ETFs 101 with Chibby Obianyor

Come over here let me tell you something – something fun, juicy & scintillating. Hey People, Listen up, many people out there think the stock market is just about selecting stocks and trying to get rich off that. T

Come over here let me tell you something – something fun, juicy & scintillating.

Hey People, Listen up, many people out there think the stock market is just about selecting stocks and trying to get rich off that. There are other ways, there are many other ways to invest in the markets than picking individual stocks. Me, I am not a fan of stock picking, the stress is too much, I have a day job, too much time spent trying to decipher tips and reading balance sheets like exams are coming. When I didn’t study accounting. Abeg! Abeg!! Abeg!!!. One of such ways is to invest in funds: You may hear different names, Mutual funds, described as Unit Trusts, Open Ended Investment Companies (OEICs), and Tracker but the idea is the same, getting the benefit of a pool of stocks rather than one stock. So while my mates are often reviewing stocks, trying to beat the market, I am here to educate you on the other ways. The goal of this section is to focus on funds and how they can play a varied and equally exciting role in your portfolio (or your quest to get rich or secure your future, your kids or whatever your goals are) and maybe even reduce the stress and time it takes you to make investment decisions, simplifying it. We will review funds and discuss investor options in the context of global events, news, and other factors.

An important note. This piece is here to educate and share information on what is out there but this should not be considered investment advice.

Many investors start their investing life by assembling a portfolio of stocks and very often, they may end up with portfolios that are not diversified. This problem with this is not immediately evident when the stock markets are on a massive bull run (like right now), it is when the markets turn that these portfolios show the lack of resilience that diversification brings to a portfolio. No diversification is like hanging out in beach clothes because it is sunny right now and thinking it will never rain. Instead of picking these individual stocks, investors could be starting out by assembling a portfolio of funds, and OEICs, Unit Trusts, and ETFs. These increase the likelihood that your portfolio has an increased level of diversification.

You can get actively managed funds (managed by a trained fund manager that sets out to beat the market), or a passive one (that will look to track and match the market). Whichever you pick, you will have less research to do than if you are picking individual stocks yourself (because there are less funds in the world than stocks, so even if you chose to assess everyone, kudos if you have that much time, you’ll be done with funds much sooner than you will the stocks). You can get very similar exposure with funds as you can with stocks (even if you want exposure to Taiwan and China, e dey). It is a different, and in my view, easier, cheaper, and safer way to get into the markets than stock picking. Whether you’re investing for income (dividends) or investing for growth, funds allow you to achieve similar goals.

Let’s jump straight in. Where to start?

Of course TESLA, the most relevant stock right now, chances are you have heard of them. Everyone is wondering whether the price of Tesla is too high or not. Sorry, I am not going to answer because for what we are doing, we do not consider the prices of individual stocks. We have a preference for funds overstocks, we want to insulate ourselves from the individual risk that Tesla poses, so instead of considering Tesla alone, we will briefly look at some funds that will get Tesla in there very soon, and then others that already contain Tesla.

S&P 500 Funds – The Standard & Poor’s 500 index is an index of 500 of the largest publicly-traded companies in the U.S. It is not just a list of the largest US companies as people think because there are a number of criteria that need to be met before a company is included. Tesla has been making the news for a while, but will only be included in the S&P 500 index in December 2020. So by owning a fund that tracks the S&P 500 index (examples being, ) you will automatically get the effect of Tesla stock after it is included in the index in December. Now, it is important to note that the diversified protection the S&P 500 gives your portfolio means that one would not have to worry much about if Tesla goes bust as there are other stocks that will buffer any negative impact, but this means also that those other stocks will limit the positive impact of Tesla stock. This double-sided effect is part and parcel of diversification.

Funds with Tesla now – If one did not want to wait until December to start taking advantage of Tesla’s increase in value, you can pick up a fund or ETF that already has it included today. There are many but here are 2 doing pretty well so far, ARKQ – Ark Industrial innovation ETF – (Tesla shares makes up 12.8% of this ETF) it has returned 87.75% so far this calendar year, or SMOG – VanEck Vector Low Carbon Energy ETF (Tesla shares makes up 9.34% of this ETF) it has returned 96.7% so far this year.

Remember, past performance does not guarantee future results and these are not recommendations or stock fund tips.

These present an example of how one can prepare their portfolio to take advantage of the benefits of Tesla but reducing your risk. You can find a fund that has the stock you are interested in (but may not be keen to buy on its own, and purchase the fund instead. You would need to do your research to ensure you are picking up a solid fund (Provider Reputation, Exposure, Expense ratios, Risk Levels, and returns).

If there are any funds you would like reviewed, let us know by sending a message to hello@ and we will pick one.

Welcome to my corner and hope to interact with you more often. And now, back to your regular programming.

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