How to buy ETFs: The essential guide
Many people start investing by choosing ETFs. They are accessible, diverse and simpler than they seem, and have attracted investors who want to invest independently and without unnecessary challenges. This guide explains what they are, how to buy them and what alternatives are available, as well as what you can expect from this type of investment.
What an ETF is, and why it could be a good option
An ETF (Exchange Traded Fund) is an exchange-traded fund, similar to a share. ETFs seek to replicate the performance of a stock or bond index, a sector index, a commodity index, or an investment strategy. It offers the best of both worlds, combining the diversification of a traditional investment fund with the flexibility to trade in real time with complete autonomy.
By investing in a single ETF, you can gain exposure to dozens or even hundreds of assets, including shares in large companies, bonds, and specific sectors, such as technology, health, and renewable energies. Investment opportunities are available in practically every area, with ETFs to suit all risk profiles and objectives.
ETFs offer automatic diversification, transparency (you can see the assets that make up the fund) and simplicity, making them ideal for building a balanced portfolio.
A guide to selecting and purchasing ETFs
This guide contains all the information you need, from choosing the right ETF to taking the practical steps to buy it safely:
1. Define your objective
Before searching for ETFs, consider your objectives. Are you saving for the future? Do you want to protect your capital against inflation? Would you prefer a steady income or the potential for long-term growth?
The answers will help you make your choice. In the long term, ETFs that track global indices such as the MSCI World Index provide a solid foundation. If you are interested in specific sectors, such as technology or green energy, consider investing in thematic ETFs.
2. Understand what the ETF replicates
Each ETF tracks a specific asset or group of assets, such as an index (e.g. S&P 500 or Euro Stoxx 50), a sector, or a geographical region. Make sure you understand what the ETF is replicating. Could you summarise its purpose in two sentences? Are you familiar with the companies or assets involved? If not, conduct further research before proceeding.
3. Evaluate the ETF's fundamental indicators
For anyone starting out, evaluating an ETF can be one of the most challenging steps. There is an enormous variety, with many funds replicating the same indices but differing in terms of costs, structure and performance.
The good news? With a few objective indicators, it becomes much simpler to compare and choose. Here are the main ones:
• Expected return: This is arguably the most important data with which to compare other investment options, such as property, shares and term deposits. The expected return on an ETF depends on the index that it tracks. Based on historical data, an ETF that tracks the MSCI World might be expected to generate an annual return of 6–8% in the long term. A bond ETF might offer a yield of 2–4%, with lower risk and volatility;
• Total Expense Ratio (TER): This is the annual fee charged for managing the ETF. The lower this fee, the higher your net return, particularly over the long term;
• Fund size (AUM - Assets Under Management): A fund with more capital invested in it tends to be more stable and less likely to be closed due to a lack of scale;
• Tracking error: This shows how closely the ETF tracks the index it is designed to replicate. The lower this value, the closer the performance is to the index;
• Type of replication: The ETF can either buy the assets that make up the index directly (known as direct replication), or use derivatives to replicate the index’s performance (known as synthetic replication). Both types of ETF have their advantages. Physical ETFs tend to be more transparent, but synthetic ETFs can be useful for accessing difficult markets;
• Dividend policy: Some ETFs automatically reinvest dividends in the fund. In others, dividends are paid to the investor in cash. Which option you choose depends on your objectives;
• Currency and currency hedging: If the ETF is denominated in a different currency, such as dollars, the exchange rate could impact your returns. Although some ETFs offer currency hedging to reduce this risk, this can also incur additional costs;
• Price and recent history: How has the ETF performed over the last 1, 3 or 5 years? How did it react during market downturns? While the current price and its development over the last few years should not be the only criteria, they can provide important information.
Note: Although past returns do not guarantee future results, they can help you understand how an ETF behaves in different contexts.
4. Choose according to your risk profile
If you’re a beginner or want to avoid fluctuations, opt for broadly diversified ETFs that track global indices. Thematic or emerging market ETFs offer greater potential, but also more volatility. It is best to avoid leveraged or inverse ETFs initially, as they are complex and risky.
5. Choose a safe investment platform
To buy an ETF, you will need an account with an investment platform. You can choose either a bank with access to the stock exchange, such as Banco Carregosa, or a regulated online broker. The most important thing is to choose a platform that offers security and clear product presentation, and ideally provides support and educational content. It will be even better if it has a good app or an intuitive client area.
6. Check the name and code before buying
Each ETF has its own unique ISIN code. Before buying, check that the ISIN number matches the ETF you want to avoid any confusion with similar-named funds. You can find this information on either the manager’s website or the investment platform.
7. Place your order
Buying an ETF is similar to buying a share. Specify how many units you want to buy (e.g. two units at €50 each = €100) and the type of order:
• Market order: you buy immediately at the price available on the market at the time;
• Limit order: specify the maximum price you are willing to pay. Your order will only be executed if the ETF's price drops to that value.
