Why are young investors increasingly fond of ETFs?

In the past year, we have seen many investors shift from buying individual stocks to investing in ETFs instead. The main reason is what ETFs offer—the ability to diversify risk efficiently with only a small amount of capital. This aligns with the general public’s desire to build financial security in an uncertain economic environment.

With over 800 companies listed on the stock exchange, choosing the right stocks becomes a challenging task for ordinary investors, especially beginners. This article will help you understand what ETFs are, their types, and whether they are suitable for your investment goals.

What is an ETF and How Does It Change the Game?

ETF (Exchange Traded Fund) or a publicly traded mutual fund is an investment vehicle that pools stocks from multiple companies into one fund. An ETF is similar to a mutual fund but differs in trading—it’s bought and sold throughout the trading day just like regular stocks.

Asset management companies (AMCs) manage ETFs by creating returns that track an underlying index, whether it’s gold ETFs, foreign stock ETFs, domestic stock ETFs, or sector-specific ETFs.

###Investors will receive returns in two ways:

First: Capital Gains (Capital Gain)
When the ETF price you hold increases from your purchase price, you profit from selling.

Second: Dividends (Dividend)
The fund manager distributes dividends to unit holders. The amount received depends on the number of units owned. This payout is after deducting management fees.

How Many Types of ETFs Are There, and Who Are They Suitable For?

1. Equity ETFs (Equity ETF)

Invest primarily in stocks, covering broad market indices, specific sectors, or industries. Examples include SPY for the broad US stock market or XLK focusing on technology.

2. Bond ETFs (Bond ETF)

Invest in fixed-income securities such as government bonds, corporate bonds, or municipal bonds. They offer exposure to debt assets with varying durations and credit qualities, suitable for stable income, e.g., AGG and VCIT.

3. Commodity ETFs (Commodity ETF)

Provide opportunities to invest in gold, silver, oil, or agricultural products without holding physical assets. Some invest in futures contracts. Popular examples include GLD for gold and USO for oil.

4. Sector and Industry ETFs (Sector ETF)

Focus on specific sectors or industries of the economy, allowing investors to access market segments believed to have strong growth potential, such as XLF for finance or ITA for aerospace and defense.

5. International and Global ETFs (International ETF)

Enable investment outside the home country, accepting foreign market risks. Those seeking geographic diversification may be interested in EEM for emerging markets or VEA for developed markets.

6. Multi-Asset ETFs (Multi-Asset ETF)

Combine stocks, bonds, commodities, and others into a single ETF, offering broad diversification. Suitable for balanced portfolios, e.g., VBAL and AOR.

7. Inverse and Leveraged ETFs (Inverse & Leveraged ETF)

Use derivatives and advanced strategies. Inverse ETFs like SH aim to profit from market declines, while leveraged ETFs like SSO seek to amplify returns, whether upward or downward.

Important: Before choosing an ETF, ensure you understand its characteristics, risks, and investment objectives.

Why Are ETFs Helpful for Investors?

Diversification from a single security of 800 stocks

Investing in one ETF gives access to many stocks simultaneously, reducing the risk associated with any single stock. This is especially important for beginners who are unsure about selecting individual stocks.

Cost efficiency

ETF fees are generally lower than traditional mutual funds, and investing requires less capital. New investors can start with an amount they are comfortable with.

No need to be a “stock expert”

ETFs are managed by professional teams. You don’t need to analyze profit-loss statements, price trends, or technical data—just choose an ETF that matches your needs.

Trading flexibility

Unlike mutual funds, which are bought and sold once per day at the net asset value (NAV), ETFs can be traded throughout the trading day, with prices fluctuating based on supply and demand.

ETF vs Stocks vs Mutual Funds: Key Differences to Know

Structure and management

ETF: Traded on stock exchanges like stocks; prices fluctuate based on supply and demand.
Stocks: Represent ownership in a single company.
Mutual Funds: Traded through fund companies; value based on end-of-day NAV.

( Diversification breadth
ETF: Invests in multiple assets within one fund.
Stocks: Risk is tied to the performance of a single company.
Mutual Funds: Diversified like ETFs but managed differently.

) Trading convenience
ETF: Can be traded anytime during market hours at real-time prices.
Stocks: Also traded during market hours; risk of identification.
Mutual Funds: Only traded once daily at the end-of-day NAV.

Costs and taxes

ETF: Low expense ratios; may incur trading commissions; tax-efficient due to structure.
Stocks: May incur commissions and capital gains taxes upon sale; dividends taxed.
Mutual Funds: Higher expense ratios; possible sales or redemption fees; higher taxes due to profit distribution.

What Investors Should Know Before Investing in ETFs

No minimum holding period, but subject to market volatility

ETFs can be held indefinitely, but prices change with the market, and short-term losses are possible. Over the long term, ETFs generally provide good average returns.

Fair management fees

Management fees are included in the unit price; no additional explicit charges.

Tracking error between index and ETF

Sometimes, ETF holdings may not perfectly track the index due to management fees, but these differences are usually minor.

ETF returns may be lower than a lucky individual stock

Due to diversification, ETFs may not deliver the high returns of a single well-chosen stock, but they significantly reduce the risk of large losses.

Who Should Invest in ETFs?

Beginner investors ###Beginner###

Why suitable:

• No need for stock analysis expertise
• No need to study complex charts or financial statements
• Low capital requirement and good diversification
• Managed by professional teams

( Long-term investors )Long-term Investor###
Why suitable:

• Designed for long-term holding
• Consistent average returns over time
• Receive dividends as additional income
• Reduce stress from short-term speculation

How to Buy and Sell ETFs: Easier Than You Think

Trading ETFs is straightforward, especially if you’re familiar with stock trading. There are two main methods:

( Method 1: Via streaming application
Place buy or sell orders online using an app or broker’s website.

) Method 2: Contact a broker
Market representatives can assist with order placement, provide advice, and reduce errors.

⚠️ Important: You must open a stock exchange account before trading.

Easy steps to buy ETFs via app ###Simple###

Step 1: Register and log in with your trading account number.

Step 2: Go to the “Watch” page and click the Favorite menu (Down arrow)

Step 3: Tap the “SET” menu and select “.ETFs” to see the list of tradable ETFs.

Step 4: At the bottom bar, choose “Buy” (Buy) or “Sell” (Sell)

• Buying: Search for the desired ETF → Enter the number of units → Specify the price → Enter PIN code → Confirm with BUY
• Selling: Same process, but select “Sell” instead.

Summary: When Is ETF the Right Investment?

If you’re looking for an investment that:

• Offers good risk diversification
• Has features similar to stock trading
• Can generate consistent profits
• Uses low costs and fees

Both domestically and internationally, ETFs are the right choice for you.