How to invest in ETFs for beginners (2023)

Ten years ago, younger investors had to wait to accumulate enough capital to build an investment portfolio. Today, it's much easier to learn on the go between smartphone apps and low-cost or free investment platforms without breaking the bank.

One of the best and easiest ways to build a diversified portfolio is to use exchange-traded funds (ETFs), which give you access to hundreds of stocks in one fund with very low fees.

ETFs are similar to mutual funds in this respecthold a collection of stocksand bonds in one fund. Unlike mutual funds, they are bought and sold on exchanges, can be traded whenever the exchange is open, and you can start investing in ETFs even if you only have to invest $50.

Sign up for Kiplinger's free e-newsletters

Earn and grow with the best expert advice on investments, taxes, retirement, personal finance and more - straight to your email.

Earn and grow with the best expert advice - straight to your email.


For example, you can own a small part of some of the largest American companies through itSPDR S&P 500 ETF Trust(NYSEARCA:SPY), the oldest and largest US ETF with377 billion dollarsin assets under management. It is so good at covering the fundamentals that many large institutional investors have some of their holdings in this ETF.

How do beginners invest in ETFs? Read on and we'll guide you to success.

Practice investing in ETFs before you dive in

Before actually investing your hard-earned dollars, it would be wise to practice using a simulated trading application. It will help you better understand the entire investment process, from choosing ETFs for your portfolio and assigning a specific percentage or weight to each ETF to deciding how often to rebalance your portfolio based on your personal investment goals.

Most online brokers offer practice accounts where you can learn about ETF investing without betting your savings in real life.

For example, even if you don't have oneTD Ameritradeaccount, you can register for itpaperMoney accountcatch himThinkorswim trading platform. It provides real-time data so you can get to work building your practice ETF portfolio. As with all new applications, it may take some time before learning the basics of the trading platform.

Another good trading simulator from an online broker iseToro, whose demo accounts allow you to practice ETF investing with $100,000 of virtual capital. Other trading simulators worth exploring, provided free by media companies, include twoMarketWatch(owned by Dow Jones & Company) and Investopedia (owned by IAC Inc.).

If you're new to ETF investing and decide to use a practice portfolio to familiarize yourself with the process, it's important to set aside a period of time - say 2-3 months - to learn everything. Ultimately, however, your greatest learning will come from your actual experiences investing real money over time.

The KISS rule

Now that you've set up your practice account, it's time to think about how broad you want your portfolio to be. For example, do you want them to be 100% stock ETFs like SPY? (Investments in shares providepartial ownershipin public companies.) Or you would also like to includeFixed Income ETFssee how a more balanced portfolio might work? (Fixed-income investments, often called bonds, pay a fixed amount of interest on the face value of the bond, periodically over the life of the bond.)

Berkshire Hathaway(BRK.B, $328.49) founder Warren Buffett said in a company announcementLetter to shareholders from 2013that he instructed the executor of his wife's estate to put 90% of the amount into a cheap financial fund and the other 10% into short-term government bonds. This is called a 90/10 fund. Studies show that this allocation between stocks and fixed income holds up quite well in most market downturns.

Well, if you wantkeep it simple, you can go with twoETF: oneTotal World Stock Exchange ETFAs for exampleVanguard Total World Stock ETF(VT, $93.24), which gives you exposure to stocks in the U.S. and elsewhere, as well as an overall bond market ETF likeiShares Core US Bond ETF(AGG, $99.30), which tracks the performance of the Bloomberg U.S. Aggregate bond index, which gives youwide exposurein US investment grade bonds.

A more complex portfolio could include as many as 10 ETFs with six or seven stock funds, including those focused on U.S. small- and large-cap stocks, international ETFs for developed and emerging market stocks, and a few other options.

The bond portion may include AGG along with two or three other fixed-income ETFs that cover more specific investments such as TIPS (Treasury Inflation-Protected Securities), international bonds, and high-yield or sub-investment-grade bonds.

That's the beauty of using a practice account. It allows you to experiment as much as you want without costing you a cent.

Enter the market

If you've figured out the ins and outs of ETF investing and feel ready to invest real money in an ETF portfolio, the next step is to fund your online brokerage account and start investing.

TD Ameritrade and eToro have already been mentioned in this article. Other famous onesonline intermediarieswhich will help you start to includeCharles Schwab,E-commerce, loyalty,iInteractive brokers.Additionally, it's important to note that each of these online brokers offers partial stock investing, so if you only have $100 to start with, you can buy 10 ETFs for your portfolio, with a specific weighting or dollar amount available for each.

If you're new to ETF investing, it's important to understand the costs involved.

While many online brokers providetransactions without commission, you'll want to confirm how much, if any, it costs for each buy or sell transaction. Further checks include whether there are minimum account details and fees for transferring your account to another financial institution in the future. Also check what research is available and at what cost. Many online brokers provide this for free.

Another cost to be aware of is the fees that the ETFs themselves charge for managing the funds. SPY, which was mentioned earlier, charges an annual operating fee0,0945%net assets of the fund. So you'll pay $0.95 for every $1,000 invested in the ETF. This fee is deducted from the fund's income, not from your brokerage account.

It's time to step up and invest

If you're worried it's too late to start, consider this: Premapersonal capital study from 2021, the average age that starts investing is 33.3 years. The survey found that many investors fresh out of college don't have spare cash to invest, and about 44% of Gen Z investors said limited funds are the main factor in investment failure.

The key thing to remember is not how much you invest, but how early you invest. Every year they add over 40 or 50 years.

If you are a beginner, take your time and learn the basics before diving into more complex investment instruments like options and derivatives. As Warren Buffett rightly suggests, you can succeed by buying and holding just two low-cost ETFs.

related content

  • The best ETFs to buy now
  • Kiplinger ETF 20 — Our favorite stock trade for every investor
  • The best bond ETFs to buy now
Top Articles
Latest Posts
Article information

Author: Frankie Dare

Last Updated: 27/06/2023

Views: 5860

Rating: 4.2 / 5 (53 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Frankie Dare

Birthday: 2000-01-27

Address: Suite 313 45115 Caridad Freeway, Port Barabaraville, MS 66713

Phone: +3769542039359

Job: Sales Manager

Hobby: Baton twirling, Stand-up comedy, Leather crafting, Rugby, tabletop games, Jigsaw puzzles, Air sports

Introduction: My name is Frankie Dare, I am a funny, beautiful, proud, fair, pleasant, cheerful, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.