Investing in ETFs: A Guide for Beginners, Intermediate, and Advanced Investors

ETFs (Exchange Traded Funds) have become one of the most popular financial instruments in the world. The reason is simple: they combine the best of stocks and mutual funds, with the advantage of being accessible to almost anyone. But not all investors approach them the same way: it’s not the same if you’ve never invested, if you have some basic stock market experience, or if you’re an advanced investor looking to optimize your portfolio.

In this article, we’ll go through the three levels of ETF knowledge, from beginner to advanced, explaining key concepts like what “low risk” and “high risk” mean, what types of ETFs exist, how to choose them, and what legal and practical aspects to consider depending on your country.

What a beginner should know

If you’ve never invested before, the first step is to understand what an ETF is. An ETF is an investment fund that is bought and sold on the stock exchange like a stock. Inside that fund, there can be many things: company shares, bonds, commodities, even other ETFs.

Low, medium, and high risk

In investing, when we say something is “low risk”, it doesn’t mean you’ll never lose money, but that the probability of a total loss is very low. For example, an ETF that tracks the S&P 500 (the 500 largest U.S. companies) is considered relatively low risk, because it’s diversified across giant companies like Apple, Microsoft, and Johnson & Johnson. Its price may drop during a crisis, but it’s unlikely to become worthless.

On the other hand, an ETF that invests in new tech companies may be medium or high risk, because those firms are more volatile. And if we talk about ETFs focused on emerging markets or very specialized sectors (like biotech in small startups), we’re in the high-risk zone.

Do I need a broker?

Yes. An ETF cannot be bought at a regular bank (unless the bank has an associated broker). To invest, you need to open an account with a regulated broker, either local or international. In countries like Argentina, Brazil, Mexico, or Spain, many brokers offer access to U.S. or European ETFs. The same goes for Japan, Europe, and much of the Americas.

What matters most for a beginner is:

  1. Check that the broker is regulated in your country.

  2. Start with a small amount that won’t affect your personal finances.

  3. Choose simple and large ETFs (e.g., SPY, which tracks the S&P 500, or VOO from Vanguard, which does the same).

Same index, different names depending on the country

When an investor says “I want to invest in the S&P 500 or the MSCI World (URTH), confusion arises because:

  1. The index (e.g., S&P 500, MSCI World) is just a list of companies. No one can buy “the index” directly.

    • SPY (S&P 500): just the 500 largest U.S. companies. While they are global giants (Apple, Microsoft, Google, Coca Cola), they still depend on the U.S. economy and politics.
    • URTH (MSCI World ETF): includes 1,500+ companies from 23 developed countries (U.S., Europe, Japan, Australia, Canada, etc.).
    • MSCI ACWI (All Country World Index): Similar to the above, but also includes emerging markets (Brazil, India, China, etc.).
    • Regional or country ETFs: Europe ETF (e.g., VGK) with companies like Adidas, Mercedes, Shell. Japan ETF (e.g., EWJ) with Toyota, Sony, etc.

  2. The ETF is the vehicle that replicates it, and that ETF depends on where it’s registered and on which exchange it trades.

That’s why the same index can have several ETFs depending on the country or regulation.

Example 1: S&P 500

  • In the U.S. exchange: SPY, VOO, IVV (New York).
  • In Brazil: IVVB11 (on Brazil’s B3 exchange, replicating VOO).
  • In Europe: VUSA (UCITS) or CSPX (UCITS) (listed in London, Dublin, etc.).

All track the same index: S&P 500.

Example 2: MSCI World (similar to URTH)

  • U.S. URTH (iShares MSCI World ETF in the U.S.).
  • Europe IWDA (UCITS), European equivalent.
  • Brazil URTH11 (BDR on Brazil’s exchange that replicates the U.S. URTH).

All track the same index: MSCI World.

What an intermediate investor should know

If you already know the basics, you’re probably more interested in how to choose ETFs based on your goals and how they differ from one another.

Types of ETFs

  • Index ETFs: replicate an index like the S&P 500 (VOO, SPY) or the Nasdaq 100 (QQQ). They’re the most popular and recommended.
  • Sector ETFs: focus on a specific economic sector, such as technology (XLK), healthcare (XLV), or energy (XLE).
  • Dividend ETFs: group companies that regularly pay dividends (e.g., VIG, which tracks firms with a history of increasing dividends).
  • International ETFs: allow investing in Europe, Asia, or emerging markets (e.g., EEM, which tracks global emerging markets).
  • Commodity ETFs: such as GLD (gold) or USO (oil).

Intermediate strategies

An intermediate investor should start thinking about diversification. For example, not putting everything into SPY but complementing it with a sector of interest (like tech or healthcare) or with an international ETF to avoid depending solely on the U.S.

It’s also time to learn some technical concepts:

  • Blue chips: refers to very large, established companies like Apple, Microsoft, or Coca-Cola. An ETF like DIA (which tracks the Dow Jones) is full of blue chips.
  • Offshore accounts: accounts opened in another country, used by some investors to access products not available locally or for tax advantages. It’s legal if declared, but each country has its own rules.

Broker and regulations

At this level, it’s worth digging deeper:

  • Whether your local broker truly gives you direct access to original ETFs (like SPY or VOO) or only offers “CEDEARs” or local versions.
  • What taxes apply in your country: some tax income or capital gains, while others withhold dividend payments.

What an advanced investor should know

An experienced ETF investor no longer limits themselves to buy-and-hold. They start using ETFs as tactical instruments within a broader strategy.

Use of derivatives and advanced strategies

Some ETFs have options available (calls and puts).

