The ETF, known by its English acronym Exchange Traded Fund is a type of fund that groups together stocks and can be bought and sold on the stock exchange just like a regular stock.

It’s a perfect option for both novice and experienced investors, as it allows for diversification and facilitates the transaction of stocks.

Today we present everything you need to know about ETFs and how to start investing in them.

What is an ETF?: Definition and meaning

An ETF consists of a variety of assets, offering more diversity and, unlike individual stocks, provides easier trading, lower costs, and allows access to difficult markets.

For investors, we can describe an ETF as:

A set of various assets traded on the stock market. ETFs help toinvest in a diversified way

So, you can imagine an ETF as a basket full of stocks that you can buy and sell with a single purchase order. It’s an efficient and low-risk way to access multiple specific markets.

Leveraged ETFs

This refers to investments made with both your own money and borrowed funds, usually from a bank. Simply put, it’s borrowing money to invest. In this way, investment returns can increase. For example, choosing to invest with 2X leverage means you will invest twice the initial amount.

Why would you use leverage?

Leverage is used when you don't have additional capital but want to invest more, exposing yourself further by using borrowed money. You then aim to gain. It’s riskier, as you can double your gains or double your losses. It’s a double-edged sword—both returns and risks are higher.

How does an ETF differ from an index fund?

The differences between an ETF and an index fund are essentially:

• An ETF can be bought and sold at any time, while an index fund only once a day.
• An ETF is 100% invested, while an index fund keeps a mandatory liquidity percentage.
• ETFs generally have lower fees.

Which is better, buying an ETF or a stock?

When you buy an ETF, it means that:

• You are investing in a diversified sector of the market, reducing risk;
• The initial purchase cost is lower;
• You are investing in a portfolio of stocks without the need to manage each one individually;
• You gain a stake in each of the different companies and segments within that ETF.

On the other hand, buying a single stock means:

• You are investing in just one company;
• Your investment takes on greater risk as it depends on just one company;
• The initial cost of a stock may be higher, especially when factoring in additional commission fees.

So there are significant differences between buying a stock and an investment fund. If you're not convinced about why you should opt for ETFs, we’ll now explain their advantages and why they are a good investment option.

ETF vs. Investment fund: Exploring their advantages

ETFs have increasingly positioned themselves as an alternative to traditional investing. Specialists have identified three main advantages of investment funds:

Diversifying investment portfolios and reducing risk

Choosing an investment fund allows you to diversify your portfolio instantly. As we’ve seen, they have the ability to combine various assets in one batch, ranging from stocks, bonds, to commodities.

So, the simplest technique to diversify your investments is to consider acquiring an ETF. Remember that before investing, you should always inform yourself well and understand the basic concepts of the investment world.

Knowing its value in real-time

ETFs demystify investing. When you invest in an investment fund, you can track each of your underlying investments. Since it is a traded asset, you can know its value at any time.

Having great liquidity

Do you remember the concept of liquidity? We recommend checking these key concepts before investing.

An ETF has a high degree of liquidity because, like a single stock, an investment fund can be bought and sold at any time, quickly and without losing value.

Lastly, ETFs also allow you to track general market trends. With a single product, you can invest in an entire sector or region. What more could you ask for? So now the question is: How do you choose the best ETF?

Which is the best ETF to invest in? A small guide to start

As a first and major step, you should create an investment plan based on your goals, understand your financial profile, and stay continuously informed. Take advantage of podcasts to expand your financial education. Social media can also provide practical tips.

Consuming content from more experienced traders is also an excellent idea, as investing is a continuous learning process.

With this routine implemented in your day-to-day, you can now consider these 4 steps to find the best ETF to invest in:

Whether you're looking to invest short-term or long-term, you need a strategy that fits your risk exposure level. So, before implementing an ETF strategy, consider these factors:

• Operating and management costs;
• Transaction amount;
• Investment time frame;
• Your investor profile;
• Balance between risk and return.

In general, there are 2 ETF investment strategies: actively managed funds (which aim to outperform market indexes) or index funds, which are measured by their ability to match the performance of an established index, such as the S&P 500.

Consider the fees

There are two types of fees: transaction fees and fund expense ratios.

Consider these costs when measuring the return on your investment, as it can be discouraging for many novice investors entering the stock market.

Commission solution: If you're in Latin America, we have good news for you.

• Now you have an ally tool: Hapi is a secure investment app that allows you to buy and sell ETFs, stocks, and cryptocurrencies without charging any fees. So, what are you waiting for to create a Hapi account? Enter here and create yours.

Investment fund profitability: What’s the gain?

To calculate profitability, you need to project the ETF’s performance.

In other words, analyze how close the ETF is to its performance index, evaluate the behavior of the different titles that make up the fund's portfolio, based on a specific time period.

The profitability of an investment fund

is the result of the difference in the settled value of its shares between one period and the next.

This result is expressed as a percentage, which can be positive or negative.

It’s true that profitability is one of the main indicators for choosing an investment fund, but remember to also observe other factors, such as:

• The risk associated with the investment fund based on its behavior;
• The markets in which it is positioned;
• The companies in its portfolio;
• The types of assets it invests in... In the end, more information will always be key in investing.

Know the ETF’s performance index

With so many indexes in the stock market, how do you choose? Financial professionals share these examples as potential uses.

• Access to specific assets in countries, whether regional or global.
• Exposure to sectors of interest, such as technology, renewable energy, or consumer goods.
• Access to specific asset classes, including equities, fixed income, commodities, real estate, and others.

In conclusion, investing in ETFs offers a wide range of benefits, from greater simplicity, lower cost, transparency, to diversification and flexibility. That’s why they are often considered a good investment strategy, according to specialists, for those who are just starting to invest.

We hope this content has helped you better understand why it’s worth considering investing in ETFs. Remember, this article is published for informational purposes and serves as guidance for making decisions.

All investments carry risks, and you should assess how much investment risk you are willing to take.

When you decide to take the first step and put your money to work for you, do it with Hapi Trade, easily, quickly, and safely.