ETFs Explained: What, How, and Examples

ETFs |Tip Tuesday

It is no secret that I am incredibly passionate about individual stocks.  As a matter of fact, I’d go as far as saying that individual stocks are my “first love” when it comes to investing.

However, I have to say ETFs are a very close second. I find these kinds of investments extremelly fascinating.

I heard about ETFs for the first time around 2009 but didn’t understand their power, potential, and advantage until several years later.

For those of you that are beginners in the investing world – I want to take this opportunity to share some wisdom about what these types of investments are all about.

In this post, we’ll break it all down: What they are, how they work, and a couple of examples. 

First: What are they?

ETF stands for Exchange Traded Funds. You can think of an ETF as a “basket” of investments that contains pieces of different stocks. There is practically a “flavor” of ETF for every sector, industry, type of investment you can think of. 

There are also ETFs that represent the entire stock market. And so, by buying one of those, you’d technically own the whole market in one investment.

ETFs Explained_IMAGE

How they work:

As mentioned above, ETFs differ from individual stocks because, instead of buying stock in one single company, you are buying a basket that contains pieces of companies.

These types of investments have two main advantages:

1. You are automatically diversified. This means you’ll own various investments all at once without having to figure out which stocks you want to buy to build a diversified portfolio.


2. You can buy these investments at a fraction of the cost of what a single share would cost you.

Let’s look at REAL LIFE examples:

An ETF that falls into the “Consumer Discretionary” category and includes pieces of companies like Amazon, Home Depot, McDonald’s, Nike,  Lowes, Booking Holdings, TJX companies – and several other high-quality, well-known companies – has generated a return on investment of 100.2% over the past 5 years alone. Over the past 10 years? Returns of over 397.2%.

Or, let’s say you’d like to be slightly more “conservative” and are interested in an ETF that represents the entire market. Well, a popular S&P500 ETF which does just that – has generated a return on investment of 73.45% over the last 5 years alone. Over the past 10 years? 230.7%.  

These returns on investment numbers have been updated as of 09/01/2020.

There are just two examples. When it comes to ETFs, the choices are extensive!

Side note – compare the returns noted above to the 0.06% that the average brick and mortar bank would pay you in interest.  It’s impossible to compare!!!

How to get invested:

The key with ETFs, Index Funds, Stocks, and beyond is to learn how to make  EDUCATED investment decisions and know what metrics you should be looking into when selecting an investment.

In the case of ETFs – metrics such as expense ratios, performance over time, holdings, turnover ratios, and many others, are all important to reach an EDUCATED decision. 

If you are interested in joining out ETF community and want to keep updated on courses and workshops related to ETFs, make sure your name is on this list. 

And that is all folks! Hope you learned something new today. Questions about any of this? Share in the comments or email me:

And as always – cheers to Health & Profits,

-Mabel $



Upcoming Courses & Resources:

Stock Market Investing Bootcamp – 6 Weeks To Your First Stock (& BEYOND): Enrollment for the Fall 2020 edition of this comprehensive class will open soon. To get on the waiting list and be notified as soon as enrollment opens again, click here. Being on the waiting list also means you’ll get to enroll at a promotional rate.

Understanding Your Investing Options: Starter Guide for Beginner Investors: New to investing and not sure where or how to begin?! This guide is for you! Check out details here.


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