Personal investments are a key factor that can help you achieve financial goals such as saving for retirement, funding your child's education, or buying a house. However, investing comes with risks, including the potential loss of the initial amount invested. Therefore, it's crucial to make informed decisions when investing.

To start, you need to define your financial goals. These goals will determine your investment strategy. For example, if you're saving for retirement, you should consider long-term investments that grow over time.

On the other hand, if you're saving for a down payment on a loan in the next few years, you'll likely want to stick to more liquid investments. It's also essential to understand the different types of available investments: stocks, bonds, cryptocurrencies, precious metals, and various other instruments.

However, non-professional investors—those who want to invest their excess capital wisely to reach a goal—often lack the time or energy for continuous market analysis and active investing. This is where mutual funds come into play, allowing small investors to entrust their money to a specific fund managed by a professional fund manager who invests the fund's assets into a mix of investment instruments on behalf of all the investors in the fund.

In the case of mutual funds, the fund manager typically discloses the characteristics of each fund, so individual investors can understand the fund's investment policy and risks: past performance, risk strategy, investment focus, etc. Several banks currently offer these types of funds in the local market.

Considering mutual funds' recognized limitations and drawbacks, the idea of ETF funds (Exchange-Traded Funds) emerged in the 1990s. ETFs differ from mutual funds in the following ways:

Management: ETFs are passively managed, meaning they usually track a specific market index. In contrast, mutual funds are typically actively managed by a fund manager who makes decisions about allocating the fund's resources into different investment instruments.

• Costs: Passive management results in lower fund costs. A reasonable expense ratio for an actively managed portfolio is around 0.5% to 0.75%, while anything over 1.5% is generally considered high today. The average expense ratio for passive funds is about 0.12%, significantly lower even than the cheapest actively managed funds.
• Minimum Investment: Mutual funds often have minimum investment requirements, which can be a significant barrier for small investors. On the other hand, ETFs generally have no minimum investment or only a very low one.
• Trading: ETFs are traded similarly to individual stocks, meaning they're bought and sold on the stock exchange throughout the day, fluctuating prices based on supply and demand. This allows investors to buy or sell ETF shares at any time during trading hours. Mutual funds, however, calculate their price at the end of the trading day based on the fund's Net Asset Value (NAV).
• Tax Efficiency: ETFs are structured to allow investors to choose funds that reinvest earnings, deferring capital gains taxes until the investor decides to withdraw money from the fund.

The first ETF was launched in Canada in 1990, while in the United States, the first ETF was introduced in 1993 by State Street Global Advisors and was called the Standard & Poor's Deposit Receipt (SPDR), better known as Spider. This ETF tracked the S&P 500 index and marked the beginning of a new era in investing.

After the launch of the first funds, market reactions were very positive, but overall adoption was still quite limited. By 2000, ETF trading accounted for only 1% of fund trading. Over time, regulations and practices evolved, allowing ETFs to include a broader range of instruments such as bonds (2002), commodities (2004), currencies (2005), inverse products (2006), and crypto products (2021).

This contributed to the continuous growth in ETF popularity, making them the fastest-growing product in the investment industry in terms of assets under management and product innovation.

By the end of December 2022, the total ETF assets under management (AUM) reached $6.7 trillion across the US and Europe, growing at a compound annual growth rate (CAGR) of approximately 15% since 2010. This growth is nearly three times faster than that of traditional mutual funds. ETFs' market share compared to mutual funds has risen to almost 30%, up from just 13% a decade ago.

Undoubtedly, ETFs have significantly simplified the entry into the world of investing for small investors. However, even in this space, the average investor from our region still faces many questions and uncertainties.

It's always wise to consult a professional financial advisor to help you develop a personalized investment strategy. Still, in this text, we will try to inspire you with one of the well-known investment strategies formulated by John Bogle, the founder of Vanguard Group—the world's largest mutual fund manager and the second-largest ETF provider.

This strategy is known as the "Boglehead" investment strategy, which emphasizes long-term investing with a focus on simplicity and cost-efficiency. In other words, the Boglehead strategy aims to secure your retirement or provide your children with a solid financial foundation in adulthood. This approach follows these principles:

Diversification: The strategy advocates for broad, diversified investments across various asset classes and sectors. This reduces risk by ensuring that all investments aren't exposed to the same market factors. In the context of ETFs, this means investing in funds that track broad market indices. Diversification can occur in several ways:

• By Asset Class: A diversified portfolio includes stocks, bonds, precious metals,

and/or other

• Geographically: A diversified portfolio spans multiple geographic regions or covers the entire global market.
• By Sector: A diversified portfolio isn't focused solely on one sector, like IT, but includes various industries.

Cost-Effectiveness: Bogleheads favor low-cost index funds and ETFs that track broad market indices over actively managed funds, which often come with higher fees.

Long-Term Perspective: The strategy encourages holding investments for extended periods, typically years or even decades. This approach takes advantage of compounding and reduces the impact of short-term market fluctuations.

Regular Investing: It advocates for consistently contributing to your investment portfolio—monthly or annually—regardless of market conditions.

Simplicity: The strategy recommends maintaining a simple portfolio that is easy to manage and doesn't require frequent trading or adjustments.

Tax Efficiency: The goal is to minimize taxes by holding investments in tax-advantaged accounts and selecting tax-efficient investment vehicles.

Due to its straightforward approach, the Boglehead strategy is often referred to as "lazy investing," a method that involves defining a long-term strategy upfront and sticking to it consistently with minimal changes.

In practice, this means regularly purchasing assets outlined in your personal investment plan and only selling when funds are needed for spending—commonly known as the "buy and hold forever" approach.

ETFs are one of the biggest revolutions in the world of investment instruments. However, investing is not a one-size-fits-all endeavor, and ETFs are not a "silver bullet." It's essential to consider your risk tolerance—the level of uncertainty you're willing to accept for potentially higher returns—as well as your personal financial goals.