Whether you want to retire before 50, take that big trip to Bora Bora (whenever we can do that again), or achieve any other financial goal, you know investing is the not-so-big secret.
But investing can be overwhelming if you’re just getting started. How do you know what stocks to buy? How do you buy stocks if you only want to invest a little bit at a time?
If you’re considering investing for the first time, exchange-traded funds (ETFs) are an easy and affordable way to get started. And you don’t have to be an expert investor to make it work for you.
Start investing in ETFs today!
Moka makes it easy to invest in a fully-managed, diversified portfolio of Exchange-Traded Funds or ETFs.
What is an ETF?
First things first: An ETF is a collection of stocks and/or bonds. You can buy an ETF just as you would stock. However, when you buy stock, you’re investing in one company, such as Tim Hortons or Amazon. When you invest in an ETF, you’re investing in multiple stocks or bonds that follow a specific investment strategy.
For example, some ETFs may track a stock index (like the FTSE Canada Index ETF, which tracks the performance of the FTSE Canada Domestic Index and invests in the largest Canadian stocks). Or, an ETF may track an index for a particular industry, such as technology or healthcare.
An index measures the performance of a group of stocks or bonds. So, a technology index may include Apple, Microsoft, IBM, and others. The ETF attempts to meet or exceed the performance of the index.
Why invest in ETFs vs. stocks?
While you can buy ETFs and individual stocks, there are several upsides to investing your money in ETFs—especially when you’re just starting out.
Low investment amounts. One of the biggest reasons ETFs are better than stocks for new investors is because they make it easier to start investing with less money. Some stocks cost several hundred dollars for a single share. With an ETF, you can invest smaller amounts and not face tons of commissions and other fees.
Risk management through diversification. One of the keys to success as an investor is diversification. The basic concept behind diversification is simple: don’t put all your eggs in one basket. With your money spread across several stocks and bonds, there’s less risk involved.
If you invest in one stock, your investment would lose a lot of value if the stock price plummets. (All your eggs are in one basket, so you’re in trouble if you drop the basket!) On the other hand, if an asset in an ETF underperforms, other assets can make up the difference. One ETF is many baskets.
That said, it’s still possible to take risk with ETFs. If you have a higher risk tolerance, you can opt for a portfolio of ETFs that takes a more aggressive investment strategy.
Simplicity. With ETFs, you don’t have to be an investment pro to succeed (even seasoned investors have a hard time beating the market by picking stock). If you don’t have the time to understand which specific stocks make most sense for you—and who really does?—investing in an ETF is a much easier decision that can pay off in the long term.
Performance. ETFs generally follow the index they’re tracking. Over time, their returns will be similar to the index. For example, someone who invested in the FTSE Canada Index ETF at inception in November 2011 would have seen an annual compound rate of return of 7.27% by the end of 2020.
In fact, ETFs can outperform stock picking over time. Some stock pickers largely outperform passive, index investing strategies, but in general, over longer periods of time, passive index ETF investment will outperform. This is especially true for non-professional investors: you’re more likely to see better gains in the long term if you go the ETF route over trying to manage your own portfolio!
So, if you don’t have a bajillion dollars to invest in pricey stocks managed by a pro (and who does?), but you still want to make progress toward your financial goals, you’ll want to consider ETFs.
Ready to start investing in ETFs today?
There are lots of ways you can get started. If you’d like to open a fully-managed, diversified investment portfolio, Moka might be the right fit for you.
Moka portfolios are a mix of four Moka funds:
- Three funds are entirely ETFs.
- The fourth fund is designed for people who may need to quickly convert their investment money back to cash. This fund is a mix of ETFs, guaranteed investment certificates (GICs), money market instruments (such as treasury bills), and cash.
The mix of funds in your portfolio will depend on the strategy we select (we’ve got options ranging from conservative to aggressive) to support your goal, financial profile and risk tolerance, and whether or not you’ve selected socially responsible investing.
And with Moka, you don’t need a bag full of cash to get started. Moka will round up your everyday purchases to the nearest dollar and automatically make the investments.
Download Moka to start investing in ETFs today.
Disclaimer: The views expressed in this story do not constitute financial advice.