Investing in ETF tips: how to achieve better results
If you want to invest in ETFs but don’t know how to proceed, then you’ve come to the right place! In this article, we’ll give you some essential tips that can help you achieve better results with investments in ETFs.
Tip 1: select the right ETF
Despite the fact that investing in ETFs has a passive image, you can’t just sit back and relax. It’s essential to choose an ETF that suits you. Always read the KIID (key information document), which shows you:
- An overview of the costs of the specific ETF
- An overview of the financial products the ETF invests in
- The risks associated with the ETF
Do you need help selecting a good ETF? Then read our article on selecting a good ETF.
Tip 2: selecting an affordable broker
By choosing a broker with low transaction fees, you automatically achieve better results with your investments. High transaction costs can significantly reduce your return in the long run. This is because your assets grow exponentially over the long term with reinvestment. The costs can hinder this process, which causes you the miss return.
Are you curious with which brokers you can invest in ETF’s? Than take a look at this overview:
|Buy ETF's without commissions. Your capital is at risk. Other fees may apply.|
|Speculate on price increases and decreases of ETF's with a free demo!|
|Benefit from low fees, an innovative platform & high security!|
Tip 3: pay attention to the costs of the ETF
In addition to the transaction costs you incur with the broker, you also pay fees to the managing party of the ETF. You pay an annual management fee on the value of the ETF. Many ETFs are cheap due to the large amount of investors they attract: you then only pay 0.2 or 0.3 percent in management fees. However, on more exotic ETFs, this percentage can rise significantly, up to one percent!
If the fund invests in a different currency than your own, you also face a currency risk. You also have to exchange your currency into another currency, which also costs money.
A good tip is to invest mainly in larger ETFs. The larger ETFs charge lower management fees and can also buy shares at lower costs.
Tip 4: spread your investments over time
Despite the fact that ETFs often have a lower risk, it’s important to also consider market risk. When the market as a whole performs less well, ETFs will also perform less well. If you invest a large amount at the top, you can lose a significant amount of money. It’s therefore recommended to protect yourself against this risk.
You can do this by investing a fixed amount in an ETF periodically. This ensures that you buy the ETF at both low and high prices, allowing you to achieve an average return.
Tip 5: research the diversification of the ETF
Many investors feel a bit too safe with an ETF. It is important to investigate whether an ETF is really as diversified and passive as it seems.
You can do this by looking into what the ETF invests in. For example, an ETF that invests only in a handful of cannabis companies is not very diversified: you would then be heavily dependent on one specific sector.
Also, pay close attention to the weighting of stocks within an ETF. In some ETFs, a handful of stocks have a very heavy weighting. You may think you are investing in more than 3000 stocks, while in practice, a handful of shares determine your result.
Therefore, make sure you invest in an ETF that is broad enough or in multiple ETFs that are active in multiple sectors.
How to achieve better investment results with ETF’s?
ETFs are mainly used to passively track a market. You achieve the best results when you take the following factors into account:
- Make sure you select the right ETFs that fit you well
- Choose an inexpensive broker where you can invest in ETFs
- Compare ETF costs and minimize them
- Diversify your investments over time
- Study the degree of diversification of the ETF
It is also possible to actively trade ETFs. By entering at the right time, you can achieve a high return. However, remember that trading ETFs in this way can be just as risky as ‘trading stocks’ as many of the benefits of ETFs no longer apply.
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