What Are ETFs? A Beginner’s Guide to Exchange-Traded Funds

Understanding ETFs: Your gateway to diversified investing

Exchange-traded funds or ETFs in easy words are like a basket of stocks or bonds that you can buy like one stock or share. It tracks an index like the S&P 500 which is a group of the top 500 companies which shows how the big companies are performing.

ETFs are a very safe and simple trade fund to invest in as they are easy to buy and sell, have low fees and spreads your risk because it has many companies inside it. ETFs are a long term fund so they are very likely to grow over time as the US stock market has a 73% chance of growing each year and if you hold onto it then you’ll have a staggering 89% chance of profit, can you believe that!

Types of ETFs

1. Market ETFs

The most common type of ETFs are market ETFs:

• SPY (Follows the S&P 500)
• QQQ (Top US stocks)
• ASHR (Chinese stocks)
• EEM (Emerging countries like India or Brazil)

2. Sector ETFs

Another common type of ETFs are Sector ETFs which focus on one area like:

• Tech (XLK)
• Energy (XLE)
• Health (XLV)
• Finance (XLF)

3. Thematic ETFs

• Robots
• Cybersecurity
• Solar energy
• Clean Tech

4. Bond ETFs

• US government bonds
• Company bonds

5. Commodity ETFs

• Gold
• Silver
• Oil

6. Inverse ETFs

Inverse ETFs are ETFs that go up when the markets go down:

• SH
• DOG

How to Invest in ETFs

1. Dollar Cost Averaging (DCA)

• Invest the same amount (like $100) every month or every 3 months
• This way, you don’t have to guess the right time
• You get more shares when prices are low, fewer when high

2. Trend Following

• Only buy when prices are going up
• Sell when prices start going down
• Use simple charts or lines (called moving averages) to help you decide

3. Hybrid Method

• Buy regularly, but only when the market is looking good or prices are low
• Don’t buy when prices are falling badly
• This way, you avoid big mistakes and still grow your money

Ray Dalio’s All Weather Portfolio

Ray Dalio’s All weather portfolio which is built for all kind of markets in good or bad times:

• 30% Stocks (SPY)
• 40% Long term bonds (TLT)
• 15% Mid term bonds (IEI)
• 7.5% Commodities (DBC)
• 7.5% Gold (GLD)

Final Thoughts

ETFs are an easy and smart way to grow your money. Markets go up and down, but they mostly rise over time. Keeping cash for too long can make you lose value because of inflation. Even if you don’t buy at the best time, investing in ETFs is usually better than not investing at all. They are simple, low-cost, and help you grow your wealth safely over the long run.