ETFs Investment Guide for Beginners 2025

New to investing but don’t know where to start? Exchange-Traded Funds (ETFs) could be your answer! If you’re wondering, “What are the best ETFs to buy today?” – you’ve come to the right place. In this ultimate guide, we’ll walk you through what makes ETFs a fantastic option for beginners, and highlight the top ones to consider for your portfolio right now. 

Sounds exciting? Go grab your coffee and strap in! 

What are Exchange Traded Funds (ETF)?

An Exchange-Traded Fund is like a basket of investments that you can buy with a single click, giving you a slice of everything inside it – whether that’s stocks investing, bonds, or any other assets that it mirrors. Imagine walking into a store where instead of choosing one fruit, you get a whole fruit salad in one package (pre-made, and ready-done for you). That’s what an ETF does for your investment portfolio. 

Most ETFs track an index, like the S&P 500 (you don’t have to know what this is for now, we’ll explain later on), which means that it automatically follows the performance of a group of companies in that index, rather than just one stock.

The benefit of this? It gives you instant diversification.

So you might ask – Why do we need diversification?

Diversification, as many insiders would coin it, is the only free lunch in the investing world. Think of it as not putting all your eggs in one basket. If you invest in just one company’s stock and it struggles, your entire investment takes a hit. But if you spread your money across different companies or industries, the chances of a single bad event sinking your portfolio are much lower. This is called, reducing idiosyncratic risk. We don’t want to be beholden by one company’s performance (worse still, betting our entire retirement on it!). 

With an ETF, diversification is built-in, having safety nets in place to allow your investment to grow over time. 

Taking the example of the S&P 500, this is how many companies they give you exposure to - just by buying into one instrument. Crazy isn’t it?

Why Invest in Exchange Traded Funds (ETF)?

Now that you’ve understood the power of diversification, another key advantage of investing in ETFs would be the low fees. 

ETFs are typically passively managed, meaning they track an index and don’t require constant buying and selling by the fund managers - while also charging a low upkeep cost because not much work is needed to be done, compared to actively managed funds or portfolios. This keeps fees low, which can make a big difference in returns over time. 

Key factors to consider before buying an ETF

Here are a few things you should take note of before diving into your first ETF:

• Expense ratio: This might sound like a very sophisticated term, but it is essentially the annual fee or charge that you’ll pay for holding the ETF. Even a small difference can impact your returns over a long period of time.
  
  
• Underlying index: Make sure to understand what you’re buying into - what kind of exposure that you wish to get, and what are the mechanisms behind the index that would affect your investments in the future.
  
  
• Market liquidity and volume: ETFs with higher liquidity tend to have a tighter bid-ask spread (meaning a more competitive pricing when you want to buy it).
  
  
• Tracking error: This basically shows how closely the ETF replicates the performance of its underlying index. A smaller tracking error is generally better, as it means that the ETF is doing a good job following the index.
  
  
• Tax rate: This is particularly important for investors in foreign jurisdiction that are subjected to withholding taxes from certain countries. 

Top ETFs for Beginners Investors to buy today

Now, we’ve come to what everyone is waiting for - the magic bullet that is going to solve all your retirement worries! The best of the best ETFs in the market now!

Of course I’m just joking. There really isn’t a one size fits all solution. What we can do however, is to lay the case for certain types of ETFs for you to consider - and you have to make the decision as to which you think is suitable for your own financial situation. 

Let’s get into it. 

Broad Market Index ETFs

These ETFs are a fantastic starting point for beginners. They basically track the performance of entire stock markets or major indexes, such as the S&P 500. 

By now, you should’ve come across this term “S&P 500” multiple times in this blog. So what exactly is this monster? Long story short, it’s basically an index that tracks the 500 largest companies in the United States, accounting for approximately 80% of the entire US-weighted market capitalization (ie, the value of the companies). Investing into just this one thing, gives you exposure to industries such as technology companies (Apple, Microsoft, Alphabet, Meta etc.), consumer goods companies (like Procter & Gamble) and even financial companies (like JPMorgan, Visa, Mastercard etc.). 

In fact, the performance of the S&P 500 is often lauded as the gold standard of indexing benchmark. Basically, if your stocks or portfolio is unable to outperform them, you’re better off passively staying vested into an ETF that tracks that S&P 500. 

Why is the S&P 500 ETF so good?

