If you followed the four golden rules for investing from the last article, then you are ready to take the next step: choosing your investments! You may have familiarised yourself with stocks and ETFs, but which should you choose? Let’s take a closer look.
If you don’t know where to start, then exchange-traded funds (ETFs) may be perfect for you. Typically, an ETF invests in a basket of different assets. They can replicate an index such as the French CAC 40, German DAX, Japanese Nikkei, or the US S&P 500.
So, when you invest in an ETF, you are investing in dozens, if not hundreds of companies at once! This is why they are part of a long-term diversification strategy and can protect you from certain risks.
The return on investment for stocks can be much higher than ETFs. However, this comes with a higher level of risk as well.
So, before investing in corporate stocks, you should learn about the financial health of a company. You can view its quarterly results and consider its future forecasts.
It’s also a good idea to invest in stocks from different sectors, in case one industry finds itself in difficulty.
ETFs allow you to invest in a diverse range of stocks at a relatively low cost. It can increase your diversification and reduce risk.
With stocks, your potential return is much higher. But they are also more volatile and therefore increase your level of risk. On top of that, the more transactions you make, the more costs you might incur. Unless, of course, you use the Zero Order on BUX which lets you invest with no commission. External fees and external implied fees might apply.
Whether you choose stocks or ETFs, it’s still a good idea to diversify your portfolio to protect yourself from risk. We’ll explain how in our next article. But before…