ETFs... 3-2-1-go!

Things I wish I had known to make my journey easier

Hola chicas! Welcome to Plentiful!

I feel like I am starting this media with something way too dry because I have in mind to share various forms of content but I wanted to give you a direct glimpse into some of the very practical stuff I want to share. In the end, it is the hardest part: slowly grappling into the financial world and all its nonsense jargon. So, I hope you enjoy this first read!

Today, Regardless, my eyes and ears love feedback so comment below! 📢

And if you want more, well:

Ok, let’s start buying some ETFs, shall we?

I started buying ETFs after reading more and more about this product in the various money newsletters I am subscribed to. I understood quickly it was a more practical choice than individual stocks because you can diversify quicker via ETFs (since they are like big baskets of stocks). With individual stocks (or stock-picking), you want to understand business strategies, the industry’s movements and look at the business’ results in order to determine whether you think it is a good choice. And this takes time and effort I was not ready to invest and did not feel really capable of doing either. To be honest, I have tried stock-picking and still do if I read about a company and I am convinced enough to buy something but it is quite marginal overall. All the stocks I have bought were considered in a, say…, very creative manner. I liked the business and I believed in its mission, and the price was low! So, I went for Beyond Meat and Oatly for instance. Look, if people buy as much oat milk as I do, this should have been a good investment! Fow now, let’s say that all my “sustainable” choices have not been very successful. I have faith and let them be until until I see that red number attached to a minus sign disappear!

With ETFs, I feel like I am making better choices and I find them much easier to work with. ETFs have given me exposure to a wider market of companies since they are like well organised baskets, and ETFs have specifically allowed me to invest in indexes like the S&P500. I had wanted to invest on some of those indexes for a while and I did not know how. So, ETFs solved that problem. For my pension for instance, I have exclusively purchased a variety of these index ETFs (for now) as I trust them to be fairly safe in the long run (long for me here means over 15 years).

ETFs have also given me the practicality to invest in a specific industry. For instance, I believe the business of cybersecurity is here to stay and grow. From what I hear on the radio about cybercrime or what I read about cyberwars, I am convinced there is growth there. So, I looked for ETFs focusing on cybersecurity and I bought some WisdomTree Cybersecurity UCITS ETF USD ACC. So far, so good but it is early days. I will keep you posted on its progress as we continue discussing ETFs.

How did I end up with choosing this item? … The sinuous track toward buying my first ETFs

🧠GOOD TO KNOW🧠
Before I go any further, it is also really important to know that ETFs are also often called trackers. The platform you might choose to use to buy and sell ETFs (and other investment products) might actually put these in the “tracker” category. It was not clear to me in the beginning...

So, first of all, I googled Cybersecurity+ETF. If I remember well, I did not find anything I felt particulary confident I could understand or trust. So, I went back to searching in one of the newsletters and podcasts I follow to check whether they had shared a website where to search for ETFs because this is the first difficult point: you need to find what you want to buy. So, you need to look find a database of ETFs. The platform you use (or platforms like degiro, bux, trade republic and others) will most probably not offer an exhaustive list. So, it is best to find a site where you can search. Here is an example of a website you can use which has a database of ETFs with their attributes: etfdb.com. It is a useful website because it is organised per category which can already help you refine your search from the start.

The next big issue with ETFs is their naming. Again, I do not know who came up with this naming convention but it is just incomprehensible. I think I just closed my eyes and hoped for the best the first time I bought an ETF. Now, what I would recomment to read this page because it provides a rather well explained cheatsheet on the naming of ETFs. Again, at the beginning. ETFs’ namings were the biggest hindrance to investing in them because I really only had a vague idea of what I was buying. So, it is worth spending these minutes to know what you are getting into because you will quickly realise that:

1. Not all ETFs are available where you are. I am in the Netherlands and I currently buy and track my investments via the Degiro App (I do not particularly love it but it does the job before I can test something else). I might do a review of these apps once I have been able to test them. We shall see. So, you will quickly find out, if you are in Europe, that if UCITS appears in the naming of your ETF (or tracker…), it means it basically has a European standard stamp attached to it (aka it would be considered safer because it has been reviewed by some sort of authority. Now you do remember that it does not mean you will not lose your money, right?). Only, ETFs are like any product category we buy: you have good quality, average quality and dirt. And dirt is often hidden in strange names and attributes.

