Where Should a Beginner Start Investing?

For those of us who have never invested before, the question we seem to have is:

​​ Where should I start? ​​ 

There is too much conflicting advice going around on the internet. You have people telling you to buy marijuana stocks, while other people tell you to buy into Bitcoin. Some say buy to buy mutual funds, or bank stocks while others tell you to find a investment manager to do it all for you. ​​ Although most people have good intentions, sadly they usually don’t have very good advice…

So the question is, where should I put my money?!

The best place for you to put your money while you are still learning to invest is:

A low Cost ETF

What we’re covering today

• What is an ETF exactly?

• What do you mean by low cost?

• The 9 different types of ETFs

• The benefits of investing this way

• Six Simple steps to actually investing in an ETF

• My favorite list of which ETFs I think are the best.

Ok, what the heck is an ETF? And what do you mean by ‘Low-Cost’?

An ETF, (which stands for an Exchange-Traded Fund), is a type of fund that was especially designed for individual investors. An ETF is different from a mutual fund because an ETF actually owns the underlying asset Such as:

• Stocks

• Bonds

• Gold

The ownership of these assets are divided into shares, and are traded just like any other stock on the open stock market. This means that an ETF has a ticker symbol (a short abbreviation that denotes the underlying asset. For example, Apple’s ticker is ‘AAPL’) and intra-day prices can be easily obtained. Shareholders are also entitled to a portion of the profits, such as through dividends paid out (with stocks), or through earned interest in the case of bonds.

The Different Types of ETFs

There are a large number of ETFs available for purchase today (actually over 5,000 globally). They can be broken down into roughly nine categories:

• Index: This type of ETF is designed to track a particular index such as the S&P 500 (which holds the largest 500 companies in the US) or the DJIA (Also known as the Dow 30 because it holds 30 major companies).

• Industry:This ETF is designed to provide investment exposure to a specific industry, such as Robotics, automotive, or oil.

• Foreign:This type of ETF was designed to gain exposure to Markets outside of the U.S. Such as Hong kong’s Hang Seng Index, or India’s Nifty 50 index.

• Style:This one was designed to follow a specific investment style or market capitalization (Business size) focus, such as Small-cap Value, or small-cap Growth.

• Bond:This ETF was designed to provide exposure to virtually any type of bond that is available today. This includes U.S. Treasury, Corporate, High yield bonds, and many more.

• Commodity:This ETF was designed to track the price of a specific commodity such as Gold, corn, or oil.

• Active:This ETF is actively managed, and is designed to outperform an Index, unlike most ETFs which track an underlying index. ​​ There are usually higher costs associated with this type of ETF.

• Inverse: This ETF is for those who want to take advantage of any decline in an underlying market or index. In other words, when the underlying asset goes down, this ETF will go up.

• Exchange-Traded Notes: This was designed to follow debt securities backed by the creditworthiness of the issuing bank which was created to provide access to illiquid markets. ​​ It also has the added benefit of virtually no short-term capital gains taxes.

The Benefits of Investing in an ETF

• It’s passive! This means you can buy it and forget about it. ​​ For most people who don’t want to dig deeper into investing, and are happy with an 8-9% return on average, this is the holy grail.

Side Note: if you do your own research, be sure to look at the long-term return, not just the monthly or yearly. ​​ You want to know the average return over 10+ years

• You can be completely market diversified buying only one ETF (Such as the Vanguard Total Stock Market ETF (VTI).

• You can buy and sell ETFs any time of the day.

• No sales load, and lower brokerage commissions (some brokerages even allow you to buy some free of charge.

• Extremely low expense ratios. ​​ This is one of the most important factors when determining if this fund is right for you. ​​ You want to have an expense ratio as low as possible. ​​ This is why I like Vanguard. (Ex. VTI Expense ratio: 0.04%)

• More tax efficient

• You can add alternative assets to your investing strategy such as emerging markets, gold, or commodities.

6 basic steps to investing in an ETF

Step 1. Find a Broker:

A broker is someone who will buy and sell the ETF for you. ​​ You can’t do this without one. ​​ First, check with your bank and see what they have to offer. ​​ You’ll want to compare them to Vanguard, who offers the option to buy any Vanguard ETFs for free, with any account you open with them. ​​ This will be the best option for most people starting out.

Step 2. Fund the Account:

This is an important, and obvious step. You’ll need to send your funds to your broker so that you can buy the ETF you’re looking at.

Step 3. Decide which ETF you want to buy:

This is probably the most difficult step when you’re first starting out. As i mentioned earlier, there are over 5,000 funds to choose from. ​​ The good news is i’ll give you a short list of the ones I like the most. ​​ You can simply pick one of them, and you’ll be fine.

Here’s a list of my favorite Funds:

Step 4. Start with One:

Now that you have a list of excellent fund possibilities, pick one and put some of that stagnant money you have into it. Then sit back, and watch it grow.

Step 5. Set a schedule, and follow it:

You need to continue to add more funds to ETF on the same day, every month. ​​ This way you end up buying when the market is low, high, and all times in between, ensuring that you’ll get an excellent return over the long run. ​​ You need to save as much as possible and add to the fund on the same day every month. ​​ The more you can add, the better the fund will be, and the larger the nest egg you’ll have when you retire. ​​ Every little bit counts, so work hard on this.

Step 6. Leave it alone:

This is both the easiest step, and the most difficult to do. ​​ You have to give your investment time to grow. ​​ The longer you can leave it, the more money you will gain. ​​ This is the magic of compound investing. ​​ Yes the market is going to fluctuate, sometimes wildly over the next decade or more, but the most important thing is to just leave your money in the fund. ​​ The problem most individual investors have is taking their money out after a major crash, and then not putting it back in while the market continues to move up passed old high points.

Side Note: the natural gravity of the market is up. ​​ As long as you are investing for the long term (10 years+) and leave the money alone, it will be worth a lot more than when you put it in.

Conclusion

Now that you understand what an ETF is, and where your focus should be when selecting one (good return and low cost) you can move your focus from spending your money, to saving it. The more you save and add to your investment, the better off you will be when it’s time to retire. ​​ And if you take this very seriously, you’ll find you can live the retirement of your dreams. ​​ The sooner you start the better, so don’t delay.

And if you want a deeper dive into investing, Sign-up to my newsletter where you’ll get weekly investing lessons, directly from me. No spam ever. Just me talking to you. Sign up here, or click the free checklist below.

Thanks for reading,

We’ll talk again soon.

~Ryan Chudyk~