Daily Doses of Finance

Basics of an ETF, made for beginners.

By: Vibhav Duggirala, published.

What is an ETF

An ETF stands for Exchange-Traded Fund. In simple terms, it is a single stock that you can buy that tracks either an entire sector or a group of the best companies, such as the Vanguard S&P 500, which is an ETF that tracks the 500 largest publicly traded companies in the US. So, pretty much you own a small part of a bunch of companies.

Pros of an ETF

ETFs are a great choice for beginners because they allow you to invest in many companies at once, which reduces your risk. They are affordable since most have low fees, meaning more of your money stays invested. You can buy and sell ETFs easily through any brokerage account, just like regular stocks. Many ETFs, like ones that follow the S&P 500, have a strong history of long-term growth. They are a simple and smart way to start building wealth without needing to pick individual stocks.

Cons of an ETF

Even though ETFs are safer than individual stocks, they can still lose value if the overall market drops. Not all ETFs are well-diversified—some focus on risky sectors like crypto or oil, which can go up and down quickly. There are also so many ETFs available that it can be confusing to choose the right one without doing research. Some ETFs charge higher fees than others, which can reduce your profits over time. It’s important to understand what you’re buying and always check the fund’s performance and costs before investing.

My Favorite ETF

My favorite ETF right now is the Global X Robotics & Artificial Intelligence ETF, ticker symbol BOTZ. This has insane potential due to the fact that it is comprised of many technology and AI stocks, which is where most of the wealth will be in the future. You can already see that AI will be a massive part of our lives; for example, Nvidia, the company with the highest market cap, beating out the likes of Apple and Microsoft, shows AI’s dominance in the market right now, and it can only grow in the future.

So, if you want to get into investing or want a less risky option than individual stocks, ETFs are a great option and could help grow your portfolio to an immense amount. So until next time, keep investing and let’s grow together!