For many investors, an ETF savings plan is an easy way to start investing. These beginner mistakes should be avoided.
• ETF savings plan as a good start to the topic of investing
• Clear strategy necessary, pay attention to diversification
• Avoid impulse sales, don’t forget to rebalance
Setting up an ETF savings plan is an easy way for many investors to start investing. However, there are some stumbling blocks that investment beginners in particular are confronted with. However, these can be avoided if a few points are taken into account.
Don’t wait for the “perfect” time to start
The first mistake ETF beginners make is waiting for a “good” starting point to invest. Because of fear of losses or mistakes, setting up the savings plan is pushed further and further back. Others may think they can predict when prices will rise or peak. Since no one knows the future, this remains a look into the crystal ball.
Better than waiting for the perfect timing is to simply start, because if you wait for a long time you will miss out on returns. The longer you wait before investing in ETFs, the less the investor benefits from price gains and compound interest. If you are unsure at the beginning, you can only invest small installments in an ETF.Savings plan invest and gradually increase this as more experience is gained.
Lack of strategy and goal setting
Another stumbling block is the lack of strategy for ETF investments. Those who choose a long-term investment strategy with a clear objective are more likely to remain calm, even if there is increased volatility. With a clear strategy, you can also better select the ETFs that meet your own goals. Before investing, you should be clear about the investment goal you are pursuing – such as reserves for your own children or financing a house or even retirement provision.
You should also consider how high the monthly savings rate should be, after all, the money should be invested for the long term. But how long the investment horizon is planned is also an important question. If you want to stay invested longer, you can better ride out fluctuations.
Too many ETFs
It also fits with the objective that when it comes to investing in ETFs, the more the better does not always apply. If you invest in too many funds at the same time, you can easily lose track and the investments then become unnecessarily complex. For beginners, two to four ETFs are completely sufficient. This means that the administrative effort remains manageable and the transaction costs do not rise immeasurably.
Overall, the costs associated with ETFs should not be lost sight of. People often only focus on the return, but over the years hidden spreads, transaction and fund costs can add up and reduce the net return. A low total expense ratio for the ETF is therefore preferable. On the other hand, unnecessary transactions and reallocations should be avoided.
When selecting ETFs, attention should also be paid to diversification.
The question of risk
Another important point to think about is the risk you are willing to take with your investments. When investing, it is important to strike a balance between risk and return. However, it is important that your own need for security is not ignored when selecting ETFs. Otherwise there is a risk of impulsive decisions that can have a detrimental effect on returns. Anyone who relies on a mix of different investments such as stocks, bonds and other assets can invest specifically according to their risk profile.
Accordingly, investing in broadly diversified ETFs, as opposed to specialized themed ETFs, is another tip for beginners. There are always trending topics on the market such as artificial intelligence, quantum computers, blockchain, cannabis or hydrogen, which at times experience real hype. They attract with a lot of growth potential and a correspondingly high return, but such hypes are often associated with great volatility and involve a large amount of speculation.
However, when investing in ETFs, it is important – especially as a beginner – not to just focus on individual sectors or companies, but to position yourself broadly in order to ensure better diversification and thus avoid cluster risks.
Wanting to draw conclusions about the future from the past
Anyone who allows themselves to be guided too much by past developments when selecting their ETFs is making another classic beginner’s mistake. Because history does not necessarily provide any indication of future developments. There are a few points to consider here: The top performers of the past do not necessarily have to be among the high-flyers in the future. This is often particularly true for thematic ETFs. Those who only pay attention to the high returns in the past often overlook the strong fluctuations that may have accompanied it. There is a danger here of overlooking strong risks. Of course, a high return has looked attractive in the past. However, when selecting ETFs, not only the return but also other criteria such as replication method, cost structure and diversification should be taken into account. In the end, it is again crucial that the ETF you choose fits your own objectives.
Impulse selling during price losses
As already described, there can always be strong fluctuations in investments depending on market developments. A beginner’s mistake in ETF investing is not to endure such turbulence but to panic sell. Price losses can occur again and again and can extend over a longer period of time. In the long term, however, prices always recover, even after crises. It is advisable not to look at your portfolio every day if it is more difficult to deal with possible losses. It is important to keep a cool head and stay disciplined.
Don’t forget to rebalance
A final important note is to regularly balance the ETF portfolio, i.e. rebalance. Anyone who sets up their ETF savings plans once and then never adjusts them again is making a classic beginner’s mistake. For this reason, it is a good idea to check your portfolio once a year and see whether the investments still correspond to the desired weighting. In a year in which stocks have performed particularly well, they can quickly become overweighted in the portfolio, which also increases the risk – possibly more, as you originally wanted. Therefore, the desired investment ratio should be restored at regular intervals.
Martina Köhler, editorial team at finanzen.net
