How to invest in ETFs

ETFs can offer diversified, low-cost, tax-efficient, and transparent access to global investment markets, which may make them a useful option for starting or building an investment portfolio. An ETF is a single basket of many different investments, much like a mutual fund —but— it can be bought and sold on an exchange during market hours like stock.

Here’s what you need to know to get started with ETFs.

Adding an ETF to your investment portfolio can potentially enhance your long-term investment objectives through increased levels of diversification.

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 gain exposure to a variety of asset classes like stocks, bonds, and commodities, as well as exposure to a range of industries and countries.

Investors can use different types of ETFs to pursue investment ideas in specific sectors where they may have deep knowledge or interest such as healthcare, technology, and energy. Investors can also use ETFs to invest in specific market trends, ideas, or “themes.” This approach, known as thematic investing, broadens the universe of investment options available for investors interested in:

• Emerging markets and economies such as Europe and China;
• Commodities that invest in non-equity ETFs like gold or oil;
• Large multinational companies with proven track records known as mega caps ;
• Future technologies like artificial intelligence.
• And many more.

Purchasing ETFs is as simple as opening a brokerage account. Once you open and fund your brokerage account, you can choose from a wide selection of ETFs using the same standard order types for trading stocks including market, limit, and stop order.

With so many ETFs available, it’s important to do your homework before buying. The fund’s prospectus can help. Things to check include:

• What investments does the ETF actually own?
• What are the risks associated with the ETF's investment strategy?
• Is the ETF provider a reputable brand?
• What expenses and fees are charged when buying the ETF and what are the ETF’s own fees and expenses?

Consider these additional ETF guidelines when choosing what ETFs to invest in.

E*TRADE from Morgan Stanley’s ETF screener can also help guide your options based on various criteria, including the fund’s expense ratio and tax efficiency.

Always keep in mind, though, that the market determines an ETF’s share price. Since ETFs trade like stocks, they have a bid-ask spread, meaning there can be a difference between what a trader wants to sell their shares for and what the market will pay. As a result, ETFs can trade at substantial discounts to the value of the ETF's underlying holdings, negatively impacting shareholders, particularly those that need to sell their shares at such times.

Once you’ve done your due diligence, consider your investment objectives and risk tolerance before finalizing your choices.

 CRC# 3867616 11/2024