ETFs For Beginners | The Popular 21st Century Investment | Rob Armbruster | Skillshare

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ETFs For Beginners | The Popular 21st Century Investment

teacher avatar Rob Armbruster, Investing and Personal Finance

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Taught by industry leaders & working professionals
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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

12 Lessons (35m)
    • 1. Introduction

      1:11
    • 2. What is an ETF

      1:49
    • 3. Where to Purchase ETFs

      3:49
    • 4. Advantages of ETFs

      2:56
    • 5. IVE Lesson

      6:32
    • 6. TECL Lesson

      3:35
    • 7. VOO Lesson

      3:21
    • 8. INDY Lesson

      3:05
    • 9. FHLC Lesson

      2:25
    • 10. IVW Lesson

      2:20
    • 11. Mistakes to Avoid

      2:20
    • 12. Next Steps

      1:31
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About This Class

In this class, I will show you how I invest in ETFs! We'll be sure to cover the advantages of this investment tool along with the fees, and how to make great long term ETF choices. 

Recommended Resources:

This lesson is not considered licensed financial advice. It is purely for educational purposes to help you to manage your own investments. Future trades that you make are done at your discretion.

Meet Your Teacher

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Rob Armbruster

Investing and Personal Finance

Teacher

When I was 24 years old I was sitting in an office with a financial advisor. After he showed me the fees associated with him investing my money, I left the meeting feeling uncomfortable with his proposition. This is how my investing journey started. I began to research how to successfully manage my own investments and found that it was easier than I thought. Today, I'd like to pass on what I have learned over the past seven years of managing my finances to you. 

I have a passion to help people from every race, ethnicity, and background discover their ability to make great wealth! My classes provide the basic fundamentals of making great long-term financial decisions. Please follow this page so that you won't miss any of the great resources coming out in the future!

