What are ETFs and Why Young Investors Should Consider Them

Have you decided to take a plunge into the online trading waters? If so, you can give yourself a pat on the back because this is among the most rewarding markets in today’s world. 

However, part of your journey will involve choosing the commodities or assets to trade, from stocks to forex, virtual currencies, and exchange-traded funds (EFTs).

The latter offers several benefits that any young person would want to look into – for a few good reasons!

And in case you’re young, all green, but willing to learn, what exactly are ETFs? Read on to find out the benefits of considering ETFs as a young investor!

What Exactly Are ETFs? 

Exchange-traded funds (ETFs) are actually a very simple concept. They are investments that track or reflect some benchmark like a commodity index, a stock index, or a bond index.

One of the fundamental differences between ETFs and conventional investments is that ETFs trade on a stock exchange (e.g. Borsa Italiana or New York Stock Exchange), which are listed like stocks, but they also have a market cap.

The only difference between ETFs and stocks is the underlying holdings, like bonds or commodity futures.

This is why ETFs offer a sort of asset diversification because a broader portfolio will include different assets.

How To Invest in ETFs 

To start investing in ETFs, you need to set up a trading account with a brokerage firm that has ETF offerings. From there, you can trade on your ETF holdings, just like you would if you own individual stocks. Through a reputed broker, you will be able to trade ETFs conveniently and easily from the comfort of your home, office, or even on the go.

Why You Should Trade ETFs As a Young Investor 

As a young investor, you’re most probably vibrant, energetic, and more tolerant of the stresses involved in speculation. 

Here are some reasons you may want to consider EFTs.

1. It’s easy to buy and sell ETFs 

Buying and selling EFTs is as easy as ABC in this age and day of advanced technology. With Robo advisors, online investing with SoFi can even be automated, so you don’t have to sit behind the screen all day to make the most out of your investment in ETFs.

2. Low minimum investment 

Unlike investing in stocks, you don’t need a lot of money to invest in EFTs. As a result, ETFs can be perfect for a young investor who may be living on a tight budget. Moreover, ETF traders don’t often have to worry about high brokerage fees and commissions that could eat up all the profits made.

3. Automatic reinvestment of dividends

Just like you would get dividends for holding on to stocks for a long time, you can also reinvest these dividends in EFTs through rebalancing. And you don’t even have to do it manually. The entire process can be automated so that all or a portion of what you earn from your investment goes into ballooning your gains.

4. It can benefit you in retirement 

Another great benefit of investing in an ETF while still young is that the amount you put in is growing. 

So, when you reach your fifties, you can easily retire from your job and start living on your investments in EFTs. And who doesn’t want a comfortable and sustainable life in retirement?

5. Greater liquidity

ETFs trade very rarely. They are easily accessible from some of the major stock exchanges planetwide, whereas stocks are typically bought and sold only through brokers or directly to investors. As a result, the prices of ETFs are far more volatile than stocks, making them great for those who want a low-risk, liquid investment.

For many reasons, ETFs can be an awesome investment option while young and full of energy. They can be a great way to make money, build wealth, plan your estate, and even earn a decent living during retirement. If you’re a young and vibrant person looking to invest, the above few pointers should explain why ETFs can be a worthwhile option for you.