For many newbie investors, building wealth through stock market investments can feel complex and overwhelming. After all, they have to explore complex investment strategies, face countless individual stocks, and manage the challenge of creating a balanced portfolio. According to Kavan Choksi / カヴァン・ チョクシ, this process can be made a lot simpler and more cost-effective by simply investing in exchange-traded funds (ETFs). ETFS can help bridge the gap between individual stocks and mutual funds, and provides investors with an alternative to execute their investment strategies while enjoying the diversification of a mutual fund.
Kavan Choksi / カヴァン・ チョクシ briefly talks about exchange-traded funds (ETFs)
One can think of ETF investment as buying a ready-made basket of stocks rather than dealing with the hassle of picking individual companies. Such an approach allows investors to spread risk across several sectors and companies, while keeping their costs low. Investors also enjoy the flexibility of buying or selling off their investments at any time during market hours.
Exchange-traded funds or ETFs are increasingly popular financial instruments that combine the attributes of both stocks and mutual funds. They are quite a versatile investment vehicle, which can be purchased and sold off on stock exchanges, quite like individual stocks, throughout regular market hours. ETFs simultaneously expose investors to a diverse variety of assets, including stocks, bonds, gold, and more. By investing in a single ETF, one would become invested in hundreds of companies at a go. The majority of ETFs are designed to track a market index, which is the reason they are also called trackers. The style of investing based on indexes is called index investing, as the investor would purchase and hold their investments over the long term. When it comes to passively investing, investors tend to ignore day-to-day price changes while knowing that the market will keep growing long-term.
A key objective of index investing is achieving broad diversification, which helps reduce the risks tied to individual assets. ETFs support this goal by tracking a wide array of securities within a specific index. This structure minimizes dependence on any single stock and spreads risk across multiple companies, sectors, and even countries. By holding a large number of assets, investors increase their chances of owning top-performing stocks while reducing exposure to underperformers.
ETFs offer investors a straightforward and cost-efficient way to diversify. Instead of selecting and managing individual stocks or bonds, investors can buy a single ETF that replicates the performance of an index. This approach simplifies portfolio management while providing exposure to a wide mix of assets, such as stocks, bonds, or commodities. The built-in diversification also cushions losses from one asset with potential gains in others.
In the opinion of Kavan Choksi / カヴァン・ チョクシ, as the majority of ETFs tend to be passively managed, they require fewer resources to operate compared to actively managed mutual funds. This results in lower management fees, making ETFs a more budget-friendly choice for long-term investors.
