Unit 5 · Level 3 · Stocks Deep-Dive
ETFs: the market in one ticker
An ETF (exchange-traded fund) is a basket of assets trading as a single ticker. SPY holds the S&P 500: buy one share and you own a sliver of 500 companies. Instant diversification, tiny fees, tradable like any stock. ETFs are arguably the greatest invention retail investors ever received.
Free to play. No ads, no token, no account needed to start.
What you get asked
Why does diversification via an ETF reduce risk?
Single-stock risk mostly cancels out. You keep MARKET risk (everything falls in a crash) but shed SINGLE-COMPANY risk (one CEO's scandal). That trade costs almost nothing, which is why it's the default advice.
Match the fund concept to its meaning
The dirty secret of finance: most professional stock-pickers underperform the boring index after fees, most years. The index doesn't have to beat anyone. It IS the average, minus almost nothing.
Fee math: 0.03% (index ETF) vs 1.5% (active fund) on €10,000 over 30 years at 7% growth. Roughly how much does the fee gap cost?
Fees compound against you exactly like returns compound for you. ≈€76k vs ≈€49k final value. The 1.47% gap devours ~a third of the outcome. Remember League 1: costs, repeated, are the silent opponent.
For long-term savings, the classic combo is a broad index ETF + ___ (League 2's boring superpower).
Index + DCA + decades = the strategy that quietly built more wealth than every guru combined. It's also the perfect 'core' next to a small trading account.
Why does Formiga teach trading AND praise boring index investing?
Core-and-satellite: the boring core pays for your future; the satellite account is where your edge (and education) lives. Confusing the two is how tuition gets expensive. 🐜
The rest of this unit
ETFs, sectors, dividends and earnings season, plus the League 3 graduation.