Why ETF is the BEST Investment for most people?
ETF is an investment tool that tracks the return performance of a specific index, like the S&P 500 or Nasdaq Index. Investment legend Warren Buffett also recommends people to buy ETF instead of stocks. (Source)
To people who really want to make investments in stocks. Would you please ask yourself some critical questions that may change your life?
First, are you willing to spend lots of time to review stocks (not just check the daily share price movement, you need to check the fundamentals of companies, is that company doing well this year, is the product is recording good sales, is that company offers really differentiated product or service, etc.)?
Second, do you have sufficient skill or ability to check the fundamentals of stocks? Can you figure out which company is the best in that industry? Can you explain why this company is the best in that industry? Can you read the financial statements, including income statement, balance sheet and cash flow?
Frankly speaking, if you admit that you do not have plenty of time or sufficient skill to review stocks. ETF is the best investment choice for you, just like Warren Buffett advocated above.
Why ETF is the BEST?
Well DIVERSIFIED
For a stock ETF, holding it means that you instantly can have a stock portfolio consisting of dozens or even hundreds of stocks. As for building a stock portfolio, you need to spend dozens of hours screening and reviewing stocks. Most importantly, the stocks you pick may not be the best performers. A portfolio means well diversified. You can avoid a significant loss of specific company risk. Of course, you still cannot prevent the macro downside risk if the whole market is falling, just like the COVID-19 crisis leading to a market slump in March 2021 or the financial tsunami in 2018. The share price of ETF also slumped, but most importantly, it gradually recovered afterward.
NO need to review individual stock again
Imagine you do not need to spend time reviewing daily share price performance, check the company’s fundamentals, check the quarter or annual results of a company, and read their financial reports. When you invest in an ETF, you do not need to do the “homework” again. You can save time and spend time with your loved ones and family.
Buy country ETF means you bet on the prospect of that country is excellent
For example, you may have confidence that the United States will continue to be the superpower in the future, always having giant technology companies to occupy and change the world. A place to incubate numerous technology innovations to human life and make people a better place to live. As a result, S&P 500 and Nasdaq index will rise in the long run, given the US economy and US technology companies are robust in the future. Invest in S&P 500 and Nasdaq ETF, meaning you are investing in the future of the United States and those excellent technology companies. You can share the return with the success of the United States.
Very LOW cost compared to mutual fund
Usually, the additional cost of owning an ETF is below 1% of your total investment annually. It is much lower than buying a mutual fund which can cost you around 4-6% (including the subscription cost, management fee, performance fee, redemption cost and other operating costs) annually.
ETF is a LONG term investment, not a short term speculation
When you invest in an ETF, e.g., investing in a country ETF (S&P 500 Index) or sector ETF (technology ETF like Nasdaq ETF) means you have faith in that specific country or specific sector in the long run, not the short-term.
GLOBAL asset allocation
To the rich, there is a fancy investment term called “GLOBAL ASSET ALLOCATION”. Do not treat that term as very complicated. You can just simply buy several ETFs listed in the US stock market and can achieve that global asset allocation.
Not only you can have stock exposure, but you can also have other asset ETFs. As ETF tracks a particular index, not only the stock index, there are other indexes that track the performance of other assets, like treasury bonds, corporate bonds, gold, commodity, and property.
You can build an ETF portfolio that holding several ETF investments on various assets. You can buy stock, bond, property and gold ETF to diversify the risk further.
A 100% stock ETF portfolio must face a high market risk and volatility, such as the COVID-19 crisis in March 2021, your ETF portfolio also faces a high volatility. But if you add some bond and gold ETF at that time, you can reduce the volatility. Honestly, your portfolio would still make a loss, but the loss will be largely reduced, e.g., falling 30% from the peak level for a 100% stock ETF portfolio and falling 15% from the peak level for a diversified ETF portfolio having stock, bond and gold.
Typically, the stock has a higher risk and volatility compared to bonds and gold. Of course, high risk, high return, stock generates a higher return with higher volatility compared to bond and gold.
The majority of well-known ETFs are listed in the US stock market. What you need is just opening a US stockbroker account. Go to the broker trading platform or app, type the relevant ETF ticker and buy! That’s it. Very easy to do that, totally similar to the step of buying a stock.
Finally, we provide our ETF watchlist as a reference for you to build a global asset allocation, all listed in the US stock market:
The first item of each row is the ETF ticker.
VOO: track S&P 500 index
QQQ: track Nasdaq index
ARKK: active ETF to buy innovative technology stocks
TLT: track the US treasury bond performance
LQD: track corporate bond performance
GLD: track gold price performance
VNQ: track US property price performance
Where To Buy Stock and ETF?
You can buy stock and ETF via Interactive Brokers, which is one of the largest brokers globally. We recommend using the largest broker in the world, which is more secure. You can click the following Interactive Broker link to register an account and buy stock and ETF.
This is our Interactive Brokers code, you can also start earning up to $1000 of Interactive Brokers Stock for free! You will receive $1 worth of Interactive Brokers stock for each $100 in net deposits of cash or other assets to your Interactive Brokers account during the first year. A win-win situation!
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Disclaimer: we are not financial advisors, these are not investment recommendations, this article is just for educational purposes only.