you invest in ETFs in the UK?

Absolutely! You can invest in a range of ETFs from all over the world including the FTSE 100, S&P 500 and more. As an ETF consists of a range of businesses or assets, you can choose to invest in anything which aligns to your investing philosophy from a certain geography, industry or commodity. 

To start investing in ETFs, you’ll need to choose a platform to invest on, and whether you would like to select your own ETFs or have an expert manage these for you.

Are ETFs good for beginners?

ETFs are great for all types of investors from beginners to experts. They offer a way to diversify your investments right off the bat, all while keeping costs low. They’re also a great way to start learning about markets and stocks whilst investing in a range of different businesses.

How do beginners buy ETFs?

To start investing in ETFs, you will need to choose a platform to invest with. We’ve included a couple of tips below to help you on your journey to start investing: 

Check the platform’s fees

The lower the platform costs, the more of your returns you get to keep and reinvest. 

Choose your account type 

You can manage your ETFs yourself, or you can have these decisions made for you by a professional. There are typically lower fees associated with managing your own investments, but this does take time and energy. 

Ensure you know how much you have to invest

As with all investments, the value of ETFs can rise and fall. Ensuring you know your investing limits is important, just as it is with all investments.

Use your ISA allowance

Don’t forget that you can invest using your tax-free ISA allowance of £20,000 (per tax year). Using this to invest in ETFs is a low-cost, tax-efficient way to build long-term wealth.

How much should a beginner invest in an ETF?

There is no ideal amount to invest into ETFs. With platforms like InvestEngine, you can start investing from £100 and, if you choose to invest with their DIY portfolios, there are no platform costs (ETF costs apply)! So, whether you have £100 or £10,000 to invest, you can start building your financial future with ETFs today.

Important information

Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.

This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.