Why ETFs Are A Great Way To Start Learning & Investing In The Financial Markets

This article is sponsored by FSMOne. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.

“A journey of a thousand miles begins with a single step.”

This popular phrase describes many aspects of our lives. It also serves as a fitting metaphor for our investment journey.

Reading investment books and articles (like this!) or watching finance videos on YouTube can help instil core fundamentals akin to studying and strategising before a marathon. However, to be considered an investor, we need to apply the theory to practice and start investing.

In today’s financial market, there are many ways to embark on our investment journey. We believe one of the best ways to start investing in the financial markets will be through ETFs.

What Are ETFs?

Short for exchange-traded funds, ETFs are a basket of securities (i.e., listed counters like stocks and bonds) that can be traded on an exchange. ETFs are designed to track the performance of a specific index against which they are benchmarked, making them an accessible investment instrument if we wish to gain exposure to a particular sector or market.

For example, the Straits Times Index (STI) is regarded as our country’s benchmark index as it comprises the 30 largest stocks (by market capitalisation) listed in Singapore. These include major companies such as DBS, OCBC, UOB, SingTel, and many others. Combined, these 30 stocks represent about 80% of the total market value of stocks listed in Singapore, making the STI a good proxy for how the Singapore market is performing.

If we wish to invest in the STI, we can do so through an ETF. On the Singapore Exchange (SGX), there are two ETFs we can consider: 1) Nikko AM Singapore STI ETF (SGX: G3B) and 2) SPDR Straits Times Index ETF (SGX: ES3). Investing in either of these ETFs means we are investing in all 30 stocks that make up the STI.

Like mutual funds, ETFs are managed by a fund manager. For instance, the Nikko AM Singapore STI ETF is managed by Nikko Asset Management while the SPDR Straits Times Index ETF is managed by State Street Global Advisors.

Rather than to pick which stocks they think will perform well, the role of ETF managers is to ensure the ETF’s portfolio remains aligned with the index it tracks. This involves regularly rebalancing the portfolio to reflect any changes in the index, such as when companies are added or removed, or when their weighting within the index changes. This alignment ensures that the ETF closely replicates the performance of the index it is designed to track, allowing investors to gain exposure to the performance of an entire index through a single investment.

ETFs Provide Investors With Instant Diversification

One key benefit an ETF offers investors, especially those investing for the first time, is diversification. ETFs contain a wide array of stocks within a single fund. The STI, for instance, comprises the 30 largest companies on the SGX. ETFs like the SPDR S&P 500 ETF (SGX: S27), also listed on the SGX, track the S&P 500 index, which includes the 500 largest companies listed in the US.

Instead of choosing individual stocks to invest in, a single investment in an ETF provides investors with diversified exposure to all the stocks within that ETF. This diversification is crucial as it helps investors mitigate unsystematic risks (i.e., company-specific risks) associated with any single stock. In addition to stock ETFs, there are also bond ETFs, commodity ETFs, and REIT ETFs that we can invest in.

ETFs Are Affordable & Accessible

Like individual stocks, ETFs are traded on exchanges so investors can easily buy and sell them during market trading hours. To gain access to the different exchanges, we can use a brokerage platform such as FSMOne. With FSMOne, we can enjoy access to multiple markets including the SGX (Singapore), HKEX (Hong Kong), NYSE (US), LSE (UK), among others.

Platforms like FSMOne are great for retail investors to invest in ETFs due to their low minimum investment requirements and low fees. For instance, with FSMOne’s ETF Regular Savings Plan (RSP), we can start investing in approximately 150 different ETFs across the SGX, HKEX, LSE, and US exchanges from as little as $50 per month, with no processing fee on transactions made through the RSP. Furthermore, investors can have the flexibility to choose various dates for their RSP.

Learn While We Invest

While ETFs provide an accessible starting point for investors as they are simpler to understand than individual stocks, it’s crucial to remember that not all ETFs are the same.

Each ETF is designed to track the index of a specific market or sector, whether it’s a geographical region (e.g., Asia, Europe), a specific country (e.g., Singapore, US), or a particular industry (e.g., technology, healthcare).

While we do not need to analyse every single stock in an ETF before investing in it, we must still grasp the various investment trends and macroeconomic factors that can influence the sectors and markets we invest in.

This understanding can help us select ETFs that align with our desired investment exposure. For example, the performance of a technology ETF will mirror the overall tech industry. Being informed about developments such as new technologies or regulatory changes can guide our decisions on whether we want to continue investing in a particular market through the ETF. Over time, ETF investors will find themselves becoming more knowledgeable and having a better understanding of how the financial market works.

Learn more about ETF investing at FSMOne’s ETFestival

We can take the first step to becoming a better ETF investor by joining FSM ETFestival 2024. Organised by FSMOne, this not-to-be-missed event offers us the opportunity to learn from investment experts such as fund managers and research analysts from FSMOne. Attendees can explore new ETF investment ideas, gain valuable insights from leading ETF partners and enjoy exclusive perks and promotions if you open a brokerage account with FSMOne on that day. Attractive goodies bags and lucky draw worth more than S$4,000 will be given away at the event.

The ETFestival 2024 will take place on Saturday, 18 May 2024, from 10 a.m. to 4 p.m. at The Projector@Cineleisure. DollarsAndSense will be part of a panel discussion about the risk of chasing market rallies such as the current bull run for Bitcoin.

Whether you are an experienced investor or a newcomer, the FSM ETFestival 2024 is an excellent venue to elevate our investment strategy. Register for the event today for free to take the first step towards becoming a sound investor.

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