ETF Essentials: Your Beginner’s Guide to Smart, Simple Investing
- jessevisionfactory
- 5 hours ago
- 7 min read
Author: Elisa Krahl
Not just for Wall Street: Why ETFs deserve your attention
ETFs are no longer just for experts or finance people. They're for anyone who wants to build wealth over time – including you. You don't need a big budget or a business degree. You just need curiosity and a bit of consistency.
Unlike individual stocks, which require research and nerves of steel, ETFs spread your money across many companies. That means less risk and more balance. And unlike savings accounts, ETFs can actually grow your wealth.
ETFs explained: What they are and how they work
ETF stands for Exchange Traded Fund. To understand it, imagine a huge bouquet of flowers, filled with the best blooms from around the world. Each flower is a company and the bouquet is your ETF.
An ETF copies an index (like the DAX) which includes hundreds or even thousands of stocks (the flowers in your bouquet). It's passively managed, which means you do not have to pay for expensive fund managers. You then can buy that copy because you cannot buy the DAX (or whatever index) itself and profit from its growth.
Passive vs. active funds
As mentioned, there also people managing these kinds of indexes – so they decide how many flowers of which company are in the bouquet and when to change them. These are actively managed funds, where the fund managers try to beat the market – often unsuccessfully and with high fees. So, even if the fund manager beats the return of the market by 0.5%, you have probably paid more to let them manage your fund. ETFs, on the other hand, just follow the market – and win more often, especially long-term.
But, also for ETFs, there are costs to consider although they are extremely low (typical range):
TER (Total Expense Ratio): 0.2–0.5% per year
What is the Total Expense Ratio (TER)?
The TER shows how much it costs to run an ETF each year – as a percentage of your investment.It includes management fees, admin costs, and legal fees. For example, a TER of 0.2% means you pay €2 per year for every €1,000 you’ve invested. It’s already included in the ETF price, so you won’t see a separate bill.
Broker fees per transaction: often 0–2€ per order depending on the platform
ETF savings plans at Trade Republic and Scalable Capital are free of charge for selected partner ETFs (as by August 2025) – including popular ones like the iShares MSCI World or the iShares MSCI ACWI and many more.
Fund provider costs (e.g. iShares, Vanguard): included in TER
No entry/exit fees
Free updates when the index changes (how often that is in detail depends on the ETF)
Why ETFs are a smart tool for long-term wealth building
ETFs are a powerful choice for building long-term wealth, preparing for retirement, and creating a balanced portfolio.
They are especially effective because they:
Combine low costs with broad diversification
Support consistent investing through monthly savings plans
Enable automated growth with minimal time commitment
Have historically delivered average annual returns of 6–8%, outperforming traditional savings accounts over the long run
Because of their structure, ETFs are ideal for people who want to grow steadily without the stress of managing individual stocks or constantly tracking the market. Also they are perfect to start investing with no need to gain enormous amounts of knowledge.
Let’s talk risk: What you should know before you invest
I have often seen, that many people overestimate the risk of ETFs because they hear "stock market" and think of crashes, speculation, or needing expert skills and hours to spend until you can get started. But ETFs are designed to reduce risk through broad diversification.
It’s true, ETFs do come with market fluctuations. There's no capital guarantee, but there is long-term stability.
You can combine ETFs with private pension plans – but be cautious of high-fee products. Focus on transparent, fee-only advice.
ETF vs. stock vs. savings:
Stock: high risk, high reward, short term
ETF: moderate risk, high stability, long term
Savings: safe, but poor return, even loss due to inflation possible
Time in the market beats timing the market. The earlier you start, the better your gains. And the longer you stay invested in your ETF, the lower the risk becomes.
What the historical return of the MSCI World teaches us
If you had invested monthly in the MSCI World from 1988 to 2008 (so for 20 years), including the crash of 2008, your average annual return would have been 2.2% – even though 2008 was the biggest drop in stock market history ever at -42%. Had you stayed in the market for 10 more years, until 2018, that number would rise to 7.0% annually.And if you had invested 30 years from 1978 to 2008, your average return would be 6.2% – despite ending right in a global crash.
This shows: long-term investing cushions short-term crises.
You only lose everything if the entire global economy collapses permanently. That’s why maximum diversification is key.
