How to start investing in ETFs with $1

By The Investing Fox · General information, not investment advice

An exchange-traded fund (ETF) is a basket of investments you can buy in one go, like a share. A broad index ETF holds hundreds or thousands of companies at once, so one purchase gives you a slice of a whole market instead of a bet on one business.

Why most people start here

• Diversification in one click. If one company in the index fails, it is a small part of the whole.
• Low fees. Large index ETFs typically charge a small fraction of a percent a year. Over decades, the difference between a 0.05% and a 1% annual fee compounds into a large share of your returns.
• No stock picking. Most professional fund managers fail to beat their index after fees over long periods, which is the main argument for simply owning the index.

How you can start with $1

Many brokers now offer fractional shares: you choose an amount in dollars rather than a number of shares, and the broker buys the matching fraction. That is what makes "invest from $1" possible. Check whether your broker supports fractions for the ETF you want, and whether it charges per-trade or currency-conversion fees, which hit small amounts hardest.

What to check before you buy

• What it tracks: a whole-world index, one country, one sector or a theme. Narrower means more concentrated risk.
• Total cost: the fund's yearly fee plus your broker's fees and any spread.
• Accumulating or distributing: whether dividends are reinvested for you or paid out. The tax treatment differs by country.
• Where it is domiciled: EU investors usually can only buy EU-domiciled (UCITS) ETFs; US investors usually buy US-listed ones.

The catch

An index ETF falls when the market falls, sometimes by a third or more in a bad year. It suits money you will not need for years. Regular automatic purchases ("dollar-cost averaging") reduce the risk of putting everything in at a bad moment.