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#55 ETF Investing: The Basics


Introduction: ETF investing is a great way to get started with investing. You can access different types of ETFs (e.g., stocks, bonds, Real Estate) and invest in them according to your needs. However, there are a few things you should keep in mind when investing in an ETF.


What are ETFs

An ETF is an investment vehicle that combines the features of both stocks and bonds. When you invest in an ETF, you are investing in a group of securities that have been combined together to create a single unit.

The first ETFs were created in the early 1990s, and they were called mutual funds. Mutual funds are still the most common type of ETF investments. In fact, over 60% of all stock market caps are represented by mutual funds today.


How does ETFs works

ETFs work by allowing investors to buy and sell shares of different types of securities within the ETF portfolio without having to put their money into each individual security. This allows investors to get exposure to a wider range of stocks at a lower cost than if they had to invest each stock separately.

For example, let’s say you want to invest your money in an ETF that owns NESTLE (M) BHD (NESTLE) shares. Instead of investing your money in NESTLE itself, you can buy an ETF that owns NESTLE share options which gives you the right to purchase shares of NESTLE at any time during the future (assuming there are still enough options available). The same process can be used for other types of securities within an ETF portfolio; just make sure you understand how each type works before investing!


Types of ETFs

Equity ETFs are investments that represent stock prices of a particular industry or group of industries. They can be invested in stocks, bonds, currencies, and other securities.


· Fixed Income ETFs

Fixed income ETFs invest in financial assets such as government debt, property rights, and insurance policies. They can be invested in stocks, bonds, currencies, and other securities.


· Commodity ETFs

Commodity ETFs are investments that focus on specific commodities such as gold or oil. These investment vehicles can be invested in stocks, bonds, currencies, and other securities.


· Leveraged & Inverse ETFs

Leveraged & inverse ETFs allow you to buy an inverse position in a security (i.e., buying the stock of the company that is down while hoping to sell the same security up) with borrowed money. This allows you to make money by selling your inverse position at a lower price than the underlying security's market value would pay for it alone!


Buying an ETF

The first step in investing in an ETF is to find an exchange-traded fund (ETF) that will fit your needs. To find the right ETF for you, consult with a financial advisor or research the options available on your specific investment vehicle.


There are currently 19 ETFs available for trade in Bursa Malaysia. The following ETFs:


List of ETFs (as published in Bursa Malaysia website)


Commodity ETF

  • TradePlus Shariah Gold Tracker (0828EA)

Equity ETF

  • FTSE Bursa Malaysia KLCI ETF (0820EA)

  • Principal FTSE ASEAN 40 Malaysia ETF (0822EA)

  • Principal FTSE China 50 ETF (0823EA)

  • TradePlus S&P New China Tracker (0829EB & 0829EA)

  • TradePlus DWA Malaysia Momentum Tracker

  • TradePlus MSCI Asia Ex Japan Reits Tracker

Equity ETF (Shariah Compliant)

  • MyETF Dow Jones U.S. Titans 50 (0827EA)

  • MyETF Dow Jones Islamic Market Malaysia Titan 25 (0821EA)

  • MyETF MSCI Malaysia Islamic Dividend (0824EA)

  • MYETF MSCI South East Asia Islamic Dividend (0825EA)

  • VP-DJ Shariah China A-Shares 100 ETF

Fixed Income ETF

  • ABF Malaysia Bond Index Fund (0800EA)

Leveraged & Inverse ETF

  • Kenanga KLCI Daily 2x Leveraged ETF (0834EA)

  • Kenanga KLCI Daily (-1x) Inverse ETF (0835EA)

  • TradePlus HSCEI Daily (2x) Leveraged Tracker (0832EA)

  • TradePlus HSCEI Daily (-1x) Inverse Tracker (0833EA)

  • TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker (0830EA)

  • TradePlus NYSE FANG+ Daily (-1x) Inverse Tracker

If you are interested to invest in foreign ETFs, some popular online tools for finding and buying ETFs include Dow Jones Indices’ "Fund Explorer" and Morningstar's “Exchange Traded Funds Finder.” The best way to determine whether or not an ETF is right for you is to read about it, ask around, or experiment yourself!


Checklist of Components of an Exchange-Traded Fund (ETF)

Checklist of Components of an Exchange-Traded Fund (ETF) may vary depending on which type of ETF you choose: open-market funds (OIMFs), closed-end funds (CEFs), index funds, etc.


Some common components of most exchange-traded funds are: ticker symbol, portfolio management company (PMC), investment objective/objectives, risk factor(s), custody level, taxable account type/term structure, redemption rate/frequency, fees charged by the PMCs involved in the fund operations and custodian process etc.


How to Invest in ETFs

The first step in using an ETF is to identify the ETFs that you would like to invest in as your investment vehicle is to choose the right ETF. An ETF is an investment vehicle that allows you to access different types of stocks and bonds, which can make it a powerful tool for tax planning. To invest in an ETF, you’ll need to create an account with a brokerage firm and select the type of stock or bond you’d like to invest in.


Use ETFs for Tax Planning

When investing in an ETF, it’s important to be aware of its taxes. The most common taxes that apply to ETFs are capital gains and losses, dividends, and interest income. You must also pay regular fees when investing in anETF, so be sure to factor these costs into your budget before investing.


Why do investors choose ETFs?

ETFs are a great way to invest in a variety of assets, including stocks, bonds, and commodities. This allows you to buy and sell these investments without having to worry about the individual stocks or bonds that make up each investment. In addition, ETFs are easier to understand than mutual funds, which can sometimes be difficult to learn and understand the risks involved in each individual stock.


Cost Effectiveness

ETFs are often cost effective because they include a wide variety of assets, making them an ideal choice for investors who want to invest in a range of different types of securities. By investing in ETFs, you’re likely to receive better returns than if you invested directly in the securities yourself. Additionally, some ETFs offer features that aren’t found on traditional mutual funds, such as rebalancing which can help you keep your portfolio diversified and improved performance over time.


Simplicity

ETFs offer a simplicity that’s hard to find in most investment products. This makes it easy for consumers to understand how their money is being used and how these investments might perform over time. Additionally, many ETF providers are transparent about their operations and any changes made to their portfolios without prior notice – this helps ensure that investors have access to the information they need when making decisions about their investments.


The disadvantage of ETFs Investing

ETFs offer lower dividend yields than traditional stocks, which may not provide as much return on investment (ROI) as higher-yielding stocks. Additionally, ETFs may also have higher operating expenses, which can lead to a smaller profit margin. Finally, trading volume is often lower than with individual stocks, which could lead to missed opportunities and greater losses.


Conclusion

ETFs are a great way to invest in a variety of assets, including stocks and bond portfolios. They can be very cost-effective and provide diversification, which can help reduce risks. However, there may be some disadvantages to investing in ETFs, such as lower dividend yields and trading volume. Additionally, it is important to research the best ETF for your needs before making an investment.


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