... See full profile

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Transcripts

1. Introduction: E. T. Efs are a powerful investment tool. And with great power comes great responsibility. I love E t efs because I don't have to pay attention to the news every day or follow the markets. I can just simply buy and hold the investment and watch it row. Over the years in this class, you'll learn what an e t f iss where to find them. What are the advantages of having E. T s in your portfolio? Bennett All explore six different E. T s that are operating in the market today so that you can really learn the nature of how they work. I'll talk about how to avoid mistakes when starting out, investing in ETFs and at the end of the class, I'll send you out into the real world and you'll be ready to trade E. T s for yourself. This is just one of many investment classes that I'm making with the goal of helping you manage your finances well for the rest of your life. So hop on in and enjoy 2. What is an ETF: and E. T. F stands for exchange traded fund. It's a collection of investments such as stocks. Often times these investments have an underlying index or industry tied to them, such as an E T F tied to the technology industry. And E. T. F is similar to a mutual fund, which is where the fund manager comes together in picks and chooses different companies and different stocks that reflect the goals of the fund. However, E T EFS can be traded throughout the day, just as stocks, and so they're mawr liquid than mutual funds. There is also a couple different kinds of e t efs. There's E T efs that are what's called passively managed, and that means the settings of the distribution of the money put into the fund will automatically be put into those investments. No matter how much is put in the fund, it's kind of left to gain and left to improve On its own, However, there is a different kind of fund. Also, there's actively managed e t efs, which means there's ah hired portfolio manager that will review the different investments and continually make changes based on the different market conditions. Just a note that actively managed e t efs often times have larger costs than passively managed. E. T s 3. Where to Purchase ETFs: So now I'm going to share with you the three platforms that I recommend for buying and selling E T efs on the 1st 1 of those platforms would be Vanguard. Vanguard has been around for a while, and they've actually pioneered what's called the index based fund. That's a fancy way of saying their E t F ties itself to a common index in the market So you can purchase and e T. F from Vanguard that ties itself directly to the S and P 500 which are the 500 biggest companies in America. It goes pretty close to the price of the S and P 500 but it doesn't go to the exact price. The other thing about Vanguard is it has incredibly low prices. When you start a Vanguard account, all Vanguard E T. ETFs, you can trade commission free. But also, the yearly management fees with Vanguard accounts are very, very low. Their 0.32 point 5% on average. Just to put that in perspective for you, if you invested $100 in Vanguard at the end of the year, you would only pay them 30 cents to have managed that $100 investment know this, that the average cost of fees for investing per year average about 6 to 6.5%. That is a very, very good rate tohave for your investment. Vanguard is also very stable. They manage $5 trillion worth of E, T efs and investments and so their investment products that they offer. They're not gonna be here one day and gone the next there very reliable. And you can you can invest in them for the long term. The next company that I'd recommend as a platform for your E t efs is fidelity. And what Fidelity has done is they've partnered with I shares I shares is a company that manages $2 trillion worth of investments you can trade. I shares E T efs for free with no commissions with your Fidelity account. The pricing is similar to Vanguard. The great thing about fidelity, though, is the research that you can do their very forthcoming with giving you all the information about an E. T f. And we'll go into that later. In this class is what information should I look for? And how can I know if this is a higher risk e T f or a lower risk one. The third company that I'd recommend to use for buying and selling ET EFS is Robin Hood. Now you may know that Robin Hood is famous for its commission free trading policy, and that's the same for E T efs. They still do have the management fees. The one thing that I want you to be aware of with Robin Hood is that they actually execute the trade for your E. T F 20 to 30 minutes after you purchase it. A lot of times that doesn't matter that much. It might change a couple of cents in the pricing, but it's just something to be aware of when you have a Vanguard or Fidelity account. That trade is going to be executed as soon as you make the trade or very close to that. But with Robin Hood, it's gonna take a little bit longer. That's not that big of a deal, especially if you're going to choose to hold that e t f for, say, 35 or 10 years, which is what I recommend doing 4. Advantages of ETFs: you might be asking yourself, Why should I include ET EFS In my investing portfolio? I have stocks. I have bonds. I have all these different things. What's the importance of including this investment? The first advantage to an E T. F is. It lets you diversify your holdings to multiple different industries and really multiple different stocks with one purchase that allows you to decrease your risk. For example, say something bad happened. Teoh the company target a financial mishap. Somebody tried to sue them or something like that. The value of their share price greatly decreased because of that, if you own just target stock than your portfolio is going to be affected negatively. By that, however, saying you own a retail E T f. And that investment contains hundreds of different retailers, it's not going to be affected as much. And that's the power of diversifying your investment With other advantage. To e T efs versus Mutual funds is mutual funds. You can Onley choose to buy or sell once a day, but with E. T. F. So you can continually trade and sell them throughout the market day. If you want to switch your position from that e t f to another position. You have the flexibility to do that. They're also very low cost. The average cost of owning and e T F is 0.5% per year. That is substantially lower than the market average cost of investing. The other thing that's great about E T efs is that most investment firms offer them for you to be able to purchase. And so it's really easy to get started, and you can simply look up the different E T. F C. And that symbols for E. T efs are the same ticker symbols used for stocks in your journey of looking for stocks, you might have even found E TFC already and you don't even know. And the last and probably the greatest advantage to E. T efs is that they take a lot less work to manage. And so if I own a lot of higher risk investments such as singular stocks or options or commodities, I'm gonna be checking those a lot and adjusting my position from here to here and checking and, you know, watching TV and watching what's happening with the market. I actually don't really like doing that I like going for more of a long term investment strategy. E t s are perfect for that. I don't have to stay up on all the latest news. I can just simply own my e t f and watch it build throughout the years. 