How to reduce risk:
Stay invested long-term (10+ years)
Choose broadly diversified ETFs (e.g. MSCI World, ACWI)
Always avoid panic-selling
Don't invest money you’ll need in the next few years. - And yes – you can sell your ETF anytime if you need to. Just remember: the longer you stay invested, the better your chances of solid returns.
Advisor or DIY? When to ask for help
A financial advisor can be helpful if you're overwhelmed or want personalized guidance. But remember: advice costs money. Either upfront or when buying a product. This reduces your overall returns.
Some advisors offer free consultations but earn from product sales. Always check for independence and whether they charge fees or commissions.
Look for independent advisors (check the register!).
If you prefer DIY:
Use trusted websites and tools. Free comparison platforms like justETF or extraETF can help you explore options before you consult a financial advisor.
Educate yourself
Start small, grow your confidence
Talk to people about money – with your friends and family, even if they don’t know anything about the topic yet. You can grow together. Don’t bother talking to experienced people too.
Your first ETF in 6 steps: How to start investing
Open a cheap brokerage account (e.g. Scalable Capital or Trade Republic)
Pick an ETF (e.g. MSCI World, MSCI ACWI, S&P 500, FTSE All-World)
Choose a provider like iShares, Lyxor, or Xtrackers. These are known for low fees and reliable replication of major indices.
Set up a savings plan (start with 25€/month or even just 10€)
Consider a one-time boost if you have extra funds (no need to time the market)
Check in monthly: increase your plan if income grows or invest windfalls
Once it is automated, relax. Investing should feel good, not stressful.
To give you a brief understanding, you can find the outcome of different scenarios in the table.
Scenario | Duration | Investment | Final Value (6% p.a.) | Total Invested | Profit (before taxes) |
Start at 30; 10€/month | 20 years | 2,400€ | ~4,000€ | 2,400€ | +1,600€ |
Start at 30; 1,000€ to start with; 10€/month | 20 years | 3,400€ | ~6,200€ | 3,400€ | +2,800€ |
Start at 30; 10€/month | 30 years | 3,600€ | ~9,800€ | 3,600€ | +6,200€ |
Start at 30; 50€/month | 20 years | 12,000€ | ~22672€ | 12,000€ | +10,672€ |
Start at 20; 10€/month | 40 years | 4,800€ | ~20,000€ | 4,800€ | +15,200€ |
Which ETF is right for you? A quick comparison
To finally start investing, here is a quick comparison of all the key facts of the best 5 ETFs. (My personal favourite is the MSCI ACWI.)
ETF | Focus | Countries | Diversification | Covered Region |
MSCI World | Large companies | 23 | High | Developed markets |
MSCI ACWI | World + Emerging Markets | 50+ | Very High | Global incl. emerging markets |
S&P 500 | US stocks | 1 (USA) | Medium | USA only |
FTSE All-World | Global | 50+ | High | Global (broad coverage) |
Some ETFs offer ESG (Environmental, Social, Governance) or faith-based filters. These apply ethical, religious, or sustainability criteria to screen included companies. The ETF automatically removes companies that don’t meet the criteria.
What NOT to do: 5 beginner mistakes with ETFs
Mixing too many ETFs: A good one or probably 2 is enough – If you mix, check if you want to invest 50/50. Sometimes investing 80% in one ETF and 20% in the other is better.
Focusing only on short-term gains
Not keeping an emergency fund
Selling in panic when markets crash
Waiting for the "perfect" moment to start
Not investing monthly: Even just 10€ or 25€ lets you benefit from cost averaging: This means investing the same amount regularly, so you automatically buy more shares when prices are low and fewer when they’re high. This helps smooth out your overall purchase price over time.
Also: Don’t forget tax rules. Ask:
How much can I earn tax-free? (You earn it the moment you remove money from the ETF onto your bank account.)
What are capital gains tax rates?
How do I report my earnings?
Learn more, worry less: Books, podcasts & apps to guide you
Podcasts: Finanzfluss, The Investor’s Podcast, Money for the Rest of Us Books: The Psychology of Money, The Simple Path to Wealth To
ols: justETF, extraETF, Portfolio Performance, ETF calculators, ChatGPT (at least for basic questions)Networks: money networks for women
Start small. Think big. Your future self will thank you!
You don’t need to be rich to start. You just need to start. Even 10€/month is better than nothing. If you do not want to start now, look at the table in chapter 6 with the examples again. 😉
Financial independence starts with your first step.
Let your money grow – while you live your life.