This is Why ETFs are a Simple Starting Point for Beginning Investors
In the world of investing, you’ll stumble across a number of seemingly nonsensical acronyms.
You’ve got ROE, ROA, ROIC, PEG, EPS, ETF… WTF?
The bad news is these are only a handful of many you’ll likely encounter.
The good news?
There are plenty of apps on the market these days making investing easy — and don’t require you to be versed in the ABCs of investing lingo.
They’re wonderful tools for those too timid — or who don’t have the funds — to go all Warren Buffett on the stock market. Each app basically holds your hand through the investing process and explains acronyms and concepts in ways that don’t induce panic.
But we do think it’s worth calling out one term in particular because, well, don’t you want to know where you’re investing your money when you use these apps?
You’re putting it into ETFs, or exchange-traded funds.
Where Your Money is Going…
Stash explains the concept fairly clearly: “An exchange-traded fund is a basket of investments bundled into a fund that is traded on an exchange. That fund owns the underlying assets (i.e. stocks and bonds) and usually tracks an index — or group of companies or securities with something in common.”
Paring it down even more, an ETF contains a group of stocks that have something in common.
Let me offer up an example, because examples always help.
Stash breaks ETFs into easy-to-understand names, such as its Clean and Green ETF. Like the name suggests, it contains a grouping of 29 renewable energy companies. (Really, it’s just a less-intimidating, more fun name for the iShares Global Clean Energy ETF.)
You could also choose to invest in a tech-centric ETF, which might include some big names, such as Apple and Amazon. Compare that to buying one share of Amazon, which goes for something like $1,000 these days. Sure, your returns might not be as high, but you’re not having to siphon $1,000 from your savings.
Another draw to ETFs is they typically have lower fees than traditional index funds. They might also cost shareholders less in taxes, according to the Wall Street Journal.
Stash offers more than 30 ETF options on its app, including more broad funds, such as “Conservative,” “Moderate” and “Aggressive” — depending on how frisky you’re feeling (and your age. Experts suggest being more aggressive if you’re younger, but that’s a different story).
If you’re interested in exploring the world of ETFs, check out a variety of offerings from Stash.
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. She’s a millennial, which apparently means she’s too nervous to invest.