Is investing in ETFs wise in 2023?
ETFs are increasingly popular, but is investing in ETFs actually wise? In this article, we discuss whether it’s smart to invest in ETFs.
ETFs in a nutshell
You can use ETFs to passively invest in an index: for example, you can track a basket of stocks listed on the Amsterdam stock exchange. In this article, you can read more details about what ETFs are and how they work.
You can buy and sell ETFs through an online broker. It’s wise to choose a low-cost ETF broker: that way, you can avoid losing a lot of money on transaction costs. In the overview you see some of the best brokers you can use to invest in ETF’s:
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Is investing in ETFs wise?
Investing in ETFs can certainly be wise! Many investors make the mistake of trading too frequentally when they don’t have the knowledge required for it. They then pay transaction costs over each trade and time their investments wrong, which can cost a lot of money.
Investing in ETFs is also not suitable for everyone: for example, you need to have enough money that you can afford to lose for the long term.
However, for most people, ETFs are the most suitable investment. Due to the high level of diversification and low costs, ETFs are suitable for building wealth.
An ETF won’t just go bankrupt
Investing in ETFs can be smart because the chance of losing your entire investment actually disappears. The chance that one company goes bankrupt is always present, of course. However, the chance that dozens of companies included in an index will suddenly go bankrupt is practically zero. If this were to happen, the whole world would be on fire.
If you’re looking for a relatively less risky investment, an ETF can be a wise choice.
Another advantage of ETFs is that they are less volatile. One share can suddenly rise or fall significantly in value due to news. A scandal can lead to panic, causing everyone to suddenly dump their shares.
In this case, you can still lose money with an ETF that includes this share, but you don’t lose your entire investment immediately. The remaining shares in the ETF provide more stability and can absorb your losses. However, don’t forget that you won’t make a quick fortune with an ETF: you’ll have to be able to live with this.
Perfect for building wealth
ETFs are a very wise choice if your goal is to build wealth over time. By periodically buying a well diviersified ETF with a fixed amount of money, you ensure that you benefit from the average return in the market.
By also reinvesting your return over and over again, you benefit from compound interest. This can cause your results to grow exponentially, allowing you to build a nice retirement fund.
Low costs = wise
The low costs are also a reason to choose ETFs. One of the reasons why many active investors fail to beat passive investors is the much higher costs. You can buy ETFs without any costs at some brokers. At the same time, you pay higher transaction fees for shares each time, causing part of your return to disappear immediately. This makes it much more difficult for active investors to beat the market; you would have to do much better!
However, we still can’t live without active investors
Despite the fact that ETFs are a very wise investment, we still can’t do without active investors. Active investors contribute to the efficiency of the markets, and without this group, ETFs would not function well either. After all, the markets are driven by active traders who weigh information and buy certain shares based on it.
Personally, I find investing too enjoyable. I know that it’s wise to invest in ETFs, but I always invest a portion of my money in shares. In this article, you can read more details about how this works.
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