With interest rates on cash savings still low and inflation soaring, it’s no surprise that more people are looking to invest in the stock market to earn a better return on their money.
But while shares in high-profile companies like Tesla and the US tech giants attract a lot of attention, here’s why exchange-traded funds (ETFs) could be a good choice for investment beginners:
Rather than picking individual stocks, with ETFs you can invest in an entire market in one go.
For example, a single purchase of the Vanguard S&P 500 ETF spreads your money across the S&P 500, a stock market index that tracks the performance of 500 of the largest companies in the United States — including big names such as Apple, Tesla and Amazon.
So through one investment, you’ve got yourself exposure to 500 of America’s biggest companies!
As well as being a simple way to invest, the wide range of holdings in many ETFs reduces risk compared with buying individual shares.
Easy to buy and sell
The growth of low-cost investment apps and digital services means you can now open an account and buy ETFs in just a few clicks in much the same way that you can buy stocks & shares.
You can get started for £100 or less. And with an app like InvestEngine that has ‘fractional investing’, you’re able to invest as little as £1 in any ETF, regardless of its share price.
ETFs have some of the lowest investment costs around, so more of what you make goes in your pocket rather than someone else’s.
The annual management charge on some ETFs is as little as 0.05% — just one-twentieth of 1%, equivalent to 50p a year on a £1,000 investment — and there are plenty charging less than 0.3% a year.
There’s also no stamp duty to pay when you buy ETFs — unlike with most UK shares — which saves you 0.5% upfront.
Take your pick!
As well as ETFs for a wide variety of stock markets and other types of investment such as bonds and precious metals, there are ETFs that focus on specific investment themes such as climate change (eg. L&G Clean Energy ETF) and digitalisation (eg. iShares Digital Security ETF).
ETFs that screen their investments for ESG criteria (environmental, social and governance) such as iShares MSCI USA ESG Screened ETF, have become a popular trend in recent times.
This communication is provided for general information only and should not be construed as advice.
If in doubt you may wish to consult a professional adviser for guidance.