What ETFs Should I Consider Investing in during 2023?
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An Exchange-Traded Fund (ETF)—a financial product established in the 1990s—represents a low-cost fund that enables individual traders and investors to access a range of asset classes in one investment. Consequently, purchasing individual stocks or bonds, for example, is unnecessary when considering ETFs.
An ETF operates as either a passively or actively managed fund that, as briefly touched on above, provides exposure to various asset classes, such as stocks, bonds, commodities and currencies. It is important to understand that ETFs trade on stock exchanges like regular equities (stocks), thus permitting investors to buy and sell them like any other exchange-traded security in exchange hours.
Ultimately, ETFs deliver greater diversification options than individual stocks and are typically easier to trade (buy and sell) than mutual funds.
Top 3 ETFs to Invest in 2023
- The iShares Core UK Gilt UCITS ETF:
This ETF is constructed to offer a basket of government bonds out of the UK, thus tracking the performance of UK government bonds (sometimes referred to as Fixed Income). This, therefore, permits access to long-term debt issued by the British government.
Ultimately, the Gilt ETF is an exciting option for those seeking low-cost, low-risk investment products for the long term.
- Vanguard S&P 500 ETF:
Those interested in accessing the US stock market should look no further than the Vanguard S&P 500 ETF. Investing in all stocks within the S&P 500—500 of the largest companies listed in the US—may be something investors favour, given its diversified exposure across the 11 S&P 500 sectors. This is also referred to as a market-cap equity index ETF.
With a strong track record of performance and low fees, this ETF is considered a good option to diversify one’s portfolio.
- SPDR Gold Shares ETF:
The SPDR Gold Shares ETF is the largest physically backed gold ETF. The ETF delivers exposure to the price of spot gold, essentially mirroring the yellow metal’s price movement in a simple and cost-efficient way.
The gold ETF is generally considered suitable for short- and long-term investors.
Advantages and Disadvantages of ETFs
- The primary advantage of ETFs is their diversification: exposure to multiple asset classes, sectors and industries through one investment.
- Particularly for passively managed ETFs, cost ratios are considerably low.
- Another clear benefit of ETFs is liquidity: the ease at which buyers and sellers can enter and exit the market. Remember, ETFs are exchange-traded and can be traded anytime during exchange hours.
- Reinvested dividends can be employed to purchase more ETF shares.
- ETFs can be more tax efficient than mutual funds.
While ETFs boast several advantages for traders and investors, every investment has shortcomings.
- The main disadvantage regarding ETFs is a lack of customisation. ETFs tend to be confined to a pre-determined group of securities, so investors cannot modify their portfolios with individual stocks or bonds, which can be difficult for some investors to manage.
- The underlying securities that ETFs comprise can be unknown and difficult to track, potentially leaving investors in the dark about their investments.
- In comparison with holding an individual stock, the cost of holding an ETF may be higher, given the additional fees.
How do Beginners Buy ETFs?
Beginners can buy ETFs through a brokerage account. A broker allows investors to buy and sell ETFs on a stock exchange by placing a buy or sell order. It is vital to research the ETFs available to select the most suitable options for one’s investment goals. When investing in ETFs, it is vital to consider their risks and associated fees, as they may have higher risks than traditional investments.
Another way one can engage with the ETF market is through FP Markets. With FP Markets, there are nearly 300 ETFs to choose from, accessible through CFDs (Contract for Differences). A list of the available ETFs with FP Markets can be found here.
What is the Safest ETF to Buy?
Given that most ETFs track underlying index funds, they tend to offer a safer way of investing, though there are never any guarantees. Generally, conservative investors may prefer ETFs that focus on less volatile asset classes. The Vanguard S&P 500 ETF is often touted as one of the safer longer-term ETF products, which, as featured above, tracks the performance of the S&P 500 index.
As you can probably imagine, there are many different ETF types to choose from, such as bond ETFs, commodity ETFs, currency ETFs, real-estate EFTs, volatility ETFs and leveraged ETFs. As a result, it is crucial to conduct a thorough analysis before making any investment decisions.
Why not consider opening a demo account with FP Markets? With our simulated demo trading accounts, you can access live market prices for ETFs, allowing you to conduct analysis in a risk-free environment.