Since COVID-19 became global, markets across the world have been on shaky waters. Although volatility is something you should be concerned about, it should not stop you from investing in the markets. Because of the unpredictability in today’s markets, now more than ever do the principles of smart investing apply. One of the fundamental principles is diversification. You can do that by buying shares from different companies that you trust. However, just like with the rest of the world right now, you may be tight on your budget. Buying high-valued stocks from different blue-chip companies can be expensive. An excellent and viable alternative you can do is investing in an exchange-traded fund or ETF.
ETF: What is It?
Say you are looking to buy chocolates and candies for your significant other who has a sweet tooth. You already know by heart all his or her favourite items. Being the good person that you are, you want to buy all of them. However, you know it can hurt your wallet. As you stroll through the shops, you notice a basket that happens to have most of what you are looking for in varying amounts. You decided to go for that instead.
You see, you can buy a pack of Brand A that can have a dozen pieces, a pack of Brand B that has another dozen pieces, and so on. That can be expensive. Not to mention impractical because no matter how much people love sweets, they will not be able to finish dozens and dozens of pieces. The basket, however, has only a couple of pieces of the brand you prefer. In this example, the different packs of brands are the different stocks available, and their contents are the minimum number of shares you have to buy to own the stocks. On the other hand, the basket which has a diversity of sweets, AKA investments like stocks, bonds, and more, is the ETF.
ETF: Why Go for It?
Because an ETF already contains a variety of assets of different companies, by choosing to invest in an ETF instead of separate stocks, you are already fulfilling one of the fundamental principles of smart investing: Diversify. Moreover, choosing this investment approach is cost-efficient.
An ETF company would typically buy shares of significant and noteworthy companies from a specific index. Say Company A makes up 10% of its index; then, the ETF manager would buy enough shares of Company A so that it also represents 10% of the fund. Whatever gains or loses the index incurs, so does the ETF fund.
See the Bigger Picture
Since COVID-19 entered the global scene, markets have become more volatile, but volatility is nothing new in finance and investments. Markets will dip during these tough times. However, as history has repeatedly shown, these challenges pass sooner or later. When they do, not only will people recover, but so will the markets. Another principle of smart investing is never to have your emotions get the best of you. When you enter investing, you are in it for a long time, not a good time. With this health pandemic, you will be in the game for quite a while. Find pieces when you invest in an ETF with shares from companies that have withstood the tests of time. Yes, their prices may wobble from time to time, but companies with solid foundations will not topple.