Invest in ETFs Step by Step Guide

Invest in ETFs Step by Step Guide

• Step 1
Remember that there are lots of foreign ETFs, think about the role ETFs will play in your portfolio. If you’re looking to find an ETF that mirrors an index like the Dow Jones, then you’ll be looking for different ETFs than someone who wants to invest in a specific industry.
• Step 2
Be precise. Approach your broker with the exact number of ETFs you want to buy. You have to pay a broker’s fee every time you buy or sell this type of security. The commission is the same no matter how many shares you’re buying, though, so small trades can sometimes cost you more than you’ll make.
• Step 3
Protect your investment. Remember to set, buy, sell and hold orders on your ETFs. Just like with stocks, you can tell your broker to automatically sell your ETFs if they drop below a certain value. Many investors recommend automatic sale orders if your ETFs drop 10 percent in value.
• Step 4
Diversify your ETF investments. You want to have no more than 15 percent of your money invested in one industry and a maximum of 10 percent of your total investment income put into any single ETF. These limits are standard for managing portfolio risk, but you can exceed them if you think it will give you a quick profit.
• Step 5
Know what you’re investing on before buying. Some ETFs represent shares of many different companies and you’ll want to know exactly what you’re buying. You can usually get a detailed breakdown of the contents by visiting the issuer’s website or reading the prospectus.