Mário Nzualo - Introduction to investing in index funds and ETFs: A practical guide for investors in Europe

INTRODUCTION TO INVESTING IN INDEX FUNDS AND ETFS

A practical guide for investors in Europe

MRIO NZUALO, Author of indexfundinvestor.eu

Copyright 2020 Mrio Nzualo

All rights reserved.

1. CONTENTS

We can summarize the principles of good personal finance into: Spend less than you earn, invest the difference in diversified and low-cost investments, and be patient.

Many know how to spend less than you earn. Few know how to invest the difference. Fewer know how to invest the difference while keeping in mind the particularities of European residents. This book aims to change that by explaining how European residents can invest their savings in practice.

The standard personal finance recommendation is that most people should invest using a passive investing approach. Passive investors buy index funds/ETFs, which are cheap and mimic the financial behavior of the whole market. This approach has consistently proven to deliver superior financial results. This book explains how you can implement a passive investment strategy and why it is better than the alternatives.

You dont need to study Finance or Economics to learn how to manage your personal finances. Investing is simple, and I believe you can master it. This book addresses these topics in plain English and with concrete examples. Ive written this book with the same familiar language Ive used on my blog posts at indexfundinvestor.eu.

This book is a practical guide to passive investing. It covers in extensive detail the Simple Portfolio for Investors in Europe Ive introduced on indexfundinvestor.eu. The book is much more than a list of ETFs you can buy. Specific ETFs/funds are just a tool. Understanding the why and how specific funds is key to being an effective investor. This book spends a lot of time explaining you the fundamentals of investing so you have enough confidence to take decisions.

For the unfamiliar, investing may look intimidating. That often leads people to postpone taking charge of their financial lives. This book is a succinct and comprehensive guide to help you get started with investing.

By the end of this book youll understand the essentials of investing. And the practical steps you need to take to make progress with investing.

This book is for people that are getting started with investing. Do you know what the difference is between active and passive investment? Do you know how a bond works and what a share is? Do you know how to select an ETF that fits your requirements? Do you know how much equities/bonds you need for your portfolio? This book will help you answer these questions and more.

This book is for those that want to understand investing beyond getting a list of good ETFs. Understanding the fundamentals will give you confidence on your ability to invest. This knowledge will increase your likelihood of success because you will have a better decision making process.

This is a book for people that want to learn how a simple approach to investing works in practice. You only need two or three investments to have a good portfolio: this book covers why and how.

This book is for people that want to manage their own investments. This book covers the practical aspects of implementing a passive investment strategy.

There are 8 chapters in this book.

In the Introduction to Investing chapter, Ill cover the fundamentals of investing. What is investing and why do people bother doing it? What are the different investments that exist (equities and fixed income) and how do they work? What is the risk/return trade-off? What is the importance of diversification?

In the Introduction to Passive Investing chapter, Ill cover the fundamentals of passive investing. How is passive investing different from other types of investing? Why is passive investment great for investors like you and me? What is an investment fund? How is the passive investing landscape in Europe?

In the Introduction to the Simple Portfolio chapter, Ill cover all the details of the simple portfolio. How does the simple portfolio look like? Why is it a popular portfolio among investors? A better understanding of the simple portfolio makes it easier to find the most suitable investment funds.

In the Understanding Index Funds chapter, Ill explain all the important characteristics of equity and bond index funds. Before you can choose funds for your portfolio, you need to evaluate them and assess if they fit your investment plan.

In the Preferred ETFs chapter, Ill cover my preferred ETFs for implementing the simple portfolio. Ill explain the process I follow to find suitable ETFs. Ill help you understand why I prefer these specific ETFs instead of others.

In the Asset allocation chapter, Ill explain the importance of investing in both equities and fixed income. Ill explain how you can find an equity/fixed income split that works for you and how to rebalance your portfolio.

In the How to be a successful investor chapter, Ill explain the mindset and habits you need to be a successful passive investor. The hardest part of investing isnt how to start but rather how to keep investing. Patience and discipline are as important as having the right portfolio

In the Practicalities of investing chapter, Ill cover the specific steps you need to undertake to start investing. Ill cover the most frequent questions people ask when they are trying to put investing in practice.

I am Mrio and I am the author of the indexfundinvestor.eu blog.

On my blog, I write about topics related to index/passive investing in a familiar language. I am particularly interested in explaining how European residents can implement index investing.

Ive been managing my portfolio of index funds for years while being based in Europe. In the meantime, Ive read countless books and learned from other investors.

I started writing so I could make it easier for other investors to embark on this journey.

What is investing?

Investing is not complicated. Investing is the act of buying assets, keeping themfor a long period of time and eventually collecting the financial rewards.

An asset represents ownership of something (e.g. part of a company, a loan or bond) which has financial value.

A financial reward is the ability to make a profit through selling the assets (i.e. capital gains) or receiving income (e.g. dividends, interests) from those assets.

The total (investment) return describes the whole investments realized financial reward (capital gains/losses + income) as a percentage of the amount invested. A total return of 10% means that for an initial investment of 100 we would end up with 110. A total return may be negative if the investment leads to a financial loss. A total return of -5% means that for an initial investment of 100 we would end up with 95.

Investing is risky. Investing is risky because you may lose part of your invested money. Investing is risky because you dont know with certainty which exact outcome you will have: will you make a profit or a loss? How big will your profit or loss be? When can you expect to have a specific profit?