How to buy time and knowledge? Investing in ETFs
If we don’t have time to plan our investments, we have no knowledge to diversify or look for companies that return us satisfactory rates of return… What can we do? One of the products that I personally think more full, is also simple and has grown spectacularly in recent years are ETFs or exchange-traded funds.
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Buying time, money, and knowledge
If we want to invest in publicly traded companies, but do not know which companies choose or what time is suitable and also have a little money we can dedicate a few hours of our life to understand how ETFs or exchange-traded funds. ETFs are investment funds that traded such action, with the peculiarity that an ETF is composed of several actions replicating an index. For example, there are ETFs that replicate the Ibex 35, or a particular sector such as the energy sector. There are ETFs that filter out companies whose dividend has been growing in the last 5 years, or companies whose variability in stock market is smaller than the rest (low volatility indices).
Buy time and knowledge via ETFs
The first thing we have to bear in mind is to seek a reliable, honest, serious management to properly manage the ETF and whose (WFE) deviation with the underlying index which replicate minimal.
In this way we can invest in an index, a sector, or a group of companies that meet one determined characteristic of fast, simple and cheap way, diversifying and reducing the risk of each company without any knowledge.
Is it always profitable bag long term?
Depends on what you understand by long-term, in Rankia has spoken quite this issue (worst “El” investor of history). In general and if we choose a portfolio of several global indices of developed economies, in the long run had won. There is the example of Japan whose bag has more than 20 years without having seen the highs made in 1989.
But buying several ETFs we can make enough diversification to keep capital in the long term, for example by choosing ETFs that you select the companies whose dividend grows in the last 5 years, an ETF that replicates the United States stock exchange, another European replicate etc.
The minimum amount to invest in an ETF is the price of participation, which usually tends to be low, without requiring large amounts of capital. Commissions depend on the Manager, but tend to oscillate around 0.30% per year.
What strategy to follow to invest through ETF?
Once we have a securities account at a broker that has in its offer of ETF products to be able to hire them.
If we do not have time to manage our investments, one option is to periodically buy a fixed amount of money, for example €500 or € 1,000 or whatever you can afford. It can be monthly, quarterly… So avoid entering a market peak, with all our money or when there are excessive optimism, and not have fear of entering markets very pessimistic when in press they announce to us that the market is going to hell.
This type of operation requires patience and a long-term investment. By investing every certain temporary spaces, we will be able to take losses for long periods of time if the market is bearish, but we will be buying more shares as they are worth less (keeping the amount of fixed investment). It is not particularly strategy that motivates me more, but for someone with limited knowledge and with little time but wanting to contribute to equity a part of its capital, can be a viable strategy.
You can also choose an ETF that reinvest dividends, so we get the effect of compound interest.
The index bullish bias
Another aspect that I like about the ETF is equity-based indexes are biased upward, what does this mean? as in stock market indices companies come and go depending on some parameters, usually taking into account market capitalization among others. This means that companies that make it worse (losing more market capitalization) will leave the index and enter others that are doing better. This is a very important factor to consider in long-term investment.
If I don’t have time to analyze companies, do I have to choose a few companies can diversify into many at a time through ETF?