How to invest in ETF?
Recently I started to do some research on ETF topic and how I can invest in it. In general, I wanted to learn more about ETF fonds and immediately find myself overwhelmed by tons of available information.
Here's what I learned, in short.
Main points about ETF
It's a long-term investment. By long term, I mean 5-10 years
There are passively and actively managed fonds
They all follow some index, like S&P 500 Index for example
There could be country-specific details. I'm talking from Germany perspective.
Rather than buying individual company stock, with ETF you invest in a variety of companies stocks
Step 1. Do your own research
Try to answer the following questions:
In which ETF you want to invest? For example, which companies/industries (Information Technology Sector etc.)
- How much is maintenance fee?
What are the expected dividends by year in %? (10% per year as dividends considered to be good)
I use JustEtf website to search for ETFs via JustEtf Search.
Also, Onvista is a useful website in Germany. It provides search and graphs for different stocks and fonds.
Important identification is ISIN by this number you can search and buy specific ETF
ISIN stands for International Securities Identification Number (ISIN). It is an international numbering system set up by the International Organization for Standardization (ISO) to number specific securities, such as stocks (equity and preference shares), bonds, options, and futures.
Another important indicator to pay attention to is Total expense ratio (TER) that's fee that you will pay as fond maintenance. The lower the better. I invested in ETFs with TER 0.15% p.a.
Step 2. Select Broker
You need broker account to buy ETF in most cases. Although your bank already might offer such services.
General steps might look like this:
- Select Broker
Open broker account (Cashkonto and Depot in German)
Transfer money from your bank account to your broker's "Cashkonto" account
When you buy ETF or stocks they will be placed to your "Depot" account. When you sell money from sale order will be placed back on your "Cashkonto" account
- I used Flatex as my main broker in the past.
To this date there are better brokers like Trade Republic and ING-DiBa
Step 3. Define strategy, buy ETF, manage your portfolio
Buy ETF using it ISIN and broker or your bank. Pay attention to your broker fees. For each fulfilled order you might pay a fee to the broker.
For example, it doesn't make much sense to invest 100 EUR each month in your selected ETF and paying 7 EUR commission each time. Better split it in 6 months or one-year investment. You save 100 EUR for 6 months and invest 600 EUR in ETF as a one-time order with corresponding fee (~7 EUR) or 1200 EUR as savings from 1 year.
That's about it! It's really not that complicated.