ETF investing: A beginner's guide

Investing in ETFs is easy.

Just open an account with any online broker or bank and decide which market or industry you'd like to invest in. Then you’re ready to pick an ETF. You can either invest a one-time amount or set up a regular investment plan, depending on your financial goals and preferences.

There’s no fixed rule for how much money you need to invest. You can start with as little as £1 per month.¹

ETFs can be based on asset classes like stocks, bonds and commodities. There are ETFs for particular countries or continents, and you can also find plenty that are based on industries and trends such as clean energy or healthcare innovation. So, no matter what you want to invest in, you’ll find an ETF that suits you.

Investing in ETFs can be an affordable way to access global financial markets, but there are different costs to consider, which may vary from provider to provider. Broadly, those costs fall into two main categories: ongoing and transaction.

Ongoing costs are the fees that investors pay to the ETF provider to manage and operate the fund. Often called expense ratios, these costs are usually expressed as a percentage of the fund's net asset value and are deducted from the fund's gross returns. The lower the expense ratio, the less your investment is spent on administrative fees and other operating costs. The ongoing costs are usually disclosed in the fund's fact sheet or product page.

Transaction costs are fees and expenses that investors pay to the bank or broker when they buy or sell ETFs. These vary on the provider and are often called commissions or exchange fees.

First, decide which region or industry you’d like to invest in. For example, if you want to invest in the UK, you could pick an ETF that tracks an index made up of UK companies like the FTSE 100. Or, if you want to be more selective, you could invest in just one industry, like tech or healthcare.

iShares now offers over 1,400 different ETFs to choose from.²

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

In the UK, many investors choose to hold ETFs within a Stocks and Shares ISA. When ETFs are held inside an ISA, any income (such as dividends or interest) and any capital gains are generally free from UK income tax and capital gains tax, subject to annual ISA contribution limits.

If ETFs are held outside an ISA - tax may apply.

In the UK, dividend income from ETFs is subject to tax and its treatment depends on various factors. Shares in ETFs are treated as 'offshore funds' for UK tax purposes. If an investor holds a share in a 'non-reporting' fund, any profits made upon selling the share are taxed as income rather than under capital gains tax. For shares in 'reporting funds', dividends are taxed as income and any gains from selling the share are subject to capital gains tax. Information on reportable income is available on our website and is taxable annually.

Distributions from dividends and reported income are considered Dividend income from foreign companies except when from Bond Funds. Distributions from Bond Funds, which hold over 60% of their assets in interest-bearing securities, are classified as Interest income.

For individual UK taxpayers, there's a dividend exemption of £500 for the tax year 2025/2026. Any dividends over this amount are taxed at rates dependent on the taxpayer's bracket: basic rate (8.75%), higher rate (33.75%), and additional rate (39.35%).

Interest received above the personal savings allowance is taxed at rates dependent on the taxpayer's bracket: basic rate (20%), higher rate (40%), and additional rate (45%).

For UK residents, the annual exempt amount remains £3,000. Capital Gains Tax applies to gains above this threshold at rates dependent on the taxpayer’s bracket: basic rate (18%), higher rate (24%).

When it comes to investing, sooner is always better than later. After all, the longer your money’s invested in the markets, the better chance it has to grow. And while it may have made sense in the past to save up and invest with larger amounts, today’s lower trading fees mean you shouldn’t have to wait.³

Make sure that you’ve carried out your own research and feel confident that it’s the right time to invest, and that you don’t hold any significant short-term debts, as they could cost you more in interest than the amount of return you see on your investment.

Investing always involves some level of risk, and ETFs are no exception. Here are some of the risks you should be aware of before you invest in ETFs:

Market risk

ETFs are subject to market fluctuations. The value of investments and the income from them may go down as well as up and you may not get back the amount you originally invested.

Concentration risk

Investment risk is concentrated in specific industries, countries, currencies or companies. As a result, certain funds are more sensitive to local economic, market, political or regulatory events.

Currency risk

International ETFs sometimes invest a large proportion in values denominated in a foreign currency. Therefore, changes in the applicable exchange rate will affect the value of the relevant fund shares and your investment.