ETF Investing Guide

When I was working in Nigeria, I was always investing in myself, taking courses, earning a master's degree, and developing my skills. I also dabbled in money market funds, which gave me better returns than my savings account. Real estate was another investment I explored, buying land that has since appreciated. But for the most part, I kept my money in savings for cash flow and emergencies.

Then, when I moved to the UK and started working multiple remote tech jobs post-COVID, I had more money than ever before. I knew I needed to invest, but I was not sure where. I researched different options and, knowing that I would eventually move to Australia, I wanted to make smart investment choices despite visa restrictions that limited my ability to buy property.

That is when I discovered ETFs. I wish someone had told me about them earlier. Over the past two years, I have personally invested more than $25,000 into ETFs, and in this guide, I will break down everything I have learned so you can get started too.

Should I Save or Invest?

When it comes to building wealth, understanding the difference between saving and investing is crucial.

Saving is about setting aside money for immediate needs or future expenses, like an emergency fund or a vacation. It is a safer, more liquid option designed for short-term goals and peace of mind.

Investing is about growing your wealth over time, typically with a long-term focus. Whether you are looking to build retirement funds, purchase property, or fund a big goal, investing is a tool that can help you achieve significant financial growth. Unlike saving, investing involves placing your money into assets that have the potential to increase in value, but it also comes with risks.

The power of investing requires thoughtful planning. It requires you to ask yourself critical questions:

• How will I invest my money?
• What is my risk appetite?
• Do I prefer stocks, property, gold, or perhaps something more hands-on like a business?

Answering these questions helps shape your investment strategy. Are you aiming for high returns, or are you comfortable with steady growth? Are you willing to take on significant risk for a chance at higher rewards, or do you prefer more stable, conservative investments?

Defining Your Risk Appetite

Your risk appetite is the foundation of your investment strategy. It is the amount of risk you are willing to take on in exchange for potential reward.

While savings offer security and peace of mind, they usually come with modest returns, and your principal is safe. However, if you want to grow your wealth at a faster pace, you need to embrace risk.

For instance, investing in cryptocurrencies might sound thrilling due to its potential for high returns, but it also comes with the possibility of losing your entire investment. If you are someone who can handle volatility and the ups and downs of the market, then more speculative investments might be suitable.

But if the idea of losing money makes you uncomfortable, a more conservative approach, like investing in diversified ETFs or bonds, might be better for you.

The Importance of Education

Before jumping into investing, take the time to educate yourself. The more you understand how different investment options work, the more confident you will feel about making the right decisions for your future. Do not hesitate to consult a financial advisor who can provide personalised guidance based on your unique situation.

My Opinion on Investing

Saving offers undeniable security, providing peace of mind knowing that your money is readily accessible when you need it most. However, there is a significant downside to relying solely on savings for long-term growth.

One of the biggest challenges is inflation. Over time, inflation erodes the purchasing power of money, meaning that the same amount of cash you save today will likely be worth less in the future. What you can buy with $1,000 today may not be the same as what you can buy with that same amount in five or ten years.

Moreover, when you choose to save rather than invest, you miss out on the power of compounding. Compounding is a powerful concept in investing, where the returns on your investments generate their own earnings over time, creating a snowball effect. The earlier you start investing, the more you benefit from this growth.

While savings are essential for managing short-term financial needs, investing is what enables you to truly build wealth and secure your long-term financial future.

Types of Investments

Here are different types of investments available for educational purposes. I only do a few of them, but you may want to learn about different options:

What is an ETF?

An Exchange-Traded Fund (ETF) is an investment fund that holds a collection of stocks, bonds, or other assets. Think of it like a supermarket basket. Instead of buying individual ingredients like eggs, milk, and bread, you grab a ready-made grocery pack that includes everything you need.

Now, imagine that each item in your grocery pack represents a different company. When you buy an ETF, you are buying a "basket" of different stocks, bonds, or assets in one single purchase. If one stock does not perform well, the others in the basket help balance it out, reducing your risk.

This makes ETFs:

• Easier to manage because you do not need to track individual stocks daily
• Less risky because your money is spread across multiple investments
• More cost-effective because instead of buying shares of 100 different companies, you get exposure to them all in one go

ETF vs. Stocks: What is the Difference?

Imagine you are at a buffet vs. ordering a la carte.

• ETFs = Buffet. You get a mix of everything, reducing the risk if one item is not great. ETFs spread your money across multiple companies, so you are not reliant on just one stock's performance.
• Stocks = A la Carte. You pick and choose individual dishes (stocks). If you pick the right ones, you could get a big reward, but if you choose poorly, you could lose money.

For example, if you buy Tesla stock and the company struggles, your investment could drop significantly. If you buy an ETF that includes Tesla along with 500 other companies, Tesla's performance will not have as big of an impact on your overall investment.

For beginners, ETFs are a great way to start investing with less risk.

Types of ETFs for Beginners

My Personal ETF Strategy

I currently invest in IOZ and IVV because they provide broad market exposure to Australian and US/global companies with low fees. However, the right ETF for you will depend on your own analysis and preference.

Consider the fees when you are choosing any ETFs. The fees can compound so it is important for you to choose ETFs with low fees. Industry benchmarks should be around 0.05% to 0.50%.

Why Fees Are Important

When selecting an ETF, it is essential to pay attention to the expense ratio, which is the annual fee expressed as a percentage of your investment. Even though the fee might seem small initially, it can compound over the years, reducing your overall investment gains.

For example, if you invest in an ETF with a 1% fee annually, that may not seem like much in the short term, but over 10 years, that can add up to a significant amount. A higher fee ETF might cost you hundreds or even thousands of dollars more than a low-fee one.

By choosing low-fee ETFs, you allow your money to grow without unnecessary charges eating into your returns.

How I Invest

• Monthly Contributions. I invest a set amount each month, no matter what the market is doing.
• Buying the Dip. If the market drops, I invest extra when I can.
• Long-Term Mindset. I do not panic when prices drop because I understand how ETFs work.

How to Get Started with ETFs

Mindset and Risk Management

Investing is a long game. There will be market dips, but history shows that markets trend upward over time. The key is to stay consistent, ignore short-term noise, and invest based on strategy, not emotions.

Why Automate Your Investments?

• Consistency. Ensures regular contributions, even when life gets busy.
• Removes Emotional Bias. Avoids emotional decision-making during market fluctuations.
• Time-Saving. Frees up time by automating investments and bill payments.
• Compounding. Regular investments maximise compound growth.
• Minimises Mistakes. Reduces missed opportunities or forgotten contributions.
• Long-Term Discipline. Encourages consistent, long-term investing.

Want to Go Deeper?

If this guide was helpful, check out our detailed ETF Investing 101 guide which covers the tax implications, platform comparisons, and common mistakes to avoid.

If you are looking to increase your income before you invest, explore the SyncSkills TechStar Bootcamp where we help immigrants land $100K+ professional careers so you have more to invest.