The secret sauce is actually the self-cleansing mechanism built-in. Rather than just investing in the Top 500 companies in the USA – you’re actually investing in some of the best 500 companies in the US of the present and (potentially) the future.

Below are some of the eligibility factors for the stock to enter the S&P 500:

• It must be domiciled in the US
• The market capitalization must be at least US$18 billion. 
• The sum of the most recent four consecutive quarters’ earnings should be positive (Ie, the company needs to be profitable)

On top of those criteria, the stock will also need to be vetted by a committee before it’s added into the index. Making it a safe choice for beginner investors. Even after the addition, the company will still need to maintain its performance to prevent itself from being removed and replaced by another company that is deemed to be more worthy of its place.

It’s exactly this self-cleansing mechanism that makes the S&P 500 index such a lucrative one. 

Case in point, where over the last 100 years, the S&P 500 has derived an average return of roughly 10% per year, and they were positive 70% of the time. 

To put things in perspective, if you would’ve put $1,000 into the S&P 500 in 1960, it would be worth more than $581,000 (with dividends reinvested). Of course, we have to also take into account the level of inflation - but they still delivered a respectable real return of roughly $54,000, on that $1000 capital. 

You still managed to 54x your money! 

BEST S&P500 ETF to Buy as Beginners

Now that you’re aware of the power of the ETF, this then begs the question - which one should you go for? 

The 3 most commonly cited S&P 500 ETF is SPY, VOO and IVV. Here are the differences.

Accurate as of 20th of March 2025

Considering the expense ratio – both VOO and IVV would be good candidates for a long-term investment approach, while SPY is more suitable for traders to trade in and out due to the much higher trading volume, which will give you a potentially better bid-ask spread. 

Cons for a non-U.S. investor in the S&P 500

There is however, a major disadvantage for foreign investors when placing their capital in the likes of VOO or IVV. 

It’s the 30% withholding tax on dividends. 

Another disadvantage is the US estate tax. Basically, the taxes levied onto your assets upon death. If any mishaps were to happen, your US assets above US$60,000 are subjected to an estate tax of up to 40%, which would add further complications to your assets. 

However, you’re in luck! There is a solution to combat the above issues. An Irish-domiciled ETF. 

Accurate as of 20th of March 2025

Putting them side-by-side, you can see that CSPX offers several advantages such as a lower dividend withholding tax of 15%, the avoidance of US estate taxes, and the accumulation ETF option which helps you keep dividends reinvested. 

The only “downside” is the higher expense ratio of 0.07%, and the need to access the London Stock Exchange (LSE) to buy this ETF. You can check with your preferred broker, but the one we personally use (Interactive Brokers) grants this access to most international investors. 

What you MUST know before investing into the S&P 500 ETF?

Now, it seems like the record of the S&P 500 is the next best thing after sliced bread. Is there something that we are missing here?

One of the key risks when investing into an index, like the S&P 500 is the possibility of experiencing a “lost decade.” This refers to extended periods - sometimes up to 10 years or more - where the index essentially goes nowhere, meaning investors see little to no growth in their portfolios. 

While the S&P 500 has historically delivered strong, long-term returns. There are however periods of times like the 1900s WW1 era, the 1929 Great depression, the dotcom and GFC of 2008 that led to miserable periods of negative stock returns. 

When we talk about investing for the long-term, we really mean long term. 

Source: A Wealth of Common Sense, from Ben Carlson

You can however seek comfort in the analysis of the rolling returns of the S&P 500 over the past 100 years or so – conducted by Ben Carlson (Director at Ritholtz Wealth Management). As you observe from the analysis above, the shorter the time duration (ie, the 3 and 10 year line), the more volatile the return profile. 

However, if we were to extend the timeline to 20 years and beyond, the rolling returns of that 20 year time frame (as denoted in red), has never gone negative before (basically, always above the x-axis). 

Therefore, you must have the fortitude and patience to tide through the difficult times (in the short run). 

Source: Hartfordfunds

Another source of a potential worry of diving head-in to only having exposure to the US market is the potential underperformance relative to its international peers.

“History doesn't repeat itself, but it often rhymes.” 

Comparing the returns of US versus international equity exposure over a 50-year time period, we can clearly observe a cycle of relative outperformance in distinct time periods. 

Clearly, over the past 14 years or so - the US market has achieved exceptional growth and performance - potentially causing a wrong impression that the US market can only go up. However, I hope that I’ve impressed upon you that we should always be prepared for the worst. 

