There are numerous strategies available for growing your wealth through smart financial decisions. There are a wide variety of investment vehicles available for investors with different goals, ranging from stocks and bonds to index funds.
A popular option for novice investors seeking broad exposure to the stock market is to invest in an exchange-traded fund, or ETF.
Here’s what you should know to build your wealth with ETFs in Kenya.
What are ETFs?
Consider ETFs as receptacles that are filled with a variety of securities, such as bonds and stocks. ETFs, composed of a variety of assets, allow investors to instantly diversify their holdings. Buying an ETF share distributes an investor’s money among several investments. This is different from stocks, which are shares of a single corporation.
ETFs usually imitate an index of the market, such as the S&P 500. Because the majority of ETFs are passively managed investments that follow an index’s ups and downs, their performance is typically dependent on it, meaning that their costs are likely lower than those of mutual funds. On the other hand, a fund manager actively manages mutual funds with the aim of outperforming the market in terms of returns.
ETFs in Kenya can be purchased and sold on an exchange just like stocks, and depending on the index the fund tracks, investors may even be able to receive dividends.
How to invest in ETFs
ETFs provide built-in diversification and do not necessitate significant capital to invest in a variety of stocks, making them a great option for beginners. You can trade them similarly to stocks while also benefiting from a diversified portfolio.
First, you’ll have to establish an online account via a broker or trading platform. Once you fund the account, you can easily acquire ETFs by specifying their ticker symbol and the desired number of shares.
The current share price and your personal financial circumstances heavily influence the number of shares to purchase. ETFs are a great option for beginners as they provide an easy entry point, allowing you to purchase even just a single share. Many brokers offer this flexibility.
It’s advisable to seek options with minimal or no transaction costs, as fees can differ among brokers. Nowadays, numerous traditional brokerages provide commission-free trading on ETFs.
It’s important to note that while ETFs that follow the S&P 500 are quite popular, only a handful actually track the entire index, with most focusing on specific components.
In conclusion, investing with ETFs is a hassle-free way to enter the market without the need for constant monitoring. It’s a simple and convenient option to kick-start your investment journey.
If you lack confidence in selecting ETFs, you might want to think about opening an account with a robo-advisor that can handle your investments automatically. Similar to a financial advisor, robo-advisors suggest low-cost ETF portfolios to help you benefit from this investment option without the need for extensive research on various choices.
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