If one of your financial objectives is to increase your capital by maximizing returns while limiting risk, investing in exchange-traded funds (ETF) is a recommended strategy. In the following article, we will detail the reasons why these financial instruments have gained popularity among investors and how they can be an effective tool to achieve your financial goals.
How ETF investing makes it easier to achieve your financial goals
Among the investment vehicles available today, exchange traded funds, or ETF, are one of the most versatile and accessible.
In recent years, they have positioned themselves as one of the most popular choices among investors, as they offer a unique combination of features that align with different investment strategies. Among the most popular ETF, the MSCI World ETF has stood out for its ability to offer globally diversified exposure, making it an ideal choice for those seeking stability and growth in a single investment.
With the right strategy, ETF can be the perfect vehicle to achieve your financial goals, providing flexibility, efficiency, and a number of key advantages that make it easier to manage and optimize your investment portfolio. According to data from broker XTB, since 2020 the number of investors opting for these products has tripled, reflecting their profitability and ability to meet financial needs.
Main advantages of investing in ETF to achieve financial goals
Exchange-traded funds fall into the category of passively managed collective investment vehicles. That is, they are designed to replicate the performance of a specific index or group of assets, rather than attempting to outperform the market through active management.
Like spot stocks, they are traded on global markets and can be bought and sold in real time during trading hours. They are ideal for achieving your financial goals because they provide a number of advantages, including the following:
- Diversification: Investors who choose to put their money in exchange-traded funds have access to a wide variety of assets with a single investment vehicle. This feature allows for greater exposure to various sectors and regions, which helps mitigate risk. By spreading the investment across multiple assets, dependence on the performance of a single security or sector is reduced, thus balancing the portfolio and minimizing the impact of market volatility.
- Low costs: One of the main advantages of exchange-traded funds is their passive replication structure, designed to track the performance of a specific index. This feature reduces investment and operating costs compared to traditional investment instruments. On the other hand, by replicating an index rather than actively managing a portfolio of securities, they incur lower operating expenses, resulting in reduced management fees and transaction costs, which are typically lower than those of traditional mutual funds that require active management.
- Liquidity: Exchange-traded funds offer high liquidity, which differentiates them from other types of investment vehicles. This is one of their greatest attractions, as investors have the ability to buy or sell ETF shares at any time during market hours.
- Transparency in the composition of ETF: By opting for exchange-traded funds to meet your investment objectives, ETF can help you achieve your investment goals.
The best ETF to invest in according to your financial goals
- Fixed income ETF: An effective strategy to achieve your financial goals, especially if you are looking for stability and a steady income stream, is to invest in fixed income ETF. These funds are ideal for conservative investors who prioritize capital preservation and volatility reduction in their portfolios. Fixed income ETF are composed of a diversified portfolio of debt securities, such as corporate bonds, government bonds, municipal bonds and other similar instruments. They are designed to replicate the performance of an underlying index, such as the Aggregate Bond Index, giving investors access to a broad range of bonds.
- Equity ETF: These are an excellent option for investors seeking long-term growth as one of their primary financial objectives. These exchange-traded funds are designed to replicate the performance of stock market indexes composed of shares of various companies, allowing investors to benefit from the overall growth of the stock market.
- Sector or thematic ETF: One strategy to efficiently achieve financial goals is to invest in sector or thematic ETF, which focus all efforts on one type of exchange-traded fund. This approach offers investors the opportunity to capitalize on trends and changes in the economy without losing benefits such as passive management and low trading costs.
- Leveraged ETF: When the financial objective is to maximize short-term returns, leveraged exchange-traded funds emerge as an attractive option. This type of investment vehicle is designed for more aggressive investors. They use leveraged strategies to replicate the performance of a specific index by up to 5 times on a daily basis. An example of a leveraged exchange-traded fund is the ProShares UltraPro S&P 500 (UPRO), which seeks to replicate up to 3 times the daily return of the S&P 500 index. However, if the index declines, losses are also multiplied, making it suitable for investors with higher risk tolerance.
Select the right ETF to achieve your financial goals with inbestMe
Now is the time to choose the ETF that best fits your profile and allows you to optimize your investment strategy. To do so, we recommend using inbestMe, the platform that helps you decide the ETF that best suit your goals and risk profile.
Build a diversified portfolio of ETF that replicate the performance of the world’s best indexes. With inbestMe, you not only have access to a strategic selection of ETF, but also to an active monitoring of your portfolio.
