MPower: Are ETFs The Way To Go?
Portfolios around the world have been built on the back of ETFs for a long, long time. They can be the foundation to your portfolio, and for those just starting out, this foundation is a necessity. Everyone has their favorite, whether it’s by strategy or by sector, but the idea is the same. Cast a wider net in order to catch a big fish.
Not only does it increase your chances of a substantial gain over the long term, but it can lower your risk by not putting all your chips on one number. Instead of going all in on one stock, only to see it come crashing back to earth, maybe you buy a sector ETF that contains not only the original stock, but a larger selection as well.
One of the biggest perks, these funds are managed by some of the best in the business, taking all the guesswork out of it for those looking for a passive approach to investing. By allowing you to be a more passive investor, investing in an ETF reduces the stress and emotion that can come with investing.
Having said all that, I wanted to compare three of the most commonly held ETFs out there.
The SPDR S&P 500 (SPY), Invesco QQQ (QQQ), and Vanguard Total Stock Market (VTI) ETFs are great to know whether you are a seasoned pro or just starting out. The reason for that is because of the wide net they cast in the stocks they hold.
Take widely known SPY as an example, instead of finding the best performing stocks among the 500 in the S&P, you can own a little piece of all of them. This strategy over time almost guarantees your money to grow over the long-term.
For QQQ, you’d be investing in the greatest tech companies the world has ever seen, all packaged neatly together in one security. And VTI, an ETF that tracks a variety of stocks that trend to reflect the entire market, spreading you across a range of sectors.
As you can see, all three of these ETFs are down on the year. 2022 has been a tough year for the stock market, but as this is written, the market is still rallying off June’s low.
While you’re painstakingly trying to pick the stock that will bounce the highest, another investor is just buying more shares of SPY or VTI in anticipation of the market coming back around. Which seems like the higher probability choice here, finding that one massive fish, or casting that larger net to catch a bunch of medium fish?
In addition, when everything is falling down around you, it is much harder to pick that one stock with any level of conviction. But the investment you can make with higher conviction is investing in a variety of stocks.
Create a list of ETFs that are your favorite, or maybe just some you’d like to learn more about, and get started building the foundation you future rests on. Your future self with thank you.
Today’s feature: ETFs
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