If you decided to enter the world of investing, you probably already stumbled upon the term “ETFs.” ETFs or exchange-traded funds are actually a perfect investment option for new investors and are definitely worth taking a better look at. The reason behind it are numerous – a number of investment choices, low expense ratios, diversification and so on. In case you decide to give it a go, it’s also a good idea to become familiar with some of the most popular ETF trading strategies for beginner investors. That said, here are five of them that might be exactly what you’re looking for.
Dollar-cost averaging
Beginners should always look for an easy way to get their career as an investor underway. This is exactly why dollar-cost averaging is a perfect way ETF strategy to begin with. When starting out, most people don’t have large amounts of money to invest. If this is the case with you, all you need to do is set aside some money every month and use that money to pay for a certain fixed-dollar amount of an asset on a schedule you agree upon. If you’re able to stick to the discipline, this can turn out to be an amazing way to kick start your career in investing.
Asset allocation
Another important strategy to have in mind is asset allocation. When investing, the last thing you want to do is put your money into a single asset. Instead, what you should do is allocate a portion of your portfolio to different types of assets. This can be anything from stocks to commodities. Even if you invest as little as $100 every month, this is still a great investing tool to use. You can allocate your assets according to your tolerance risk or investment time horizon to ensure your investment pays off. For example, when you start investing, you might be fine with high risk tolerance but once you start a family, lowering your tolerance might be a good idea.
Hedging
Hedging is another term everyone in the world of investing simply had to hear at some point. Basically, it’s a way of protecting yourself from risk in a substantial portfolio. You get to offset the risk of any price movements by hedging one investment over another. Just bear in mind that when you do it, your gains are also capped in case the market advances. Still, investing in an ETF in order to protect yourself from a downside risk is an extremely easy way for beginners to hedge effectively.
Individual investing style
Every good investor has their own investing style. Obviously, if you’re just starting out, you can’t know what style you should strive for. However, that doesn’t mean you shouldn’t start preparing for it. Think about what kind of investments you like. No matter what you decide fits your style, there’s an ETF for you. Knowing what kind of investments you like can help you be more comfortable with your portfolio and take your investment strategy to the next level. Just remember that no asset is ever going to be perfect and it’s all about finding the one that best fits your style.
Sector rotation
Beginner traders usually specialize in a few different sectors and stick to them when making investments. With ETFs, it’s relatively easy to rotate between multiple sectors depending on what’s going on in the economic cycle. Let’s say you’ve put your money into biotechnology sector but there are a few other sectors you keep an eye on. If you suddenly decide that another sector is a better option due to lower risk, you can take your profits in this ETF and make a more defensive investment.
Conclusion
There are many features that make ETFs a perfect instrument for rookie investors. Some of the strategies mentioned above are more suitable for new investors while others may take some time to become familiar with. Still, it’s important to be aware of them and start using them at some point in your career as an investor.
