Rise in ETF Appeal For Younger Investors
By Hooi Mun Keong, Digital Educator
ETF or Exchange-traded Funds (ETF) have become the buzz word to US stock market investors due to its appeal for those testing the waters or aiming to invest for long-term gains. Since we opened up access to trade US markets, we've noticed that when it comes to ETF trading, Rakuten Trade clients tend to favor the top 5 ETFs. We see the same trend happening month on month.
Traded on the stock market just like regular shares, ETFs have historically produced stable, long-term gains which certainly adds to its appeal.
Low Entry Price
For investors, ETFs are an ideal opportunity to get into multiple stocks at once that may not be within a lower price range. The rule of thumb when it comes to investing in ETFs is to buy consistently over timing the market.
As they are considered long-term investments, one can simply invest in these on a set schedule and allow them to grow over time.
This growth in capital is tax-free in Malaysia and by buying ETFs routinely the highs and lows in ETF buying costs are also averaged out.
Top 5 actively traded ETFs in Rakuten Trade in 2023 (prices at 13 September 2023)
- Vanguard S&P 500 ETF (VOO): USD 360.55
- SPDR S&P 500 ETF Trust (SPY): USD 446.51
- Invesco QQQ Trust Series 1 (QQQ): USD 374.21
- Schwab US Dividend Equity ETF (SCHD): USD 73.55
- Vanguard Total World Stock Index Fund ETF (VT): USD 96.79
Spreading the Risk
As ETFs are not tied to the rise and fall of a single company, but rather a selection of companies, buying an ETF automatically spreads the risk.
It is generally considered a good practice to invest in a mix of ETFs to lower your portfolio risk. Since the expense is minimal, this would be a good strategy for a beginner. Post pandemic, new investors find this more appealing and enables the diversification of their investments into specific sectors or within a broader market.
For example, ARK’s Next Generation Internet ETF focuses on the U.S. companies that are pioneering developments in Internet technology, like Tesla.
The only notable downside of buying ETFs is the lack of ownership in individual stocks. This would exclude you from the benefits of direct holding; for example, if a stock were to announce corporate activities like dividends.
While ETFs remain foreign to most beginner investors, they are the demographic who stand to benefit the most from such investments.
It reduces the need to pick individual stocks to trade, and instead gives beginner and cautious investors an investment portfolio exposure to a range of stocks at an affordable price.
When you own an ETF, you own a small part of a large portfolio comprising of a wide selection of stocks.
At the cost of not being able to handpick the stocks, you can ensure that you receive possible gains from multiple shares, while investing less than the amount the individual share would cost.