The Motley Fool

Why I think all investing beginners should start with ETFs

I think that every investor at the beginning of their journey should start with an exchange-traded fund (ETF).

It can be very hard to know what to invest in first. There are thousands of companies to choose from, not to mention the exchange-traded funds (ETFs) and listed investment companies (LICs) and trusts (LITs) that you could pick.

When you’re at the beginning of your journey you don’t necessarily have the skills to invest well in shares. Sometimes investing is more about avoiding the terrible ideas as much as choosing good ones.

If you can only invest small amounts infrequently to start with you might be stuck having your first two investments be 50% each of your portfolio, which isn’t very diverse! Imagine (for example) having 50% of your portfolio be Afterpay Touch Group Ltd (ASX: APT) and the other 50% be Transurban Group (ASX: TCL). Not very diverse! As good as those two businesses may be.

With most of the good ETFs you’ll get exposure to dozens, if not 100 or more, of shares in a single trade, which solves the diversification issue.

By definition you will (almost) achieve the average market return with ETFs which would be great for your wealth over the long-term. A lot of people don’t achieve the market average because of high fees, brokerage costs and trading at the wrong time.

What are some of the ETFs to consider?

Two of the best international ETFs in my opinion are iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS). You get exposure to hundreds of global shares.

The best ASX ETF to own could be BetaShares Australia 200 ETF (ASX: A200) because it currently has the lowest annual management fee.

Foolish takeaway

I would happily just have a S&P 500 ETF as the only investment I ever make, but I prefer other options for my portfolio right now. I may consider the S&P 500 ETF when the US next has a recession.

Otherwise, these top ASX shares could be worth considering for beginners for their defensive nature and the growing dividends.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Transurban Group. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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