Investing is a great way of setting up a better future for yourself. Many young people in Singapore are actively looking into different investment options that will allow them to passively grow their hard-earned money. If you’re in the same boat, you’ve probably heard of exchange-traded funds. ETFs are investment funds that are listed and traded on an exchange, much like stocks. Just like mutual funds, ETFs offer pooled investment options to investors. Unlike traditional mutual funds, however, ETFs can be traded throughout the day, not just at the end of the trading day.
Many young professionals look at ETF Singapore trading opportunities because these investment instruments have qualities that complement their lifestyle and financial situation. ETF trading allows investors to enjoy the following:
Relatively Lower Cost
The lack of substantial funding is one of the common barriers that prevent young professionals from checking out various investment channels. Newbie investors in Singapore will be delighted to know that ETFs have lower fees compared to mutual funds, making them more accessible to those who want to gain exposure to different investment channels without spending a lot of money. Additionally, many online brokers who mainly deal with ETFs offer opportunities for commission-free trading, and they even extend this service to investors with small accounts. This is a clear advantage considering that fees and commissions can deduct a significant amount from a beginner investor’s account balance.
Opportunities for Diversification
Because investing in ETFs is more affordable, traders can easily explore the different types of ETFs that they can include in their portfolio. The most popular types of ETFs are stock, commodity, and bond. Stock ETFs are often meant for long-term growth, commodity ETFs refer to raw goods that can be bought or sold like coffee and gold, while bond ETFs provide the investor with regular cash payments. There are also international ETFs for those who want to try their hand at building a diverse portfolio that includes foreign investments, and sector ETFs that allow traders to invest in specific companies belonging to different sectors and industries.
One thing that differentiates ETFs from mutual funds is that the former allows investors to buy and sell throughout the day. Investors don’t need to wait at the end of the day to find out exactly how much they paid for the shares they bought and how much they received for the shares they sold. If a young investor spots a losing investment, for example, they can exit in a snap and preserve their capital. There’s no need to wait until the end of the business day to cut this losing asset from one’s portfolio. In turn, the ease of completing ETF transactions makes a lot of difference when it comes to how one manages their investments.
Different Management Structure
By using ETFs, investors can easily shift from one type of asset to another within the same day or hour. Those who want to trade more actively even have the option of fine-tuning the allocation of assets in their portfolio throughout the day if they so choose—though this strategy is not usually recommended. The bottom line is that ETFs give young investors, particularly those who are not familiar with the intricacies of how exchanges work, room to grow and change up their portfolio management style as they become more acquainted with the trading environment. This, in turn, makes it easy for newbie investors to explore and adopt strategies that will help them grow their money.
Inclusion of Innovative Products
ETF issuers, in general, are quick to embrace new products and innovations. They’re not ones to shy away from presenting investors with opportunities to invest in up-and-coming sectors. In 2020, many ETF issuers in Singapore were presenting options in the biotech sector, which is expected to draw in a lot of investors this year as biotech companies continue to make strides in developing and rolling out COVID vaccines. Technology is another hot topic among investors, particularly now that many companies are making the transition to remote work setups. The awareness that many ETF issuers are showing when it comes to in-demand sectors continues to attract forward-looking investors of all ages.
Is ETF the Best Option for You?
Take note that just like all investment instruments, an ETF also comes with its drawbacks. It can still be affected by social and economic instability, and depending on the scope of one’s investments, it can still be prone to volatility. Investors who are interested in checking out ETFs would do well to take the time and effort to get to know the limitations that come with this type of investment fund.
If you’re a new trader who’s looking for an affordable means of checking out how the market works, though, investing in ETFs is a great way to do your research. With experience, strategy, and a bit of luck, there’s no stopping you from growing your money using this investment channel.