2. Then, some ETFs distribute cash and some don’t. A few weeks ago at a friends’ dinner, I was asked: do you buy distributing ETFs? Here was my face (minus the beard 😉):

   

   I was like, hmmmm, I don’t know that but tell me more! And it turns that you have 2 types of ETFs (I mean, you have many more attributes but this is one of them to know about):

   1. The cumulative ETF:

      An accumulating ETF is a type of ETF in which any dividends that are paid out by its underlying holdings within the ETF are reinvested into the fund by the fund manager at no extra expense. As a result, the value of the ETF increases. (source: degiro.com)

      Simply put, this means this ETF does not yield any money until you sell your share of it via the little app you use to manage your investments.

   2. The distributing ETF:

      Distributing ETFs pay out dividends to investors. This means that you receive cash flow and can use the money received however you choose. (source: degiro.com)

   So, one gives you cash while you own the portion of it you purchased (if it grows in value of course!) and the other does not. It is a relevant difference if you are, for instance, looking to build a so-called passive income. (I am not sure I believe in passing income at all but hey, different topic).

After I finally found a list of ETFs focusing on cybersecurity, I looked at the ones available for trade in my region and looked at a few attributes which I like to use to review financial products which are for now: costs, size, risk, history. It is crucial for me to say that I do NOT understand everything when reviewing an ETF’s attributes but it does not matter. I do not need to. I am learning to really analyse financial products better and what I look at is most definitely not good enough but it works for now and I am aware of my limitations. I just don’t want these limitations to stop me from investing.

Also, I think it is worth saying here that I find it important to find a website that appeals to you in some ways where you can review products because in finance, personal or not, everyone will always tell you the same: you need to do your homework. And to be able to do that, you need to start somewhere. I mostly use a French website so it might not be that useful for everyone (sorry!) but you can always try Morningstar, The Wallstreet Journal or any website that provides details of any financial products. See if you like the look and feel and if it feels approachable. Some websites have given me an instant Nooooo feeling where I felt like a total idiot. I moved on.

Ok, the last bit I would like to share about ETFs with you today that is also useful to know is that you will find there are key categories. Like in a grocery store, you have isles with various categories and it is pretty useful. I would say the most common are the following:

1. Index ETFs

   These are following the various indexes available across all markets such CAC40 (in France), FTSE100 (in the UK), S&P500 in the USA, Nikkei in Japan etc….

   These indexes follow the largest companies operating in different markets and are often considered as a health check measure aka it is a good sign when these go up, means the economy goes well. it is not always true, especially if you track them daily. I find ETFs super practical to invest in these, especially if you are looking at long-term investments.

2. Industry or sector ETFs

   Well, this is pretty much what I explained above. You have ETFs focusing on healthcare, on tech, etc…. So, if you are feeling like an industry is going to boom or keep growing, then maybe you can look at these.

3. Currency ETFs

   As far as I am concerned I have not invested in those yet as I have yet to understand how they work. Once I do, I will let you know.

4. Bond ETFs

   Now, bond ETFs are apparently trendy again (I suppose it is because they are making more money than they are used to but it is just my assumption). I find these attractive for my pension fund because if you are going to invest more risky ETFs, bond ETFs will provide a safer diversification strategy. So, I am currently reviewing these in order to add them to my portfolio. So, I guess this is a little teaser as you can expect more on that later.

That’s it for today. Have you read this far? If so, congrats.👏👏🏽👏🏿I guess I started with a piece that I normally consider a bit drier than other money topics but please don’t be put off. In the end, this really matters to your financial education regardless of your starting point.

I immensely value your readership and I welcome feedback with all my heart. And if you liked this, a little heart click goes a long way.

For now, have a great day and remember 1 small step today is just enough to get you going.

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