Thread by @finance_hipster

Investment Hack 🔍 🤫

Unlock the power of an ETF (Exchange Traded Fund)

For early investors, it can be hard to figure out WHAT to buy.

You know you like a few companies, but you don’t know if together they’re a good idea.

That’s where studying ETFs come in 👇🏻

Firstly, what’s an ETF:

Like index funds, ETFs are a fund of multiple stocks. Some have 100 holdings, some less or more. But they give you good diversity matching an index or sector.

Even for experienced investors they can be a great catch-all to passively invest.

👇🏻

There are 2 main types:

Passively managed (cheaper fees) — like $DGRO

Actively managed (more expense because they are closely managed with more buying/selling activity to try to increase the fund earnings) — like $ARKK

How to study them:

Google a high performing ETF that you have your eye on.

Search for: The ETF ticker symbol + Top Holdings

For example, $DGRO is one of my favorites focused on dividend growth stocks.

This will now unlock for you what stocks the fund holds 🔐

Look at the top 10-15 stocks a fund holds to understand how it is diversified and what the majority of its direction is controlled by.

With $DGRO, it’s names like Microsoft, Apple, Johnson and Johnson, Verizon, etc.

If you’re a beginner unsure what to invest in — this can be a great hack to pick a few individual stocks to study and potentially start with.

If the core holdings make a fund like $DGRO or $VOO successful, there’s a good chance they can work for the average investor.

Holdings Weight 🧾

Another important thing to note is the weight of the top holdings. Some ETFs have stocks that make up 10% or more of the whole fund!

For $DGRO, the highest weight is $MSFT at about 3%.

If a fund is largely 1️⃣ or 2️⃣ stocks, it isn’t very diverse.

Why not just buy shares of the ETF, like $DGRO? You can!

However, ETFs generally comes with a management fee or “expense ratio”.

Before buying shares in an etf, google its ticket symbol + expense ratio to see.

In the case of $DGRO, it’s cheap!

For every $1000 you own in $DGRO, they charge you $0.80 cents a year.

Nothing huge.

But some ETFs can charge over a percent! That adds up and cuts into your gains.

So, if you study the top holdings of an ETF you like and the weight of each holding —

You have an option to just buy some of the top holdings and never pay an expense fee!

This can also just be a great tool to see what works for a potential “portfolio” that you might design.

For example, another popular ETF $ARKK has 1️⃣ stock that makes up over 10% of its fund — and is a big part of its success.

$TSLA is 10% of the fund.

And the expense ratio is a big 0.75% ($7.50 for every $1000 you own).

Lastly, even if you just buy ETFs (they make up almost 50% of my portfolio because I’m lazy):

Still study the holdings, weight, and expense ratio.

You could be holding multiple ETFs that basically hold many of the same stocks — making them redundant.

And some could be pricey!

Or, you could be holding one charging you an insane amount for just a few stocks you could buy yourself.

ETFs are both a great investment tool 🔨 AND a great way to study investing 📚

Now that you know how to study them — GO forth, and research!