ETF investing: A beginner's guide

iShares ETFs (Exchange Traded Funds) offer a simple and cost-effective way to invest broadly across global markets. Learn the basics and start your ETF investing journey with confidence.

What is an ETF?

An ETF is a simple way to invest in many companies or bonds at once. Instead of buying shares in lots of individual companies – or buying multiple different bonds – you could buy a single ETF that bundles them together for you.

Think of it as a ready-made investment basket. Investing can feel complicated – but ETFs are designed to make it simpler.

ETFs are generally suitable for:
- Long-term investors (typically five-years or more)
- People who don’t want to pick individual stocks (because this can be time consuming and require a lot of research)
Video 07:51
  • How do ETFs work?

    ETFs are designed to track a specific market or index, such as the S&P 500, FTSE 100 or MSCI World. This means the ETF aims to mirror the performance of that group of companies or market.
  • Exposure

    For example, if you want to invest in the US stock market, you could choose an ETF that tracks the S&P 500. With a single investment, you gain exposure to 500 of the largest companies in the US.
  • Simple Access

    Without an ETF, you would need to buy shares in each company individually – which can take significant time, research and money.

ETFs are all about convenience and variety. They offer a mix of investments in one single package, which helps spread out risk through diversification and could lead to more stable returns.

 

So, think of ETFs like playlists in your music library, or investment portfolio. And each song is like a stock or a bond. So, the ETF is a playlist that contains a mix of these songs. Just as you can enjoy different genres in a playlist, you can also invest in various assets through an ETF. And, in the same way you can customise your music library to include your favourite playlists and genres. There are many, many types of ETFs available to match your investment goals. So, join me in this episode of BlackRock Basics for the ultimate guide to ETFs!

 

An exchange-traded fund, or what we call an ETF, is a type of investment fund that is traded on stock exchanges like individual stocks. ETFs pool together a group of assets such as stocks, bonds or even commodities into one single fund. And this allows investors to buy shares of the ETF, which represent a proportionate ownership of the underlying assets. Oh, by the way, when I say pool together, I mean that this is an investment that aggregates capital, so money, from multiple investors to create a diversified portfolio of assets.

 

There are four main characteristics of ETFs.

 

Firstly, ETFs are low-cost. ETFs are widely available without any transaction costs on most online brokerage accounts and qualified financial advisers.

Secondly, diversification. ETFs offer diversification benefits by spreading your investments across various assets, reducing the risk of any single investment's poor performance.

 

And thirdly, ETFs are highly liquid. In case you didn't know, in very simple terms, liquidity refers to how easily you can convert an asset into cash, but without affecting its price. ETFs can be bought and sold quickly because they are traded on exchanges, allowing investors to buy and sell them throughout the trading day.

 

And finally, ETFs are transparent. Information on ETFs holdings, performance, and even costs are published daily. Yes, daily! And are freely available on the website of the ETF provider.

 

Mutual funds are also a type of pooled investment security. However, in this specific case, the pooled money tends to be actively managed by a fund manager who invests it into various assets and securities. While there are also actively managed ETFs, which are growing in prominence, mutual funds can only be purchased at the end of each trading day based on their net asset value. Or what we call NAV price.

 

There are many types of ETFs available catering to different investment strategies and goals. So, let's run through some! Active ETFs are managed by professionals aiming to outperform a market index or even achieve specific goals, like, for example, maximising income. And this often results in higher fees due to frequent monitoring and trading. However, unlike traditional ETFs, active ETFs aren't always tied to a benchmark and can freely select investments.

 

Oh, did you know that the vast majority of ETFs are index funds? Anyway, index ETFs are funds that aim to mirror the performance of a specific index, like, for example, the FTSE 100. Which are the UK's 100 largest listed companies. Oh, I'm sorry, I've just realised I haven't explained what an index is. Indices are used to measure how baskets of certain assets are performing. So for example, you might hear on the news that the FTSE closed up 1% compared to the previous day. And this means that the overall value of the 100 largest companies listed on the London Stock Exchange increased compared to the previous day. Indices also provide benchmarks for how professional investors are doing compared to the market.

 

Stock or what we call equity ETFs, invest in a group of stocks on exchanges and they can focus on specific sectors like for example, technology or even healthcare. And some even provide exposure to international stocks, including regional and country specific ETFs.

 

Also known as fixed-income ETFs, Bond ETFs give investors access to multiple bonds, but in one single trade.

 

Commodity ETFs track the prices of raw materials like, for example, gold, oil, or even agricultural products.

 

Sector ETFs let investors invest in a group of companies, but within specific industries. Like, for example, consumer goods or healthcare, while at the same time reducing the risk of owning individual stocks.

 

So, there are loads of ways to invest in ETFs. But it all comes down to an investor's personal preference. For example, hands-on investors can use online brokers to invest in ETFs with relative ease. Others may prefer to consult financial advisers to build a diversified portfolio with ETFs. Regardless, investors should always be sure to check the fund documentations.

