What Is an ETF and Why Should You Start Investing in Them?

ETF

Investing is one of the greatest ways that you can exponentially increase your net worth. However, not everybody understands the nuances about it that they need to.

For instance, you may be asking yourself “what is an ETF?” We’ve got all the information to know.

Let’s get started.

So, What Is an ETF?

This term stands for exchange-traded fund. It allows investors to purchase a large number of bonds or stocks at one time.

In fact, it’s not uncommon for a single ETF to consist of hundreds of different companies. So, buying a single share of an ETF essentially distributes your money across a large number of company stocks.

ETF vs Mutual Fund

It’s essential to understand the differences between an ETF and a mutual fund. Although the two are highly similar, they aren’t identical.

The primary difference is how you buy and sell shares of these investments.

To elaborate, the price for mutual funds is determined once per day. They also typically require investors to contribute a set dollar amount.

Additionally, the transaction for a mutual fund is not instant.

ETFs, on the other hand, function exactly what stocks do. This means that you can choose how many shares you want, and you will need to pay the minimum price per share.

However, this means that transactions are instant and you are able to buy shares of ETFs as long as the stock market is open.

Additionally, ETFs fluctuate in price as the day goes on. So, you may end up paying more or less money if you decide to wait before you purchase.

How Much Money Do I Need to Get Started?

Many people mistakenly believe that you need to have a large amount of money to get started in ETF investing. The good news is that this isn’t true at all.

However, it’s worth noting that you will need to pay the minimum price per share in order to purchase an ETF stock. This means that the price floor is the cheapest ETF that you are able to buy.

To clarify, if the least expensive ETF costs $40 per share, then you will need at least $40 to get started.

As you might guess, investing more money will generate greater returns. So, those who have more to contribute will see a higher output.

Looking to get started? You can check out this resource to learn more about the next steps to take: www.monexsecurities.com.au/

Understanding ETFs Is Essential

This is due to the fact that they have the potential to exponentially increase your return on investment. So, keep the above answer to “what is an ETF” in mind so that you can make the decision best for you.

Want to learn more useful information that can benefit you in the future? Our blog has plenty of great resources you can check out.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.