5. IVE Lesson: all right, I got my glasses on because this section of lesson is gonna be a little bit more educational in these sections. I'm gonna go over different E t efs and what they're made of, what direction they're heading in. I'm not necessarily gonna give you a recommendation on whether to buy or sell, but I want you to understand the nature of each different investment. My goal for everything that I do for you is for it to be caught rather than taught. And I know that there's there's principles that I teach, but basically this is hanging out with me for a little bit, and you're catching on to these different things and forming the way of thinking about investments. So the first investment and e. T. F will look at is called Ivy E. And here I am in my Fidelity investment account. So here are the Net assets. This is just saying that people have chosen to invest if $15 billion into this e t. F. And one thing you can know from that is that it's a stable investment because of the great volume. Here is the 52 week performance, so over the past 52 weeks, it's gone down 4.65%. This is the distribution yield, which is 2.66% which I will show you more about later. The other thing to be aware of is the net expense ratio at 0.18%. So just to put this into understandable terms say you invested $100 in the CTF, you would pay 18 cents per year for owning it, and that's a very, very low cost. The full name of it is I shares S and P 500 value E T F. And a goal of it is right here. I ve is a capitalization Wade Non leveraged Enhanced Staff Strategy Equity E T F. With a benchmark index of the S and P 500 Value index. The E T EFS geographic objective is the United States with a focus on large cap companies. Wow, So many big words and I'm gonna break this thing down. So basically what this is saying is the underlying index of the E. T. F is the S and P 500 value index, the location of the investments that are in E. T. F is the United States, and they focus on large cap companies, which are generally lower risk. Cos you could go down and see what the top holdings are. So this is the price of the E T F. The price moves similar to the way that a stock would move, except it's less volatile, so you can see the decrease that came with the Corona virus to this E T f. As in March, the Corona virus hit the United States very hard, and then it's been coming back, and I fully expect this to get back Teoh Ah, $130 soon. It's always good to look at the history, and you can even look a five year to give you more perspective of where it's heading and the 10 year when you look at it. In the larger perspective, this dip is big, but it's not the end of the world. I fully expect this to keep growing on the course that it's on. So now let's look at the portfolio composition of this e t f. The countries that our own in the at a glance you can see Oh yeah, it's 97% owned in the United States. And then over here you can look and see this basket of holdings. And if I click right here, I can see all the different investments in this e t f. And it's got a total of 3 93 the top holding being Berkshire Hathaway at 3.36%. That's Warren Buffett's company, so that is definitely a common one that you'll see out there. And there's just pages and pages of all the different companies that you'll buy in with that one click of a button, which is the rial advantage here. You get some General Mills. You can get some cereal in your heat. Seaq. That's good. So the next graph I want to look at the sector exposures, so this lists the different sectors because this is tied to U. S. And P 500 you have health care, financials, consumer staples, industrials. You have such a diversity of sectors that you're investing in with this. And then here is the style map, which says it's going for larger companies that create great value with their investments. Value led companies are generally companies that pay good dividends, and that's one of the great functions of this E T f. I'll show you that right here with the distribution and expenses. Here's a list of the total distributions that have happened by each quarter of the E T. F. And so in quarter one of 2020 they gave out 0.82 So 82 cents for every share that you own of E. T. F. Last quarter, it was down a little bit. It was 820.62 You can start to see, man, if I own two of these. I get a dollar 50 every quarter for not doing anything, and that's pretty good deal. That might not seem like much, but say you own 20 shares of this and you choose to hold it for 10 years, and you're getting that dividend every three months. For 10 years, things start at up. That's really one of the advantages of this E T F is it has the ability Teoh increase your portfolio value with dividends. It also has a great potential to increase in the value of the E. T F price to sell at a higher price later 6. TECL Lesson: So now we're gonna look at an E T f named T E C L. The full name of the CTF is the direct See on a daily technology bull three times. Sher e T f. What this means is it's set to follow the technology industry, and the return is either three times MAWR or three times less of the market movement. So if it goes down $5 this would theoretically go down $15. If the market went up $5 this investment would go up $15. Another thing I want you to look at is the net expense ratio is a lot greater on this e t f . You're gonna pay 1% of a yearly expense toe own this e T F. The 52 week range right over here is just going to show us where the prices at compared to the lowest price it's been over the past year and the highest price, and it's a little bit over that right now. I Congar oh, down and look at where it's moved over the past two years, and you can see that it is very volatile. During the year