A Beginner’s Guide to Investing in an ETF

A Beginner’s Guide to Investing in an ETF

Investing in an ETF can be intimidating when there are literally hundreds of options. Luckily, I have a beginner’s guide to investing in an ETF in 3 easy steps, with the basics covered for you right here in steps 1 and 2.

1) An ETF Risk Level that Matches your Investing Style

This is the single most important thing to consider before choosing an ETF, or any investment for that matter. How much risk can you bear to take? More aggressive investors would be fine with an ETF that holds all equities. If you’re on the conservative side, you can get an ETF that holds bonds.

2) Choose The Region You Want to Invest In

One main part of choosing an ETF is geography. One amazing thing about ETF’s is they make it so easy to invest in companies worldwide! Every region in the world has one index or many indices which track and measure the region’s broad economic performance.

3) Look at These 3 Technical Aspects

The third step to investing in an ETF is to look at the 3 technical aspects of MER, discount/premium, and bid – ask spread. At this point you should have a few alternatives you are comparing! ALL should be at least looked at when choosing an ETF.

NOTE: MER is NOT the same as Management Fee!

This is super important when you are comparing different ETF products. The Management Fee is directly taken by the fund management as their “costs”. It is included in the MER, but is not all of it! The MER will always be equal to or larger than the Management Fee.

NAV stands for Net Asset Value.

It is the value of the assets (in this case, the ETF’s assets) after taking away expenses. The NAV per share is basically the value in dollars of 1 share of the fund. When you buy shares of an ETF on the stock exchange, one would think you would pay the same as the NAV. 

Summing it Up

After reading this, you should have learned the following: 1 Know what your investment style is. 2 How geography and industry sectors are involved in choosing ETF’s.  3 Know the significance of MER, Discounts/Premiums, and the Bid.  4 Ask Spread.

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