 

So, there you have it. ETFs explained! Just like a curated playlist with different genres and artists, ETFs offer a diversified mix of investments in one convenient package, helping you build a balanced and flexible portfolio, or a music library. So, next time you're thinking about your investment strategy, remember the power of ETFs. Your ultimate investment playlist.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Investing vs saving: how much can your money grow?

Saving
Saving is a way of setting your money aside for short-term needs, emergencies or security. It typically involves low risk options like cash savings accounts, which offer quick access to your money and a high level of security. Keeping your money in a savings account can feel safe – but over time, low interest rates and inflation can limit how much actually grows.

​Investing
Investing involves putting your money aside for the future, with the aim of making a profit. Investing gives your money the opportunity to grow by putting it to work in global stocks and bonds markets, which can generate compound interest and profit over a long period. While investments can go up and down in the short term, market shave historically delivered stronger long-term growth than cash savings.

Using your ISA to invest
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.

By investing small amounts into an ETF regularly – for example, monthly, you can benefit from compounding, where your returns start generating returns of their own. The earlier you start and the more consistently you invest, the more time your money has to potentially grow.

Want to see how your money could grow with regular investing? Try our ETF savings plan calculator to explore how your money could grow over time.​

Why do people invest in ETFs?

ETFs have many benefits that might make them the investment vehicle of choice for beginner investors. Buying individual stocks can sometimes be costly - especially if you want to invest in many different companies. Each purchase may involve separate fees, and building a diversified portfolio can take a lot of time, research and money. ETFs offer a more cost-efficient alternative.

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Cost

With one investment, you can gain exposure to many stocks at once. ETFs also typically have low ongoing costs, and on some platforms, they can be bought and sold without additional trading commissions. Lower costs mean more of your money stays invested, helping you keep more of your potential returns.
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Access to markets

ETFs provide a simple and efficient way to access markets, specific regions, sectors, or asset classes. Investments that were once difficult to access for individuals, like bonds, are now often accessible through a single investment via an ETF.
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Less risk

With just a single ETF, you can invest in many different assets. Instead of putting everything into one investment, you spread your risk across many companies or bonds.
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Easy to trade

You can buy and sell ETFs on an exchange throughout trading hours, just like a stock, giving investors flexibility to trade throughout the day at real-time prices.
Ready to invest?

*Risk: Diversification and asset allocation may not fully protect you from market risk.

Why iShares ETFs?

Our broad range of cost-efficient ETFs is designed to help you build a portfolio that fits your needs.

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Investing made simple

iShares ETFs make investing straightforward and cost-effective. They’re available across a wide range of platforms and providers in Europe, so you can access them wherever you already invest.
Income

World leading expertise

iShares is powered by BlackRock, the world’s largest asset manager, bringing decades of experience, rigorous risk management, and cutting-edge technology to every ETF. That means you get high-quality products designed to help your money work harder.
Income

Choices to match your investment goals

Whether you want broad market exposure, tap into trends like technology, or choose fixed-term investments, iShares offers Europe’s largest range of ETFs, so you can tailor your investments to what matters most to you.
Video 07:17

What are the different types of ETF?

  • ETFs for Different Investment Goals

    There are many different types of ETFs to suit different investment goals:
  • Different Types of Exposure

    Some invest in equities (stocks/shares), giving you exposure to companies and stock markets, while others focus on bonds, which are typically used for income and stability.
  • Access Commodities and Digital Assets with ETPs

    You can also find ETPs that track commodities such as gold or metals, and even ETPs linked to digital assets like Bitcoin, offering exposure to emerging areas of the market.
Learn more

Don’t put all your eggs in one basket.

 

Have you ever heard that phrase? If you’re anything like me and happened to watch Love Island this summer, don’t judge, it was such a good season, then you definitely heard it at least a hundred times.

 

But anyway, did you know that saying can also be applied to investing, in particular asset classes? If you’re interested in learning more, grab something to drink, a little snack, and let’s get into it.

 

Asset classes are groups of financial products that act in a similar way and are affected by the same laws and regulations. Each asset class has different investment characteristics.

 

These include the level of risk, which is about how much an investor is willing to accept to achieve a certain level of reward. There’s also return, which refers to how likely the investment is to deliver a positive or negative outcome. Timelines matter too, whether an investment is short or long term. And performance can vary depending on market conditions, including changes in interest rates.

 

Historically, the three main asset classes have been equities, bonds and cash. Today, the mix also includes alternatives such as real estate, commodities, collectibles like fine art, and crypto. You’ve definitely heard of Bitcoin, right?

 

In this episode, we will focus on equities, bonds and cash.

 

Equities, also known as shares, are units of ownership in companies. They are issued by public limited companies, or PLCs, and are traded on recognised stock exchanges such as the UK’s London Stock Exchange.

