Today, many people dabble in financial markets on one platform or another to grow their incomes, build up nest eggs, and generally improve their financial standings. Perhaps you, like many others, would also like to have a little bit extra to spend on online entertainment.
A plethora of information exists on which investment options offer the highest returns, which are the safest (or lowest risk), and which are risky with big paydays (if they pay off).
When you enter the investment arena for the first time, this avalanche of facts and figures and spectrum of choices can be quite daunting, especially if you’re a novice and first-time investor.
We’ll aim to make things a bit easier by exploring the ins and outs of exchange-traded funds (ETFs). We’ll also look at the viability of these funds to boost your riches and financial empowerment.
Different Investment Options
Let’s take a quick glance at the different investment options available to investors before diving into the essence of ETFs. Each of these has its own pros and cons and risk factors:
Stocks
are basically ownerships or equity shares in a certain company. The number of shares you own determines your percentage interest.
You can buy the stocks of publicly listed companies trading on the global stock markets such as the Nasdaq or New York Stock Exchange (NYSE).
Making profits or losing money depends on the performance of the company in these markets.
Bonds
are essentially loans at specific interest rates to institutions and companies and generate money from interest repayments and the settlement of the bond when it matures.
Some of these include municipal, treasury, and corporate bonds. Bond prices, just like stock prices, fluctuate and carry degrees of risk.
Crypto Investments
entail investing in digital assets such as cryptocurrencies and initial coin offerings (ICOs). Bitcoin started this evolution in 2017 and continues to cause ripples across global markets.
These investment opportunities are often complex, and you should do your research on things such as blockchain technologies before diving into crypto investments.
Bank Products and Insurance Plans
often run at fixed monthly payment premiums and payout after a specified time. You invest these sums at a certain interest rate that grows your money.
These options carry some risk but are generally regarded as low-risk investments.
Commodity Investments
are based on futures contracts where you acquire or sell a specified quantity of a commodity for a specific price at a predetermined time in the future.
Commodities are things such as precious metals, oil, and animal products. They also include currencies (typically traded in currency pairs) and other financial instruments.
ETFs
entail the pooling of investments and investing in certain sectors.
ETFs: What Are They and How Do They Work?
An exchange-traded fund, more commonly referred to as an ETF, is a fund that collates the money of many investors and invests it on either commodity, equities, or bonds defined by the fund.
Typically, these funds target a specific index, such as the S&P 500, Dow Jones Industrial Average, or FTSE 100.
You can look at an ETF like a basket that holds different securities and follows the trading trends of stocks and other investments.
ETFs, much like stocks, trade continuously and go up and down in value according to varying demands and supplies.
Fund managers control and manage these funds, which must be registered with the Securities and Exchange Commission (SEC). This distinguishes them from hedge funds, also known as private investment funds.
Essentially, this means that you don’t have any say about where and in what your money, along with that of the other fund investors, will be invested in.
The Pros and Cons of ETF Investments
ETFs are low-cost and straightforward investment options that allow you to build a variegated portfolio.
Over the years, these funds became more popular with both seasoned financial managers and lone investors. The benefits of ETFs include:
Diversified Investment Portfolios
you don’t need a lot of money to invest in different assets. With just a few shares, an ETF opens up the doors to various interests such as stocks, bonds, and commodities.
A diversified portfolio means that your proverbial money eggs are not all in one basket and are spread out to chance these different assets.
ETFs Vary and You Have a Choice of Where and How to Invest
As mentioned, some track only certain assets, and others are hybrids that follow a mix of assets on a specific index.
You can also opt to go for a higher-risk ETF that specializes in niche industries such as robotics. These specialist ETFs may offer higher returns.
So, ETFs give you a choice between passive and aggressive investment approaches.
Investments Are Relatively Low-Cost
There are, however, some ETF cons that you should keep in mind. Fund managers generally charge a fee to manage these funds.
Some funds may have hidden costs that can catch you off guard, so be sure to do your background checks and research.
These costs may pertain to things such as expense ratios and bid-ask spreads.
Individual stocks, while carrying higher risks, offer better and quicker rewards. ETFs are quintessentially long-term investments that provide lower risk.
You should also remember that only select ETFs pay out dividends and, when they do, the yield is not as high as with individual stocks.
Key Takeaways
So, is it possible to gain millionaire status and financial freedom with ETF investments? We can confidently answer in the affirmative to this question. You should, however, do thorough research before diving into any form of financial investment.
The secret lies in your patience and discipline. You need to leave these investments alone to grow before seeing and enjoying the yields. Allow your ETF investments to stew – there’s no rush. Slow and steady wins the race.
____________________________________________________
Some other articles you might find of interest:
Understand how you can maximize your time to grow your business:
Time Is Money And Your Most Valuable Resource. Use it Wisely to Build Your Business
https://www.thekickassentrepreneur.com/time-is-money
Looking for effective ways to drive and increase traffic to your startup website?
SEO Traffic Guide To Boost Your Blog Rankings
https://www.thekickassentrepreneur.com/guide-to-boost-your-blog-rankings/
Looking for effective ways to drive and increase traffic to your startup website?
3 Top Reasons Why Startups Fail and How Not to Become a Victim