of 2020 the first start of 2020 it was increasing at a high rate, and then it just along with the Corona virus had a substantial decrease with that. One thing I want to point out is the 52 week price performance. It's gained 50% and I'm gonna go down here and just Seymour about what stocks are a part of this e T f. We look up here and we can see the top 10 holdings are Microsoft Corporation, Apple Visa, MasterCard and Intel Corporation. And it's very highly waited on Microsoft and Apple, and you can see that most of the stocks are in North America. So let's look at the E T. P portfolio characteristics, and I want to open up the prospectus and reports. So here is the full description of the E T f. Something toe look into just be aware of, and I want to bring your attention to this blurb that they talk about called futures contracts. Futures contracts air typically exchange traded contracts that call for future delivery of an asset at a certain price or cash settlement. In terms of a contract, there may be an imperfecta correlation between the changes in the market value of the securities held by the fund and the prices of the future contracts. There may not be a liquid secondary market for future contracts, and the fund might not be able to enter into the closing transaction I mentioned before. High risk, High Reward It's high risk because it's on Lee exposed toe one industry as opposed to multiple industries. It's on Lee invested in mainly to different stocks in its holdings. They use futures contracts to increase the rate of return happening in the technology industry, and so there is also a risk with that. 7. VOO Lesson: all right. And here's the next e T f that I'd like to show you. Its ticker symbol is V. O. People Call it Vu. It's the Vanguard 500 Index fund. It's one of the most popular E T. ETFs on the market. You can see the Net assets, and this is the total amount of money in the fund is $142 billion. It does have a small dividend. ID averages 1.89% in dividends received per year, which is a nice bonus. But the thing that I like the most about this Vanguard fund is the net expense ratio is 0.3 That's the lowest cost I've ever seen in an E T f. You can see the performance as of right now. It's gained 7.73% this year. Let's look at the goal of this e T f v 00 Is a capitalization weighted non leveraged, passively managed equity E. T F. With the benchmark index of the S and P 500. The E. T s geographical objective is the United States, with a focus on large cap companies. So this e T F is specifically designed to track the S and P 500 which is the 500 top companies in America. It's incredibly stable, and I was actually just reading about an investor who puts 30% of his investments in this fund and then uses the stock market to purchase other stocks and that allows him to diversify, but then also take advantage of other companies that he believes in. I thought it was a great strategy. What he's doing. The top stock held in this company is Microsoft Corporation than Apple Amazon Facebook Alphabet Company, otherwise known as Google Johnson and Johnson. Berkshire Hatheway Visa JP Morgan This is what I love about this stock. It covers all the different industries, and it does it in such a good way. Information technology, healthcare, communications, services. So this market capitalization section tells you how high or low of a risk this carries. 90% of the company's owned in this E T F R large cap companies, and 8% are Midcap. What that tells me is, as you may know, large companies are more stronger for the long run. They're less of volatile, and so there's less risk with investing in a larger company, although I wouldn't invest everything in them because sometimes with these smaller companies they can be on the verge of large growth. But it's just the nature of this investment is it's mainly in larger companies, which is why it's such a reliable investment for you to make. And for a lot of people this is the foundation of their portfolio and the place that they start from. 8. INDY Lesson: all right. Now let's look at an E t f that invests in international companies. Now this one is the I shares India 50 E T. F. The thing that I want to draw your attention to is the price performance in the past 52 weeks. So over the last year it's lost 20%. So there's something going on with this e t. F. And I actually owned this one here because I think that there's so much potential and I just love India. I've never been there, but I want to travel there. I saw India and I wanted to invest in it, but I actually chose not to invest in it at this time. So in the long term, I believe that India is gonna be a great place to invest in the short term. I just found it to be a little bit too much risk for me. Let's look at what this e. T. F contains. The objective of this investment Seeks to track the investment results of the Nifty 50 Index, composed of the 50 largest Indian equities, the subsidiarity and fund will collectively invest at least 90% of its funds assets in the component securities of the underlying index. So what it's saying is the top 50 stocks in India is what 90% of this fund contains. The regional exposure is 94% India, and this is what I didn't research before I bought this. The sector exposure is very heavily weighted towards the financial industry. This is the top Indian e t f. But it's mainly waited toe hold financial companies. And so right now there is something that ISS is key to be aware of in the news that's happening with India. And unfortunately, the Corona virus right now is on the rise in India and it's hitting that place of the world a little bit later than it's been hitting us. We're in the recovery stages, whereas it's more in the early stages in India. Paying attention to that part of the news is important for understanding in overall index. Also, that's one of the things that I would say Hey, look at the news so I would say in general for international e T f, so you'll see a lot of different ones. There's one for Latin America in the, uh, there's all kinds of ways to diversify to different countries, and I would say that you should have some type of diversification into different countries , but that shouldn't be the majority of what you should invest in. In general, investing in foreign countries that you aren't in is a little bit higher risk than investing in the country that you are. 9. FHLC Lesson: And here is the Fidelity M S C I health care index E T F. A couple of things to look at. Expense ratio is low at 0.8 percent, the 52 week range. It's almost at a 52 week high, but I want to show you why I really like this