Getting started with ETFs


You probably already know that an exchange-traded fund, or ETF, is generally a basket of many different investments that can be bought and sold during market hours, like a stock. ETFs can offer diversified, low-cost, and transparent access to the world’s investment markets, which may make them a good way to start investing or to supplement your existing investments. Here’s what you need to know to get started with ETFs.

A diversified foundation for the long-term

One approach to investing is building a diversified portfolio of investments as the core, or foundation, of a long-term investing program. For many people, ETFs may be able to help accomplish this goal.

Many ETFs seek to match the performance of broad markets, before expenses including the US stock market, international stock markets, bond markets, and more. This means that by investing in just a few ETFs, you may be able to achieve exposure to a broad set of markets.

More focused investing

ETFs can also help investors pursue more narrow investment ideas, such as those related to industries or sectors where they have deep knowledge or interest.

ETFs offer options here, too, using a strategy known as thematic investing. This approach uses ETFs whose focus is on specific ideas or segments of the market, which are known as investing “themes”. Some examples of themes include:

  • Industry sectors like healthcare, technology, energy, and a host of others
  • Specific countries or regions such as Europe, China, or emerging markets
  • Commodities like gold or oil
  • Trends or values-based ideas like sustainable investing, remote work, or healthy living
  • Income-oriented investments such as companies that pay high dividends, or bonds
  • Stock investing strategies like Momentum, Growth, or Value
  • Future technologies like driverless cars, robotics, artificial intelligence, and genomics and immunology

Ultimately, there’s a huge range of possible themes, and many of them have one or more corresponding ETFs.

Covering your bases

With so many ETFs available, it’s important to do your homework before buying. Things to check include what’s known as an ETF’s exposure, or what investments it actually owns. You should also learn about the risks that pertain to the ETF's strategy, as well as ETFs as a whole. Also check the ETF provider—is it a reputable ETF brand? And, of course, you’ll want to investigate the costs, including the fund’s expense ratio and its tax efficiency. The E*TRADE from Morgan Stanley ETF screener and the fund’s prospectus can provide a wealth of information related to these and other due diligence questions.

If you find answers that work for your goals, risk tolerance and investing strategy, then it’s just a matter of placing your order. After years of development and expansion, ETFs are now important tools for millions of investors, helping them access many different markets and pursue a variety of investing objectives.

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