ETF funds nowadays: an investment option that investors should not overlook

In a volatile global economy, seeking investment channels that can offer both returns and safety simultaneously is a challenge for most investors. ETF funds are considered a tool that helps reduce risk and increase profit opportunities in a reasonable way. This article will help you understand What is an ETF fund, how to choose investments, and why it is suitable for both beginners and experienced investors.

What is an ETF fund? Basic understanding that investors need to know

Exchange Traded Fund (ETF) is a type of mutual fund registered on the stock exchange and managed by a mutual fund management company (Asset Management Company (AMC)). Investment strategies are typically based on a specified stock market index.

Simply put, an ETF fund pools together stocks or various assets into one fund, allowing investors to hold a diversified portfolio through a single traded symbol. This eliminates the need for large capital to buy each stock individually.

Main types of ETFs currently available

1. Equity ETFs (Equity ETF)

This type focuses primarily on investing in stocks, which may cover entire market indices or target specific sectors, industries, or even countries. Examples include SPDR S&P 500 ETF (SPY) or Technology Select Sector SPDR Fund (XLK), which focus on technology companies.

2. Bond ETFs (Bond ETF)

These funds invest in government, corporate, or municipal bonds, providing fixed income risk and are suitable for investors seeking steady income. Examples include iShares Core U.S. Aggregate Bond ETF (AGG).

3. Commodity ETFs (Commodity ETF)

Allow investors to gain exposure to commodities such as gold, silver, oil, or agricultural products without physically holding the assets. Examples include SPDR Gold Shares (GLD) or United States Oil Fund (USO).

4. Sector ETFs (Sector ETF)

Focus on specific industries such as finance, tourism, or healthcare, enabling investors to bet on sectors they are confident in.

5. International ETFs (International ETF)

Provide access to foreign markets and global opportunities, such as iShares MSCI Emerging Markets ETF (EEM) for emerging markets.

6. Multi-Asset ETFs (Multi-Asset ETF)

Combine stocks, bonds, and commodities to offer balanced diversification, such as Vanguard Balanced ETF Portfolio (VBAL).

7. Inverse & Leveraged ETFs (Inverse & Leveraged ETF)

Specialized ETFs for advanced investors, where Inverse ETFs aim to profit from market declines, and Leveraged ETFs aim to amplify returns. Examples include ProShares Short S&P 500 ETF (SH) and ProShares Ultra S&P 500 (SSO).

Why choose ETFs over other investment options

Clear benefits of investing in ETFs

Risk diversification

When you invest in ETFs, you own shares or assets of multiple companies simultaneously. The risk is not concentrated on a single stock. With over 800 stocks in the main stock exchange, selecting the right stocks can be difficult for ordinary investors.

No need for deep stock analysis expertise

Beginner investors do not need to spend much time studying and analyzing individual stocks. Instead, professional fund managers handle portfolio management.

Lower investment costs

Investors do not need large capital to access diversified assets. The management fees of ETFs are lower compared to traditional mutual funds.

Trading flexibility

Unlike mutual funds that are only traded at the end of the day based on NAV, ETFs can be bought and sold throughout the trading day at market prices, similar to stocks.

Dual sources of returns

Investors can earn from:

• Capital gains (Capital Gain) when ETF prices increase
• Dividends (Dividend) paid by companies within the fund

Comparison: ETFs vs stocks vs mutual funds

Structural and characteristic differences

ETFs:

• Traded throughout the day at market prices, like stocks
• Diversify risk across multiple securities
• Lower costs than mutual funds
• Tax-efficient due to their structure

Stocks:

• Represent ownership in a single company
• Higher risk, limited to the company’s performance
• Require time for analysis and monitoring
• May incur trading commissions

General mutual funds:

• Bought and sold only at end-of-day NAV (Net Asset Value)
• Managed by professionals
• Higher management fees than ETFs
• May have sales or redemption fees
• Tax burden may be higher due to profit distribution

Important considerations before investing in ETFs

No minimum investment period

However, ETF prices fluctuate with market conditions. Short-term losses are possible, but long-term average returns tend to be higher. Therefore, ETFs are suitable for long-term investors.

Management fees

A percentage expense ratio is charged to unit holders, already included in the fund price.

Difference between index and underlying asset prices

Sometimes, ETF prices may not match the underlying index due to management fees and other market factors.

Returns may be lower than individual stocks

While ETFs offer greater safety, returns might be lower than carefully selected stocks.

Who should consider ETF funds?

Beginner investors

For those just starting out, ETFs are a good choice because:

• No need for deep stock analysis skills
• No need to closely follow financial data
• Low investment costs
• Good diversification
• Managed by professionals

Long-term investors

For those aiming to build retirement income or long-term wealth, ETFs offer:

• Stable and significant returns
• Good risk diversification
• Potentially increasing dividends over time
• Ease of management

How to invest in ETFs: simple steps

Trading ETFs is straightforward and accessible to anyone with a stock exchange account.

Method 1: Via Streaming Application

1. Register and log in (must have a trading account)
2. Navigate to “Realtime” menu and tap “Watch”
3. Click the arrow to open a new window
4. Tap “SET” and scroll down to find “.ETFs”
5. Select “Buy/Sell” at the bottom bar
6. To buy (Buy): enter fund name, quantity, desired price, and PIN code
7. Tap “BUY” to complete

Method 2: Contact a broker

Stock exchange staff can assist with order placement, reduce errors, and provide additional advice.

Summary: The true value of investing in ETF funds

Investing in ETFs is like building value for your money based on manageable risk. If you are looking for:

• Good risk diversification
• Easy access with small capital
• Portfolio management by experts
• Expected long-term returns
• Lower investment costs

ETFs are the right answer whether you are a beginner or an experienced investor. Careful study and choosing according to your investment goals will help you build an efficient and sustainable portfolio.