Investing in the stock market is a profitable endeavour if you know how to manage risks. If you enter the trading world without adequate knowledge and buy stocks out of gut feeling, you might lose some of your hard-earned money. Therefore, if you are new in this trade, it is best to engage in low-risk platforms like exchange-traded funds or ETFs. Here are some of the reasons why your first investment should be through buying exchange-traded funds:
Diversification through exchange-traded funds
When you buy a single stock, your earnings or losses are depended on that one source. However, if you have an exchange-traded fund, you can have a diversified portfolio that can ride with the gains of profitable funds and offset others’ losses. This averaging is what makes investing in exchange-traded funds not too risky. If you play it well, the seemingly small profits that exchange-traded funds make will add up in the long run, letting you earn a lot without doing anything.
At present, the Australian market has over 200 exchange-traded fund options that you can choose from. You can have a diverse group of holdings or a basket of partial shares with just a single transaction, limiting the time you spend on nitpicking on each stock in the market.
A cost-effective way of investing
Due to the popularity of exchange-traded funds, their expense ratios are typically lower than those of the regular stock indices and mutual funds. This lowered rate can be attributed to the high demand and high supply of exchange-traded funds. Because you can buy them at a lower price, you can start investing even if you only have a small capital. The more you have, the higher your return will be when your exchange-traded fund’s value goes up.
Furthermore, even though trading ETFs go through the same process as regular stocks, many brokers offer commission-free services when acquiring them at ASX. While commission fees are not that high, having multiple trades can put a dent in your pocket in the long run. As such, this brokerage firm perk is something you should take advantage of while still learning the ropes of investing.
The market can be very volatile, so it is more advisable to put your money in an option that does not have a holding period. Unlike mutual funds whose price is only based on its closing amount, you can buy or sell exchange-traded funds throughout the day. This feature is very helpful if you are learning intraday trading. It can also help you pull out a possibly losing investment if you feel that you have made the wrong choice based on the current price movement. In doing so, you will be able to preserve your capital and invest it again when you get a better market position.
If you are starting anew in the stock market, a low-risk play that you can do is to put your starting capital on exchange-traded funds. The risk of doing so is minimal, so you do not need to worry about losing your money. Additionally, it also has other benefits such as diversification, low rates, and high liquidity. As you get the hang of trading, you can start looking into other options like trading stocks, equities, bonds, and currencies. Your exchange-traded experience will give you the confidence that you can survive the world of stock market despite the risks that go along with it.
Author Bio: Ellen Hollington is a freelance writer who offers to ghostwrite, copywriting, and blogging services. She works closely with B2C and B2B businesses providing digital marketing content that gains social media attention and increases their search engine visibility.