investment. It's because it's focused on a growing sector of the economy, which is the health care sector. I totally believe that health care is going to keep growing and growing. There's gonna be a need for people to improve people's health. You know, hospitalizations, medications, everything like that. So, in my opinion, it's a good thing to invest in. Let's look at this listing right here. This is all the different E. T. ETFs from these different investment companies that I've mentioned. There's Fidelity Vanguard and I shares. It gives a side by side comparison right here. Infidelity of the different performance of the E. T. F. One thing I want Teoh you to notice is that there's a difference in the return for each of these e t efs. So just because it's the same industry might not guarantee the same return of your E T f and you can see some some of these companies Johnson and Johnson visor. And then the other thing that I want you to look at is the industry exposure. It lets you know where in the health care industry, this E T. F is invested in heavily in pharmaceuticals and healthcare equipment and supplies. I've you these two things as being things that man, people are gonna need those things. And then the other thing that I want you to look at with this stock is the market capitalization. Most of the companies are large cap companies, but out of all the gifts that I've shown you, none of them have had small or micro cap companies in their holdings. And just something to keep your heads up on is that this one does have these small research base medical companies in it. So those companies will be subject to pretty high volatility but also are an opportunity for for big growth in the future, too 10. IVW Lesson: Hey, I hope you're enjoying these different companies and these different e t efs to invest in. And if you're finding this valuable, follow my teaching greater learning. And I have plans to create more videos like this in the future. Just want to say thank you, too, for supporting this this teaching in this channel I v w the I shares trust s P 500 bar is a e t. F. Focused on companies that are going to increase in value. It carries a small distribution yield and has a small expense to do with it. But it's mainly focused on what companies in the US are growing. We want them to be part of this e t f. The reason that I chose to invest in this and again, I'm not a licensed investing adviser. You're the one who is responsible for making your own investment decisions. I'm just a teacher. The reason that I chose to invest in this is because of these companies with the top holdings such as Amazon, apple, Microsoft, Google. I like Amazon as a company, and I think they're going to increase in the future. But I actually can't buy, can't afford their stock right now because it costs $2600. And then you look at Google's stock, which is 1400 Facebook 2 35 apples 3 50 Microsoft. So I'm looking at dropping around $5000 to buy one share of each of these companies with one click. Aiken. Buy stock in all of these companies for this price right here, which is the price of the E. T F. And it's divided into these companies that are set to grow in the future so we can look at the market cap and its large cap, which means it's relatively low risk. And the sector industry is mainly focused on technology, which is the industry that's growing the most at this time. So that's why I've chosen to invest in this E T. F 11. Mistakes to Avoid: four, I send you out into the real world to invest in different e t. F. So I want you to be aware of a couple of things that people often fall into when their first starting investing just so that you can start off really well. Don't be afraid. I don't want these risk to cause you fear. I just want you to be aware of them. The number one thing that I see people do when they're starting to invest in E T efs is they kind of go crazy and they're like, Oh, cool. Look at all these different things. They don't research what the companies are doing that E t f has has chosen to invest in. They're not aware of what's contained in E. T. F. The other thing that I've seen people do is they increase their exposure for an E. T F that says it's three times bull or two times bear, and it's gonna move three times higher or two times lower. A lot of times those investments use option contracts to try to fulfill their goals, and they use high risk investments to do that. So just be aware of that and I usually avoid me personally, I usually avoid those E t s. But if you want to take that risk, be aware that it is, ah, high risk investment. The other thing that happens with E T efs is there's hot new products coming out on the market every day. There's new ET EFS coming out might have cool names like the social media, E T. F or the three d printing E T. F. In reality, I don't think a lot of those investments are very good, because a lot of them are in smaller companies. Some of the E T F investments actually end up disbanding and being sold. Not to worry. If that happens, your investment at the time that they choose to sell the E. T F that will be returned to you in cash. But it's just kind of sad to see your investment, and but even with these risks, I think that E. T. F are totally worth it, and they're totally worth having in your portfolio. 12. Next Steps: So here's what I'd like you to do with what you've just learned in this class there is, ah, homework assignment, a super fun class project that I would encourage you to participate in, find three different E t f c and then fill in these key factors that we've gone over in this class for each e. T. F and then post it back into the project section. The other thing that I'd like to ask you to do is leave a review for this class. And if there was something that you enjoyed and really found helpful, I'd love to know about that. Also, if there's something that I could improve on or didn't see in in my teaching, I'd like to know that, too. And then there's two classes that I want to direct you to, and the 1st 1 is personal finance for beginners. This class is how to get in the right mentality of how to set a budget and keep it and take your first step towards financial freedom. And the link to that is in the class description. Maybe you have been asking yourself, what about the stock market, like I want it I know about E t s. Now, what about stocks? I did a great class on investing in the stock market for beginners also, and that's also linked in the description for you. I have full confidence that you're going to invest in E T efs really well and just go out there, have fun and I'll see you next class.