The solution to this - would be a “catch-all” approach where you gain exposure to the entire world’s equities market, through a world ETF. 

Best International value ETF for Worldwide Exposure in 2024

Accurate as of 20th of March 2025

The above-mentioned ETFs mostly replicate indexes that track over thousands of companies in every part of the world - giving you the highest level of diversification. 

Similar to the concerns mentioned earlier, foreign investors are probably better-off investing in the UCITS equivalent due to the dividend-withholding tax and estate issues, in spite of the relatively high expense ratio (which is still highly competitive). 

What other ETFs are there for investors?

On top of the broad based market index that we’ve discussed, there are many other types of ETF flavors available for an investor (depending on what he/she is looking for). 

They following list of ETFs are some examples and are not exhaustive:

• Sector ETFs: Focus on specific sectors of the economy, such as technology, healthcare, or energy. 
  • Technology Select Sector SPDR Fund (XLK) - that tracks the technology sectors including companies like Apple, Microsoft, and Amazon to name a few
  • Health Care Select Sector SPDR Fund (XLV) - focuses on healthcare companies such as Johnson & Johnson, UnitedHealth Group, and Pfizer
  • Energy Select Sector SPDR Fund (XLE) - tracks the energy sector with companies such as ExxonMobil, Chevron etc.
    
    
• Thematic ETFs: Focus on specific trends or themes, such as clean energy, artificial intelligence. These are riskier but offer targeted exposure to growing trends.
  • iShares Global Clean Energy ETF (ICLN) - invest in companies involved in clear energy production such as solar, wind, and other renewable sources
  • Global X Robotics & AI ETF (BOTZ) - focuses on companies involved in robotics and AI, such as Intuitive Surgical and NVIDIA
    
    
• Dividend ETFs: Focus on companies that pay regular dividends, ideal for income-seeking investors.
  • Vanguard Dividend Appreciation ETF (VIG) - tracks companies with a history of increasing dividends over time
  • SPDR S&P Dividend ETF (SDY) - invest in the high yield dividend aristocrats index, which includes companies with at least 20 years of dividend growth
    
    
• Inverse ETFs: Designed to move in the opposite direction of the index they track. They’re often used by traders to profit from, or hedge against market declines.
  
  
• Leveraged ETFs: Designed to use financial derivatives to amplify the returns (or losses) of an index. They tend to be more volatile and suitable for short-term, high-risk strategies. 

Many of these “alternative” ETFs, outside of the traditional, broad-based market index, are created for investors who want to target a specific sub-section of the market and make tactical adjustments on the overall portfolio allocation - expressing their expectations of that sector’s outperformance. 

It’s good to know that they do exist - but for a start (especially beginners), we encourage looking towards getting the foundations right first before exploring anything else. 

Are ETFs Good For Beginners?

ETFs are one of the most beginner-friendly investment options available. It offers instant diversification by allowing you to invest in a whole basket of stocks or assets with a single trade—minimizing the need to pick individual winners. ETFs are easy to understand, trade like stocks,  making them cost-effective and accessible. It also offers flexibility, tax efficiency, and support beginner-friendly strategies like dollar-cost averaging and buy-and-hold investing. 

Simply put, ETFs give you professional-level exposure, reduced risk, and long-term growth potential—all without needing to be a market expert. If you’re new to investing, ETFs are a smart, simple, and low-maintenance way to start building wealth.

Choosing the right ETF starts with understanding your financial goals and objectives. Are you aiming for long-term growth, seeking regular income, or simply looking for diversification? 

Next, consider your risk tolerance – how comfortable are you with the volatility of the market? Broad market ETFs tend to have smaller fluctuations, compared to sector or thematic ETFs. 

I believe by now, you would have a greater appreciation and understanding of both the pros and cons of having invested in a broad based market ETF like the S&P 500, and the other alternatives such as a world ETF, or even one that tracks a specific sector. 

Conclusion

ETFs are an incredible tool for beginner investors, offering an easy way to build a diversified, low-cost portfolio. By understanding your investment goals, assessing your risk tolerance and balancing your portfolio can set yourself up for financial success. 

Remember, the key to investing is consistency and patience – start small, stay the course, and watch your wealth grow over time.

After getting the basics right - and you’re interested to find out how to super-charge your returns, above the traditional index return of 7 to 10%, you’re in the right place. 

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Till next time, Keep Winning.