 

A PLC is a company owned by shareholders and managed by directors, which means members of the public can legally purchase shares in the business.

 

Let’s say Mario decides to invest in equities. He buys one or more shares in “Pizza Is the Best PLC” because he believes the company will do well, after all, everyone loves pizza.

 

Mario is now a shareholder and part-owner of the company, and he can potentially make money from this investment.

 

One way is through capital growth, where the value of his investment increases over time as the company grows in value. This means he may be able to sell his shares for more than he paid.

 

Another way is through income in the form of dividends, which are company earnings paid to shareholders. This allows them to share in the success and profitability of the business.

 

However, it is important to remember that there is a risk the share price could fall below what Mario paid, meaning his investment would be worth less. There is also no guarantee that dividends will be paid.

 

Ready to learn about bonds?

 

Bonds are also known as fixed income. So don’t worry if you see or hear either term.

 

A bond is essentially a loan taken out by a company, government, or another entity.

 

Let’s say I purchase a bond worth £5,000 from the very real European country, the Kingdom of Genovia.

 

Ten points if you know the film reference.

 

I’ve agreed to lend Genovia £5,000 over five years, which makes me a bondholder. In return, they agree to pay me a fixed level of interest at 5 percent each year, which is £250. This is known as the coupon.

 

At the bond’s maturity date, they will also return my original £5,000.

Notice how many elements are fixed in this agreement: the amount lent, the interest rate, and the repayment date. This is why bonds are called fixed-income assets.

 

However, there is a risk that Genovia may not be able to meet its obligations. This could mean missing interest payments or failing to repay the original amount. This is known as default.

 

The value of a bond can also change over time, particularly in response to interest rate movements, meaning it can go up or down.

 

Now, let’s talk about cash.

 

A cash fund typically invests in cash and cash equivalents, such as money market funds. Cash is widely used for payments and is considered a very liquid asset.

 

Money market funds are usually short-term debt securities that are highly liquid and generally considered lower risk.

 

All cash funds aim to generate a competitive level of interest while offering a relatively secure option for investors.

 

Here’s an example. Anna is looking for a lower-risk, short-term investment over 90 days or less. Based on this, she invests in a money market fund that purchases 60-day debt from a company with a strong balance sheet and high credit ratings. The fund pays Anna a small return in interest.

 

As with equities and bonds, the value of an investment and the income it generates can go down as well as up. There is always a risk Anna may not get back the amount she invested.

 

Another important consideration for cash is inflation. If Anna puts her money in a savings account but the inflation rate is higher than the interest rate she earns, her money will lose purchasing power over time.

 

Let’s recap.

 

Equities tend to offer higher potential returns, but with higher risk.

 

Bonds tend to provide more stable returns than equities, but have historically delivered lower returns over the long term.

 

Cash is typically the lowest risk of the three, but also tends to offer lower returns.

 

So, given that each asset class has its pros and cons, you could argue that the smart approach is not to put all your eggs in one basket.

 

A full circle moment.

 

Diversification is an investment strategy that helps reduce risk and, hopefully, improve outcomes over time.

 

I hope you enjoyed this episode of BlackRock Basics, and make sure to join us for part two, all about alternatives, coming soon.

How often to invest?

Regularly or lump-sum

Loop

Invest regularly in ETFs

Start investing as little as £1 per month and regularly buy fractional shares (or slices) of an ETF.
Income

Make a lump-sum investment

Once you open a broker account, you can get started by investing one lump sum – any amount you’ve set aside for investing. There’s no set rule for how much you need to invest.

Step-by-step guide

You can’t invest directly on iShares.com, but we can guide you through the steps to get started.

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Open an investment account

To invest in iShares ETFs, you’ll need to open an investment account with a bank or an online trading platform. Many UK investors use a Stocks and Shares ISA, which allows investments to grow free from UK income tax and capital gains (subject to annual limits and individual circumstances).
Search

Select the funds

Browse ETFs on your platform and select the funds that match your goals. You might be interested in investing in a certain industry, region or theme.
Portfolio

Decide how you want to invest

Determine how much and how often you want to invest. You can set up a regular investment plan or make a one-time investment.
Discover where to buy ETFs

Frequently asked questions

ETFs are designed to track market indices, such as the FTSE 100 or S&P 500, or sectors like technology or energy. Some are actively managed to pursue goals like outperforming a benchmark, generating income, or managing risk. ETFs provide investors with a simple way to access financial markets without having to buy individual stocks, bonds or other asset classes separately.

Say you invest in an ETF that tracks an index like the FTSE 100, which represents the 100 companies with the highest market capitalisation (total market value of their shares) listed on the London Stock Exchange. You’re investing in a bit of every company in the index with a single trade – rather than having to buy a share in each company individually.

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%).

Find out more

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.

Discover how to buy ETFs

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.