  • Call: the right to buy an asset in the future at an agreed price.
  • Put: the right to sell it. With this, an investor can do hedging. For example, if they fear the S&P 500 will drop, they can buy puts on an ETF like SPY to protect their portfolio.

Another common strategy is the covered call, which consists of holding an ETF (e.g., QQQ in technology) while simultaneously selling calls on it. This generates extra income from option premiums in exchange for capping maximum gains if the ETF rises a lot.

Inverse and leveraged ETFs

  • Inverse ETFs: gain value when the index they track falls. Example: SH, which rises when the S&P 500 drops. But beware: they’re not meant for the long term because they lose value over time (due to the cost of maintaining the strategy).
  • Leveraged ETFs: multiply market movements (2x or 3x). Example: TQQQ, which rises three times as much as the Nasdaq 100… but also falls three times when the index drops. These are extremely high risk and only recommended for advanced traders. They’re extremely volatile and used for short-term speculation, not long-term investing.

Advanced portfolio construction

An advanced investor can use ETFs to:

  • Maintain a stable core (e.g., 60% in the S&P 500).
  • Tactically play with hot sectors (e.g., energy or artificial intelligence).
  • Hedge risks with derivatives.
  • Take advantage of short-term opportunities with inverse or leveraged ETFs.

Conclusion

In summary, ETFs are a versatile tool that adapts to each investor’s level.

  • Beginner: should research their country’s regulations, open an account with a reliable broker, start with a small amount, and choose large, diversified ETFs (like SPY or VOO).
  • Intermediate: can explore sector, dividend, or international ETFs, learn concepts like blue chips, and check taxes and local ETF versions.
  • Advanced: uses derivatives, hedging, covered calls, and in some cases, inverse or leveraged ETFs for tactical speculation.

The key is to understand that, while ETFs may seem “simple,” they hide an enormous range of possibilities. From a safe haven in a global index to sophisticated hedging strategies, ETFs allow building a strategy tailored to every investor.

It’s very important to diversify your portfolio to do it well—revisit the oracle to find out what else to invest in and how to do it right.

Glossary

Blue chips: established companies with decades of existence, billions in revenue, product diversification, consistent profits, cash reserves, and if they need financing, banks and markets lend to them because they trust their solvency.

Broker: a platform or financial intermediary that allows you to buy and sell stocks. Some brokers are international (e.g., Interactive Brokers, eToro), and others are local (depending on the country).

Call: a financial contract known as a derivative, whose value depends on a stock. It is the right to buy a stock at a certain price in the future.

Cap rate: capitalization rate, an indicator of the annual return of real estate investment.

Cash flow: monthly cash generated by the property after expenses (rent – taxes – maintenance).

Certificates of Deposit (CDs): "similar to fixed-term deposits, but usually issued by banks or financial institutions in more formal or international markets. They allow investing in local or foreign currencies. They may have fixed or variable interest options, depending on the contract.

Commodities: any basic, homogeneous, tradable product produced in large quantities and traded in global markets. They are used both for direct consumption and for industrial production.

Covered Call: investors holding stocks who sell “Call” options to generate extra income.

Covered bonds: bonds backed by specific assets, lower risk than regular corporate bonds.

ETF: an investment fund traded on the stock exchange like a stock.

Fixed-term deposits: depositing money in a bank for a set period in exchange for a fixed interest rate. At the end of the term, you recover your capital plus interest.

Futures contracts: agreements to buy or sell a certain quantity of an asset at a fixed price in the future.

Hedging: investing in stocks of other types such as precious metals or utilities to balance losses if company stocks fall.

High yield / junk bonds: small companies or those with liquidity problems, high risk, and high return.

Interest-bearing accounts: bank accounts that generate daily or monthly interest on the available balance.

Interest rate swaps: a financial contract between two parties to exchange interest payments on a notional principal. The most common swap is exchanging fixed rates for variable interest rates or futures.

Inverse ETFs: gain value when the index they track goes down.

Joint ventures: partnerships between two or more parties to develop a joint project, sharing risks, costs, and profits.

Leverage: using financing (mortgage or loan) to buy more properties than your capital would allow.

Leveraged ETFs: multiply market movements (2x or 3x), up or down.

Liquidity: in economics, liquidity is the ease with which an asset can be converted into cash without losing value.

Microcaps: very small cryptocurrencies by market cap since they are new or unknown projects. They have the potential to multiply by 100 but also the risk of disappearing overnight.

Mining (Bitcoin): using computers to validate transactions and earn rewards. Miners compete, consume electricity, and receive rewards in BTC.

Mutual Fund: a collective vehicle where multiple people contribute money that a professional manager invests in different financial assets: stocks, bonds, commodities, or a combination of them.

Net Asset Value (NAV): the price of each unit, which fluctuates according to the value of the mutual fund’s assets.

Offshore accounts: accounts opened in another country, used by some investors to access products not available locally or for tax advantages. It’s legal if declared, but each country has its own regulations.

Portfolio: the total set of financial assets (such as stocks, bonds, mutual funds, or real estate) owned by an investor or entity, aimed at achieving financial goals through diversification and risk management.

Put: a financial contract known as a derivative, whose value depends on a stock. It is the right to sell a stock at a certain price in the future.

REITs (Real Estate Investment Trusts): real estate funds that allow investing in large portfolios without directly buying property. They are traded through brokers like regular stocks, and there are even REIT ETFs.

Staking: some blockchains (Ethereum, Cardano, Solana) allow you to “stake” your coins on the network and earn interest. This generates passive income similar to a fixed-term deposit, but with more risk.

Unit share: when you contribute money to a mutual fund, you receive “units” representing your proportional participation in the portfolio.

Validation (Ethereum and other proof of stake): locking large amounts of coins to maintain the network and receive rewards.