Journey to Smart Investing: Why ETFs Are a Good Choice for You

In an era of highly volatile stock markets, finding safe investment channels that offer significant returns has become a priority for many investors. But if you are a beginner or hesitant about where to start, there is another investment tool that might suit your situation: ETF (Exchange Traded Fund) or publicly traded mutual funds that are increasingly popular among investors of all levels.

Why are ETFs becoming more attractive?

Investing in ETF stocks means choosing to invest in a basket of diverse assets instead of risking everything on a single stock. This helps novice investors who lack expertise in analyzing individual stocks to access strategic investments.

The advantages of choosing ETFs are quite compelling. First, they require less capital than buying individual stocks. Second, they have lower management fees compared to regular mutual funds. Third, they can be bought and sold easily like ordinary stocks, giving you flexibility in managing your investment portfolio.

What is an ETF? Understanding the basics

In reality, ETF is an investment tool designed by asset management companies (Asset Management Company), aggregating multiple asset types—whether stocks, bonds, gold, or commodities—and creating a single investment unit that can be traded on the stock exchange throughout market hours.

There are two ways to generate returns from ETFs: the first is Capital Gain, or profit from price differences when the ETF price rises after your purchase; the second is Dividend (Dividend), paid out by the fund manager to investors. The amount received depends on the number of units you own (after deducting management fees).

Diversity of ETFs: Choose according to your goals

Not all ETFs are the same; many types are designed to match different investment strategies:

Equity ETFs invest directly in stocks, covering broad market indices to specific industries.

Bond ETFs focus on government bonds, corporate bonds, or other fixed-income securities, offering exposure to less volatile assets.

Commodity ETFs provide access to gold, silver, oil, or agricultural products without physically holding the assets.

Sector ETFs target specific industries such as finance, technology, or defense.

International ETFs offer opportunities in emerging markets and the global economy.

Multi-asset ETFs combine stocks, bonds, and commodities in a single investment unit, suitable for those seeking balance.

Inverse and leveraged ETFs employ advanced strategies to profit from market declines or amplify returns (for more experienced investors).

ETF vs stocks vs mutual funds: Key differences

To make informed decisions, it’s important to understand how ETF stocks differ from stocks and mutual funds:

Structure: ETFs are funds traded on stock exchanges like stocks, offering real-time trading flexibility. Stocks represent ownership in a single company. Mutual funds are priced based on net asset value (NAV) at the end of each trading day.

Risk diversification: ETFs provide diversification within a single basket. Stocks are inherently riskier as they are tied to a single company. Mutual funds also diversify but may have different tax efficiencies.

Trading flexibility: Both ETFs and stocks can be traded throughout the trading day. Mutual funds are bought or sold only once per day at the closing price.

Costs: Generally, ETFs have the lowest expense ratios, though trading commissions may apply. Stocks may incur commissions and dividend taxes. Mutual funds often have higher management fees.

Tax efficiency: ETFs often realize capital losses effectively, which can offset gains. Stocks and mutual funds may have higher tax liabilities upon distributions.

Who should consider ETFs?

ETFs are ideal for two main investor groups:

Beginners: Those without expertise in analyzing individual stocks or reading financial statements. ETFs allow access to markets without needing to be an analyst, with lower capital requirements, good diversification, and professional management.

Long-term investors: Those seeking to build wealth steadily. ETFs offer combined growth potential from price appreciation and dividends, along with diversification, making them suitable for long-term investing without intensive research.

What to know before starting to invest

Before investing in ETFs, consider these key points:

ETFs have no minimum holding period, but their prices fluctuate with the market, and short-term losses are possible. However, over the long term, they tend to deliver satisfactory average returns.

Management fees are included in the unit price (included in the price). “Tracking Error” may occur when ETF prices deviate from the underlying index due to management fees, potentially resulting in returns lower than individual stocks during bullish markets.

How to buy and sell ETFs

Trading ETFs is straightforward, similar to stocks, with two main methods:

Method 1: Via streaming application: Place buy/sell orders online or through a mobile app for direct control.

Method 2: Contact a broker: Market representatives can assist with order placement, reduce errors, and provide advice.

Steps for trading via streaming:

1. Register with the app using your trading account number.
2. Log in to see the “Realtime” window, click “Watch,” and search for “Favorite” (Dropdown).
3. Click the arrow, select “SET,” and scroll down to find “.ETFs.”
4. Choose Buy/Sell as needed, enter the fund name, quantity, price, and your PIN.

Investing in ETFs for a better future

Investing in ETF stocks is about creating value and increasing your wealth with well-managed risk. For beginners hesitant about where to start or those seeking better diversification and lower fees, ETFs are a reasonable choice. Ultimately, the decision among ETFs, stocks, and mutual funds depends on your investment goals, risk tolerance, and trading behavior. Be sure to understand each option thoroughly before making a decision.