Why I Invest in ETFs?

Algoinsights Blog, ETFs, John C Bogle, Passive Income, Portfolio Income, US Stocks Indices, Wealth Accumulation

This article has been inspired by a conversation with a user of our FX trading algorithms some time ago. He thanked me for the results in all his accounts and asked me what he could do to make more passive income.

There are many asset classes – Exchange Traded Fund (a.k.a. ETFs), Stocks, Commodities, Real Estate Investment Trust (a.k.a. REITs), Properties, etc. that you can invest with the profits from your FX trading.

But for me and my household, we prefer to invest in ETFs and properties.

In this blog article, I will share the 4 basic reasons why I invest in ETFs. I will leave properties aside for now.

  1. Low costs

Thanks to the Founder of Vanguard, John C Bogle who pioneered low-cost Index Funds (a.k.a. ETFs) for the millions of ordinary investors like you and me.

He believed that investment costs should be made low for all investors. Thanks to his dedication, belief, and commitment, we can now grow our portfolio income at our pace.  

Their fees are the lowest in the market. Second to none. Every cost adds up and eats up your investment returns in any investment. The lower your costs, the greater your profits. So, watch your investment costs like you watch your blood pressure.

  • Index Fund is Self-cleansing

When you invest in an ETF that tracks the S&P 500. You essentially own a small percentage of all the top 500 companies in the United States. These 500 top companies come from all different industries and sectors that make up this S&P 500 Index.

Therefore, your investment is very well diversified which translates to lower risk and stable returns from a risk-return management perspective.

  • The Index is Always Up

People laughed at me when I told them that the market is always up in the long run when you invest in Index Funds. But this is a fact. Historically and well into the future.

Why?

Remember earlier I mentioned that Index Funds are self-cleansing? And because of this effect, investors can only enjoy growth in their Index Fund portfolio.

How?

All the CEOs of these top 500 US companies have one thing in common – growth. To be in an established Index like the S&P 500 is a privilege that many CEOs are fighting to get in and to stay there for as long as they possibly can.

As these companies grow, your Index portfolio grows with them as well. Isn’t this what you wanted for your investment?

But what if a company falls short?

Answer – This company will be removed from the S&P 500 Index and be replaced by another new and upcoming company waiting to get in.

Because of this self-cleansing effect, you will always have the top 500 companies in the United States with you in your investment portfolio. And with their growth, your portfolio grows as well.

It is a no-brainer investment class. Do not believe me? Please dial 1800-WarrenBuffett.

  • Hassle-free

As mentioned earlier, investing in ETFs is a no-brainer activity. This is another fact.

There is no need for you to spend time analyzing the Balance Sheet and P&L Statement of each of the 500 companies in the S&P 500 Index. They have already been done for you. Read why I do not invest in stock here.

You do not have to seek out what stock to buy. You already have the top 500 companies on your side the moment you put in your investment.

You do not have to worry about a company going bust. The Index is self-cleansing.

You do not have to worry about growth. Your Index portfolio grows with the 500 top companies naturally.

Frankly, you do not even need a brain to invest in an Index Fund. It is a no-brainer asset class.

Before I Sign Off

Before I sign off, these are just the 4 reasons why I invest in ETFs. They may not be exclusive or exhaustive. They may or may not apply to you. But they are just my reasons.

However, I am NOT suggesting that you should immediately invest in ETFs after reading this article. All investments carry risks and NOT every investor is suited to invest in ETFs. As a general rule, you must know your investment preference, risk tolerance, understanding, objective, and seek independent advice, etc. before you do any form of investment.

Thank you for reading my article.

Profitable investing to you.

Victor Ang

CEO & Founder, ALGOINSIGHTS PTE LTD