Investing in ETFs

Choosing the right asset for trading is never an easy task. Use the questions below to narrow down the list of ETFs to add to your portfolio:

1. Choose a market:
   • Do you want to target a specific region/country or do you prefer to invest in a broader asset?
   • Which underlying assets do you wish to invest in: stocks, commodities, bonds?
2. Diversify:
   • Depending on the markets you want to target: are they represented in one single ETF or a list of assets?
3. Learn more about the Fund:
   • What are the ETF’s trading volume and capitalisation?
   • What is the ETF’s age?
   • What is the ETF’s performance over time?
   • What is the ETF’s liquidity?

Rules of thumb when choosing ETFs:

• Don’t stick to just one market segment – diversify as much as you can around the world and economic sectors.
• The economic interest lies mostly in the Funds with a trading volume of more than 100 M.
• You need to have at least one year’s performance data to be able to analyse the gains and risks correctly.

ETFs trading vs Stocks trading – lately investors have found themselves debating on these investment approaches.

To put it simply, when you invest in stocks, you invest in a single company. It’s true, you can build a portfolio of different stocks but the fees and risks will be increasing – you will have to pay commissions for each stock you bought and it’s more difficult to track each company in your stock portfolio separately.

When you buy an ETF, you invest in a whole market within one instrument. Price fluctuations of the individual assets within an ETF are less significant to its price, and the analysis is simpler. There is also a downfall – there are fewer ETFs on the market than stocks, and finding the right and the most liquid ones can be a challenge.

You can apply most of the stock trading strategies to ETFs. One of the most popular among them is the “Buy and Hold” strategy.

It involves selecting and buying an asset with high growth potential, and holding it until your investment reaches a high percentage of profitability regardless of the minor market fluctuations along the way.

This is a long-term, conservative strategy that exists since the beginning of the stock exchanges. Among the supporters of this approach are legendary investors Warren Buffett and Jack Bogle.