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How to invest in ETFs 🤔

Investing in an exchange-traded fund (ETF) offers many investors a convenient, straightforward way to build a diversified investment portfolio, quickly and effectively, even as a beginner investor. ETFs typically provide the advantage of inherent diversification, because an ETF contains multiple assets, packaged into one fund. Before we dive into how to invest in them, let’s cover a few ETF basics.

ETF definition

What is an ETF?

An ETF (Exchange-Traded Fund) helps investors invest in a collection of assets, like stocks (shares), bonds, and commodities, in one package. They typically track the performance of a specific index, sector, or asset class and trade on stock exchanges, as individual stocks do. ETFs provide a simple and cost-effective way for investors to diversify their portfolios and gain exposure to various markets or investment strategies in one go.

How do ETFs work?

​Financial institutions, like banks or asset managers, create ETFs by pooling investor money into one ‘pot’, to purchase multiple different shares, bonds, or other assets that match a certain investment focus. Investors can then buy the ETF and gain immediate exposure to all of these shares, for example, in one ETF, in one go, instead of having to buy all of the shares individually.

How do I choose an ETF?

There are thousands of ETFs to choose from and each fund is different. Providers generally disclose the holdings within the ETF regularly, so it’s usually a good place to start to see what exactly is in the fund, so you can best align with your personal investment goals. If for example, an investor wanted broad, diversified investment exposure to companies around the world, Vanguard FTSE All-World UCITS ETF could be an option as it includes approximately 3,900 holdings in nearly 50 countries, in a single fund. If an investor instead wanted diversified exposure to the largest US Tech stocks in one go, an ETF such as iShares S&P 500 Information Technology Sector ETF would give them exposure to the likes of Adobe, Meta, Apple, and many more in a single ETF investment, and so on. We’ve created a list of some of the most popular ETFs here if you’re still looking for more insight to help you choose.

How to buy an ETF

For if and when you’ve decided you want to invest in ETFs, here’s an overview of how to invest in them, in just a few steps.

Choose a provider

First, you’ll need to find an appropriate investment account to buy and sell ETFs. There are a range of apps, banks, and financial institutions that you can use to access ETFs, and we’ve provided a helpful comparison table here to help you choose which provider might be best for you. You’ll be able to compare things like minimum investments and fees of providers that offer ETF investing. 

Open an account

Once you’ve found the right provider, you’ll be required to sign up and create an account. This process varies between providers and usually takes no more than 10 minutes for most providers. The process will almost certainly involve some form of KYC (Know Your Customer) procedures. KYC involves verifying your identity, assessing your financial situation, and understanding your investment goals. This is a completely normal part of the sign-up process and is required from a legal and regulatory perspective to safeguard both investors and the broader financial system.

Fund the account

Once your account is set up, the next step is adding money to your account to use to invest in your chosen ETF. Most providers offer several options to deposit and withdraw funds from your investment account, including linking a bank account, debit/credit card, or via Apple Pay or Google Pay. Some providers set a minimum to the amount you can deposit and may charge fees on particular methods, like credit cards so make sure to keep an eye out for this. Also, be aware that each method may take a different amount of time for the deposit to land in your investment account.

Place an order

Once your money has landed in your account, and providing the market is open, an investor can then choose an ETF to invest in. You may be able to search my provider, geography, industry, or performance to filter down your options. You may also use your provider’s search function to find a specific ETF if you have one in mind. You’ll then be able to choose the number of shares to buy in the ETF and place an order. 

The steps above are pretty similar for most investment providers, so if you’re looking to invest in stocks and shares, alternatives, ETFs via a stocks and shares ISA, or something else entirely, this guide will hopefully help.

Before you invest in ETFs

Before making any investments, you must understand the risks involved and only invest money you can afford to lose. Do your research or consult with a qualified financial advisor if you need expert support.

What’s the bottom line?

ETFs are an effective, straightforward way to build diversity into your investment portfolio, as you get exposure to a whole range of assets in one go. They are a popular choice for beginner and advanced investors alike, although, like with all investing, it is important to do your research and know the risks before investing in ETFs.

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