Getting started with ETFs

You probably already know that an exchange-traded fund, or ETF, is 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 makes 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.

One of the first things nearly all new investors think about is building a diversified portfolio of investments as the core, or foundation, of a long-term investing program. For many people, ETFs may be a good way to do this.

Many ETFs are built to match the performance of broad markets, 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 a well-diversified mix of investments, with a balance between growth potential and risk that fits your long-term goals and strategy.

With a strong long-term foundation in place, some investors may want to pursue more narrow investment ideas. Maybe it’s a potential opportunity they spot from watching the news or the markets, or perhaps it’s an industry or sector 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. If you spot a trend or think a particular technology or business is likely to take off, it’s definitely worth checking to see if there’s a thematic ETF focused on your idea.

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. 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 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.