This option gives you greater control over your payments, which is particularly useful in volatile markets.
8. Monitor the ETF performance, but don’t become obsessed
Once you have invested, it is only natural to want to know how things are going. Monitoring is important, but it should be done in moderation.
ETFs are designed for medium- and long-term strategies. Checking performance levels or reacting to every piece of news on a daily basis can lead to impulsive decisions that cause more harm than good.
Instead, schedule specific times to review your portfolio; for example once a quarter or twice a a year. When you do so, consider objective indicators such as:
• Cumulative return: see how much your investment has increased (or decreased) since you bought it;
• Distance to your goal: How close are you to achieving your goal?
• Asset allocation: does your ETF still align with your investment strategy, or has it become over- or underweight?
• Performance of the underlying index: is the index that the ETF tracks (e.g. the MSCI World or the S&P 500) still reliable and representative?
• Dividends received (if applicable): keep track of how much you've been accumulating, if the ETF distributes dividends.
The key thing: stay focused on the plan and not get distracted by daily noise. Provided you have chosen well and are investing consistently, you will see results over time, even if the path has a few ups and downs.
9. Top up your investment
Investing isn’t just a one-off event; it’s an ongoing process. Once you have made your first purchase, you should consider making regular additions to your investment.
Adding to your investment means buying more units of the same ETF over time. This practice offers two key advantages. On the one hand, you can take advantage of different prices: by investing at various times, you are effectively practising dollar-cost averaging, which helps to balance out the market’s fluctuations. On the other hand, you form a habit: turning a small amount into a monthly commitment helps you build wealth consistently, without depending on ‘perfect timing’.
You can either schedule a monthly top-up or look out for times when you are able to invest more. The important thing is to maintain a long-term focus.
10. Consider whether the time is right to sell your position
From a technical perspective, buying and selling an ETF is straightforward. However, it is important to carefully consider all aspects of the decision.
There are a number of signs and reasons that may justify selling:
• Target reached: if you have already achieved your goal, such as buying a house, going on a big trip or saving for your children, it might be a good idea to realise the profit;
• Shift in strategy: have your objectives, risk tolerance or time horizon changed? If so, you may need to adjust your portfolio;
• Poor ETF performance? A short-term drop alone is not reason enough to sell. Instead, evaluate whether the ETF's fundamentals (or those of the assets it tracks) are still valid.
Don't make investment decisions based solely on emotions or alarmist news. Investing is a long-term commitment. In practice, selling is just as straightforward as buying. Simply log into your brokerage account, select the ETF you wish to sell and specify the number of units and order type (market or limit). The amount will be available in your brokerage account once you have sold. Depending on your objectives, you can keep it liquid, reinvest it or transfer it.
The best alternatives to ETFs
If you're new to investing, it’s only natural to have doubts about what to choose. Shares? Investment funds? ETFs? Although they are all legitimate investment vehicles, they work in very different ways, which can have a huge impact on your finances.
Shares: total freedom, total risk
Buying shares means investing directly in a company’s capital. You can choose the sectors that interest you, or follow your intuition. However, you assume all the risk. If things go well, you can reap high rewards; if they go badly, you’re the one who takes the fall. It requires time, monitoring, and a greater willingness to take risks.
They are ideal for those who like to be in control and are happy to take on that responsibility.
Investment funds: someone else decides for you
Investment funds pool the money of several investors and are managed by professionals who select the assets to invest in, such as shares and bonds. It’s a more practical option, particularly if you’d prefer not to decide where to invest your money yourself.
This is a good option if you value professional monitoring.
Your tool for investing in ETFs
The GoBulling Investor Platform from Banco Carregosa is the ideal solution for those looking to invest in ETFs with confidence and autonomy. Its simple and intuitive design allows you to access a wide range of ETFs, shares, investment funds and other financial instruments in a secure and transparent interface. You can monitor the market in real time, analyse your investment performance and make informed decisions. No matter what you're investing in – global indices, thematic sectors or safe haven assets – the platform offers flexibility and educational resources you need to grow your wealth.
Buying ETFs with Carregosa NextGen
Investing your money can be challenging, particularly given that the financial world is full of complicated terminology and seemingly similar options. Learning how to buy ETFs is a great starting point for anyone looking to invest in a simple, practical and controlled way. The good news is that you don't have to do it on your own.
At Carregosa NextGen, we understand that everyone’s relationship with money is different. The most important thing for us is to support you in making decisions that are right for you and your goals. We’re here to answer your questions, share our knowledge, and provide you with the tools you need to invest with confidence and at your own pace.
If you’re considering taking that step, take this opportunity to explore what we can offer without feeling under any pressure to make a decision. We can have an open conversation and take a bespoke approach. The key to building a strong financial future is to take calculated, informed steps. Shall we chat?